TotalEnergies flags $1B upstream gain as Iran war impact eases

TotalEnergies SE expects second-quarter profit to surge as the Iran war-driven oil price rally outweighs a smaller-than-feared production hit, with upstream earnings rising about $1 billion from the first quarter.

The French oil major said hydrocarbon production reached nearly 2.4 million barrels of oil equivalent per day in the three months through June, while the estimated output loss from the conflict narrowed to 210,000 boed from 360,000 boed flagged in the first quarter after production resumed in several Middle Eastern countries and increased in the United Arab Emirates.

"The recovery in Middle East production reflects improving security conditions and our ability to restart operations in certain fields," the company said in an earnings snapshot published Thursday. "However, a significant share of the increased output could not be exported because of ongoing disruption in the Strait of Hormuz."

Global benchmark Brent crude averaged about $97 per barrel during the April-to-June period, up 45% from $67 a year earlier, after the U.S.-Israeli war on Iran led to Tehran effectively shutting the Strait of Hormuz and disrupting global supplies. The price rally delivered a windfall for major energy companies, with Shell Plc and BP Plc both flagging strong trading profits in recent weeks.

TotalEnergies shares fell 1.7% to €69.44 in Paris trading, compared with a 0.4% decline in the broader European energy sector.

LNG Weakness Offsets Some Gains

The earnings uplift was not uniform across all divisions. Liquefied natural gas earnings will be sharply lower because of what the company called "an underperformance in gas trading amid a broadly flat to declining European market." European gas demand has softened as industrial activity slows and storage levels remain elevated, weighing on trading margins that had been a key profit driver in prior quarters.

The LNG weakness stands in contrast to the broader trend. The last time Brent crude averaged above $95 for a full quarter was in the third quarter of 2022, when the Russia-Ukraine war pushed energy prices to historic highs. In that period, TotalEnergies reported record quarterly net income of $9.9 billion. While current prices are lower than the 2022 peaks, the company's ability to restore production faster than initially expected suggests the financial hit from the Iran conflict may be more contained than markets had priced.

Downstream and Power Provide Additional Lift

In downstream operations, higher refining margins and strong oil trading are expected to drive a sharp increase in earnings from the first quarter, when TotalEnergies already reported outsized war-related trading profits. The company's integrated power division also showed a strong increase in cash flow following the April closing of its transaction with EPH to acquire a large portfolio of operational gas-fired power plants across Europe.

The improved outlook across most segments underscores how the Iran war has created both winners and losers in global energy markets. While the conflict disrupted supply routes and pushed prices higher, it also enabled producers with diversified Middle East operations to capture windfall trading and refining profits that partially offset the production losses.

TotalEnergies is scheduled to report full second-quarter results on July 23.

This article is for informational purposes only and does not constitute investment advice.