Executive Summary / Key Takeaways

• Dual-Engine Growth Strategy: TotalEnergies is executing a balanced transition strategy, leveraging robust growth in both its low-cost, low-emission Oil & Gas portfolio and its rapidly expanding Integrated Power segment, which is projected to contribute 10% of total energy production by 2025.
• Strong Financial Performance and Shareholder Returns: Despite a volatile macroeconomic backdrop, the company delivered a Q1 2025 adjusted net income of $4.2 billion and FFO of $7 billion, supported by strong production growth. It maintains a commitment to attractive shareholder returns, including a 7.6% dividend increase and a $2 billion quarterly share buyback program.
• Technological Edge in Integrated Power: TotalEnergies differentiates itself through its "Clean Firm Power" model, combining renewables with flexible assets like battery storage and gas-fired power plants, enhanced by digital and AI tools for operational efficiency and optimized energy delivery.
• Resilient Capital Allocation: The company's disciplined capital expenditure of $17 billion to $17.5 billion for 2025 prioritizes accretive growth projects and maintains a strong balance sheet, with normalized gearing targeted at 11% despite seasonal working capital fluctuations.
• Strategic Positioning Amidst Global Shifts: TotalEnergies is well-positioned to capitalize on global energy demand growth, particularly in LNG and electricity, while actively managing geopolitical risks, U.S. tariff impacts, and market volatility through its diversified and integrated portfolio.

A Century of Evolution: TotalEnergies' Integrated Energy Vision

TotalEnergies SE, founded in 1924, has undergone a profound transformation, culminating in its rebranding from TOTAL SE in June 2021. This evolution reflects a strategic pivot towards a multi-energy future, anchored by two robust pillars: a low-cost, low-emission oil and gas portfolio and a rapidly expanding integrated power business. This balanced transition strategy is designed to deliver resilient results and attractive shareholder returns amidst an increasingly volatile global energy landscape. The company's long history, including navigating challenges like the 2002 European Court of Justice ruling on the French government's golden share, underscores its adaptability and commitment to shareholder value.

The global energy market is experiencing significant shifts, with broad industry trends favoring diversified players. The surge in AI and data centers is driving unprecedented electricity demand, while Europe's energy transition narrative increasingly prioritizes security of supply, favoring reliable sources like U.S. LNG. The global LNG market is tightening due to a colder 2024-2025 winter and low storage levels, intensifying competition between Europe and Asia. India is emerging as a new engine of oil demand growth, its increase in 2024 matching China's. These dynamics create both opportunities and complexities, which TotalEnergies aims to address through its integrated approach.

Competitive Strength Through Diversification and Technological Edge

TotalEnergies operates in a highly competitive environment, vying with integrated energy majors such as Royal Dutch Shell plc (RDS.A), BP plc (BP), Chevron Corporation (CVX), and Exxon Mobil Corporation (XOM). The company's competitive positioning is defined by its strategic adaptability and strong integration across its value chains.

In the upstream oil and gas sector, TotalEnergies differentiates itself with one of the best low-cost, low-emission portfolios, boasting over 12 years of reserve life and substantial leverage through accretive growth. This contrasts with some peers who may face challenges in maintaining reserve life or managing emissions. For instance, while ExxonMobil excels in scale and cost leadership in refining, TotalEnergies' upstream efficiency, with operating costs consistently below $5 per barrel equivalent, provides a significant competitive advantage. This cost discipline is a cornerstone of its resilience, allowing it to maintain profitability even in lower price environments.

The Integrated Power segment is a key differentiator. TotalEnergies' "Clean Firm Power" model combines renewables (solar, wind) with flexible assets like gas-fired power plants and battery storage. This integrated approach allows the company to offer reliable, 24/7 power, commanding a premium over intermittent green power. This strategy directly addresses the need for grid stability, a critical lesson from events like a week without wind in Germany, which highlighted the necessity for flexible backup systems. The company's focus on acquiring flexible assets in deregulated markets like the U.S. (Texas), UK, and Germany, along with strategic acquisitions such as Kyon Energy for battery storage and VSB for renewables development, underscores its commitment to this model. By 2025, electricity production is projected to represent 10% of its oil and gas production, a significant milestone in its transition strategy.

TotalEnergies is also making strong investments in digital and AI tools, particularly for advanced process control (APC) in its plants. This technological push aims to drive efficiency and optimize operations by connecting real-time data from refineries and FPSOs to develop reverse modeling for APC. This initiative is expected to yield significant improvements in operational efficiency and cost reduction, further enhancing its competitive moat. Furthermore, the company is a leader in methane emission reduction, achieving a 55% reduction compared to 2020 levels by 2024, a year ahead of its 50% target. This is accomplished through continuous detection systems across operated assets and technologies like switching gas instrumentation to electric or replacing flare tips, setting a new target of a 60% reduction by 2025. These efforts not only align with environmental goals but also contribute to operational efficiency and a stronger brand reputation.

Financial Strength and Strategic Execution

TotalEnergies' financial performance in Q1 2025 underscores the effectiveness of its integrated strategy. The company reported an adjusted net income of $4.2 billion and cash flow from operations (FFO) of $7 billion, demonstrating robust performance despite a price environment globally similar to Q4 2024. Return on capital employed for the 12 months ending March 2025 stood at a healthy 13.2%.

The Exploration & Production segment was a significant contributor, with Q1 2025 production reaching 2.56 million barrels of oil equivalent per day, exceeding the high end of guidance and representing nearly 4% year-on-year growth. This growth was fueled by continued ramp-ups of projects in Brazil, the U.S., Malaysia, Argentina, and Denmark. The segment's adjusted net operating income was $2.5 billion, with cash flow of $4.3 billion, benefiting from accretive new low-cost and low-emission production. The company reiterates its full-year 2025 production growth guidance of more than 3% compared to 2024, with new projects like Ballymore offshore field in the U.S. and Mero-4 in Brazil expected to add high-margin barrels in Q2 and Q3 2025, respectively. Brazil is poised to become the number one country in TotalEnergies' portfolio for cash flow from operations in 2025, with an average margin of approximately $35 per barrel at $70 oil.

The Integrated LNG segment, while facing an unexpected downturn in European gas markets due to Russia-Ukraine conflict uncertainties, achieved adjusted net operating income of $1.3 billion in Q1 2025, up 6% year-on-year. LNG sales remained stable at 10.6 million tonnes, with an average LNG price of $10 per MMBtu. The company anticipates its average LNG selling price to be between $9 and $9.5 per MMBtu in Q2 2025. TotalEnergies aims for an Integrated LNG cash flow target of $5.5 billion to $6 billion for 2025, driven by higher absolute prices and improved trading performance. This is supported by its strategy to convert Henry Hub-linked gas into Brent-linked sales, actively acquiring more U.S. gas production to mitigate price risks.

Integrated Power delivered adjusted net operating income of $500 million and cash flow of $600 million in Q1 2025, in line with annual guidance. The segment's ROACE temporarily dipped to 9% due to the timing of farm-downs, which are expected to contribute positively later in the year. TotalEnergies signed a premium power contract with SLB electronics for 1.5 terawatt-hours over 15 years in Q1 2025, showcasing its ability to secure long-term demand for its "Clean Firm Power" offerings.

The Downstream segment, encompassing Refining & Chemicals and Marketing & Services, posted adjusted net operating income of $0.5 billion and cash flow of $1.1 billion in Q1 2025. This segment was impacted by weak refined margins, declining petrochemicals and biofuel margins in Europe, and operational issues at certain refineries, which collectively reduced cash flow by approximately $350 million. Despite these challenges, the global refining utilization rate increased to 87% in Q1 2025 from 82% in Q4 2024. The company targets $7 billion in downstream cash flow for 2025, an improvement from $6.1 billion in 2024, by resolving operational issues and maintaining strong performance in its resilient marketing and trading activities.

Capital Discipline and Shareholder Returns

TotalEnergies maintains a robust balance sheet, confident in achieving its 2025 growth objectives and controlling gearing. Net investment totaled $4.9 billion in Q1 2025, with the full-year 2025 guidance reiterated at $17 billion to $17.5 billion. This capital allocation prioritizes accretive growth projects, with a strategic reduction from a previously indicated $18 billion, achieved by streamlining smaller projects and optimizing investments in low-carbon molecules. The company has identified an additional $1 billion in CapEx flexibility, which would only be activated if oil prices dropped below $50-$60 per barrel.

Shareholder returns are a core tenet of TotalEnergies' strategy. The Board confirmed a first interim dividend of €0.85 per share, a 7.6% increase over 2024, and announced share buybacks of up to €2 billion for Q2 2025, extending a streak of 12 consecutive quarters of similar buybacks. The company is committed to a payout ratio of "more than 40% of cash flow from operations full cycles". While gearing stood at 14.3% in Q1 2025, this was influenced by a $4.4 billion seasonal working capital build, with a normalized gearing of 11%. Management is comfortable with a gearing range of 12-14% at $70-$65 oil prices, viewing buybacks as a "good investment" when shares are "cheap".

Outlook and Risk Considerations

TotalEnergies' outlook for 2025 anticipates continued growth in energy production, with a conservative oil price assumption of $70 per barrel and expectations of "more volatility" and "higher prices" in the gas market. The company's diversified portfolio and integrated business model are designed to weather these fluctuations.

However, several risks warrant investor attention. Geopolitical and macroeconomic uncertainties, particularly the Russia-Ukraine conflict and new U.S. tariff policies, could impact oil demand, market volatility, and project costs. U.S. tariffs on imported solar panels and batteries could affect the profitability of renewable projects, as evidenced by the postponement of a 600-megawatt project due to reduced returns. The potential for special taxes on non-U.S.-built LNG vessels could also pose a challenge for LNG exports. Furthermore, the stability of power grids with increasing renewable penetration necessitates significant investment in grid adaptation and flexible assets. Projects in politically sensitive regions, such as Mozambique and Argentina, carry inherent risks related to security, financing, and foreign exchange policies. The biofuels market remains susceptible to policy changes and oversupply, impacting margins.

Conclusion

TotalEnergies stands as a compelling investment proposition, demonstrating robust financial performance and strategic foresight in a dynamic global energy landscape. Its balanced transition strategy, anchored by a resilient oil and gas business and a rapidly expanding Integrated Power segment, positions the company for sustained growth and attractive shareholder returns. The commitment to a low-cost operating model, disciplined capital allocation, and a strong balance sheet provides a solid foundation.

The company's technological differentiators, particularly its "Clean Firm Power" model and advancements in digital and AI for operational efficiency, are critical to its competitive edge and ability to deliver value in the evolving energy mix. While geopolitical uncertainties and market volatilities present ongoing challenges, TotalEnergies' integrated approach and proactive risk management, coupled with its consistent shareholder return policy, underscore its long-term investment appeal. The company's trajectory towards becoming a leading multi-energy major, with a significant and growing contribution from low-carbon electricity, reinforces its position as a key player in the global energy transition.