Middle East conflicts spark oil prices! Refining and trading businesses help TotalEnergies (TTE.US) Q2 net profit soar by 68%

According to Zhitong Finance APP, French energy giant Total (TTE.US) reported that due to the Middle East war driving up crude oil and refined product prices—which offset the decline in profits from its natural gas business—the company's second-quarter profits saw significant growth. In a statement released Thursday, Total stated that its adjusted net profit in the second quarter increased by 68% year-on-year, reaching $6.03 billion. This performance was largely in line with analysts’ expectations. After Total warned last week that trading performance in its integrated gas business fell significantly below expectations, the market had already adjusted downward its profit forecasts for the company.

Shipping disruptions in the Strait of Hormuz and the ongoing conflict between Russia and Ukraine are tightening fuel supplies, leading to a sharp rise in refining margins and boosting the profits of global energy giants. Furthermore, like its peers including Shell (SHEL.US) and BP (BP.US), Total has a large-scale energy trading division, which helps the company maintain operations and capitalize on opportunities amid significant market volatility.

Total CEO Patrick Pouyanné stated in the release, “In an environment where Middle East conflicts are keeping energy prices at high levels, Total is leveraging its integrated business model and diversified asset portfolio.”

In terms of upstream operations, the company’s oil and gas production grew by more than 4% year-on-year, reaching 2.395 million barrels of oil equivalent per day. New projects coming online in Brazil, the United States, and Libya offset the supply disruptions caused by conflicts in the Middle East. Meanwhile, refining, chemicals, and energy trading businesses also fueled strong growth in cash flow and operating profit. Data shows that the company’s operating cash flow increased by 14% quarter-on-quarter in the second quarter, reaching $9.8 billion.

The company continues to advance strategic projects in liquefied natural gas (LNG), flexible power, and renewable energy, including the launch of Mexico's ECA LNG project, new long-term LNG supply contracts in Asia, Kazakhstan's Mirrny wind power project, and a solar investment project in the Philippines.

Total will pay a second-quarter interim dividend of €0.90 (about $1.03) per share, a 5.9% increase year-on-year. The company also plans to buy back up to $1.5 billion in shares in the third quarter, maintaining the scale of repurchases from the previous three quarters. In February this year, Total said that if oil prices remained at $60 to $70 per barrel, the company planned to repurchase $3 billion to $6 billion in shares this year.

Although crude oil prices have since risen above this level, the company reiterated that it would prioritize using additional profits to reduce company debt. By the end of the second quarter, Total’s net debt-to-equity ratio excluding lease liabilities (i.e., net debt to shareholders’ equity) fell to 13.1%, down from 15.5% at the end of March.