Initial Memo: TotalEnergies (TTE) 38% 5-Year Potential Upside (Claire CONTRI, VIP SEA)

Claire recommends buying to maximise gains with its compelling business model and its ability to effectively capitalize on emerging renewables, engage in growth-focused strategic acquisitions.

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Executive Summary

The following investment memo outlines an opportunity in TotalEnergies, a leading company focusing on energy, renewables, oil, and gas. This executive summary aims to give an overview of the investment opportunity and present the key factors that make it compelling.

In 2022, the global energy and renewables market was valued at USD 2.018 Billion in 2022. It is estimated to reach USD 4.286 Billion by 2031, growing at a CAGR of 8.73% from 2023 to 2031. On the other hand, the oil and gas market was valued at USD 6.989 Billion in 2022. It is expected to grow to USD 8.670 Billion in 2027 at a CAGR of 4.3% from 2023 to 2027. Hence, both sectors are experiencing rapid expansion, driven by the proliferation of emerging clean technologies and increasing concerns over environmental depletion due to energy and oil production.

Within the energy, renewables, oil, and gas market, TotalEnergies is a leading integrated global multi-energy company providing services from oil drilling to manufacturing. The company mainly focuses on drilling, transporting, refining, and manufacturing petroleum products, specialty chemicals, and renewable gases. The company generates revenue mainly from its large customer base and diversified technology and products. Furthermore, its utmost commitment to sustainability in terms of its environmental, social, and governance aspects enables the company to progress further, as evidenced by its high ESG rankings. With such a robust core business model and vision, TotalEnergies has established a solid foundation for future growth and success.

TotalEnergies has a market capitalization of $145.57 billion, a net debt to EBITDA ratio of 0.30, and relative PE and TEV/EBIT ratios of 7.67x and 3.43x, respectively. This financial performance indicates the company’s potential for sustainable growth and value creation.

TotalEnergies’ unique value proposition lies in its ability to capitalize on emerging clean technologies, consider growth-focused acquisitions, and streamline its core operations. This investment presents an opportunity to support a company's growth with strong market potential.

While this investment opportunity is promising, it is essential to acknowledge the associated risks. These may include environmental, political, and operational risks. It is essential to carefully evaluate these risks and consider mitigating strategies to protect the investment.

In conclusion, it is recommended that we proceed with the investment in TotalEnergies. The investment offers substantial growth potential in a thriving market, supported by strong financial projections. Furthermore, the company’s commitment to ESG principles aligns with the investor's values and reduces potential risks.

Company Overview

TotalEnergies SE (TotalEnergies), formerly Total SE, is an integrated global multi-energy company part of the of the seven supermajor oil companies with ExxonMobil, ConocoPhilipps, BP, Shell, Chevron, and Eni. The company carries out drilling, oil and gas production, processing, transportation, refining and petrochemical production, storage, and distribution of petroleum products and specialty chemicals. It also trades power generation and gas and operates in the renewable energy sector. TotalEnergies supplies feedstock to chemical plants, charters ships, and trades on various derivative markets. The company serves consumers in the transportation, automotive, aerospace, energy, housing and manufacturing industries. It operates in Asia-Pacific, Africa, Europe, the Middle East, and North and South America. The company is a component of the Euro Stoxx 50 stock market index. In the 2023 Forbes Global 2000, TotalEnergies was ranked as the 21st largest public company in the world. Created in 1924, TotalEnergies is headquartered in Courbevoie, Ile de France, France.

2.1 Company History

2.1.1 1924–1985: Compagnie française des pétroles

The company was founded after World War I when petrol was seen as vital in case of a new war with Germany. The then-French President Raymond Poincaré rejected the idea of forming a partnership with Royal Dutch Shell in favor of creating an entirely French oil company. At Poincaré's behest, Col. Ernest Mercier, with the support of 90 banks and companies, founded Total in 1924 as the Compagnie française des pétroles (CFP), in English, the “French Petroleum Company”.

As per the agreement reached during the San Remo conference of 1920, the French state received the 25% share held by Deutsche Bank in the Turkish Petroleum Company (TPC) as compensation for war damages caused by Germany during World War I. The French government's stake in TPC was transferred to CFP, and the Red Line agreement in 1928 rearranged the shareholding of CFP in TPC (later renamed the Iraq Petroleum Company in 1929) to 23.75%. The company from the start was regarded as a private sector company given its listing on the Paris Stock Exchange in 1929.

During the 1930s, the company was engaged in exploration and production, primarily from the Middle East. Its first refinery began operating in Normandy in 1933. After World War II, CFP engaged in oil exploration in Venezuela, Canada, and Africa while pursuing energy sources within France. Exploration in Algeria, then a French colony, began in 1946, with Algeria becoming a leading source of oil in the 1950s.

In 1954, CFP introduced its downstream product – Total brand of gasoline in Africa and Europe.

Total entered the United States in 1971 by acquiring Leonard Petroleum of Alma, Michigan, and several Standard Oil of Indiana stations in Metro Detroit.

In 1980, Total Petroleum (North America) Ltd., a company controlled 50% by CFP, bought the American refining and marketing assets of Vickers Petroleum as part of a sell-off of its energy holdings by Esmark. This purchase gave Total refining capacity, transportation, and a network of 350 service stations in 20 states.

2.1.2 1985–2003: Total CFP and rebranding to Total

Total's leadership had been aware of the harmful effects of global warming since at least 1971. Nevertheless, the company openly denied the findings of climate science until the 1990s. Total also pursued a number of strategies to cover up the threat and contribute to the climate crisis.

The company renamed itself Total CFP in 1985 to build on the popularity of its gasoline brand. Later, in 1991, the name was changed to Total when it became a public company listed on the New York Stock Exchange. In 1991, the French government held more than 30 percent of the company's stock, but by 1996, it had reduced its stake to less than 1 percent. Between 1990 and 1994, foreign ownership of the firm increased from 23 percent to 44 percent.

Meanwhile, Total continued to expand its retail presence in North America under several brand names. In 1989, Denver, Colorado–based Total Petroleum, Total CFP's North American unit, purchased 125 Road Runner retail locations from Texarkana, Texas–based Truman Arnold Companies. By 1993, Total Petroleum operated 2,600 retail stores under the Vickers, Apco, Road Runner, and Total brands. That year, the company began remodeling and rebranding all of its North American gasoline and convenience stores to use the Total name. Four years later, Total sold its North American refining and retail operations to Ultramar Diamond Shamrock for $400 million in stock and $414 million in assumed debt.

After Total's takeover of Petrofina of Belgium in 1999, it became known as Total Fina. Afterwards, it also acquired Elf Aquitaine. First named TotalFinaElf after the merger in 2000, its name reverted to Total in 2003. During that rebranding, the globe logo was unveiled.

2.1.3 2021–present: Rebranding to TotalEnergies

In 2021, the company announced a name change to TotalEnergies as an intended illustration of its investments in the production of green electricity. At the Ordinary and Extraordinary Shareholders’ Meeting in May of that year, shareholders approved the name change to TotalEnergies.

Business Segments

TotalEnergies SE explores and produces fuels, natural gas, and low-carbon electricity. It operates through the following business segments: Exploration and Production; Integrated Gas, Renewables, and Power; Refining and Chemicals; and Marketing and Services.

• The Integrated Gas, Renewables, and Power segment comprises integrated gas, including Natural gas and liquefied natural gas (LNG), and low carbon electricity businesses, including upstream and midstream LNG activity.

• The Exploration and Production segment encompasses oil and natural gas exploration and production activities. Starting September 2021, it notably includes the carbon sink activity (carbon storage and nature-based solutions) previously reported in the Integrated Gas, Renewables, and Power segment.

• The Refining and Chemicals segment constitutes a central industrial hub comprising the activities of refining, petrochemicals, and specialty chemicals. This segment also includes the activities of oil supply, trading, and marine shipping.

• The Marketing and Services segment includes the global supply and marketing of petroleum products. In addition, the corporate segment includes holdings, operating, and financial activities.

Figure 1

As we can see on the left graph, the Refining and Chemicals segment makes the most out of TotalEnergies' total revenues (45.9%). It is followed closely by the Marketing and Services segment (31.8%), the Integrated Gas, Renewables, and Power segment (18.5%), and finally, the Exploration and Production segment (3.8%).

Figure 2

Moreover, regarding geographic distribution, we can also see that TotalEnergies’ revenues are mostly drawn from Europe (60.7%), the Americas (13.5%), the Asia-Pacific region (11.3%) and last but not least Africa and the Middle East (10.8%).

Now, let’s dive more deeply into each segment of TotalEnergies.

3.1 The Integrated Gas, Renewables, and Power Segment

TotalEnergies’ strategy aims to transform itself into a multi-energy company by profitably growing its portfolio of liquefied natural gas (LNG) and its production of electricity, the two fastest growing energy markets, as well as expanding in decarbonized gas (biogas and hydrogen). The Integrated Gas, Renewables & Power (iGRP) segment is driving TotalEnergies’ ambition in the integrated activities of Liquefied Natural Gas and renewable gases (Integrated LNG) as well as in the integrated electricity chains (Integrated Power). Executing a profitable growth strategy in these promising businesses is helping to achieve TotalEnergies’ ambition to reach carbon neutrality (net zero emissions) by 2050 together with society. The energy transition requires, on the one hand, the electrification of uses through the development of low-carbon electricity production, and on the other hand, a move towards natural gas and low-carbon gases for thermal uses that cannot switch to electricity (long-distance transport).

Thus, to provide more affordable, cleaner, and accessible energy to most people, TotalEnergies is implementing an integrated strategy of profitable growth in the liquefied natural gas and electricity segments. Between 2021 and 2030, TotalEnergies' energy production (excluding Russia), is expected to increase by 4%/y from ~14 to ~20 PJ/d. Half of that growth should come from electricity, primarily from renewable sources, and the other half from LNG. Moreover, the impact of the invasion of Ukraine by Russia on energy markets highlighted Europe's structural dependence on Russian gas pipeline imports. The need to replace all or part of Russian gas has created strong demand for LNG in Europe (+48 Mt in 2022), in a context of limited global LNG supply (+21 Mt) and has generated strong pressures on gas and electricity prices. Thus, both the energy transition made necessary by climate change and the short-term imperatives resulting from the invasion of Ukraine by Russia comfort TotalEnergies' strategy in the areas of LNG and low-carbon energies.

3.2 The Exploration and Production Segment

The Exploration and Production (EP) segment encompasses the oil and natural gas exploration and production activities (excluding LNG) in about 50 countries and the Carbon Neutrality activities affiliated with the EP segment since September 2021.

The average daily production of liquids and natural gas was 2,765 kboe/d in 2022, compared to 2,819 kboe in 2021 and 2,871 kboe/d in 2020. Gas and associated products (condensates and natural gas liquids) represented approximately 53% of TotalEnergies’ overall hydrocarbon production in 2022, compared to 55% in 2021 and 55% in 2020. Crude oil and bitumen represented 47% in 2022, compared to 45% in 2021 and 2020.

3.3 The Refining and Chemicals Segment

Refining and Chemicals activities include refining, base petrochemicals (olefins and aromatics); polymer derivatives (polyethylene, polypropylene, polystyrene, and hydrocarbon resins), including biopolymers and recycled polymers obtained from chemical or mechanical recycling, as well as the production of biofuels from the transformation of biomass and, since January 1, 2022, the production of specialty fluids, previously reported in the Marketing and Services segment. The Refining & Chemicals activities also include the processing of elastomers by Hutchinson.

TotalEnergies holds stakes in 16 refineries located in Europe, the United States, the Middle East, Asia, and Africa, eight of which are operated by TotalEnergies companies including two biorefineries in France (La Mède, and Grandpuits, which is in the process of being converted). As of December 31, 2022, TotalEnergies’ refining capacity was 1,792 kb/d, compared to 1,793 kb/d at year-end 2021 and 1,967 kb/d at year-end 2020. The refining capacity of the Refining & Chemicals segment totaled 1,785 kb/d at year-end 2022 (or 99% of TotalEnergies’ total capacity). TotalEnergies' petrochemical operations are in Europe, the United States, Qatar, South Korea, and Saudi Arabia. Being either adjacent to or connected by pipelines to TotalEnergies refineries, the vast majority of the petrochemical operations are integrated with its refining operations, thereby maximizing synergies. As of December 31, 2022, TotalEnergies' global petrochemical capacity (olefins, aromatics, and polymers) was 21,885 kt, compared with 21,381 kt at year-end 2021 and 21,299 kt at year-end 2020. This capacity increase in 2022 is mainly due to the start-up of the ethane cracker in Port Arthur (USA).

3.4 The Marketing and Services Segment

Marketing and services include the global supply and marketing activities of oil products and services, low-carbon fuels, and new energies for mobility. It contributes to the transformation of TotalEnergies and proactively supports its customers in their transition towards more sustainable energies and mobility. With a direct presence in close to 110 countries, Marketing & Services (M&S) caters to customers with various energy, mobility, and associated services needs. M&S also caters to a wide range of professional customers in terms of size and industry (transport, manufacturing, agriculture, etc.), and individual customers, through its retail network of over 14,600 service stations and 42,000 public and private electric charging points.

M&S has historically formulated and marketed various ranges of petroleum fuels and lubricants. In addition, M&S develops an increasing number of associated services, both made available within its service stations network (catering, washing, shops, etc.) and to industrial customers. It also offers its clients new energy and mobility services such as biofuels, electric charging, LNG for ships, natural gas, biogas, or hydrogen for other transport modes. TotalEnergies has a strong presence in Western Europe (Benelux, France, Germany) and in Africa, where M&S is among the leaders in petroleum product distribution (regarding the number of service stations).

Industry Overview

4.1 Market Size

In 2022, the global energy and renewables market was valued at USD 2.018 Billion in 2022. It is estimated to reach USD 4.286 Billion by 2031, growing at a CAGR of 8.73% from 2023 to 2031. On the other hand, the oil and gas market was valued at USD 6.989 Billion in 2022. It is expected to grow to USD 8.670 Billion in 2027 at a CAGR of 4.3% from 2023 to 2027. Hence, both sectors are experiencing rapid expansion, driven by the proliferation of emerging clean technologies and increasing concerns over environmental depletion due to energy and oil production.

4.2 Growth Drivers

The growth drivers of the energy, renewables, oil, and gas market will primarily be due to the following growth drivers: energy transition, critical minerals, and technology adoption.

4.2.1 The Energy Transition

Oil and gas companies are increasingly exploring clean energy avenues. However, their direct spending on low-carbon fuels and technologies, excluding investments to boost productivity and reduce emissions from operated assets, constitutes only 4% of their upstream capex. The global upstream industry is expected to generate US$2.5 trillion to US$4.6 trillion in free cash flows from its hydrocarbons business between 2023 and 2030, so lack of capital is not an issue. Instead, the central challenge is scaling innovation while maintaining profitability and shareholder value.

In Deloitte’s survey of Oil and gas executives in July 2023, 60% of respondents stated that they would invest in low-carbon projects if their returns exceeded 12% to 15% (figure 2). In 2022, returns on major renewable electricity projects ranged between 6% and 8%. Thus, the Oil and Gas industry would likely focus its 2024 spending on:

• Initiatives aimed at improving operational efficiency and reducing emissions, with more than one-third of surveyed O&G executives citing operational efficiency and direct emissions (scope 1 and 2) reductions as pivotal metrics for assessing energy transition progress and

• Low-carbon fuels adjacent to their core or complements their primary operations, with around 37% to 44% of surveyed O&G executives citing natural gas, carbon capture and storage (CCS), biofuels, and hydrogen as critical to their low-carbon investment strategies.

Figure 3

Moreover, since 2021, many new clean energy policies have been adopted or proposed worldwide, including the Infrastructure Investment and Jobs Act and the Inflation Reduction Act in the United States, the proposed European REPowerEU Plan, and the proposed Net-Zero Industry Act in the European Union. Similarly, renewable energy targets in Asia-Pacific and significant renewable energy auctions in South America seek to spur the adoption of clean energy. However, the effective execution of these policies or the progression of these proposals remains important for attracting capital and reducing investment risks.

Therefore, the oil and gas industry’s disciplined, high-return capex strategy may initially yield gradual shifts. But if policies are swiftly implemented and consumers rapidly adopt practices that bolster the scalability and commercial viability of low-carbon solutions, it could fundamentally reshape the medium- to long-term capital allocation strategies of O&G companies.

4.2.2 Critical Minerals

Global clean energy investments crossed the US$1 trillion milestone in 2022, propelled by favorable policies and open trade of energy resources and critical minerals. This growth in renewable energy is driving a surge in demand for critical minerals, with lithium demand tripling between 2017 and 2022 and cobalt and nickel demand increasing by 70% and 40%, respectively, during the same period. However, as investments in renewables pick up pace, especially against the backdrop of a shifting geopolitical landscape, they heighten the reliance on these minerals and underscore the urgency to strengthen their ownership and supply chains. This imperative may be particularly notable for nations with ambitious clean energy targets and substantial import dependence.

4.2.3 Technology Adoption

The oil and gas industry has often been at the forefront of adopting cutting-edge technologies to bolster operational efficiency, curtail costs, and advance safety and sustainability measures. In recent years, artificial intelligence (AI) has emerged as a transformative force for the industry, with applications across the oil and gas value chain, from initial resource exploration to the intricacies of refining processes. Among applications, AI-driven predictive maintenance is instrumental in achieving many objectives, including cost reduction, heightened productivity, and the assurance of operational reliability for the industry.37 The industry now stands at the threshold of a new AI frontier—generative AI.

4.3 Competitor Analysis

The competitor analysis enables a more comprehensive understanding of TotalEnergies’ competitiveness and the overall positioning of other companies. The following is a comparison of TotalEnergies’ key competitors and selected ratios.

Figure 4

4.3.1 Market Capitalization

Compared to its competitors (Saudi Arabian Oil, Exxon Mobil, Chevron, Shell, and PetroChina H), TotalEnergies has a lower market capitalization of 145 billion euros, which ranks it sixth out of 11 companies. However, its market capitalization is still higher than that of its competitors: BP, Petroleo Bras Pfd, Equinor, China Petroleum Chemical H, and Eni. TotalEnergies will likely offer higher growth potential due to its strategic business decisions and transition to renewable energies, which is not the case for its competitors. Hence, TotalEnergies has more room for expansion, innovation, and market share gains, which can attract investors seeking growth opportunities.

4.3.2 Net Debt/EBITDA

TotalEnergies has a net debt/EBITDA of 0.7, implying that TotalEnergies can cover its debt obligations within a few years. This reduces net debt as the primary cause of concern for investors. Indeed, since the net debt to EBITDA ratio measures a company’s net debt relative to its EBITDA, a lower ratio implies less credit risk. In contrast, a higher net debt to EBITDA ratio signifies that the borrower might be at risk of default, e.g., unable to meet periodic interest payments or mandatory principal repayments on time.

4.3.3 P/E and EV/EBITDA Ratio

Compared to its competitors, TotalEnergies has one of the lowest P/E ratios at 6.7x. It also has a lower P/E ratio than the industry average (11.78x). This may suggest that the company’s stock is relatively less expensive than its earnings. However, the company’s P/E is still ranked seventh among its 11 competitors. Furthermore, at 3.3x, its EV/EBITDA ratio is also lower than its competitors, ranking sixth out of 11 companies and industry average (5.73x). Both ratios indicate that TotalEnergies’ stock may be undervalued, and the company may be relatively more valued than its peers.

Investment Thesis

5.1 Capitalizing on the Energy Transition

In the years to come, the need for energy transition has become even more urgent.

Compounding crises underscore the pressing need to accelerate the global energy transition. Events of recent years have accentuated the cost to the global economy of a centralized energy system highly dependent on fossil fuels. Oil and gas prices are soaring to new highs, with the crisis in Ukraine bringing new levels of concern and uncertainty. The COVID-19 pandemic continues to hamper recovery efforts, while citizens worldwide worry about the affordability of their energy bills. At the same time, the impacts of human-caused climate change are increasingly evident around the globe. The Intergovernmental Panel on Climate Change (IPCC) warns that between 3.3 and 3.6 billion people already live in settings highly vulnerable to climate change.

The International Renewable Energy Agency (IRENA) proposed 1.5°C pathway positions with electrification and efficiency as key drivers of the energy transition, enabled by renewables, hydrogen, and sustainable biomass. This pathway, which requires a massive change in how societies produce and consume energy, would cut nearly 37 gigatons of annual CO2 emissions by 2050. These reductions can be achieved through 1) significant increases in generation and direct uses of renewables-based electricity; 2) substantial improvements in energy efficiency; 3) the electrification of end-use sectors (e.g., electric vehicles and heat pumps); 4) clean hydrogen and its derivatives; 5) bioenergy coupled with carbon capture and storage; and 6) last-mile use of carbon capture and storage.

Figure 5

Today, renewables-based electricity is now the cheapest power option in most regions. The global weighted average cost of electricity from newly commissioned utility-scale solar photovoltaic (PV) projects fell by 85% between 2010 and 2020. The corresponding cost reductions for concentrated solar power (CSP) were 68%; onshore wind, 56%; and offshore wind, 48%. As a result, renewables are already the default option for capacity additions in the power sector in almost all countries, and they dominate current investments. Solar and wind technologies have consolidated their dominance over time and, with the recent increase in fossil fuel prices, the economic outlook for renewable power is undeniably good.

Therefore, as mentioned previously, TotalEnergies is dedicated to bringing vast and reliable renewable energies to the world. For example, the company aims to reach 100GW of gross production capacity of renewable energy by 2030 to be among the world's top five in renewable energies. Moreover, TotalEnergies has a portfolio of controllable power generation from gas-fired power stations (CCGT). Eventually, this capacity will be decarbonized, either through its supply (biomethane or low-carbon hydrogen) or through the sequestration of its emissions. In terms of storage, TotalEnergies is relying on the expertise of Saft, which is also taking advantage of this fast-growing market. The company aims to deploy 5 GW of storage capacity worldwide by 2030. Indeed, by 2030, the company aims to supply almost 10 million customers and sell 130 TWh. TotalEnergies is also targeting 150,000 recharging points for electric vehicles. TotalEnergies offers long-term purchase contracts for its industrial customers from its solar and wind farms and distributed solar generation solutions.

Similarly, TotalEnergies has been multiplying its renewable energy projects over the years. For instance, following a first Renewable Power Purchase Agreement (CPPA) signed at the end of 2022, TotalEnergies has signed a second CPPA with LyondellBasell, a world leader in petrochemicals, to supply a total of 275 MWac (358 MW) of green electricity from the Cottonwood Bayou and Brazoria Solar farms in Texas. This means that under a new 15-year CPPA, TotalEnergies will supply 125 MWac (163 MW) from its 325 MW Brazoria solar power plant southwest of Houston, scheduled for commissioning by the end of 2025. And under the CPPA signed in 2022, the Group will also supply 150 MWac (195 MW) to LyondellBasell from its Cottonwood Bayou solar power plant (455 MW capacity), located south of Houston, scheduled for commissioning by the end of 2024. These CPPAs are indexed to market prices via an "upside sharing" mechanism, under which the companies will share any potential upside linked to rising market prices over the contract's life. They follow other CPPAs signed by TotalEnergies with Amazon and Saint-Gobain in the United States, demonstrating the Group's ability to supply competitive renewable electricity to support the decarbonization of leading players in their sectors. For LyonellBasell, these contracts will play an important role in reducing its scopes 1 and 2 greenhouse gas emissions. As for TotalEnergies, they are in line with its market exposure strategy and contribute to the objective of profitable growth for its Integrated Power business. Therefore, these contracts reinforce the global leadership of TotalEnergies, which is already the world's number one player in solar energy, both in terms of operational capacity (13 GW) and development (>25 GW), in addition to being in the Top 5 for hydrocarbons.

5.2 Growth-Focused Strategic Acquisitions

TotalEnergies has a strong history of acquiring and integrating companies to improve its core business offerings. The acquisitions have helped it both deepen and widen its capabilities and expertise, allowing the company to grow and improve its competitive advantage. Indeed, TotalEnergies announced a series of acquisitions of startups aimed at accelerating the development of its electricity business and supporting its ambition to achieve net zero by 2050.

Each company participated in TotalEnergies’ On accelerator program, which is aimed at supporting the development of new companies in the electricity and renewable energy sector and targeting companies that offer solutions across the electricity value chain, focusing on digital solutions. The acquisitions include energy portfolio management SaaS platform Dsflow, a renewable project optimization software platform that provides NASH Renewables, and AI-driven predictive analytics company Predictive Layer. According to TotalEnergies, Dsflow will provide the company’s multi-site, electricity-intensive B2B customers with a real-time platform to pilot their assets and optimize their procurement strategy. At the same time, NASH Renewables is expected to enable TotalEnergies to improve profitability by factoring in the impact of the projects’ geographical specificities on the captured market prices. Moreover, the Predictive Layer will allow the company to enhance the performance of its trading operations by internalizing the startup’s machine learning and artificial intelligence solutions focused on energy price forecasting and other tailor-made forecast modeling of demand, supply, production, or non-commodity trading. Lastly, TotalEnergies is acquiring a majority stake in startup Time2plug, aimed at facilitating and accelerating the deployment of EV charging points in France for its small B2B customers. Time2plug offers a marketplace where customers can obtain instant quotes and tap into a certified in-house installer network.

Since its launch in May 2022, TotalEnergies On has supported 19 start-ups during two six-month sessions, and the program is currently welcoming its third cohort, composed of ten participants, each working on digital solutions relating to electricity ranging from renewable production and storage to distributed electricity management, trading, retail, and electric mobility.

5.3 Big Oil Doubles Profits and Lowers Debt

Big Oil more than doubled its profits in 2022 to $219 billion, smashing previous records in a year of volatile energy prices where Russia's invasion of Ukraine reshaped global energy markets and, in some cases, the industry's climate ambitions. The profit surge gave oil companies scope to increase spending on oil and gas projects and a chance for some to rethink energy transition strategies to meet new demands for supply security. Indeed, the combined $219 billion in profits allowed BP (BP.L), Chevron (CVX.N), Equinor (EQNR.OL), Exxon Mobil (XOM.N), Shell (SHEL.L) and TotalEnergies (TTEF.PA) to shower shareholders with cash.

Figure 6

The top Western oil companies paid out a record $110 billion in dividends. They shared repurchases with investors in 2022, spurring outraged calls on governments to impose windfall taxes on the industry to help consumers with surging energy costs.

Figure 7

In the case of TotalEnergies, the company bolstered its net profit to a record $20.5 billion (€19.1 billion) in 2022 and announced higher dividend payments for shareholders. The 28% gain from last year would have been much higher, save for the nearly $15 billion in charges linked to its leaving the Russian market, with adjusted profits excluding such exceptional items rising to $36.2 billion. Nevertheless, the surge in oil and natural gas prices following Russia's invasion of Ukraine and Western sanctions was a major boost for TotalEnergies, as it was for its rivals. The massive profits have sparked renewed debate about taxing windfall earnings to help fund measures to protect consumers from rampant inflation, including soaring energy prices. TotalEnergies' strong presence in the liquefied natural gas market also helped as European nations sought supplies from further afield after Russia cut supplies by pipeline. Indeed, TotalEnergies reported a 22% jump in LNG sales in the final three months of last year compared to the same period in 2021. That helped drive an 11% gain in overall adjusted profits for the quarter to $7.6 billion, though Russia-related charges reduced that to $3.3 billion on a net basis. The company increased final dividend payments for 2022 and said it could boost returns to shareholders even further this year.

Moreover, the sharp rise in oil and gas prices, leading to falling debt levels and the abrupt drop in Russian supplies to Europe also drove boards to increase spending on fossil fuel production as governments prioritized security of supply.

Figure 8

Therefore, considering the current economic scenario, having companies such as TotalEnergies in one’s portfolio is a haven to ensure both economic return and stability.

Valuation

6.1 Financial Summary

Figure 9

In 2022, TotalEnergies’ adjusted net income was $36.2 billion. Among its main competitors, TotalEnergies surpassed BP ($2.3 billion), Eni ($13.8 billion), Equinor ($33.5 billion), and Chevron ($35.5 billion). Its return on equity (ROE) was equal to 32.5%, indicating that TotalEnergies is profitable and is efficient in converting its equity financing into profits. Regarding the return on capital employed (ROACE) of TotalEnergies, it equaled in 2022 at 28.2%. This means that the company can generate higher profits from its investments.

6.2 Stock Price Evolution

Figure 10

Regarding the stock price of TotalEnergies, we can observe that over the last months, the company has maintained a high and stable stock price and EPS, well above its main competitors (Equinor, Chevron, BP, and Shell). Indeed, TotalEnergies’ EPS growth has been 32.53% CAGR since last September 2022. As of its share price, it was 60.65 EUR on December 6, 2023. We expect the company’s stock price to reach 78.67 EUR in three years, indicating a 30% upside, and 83.85 EUR in five years, equaling a 38% upside.

6.3 Financial Ratios

As per TotalEnergies’ current financial profitability ratios, we can observe that the company has consistently outperformed its industry average, and for some ratios, outperformed its overall benchmark. For instance, TotalEnergies’ gross margin (16.6 vs 15.6), EBITDA margin (21.7 vs 20), EBIT margin (16.6 vs 15.5), and net margin (8.5 vs 7.6) have all been superior to the industry average. As for the ROE, the company did outperform its overall benchmark (15.9 vs 12.4) but not its industry average (15.9 vs 17.7). These numbers indicate that TotalEnergies possesses a solid financial record and is currently ranked as a top performer in its industry.

Figure 11

Furthermore, as per TotalEnergies’ valuation ratios, we can conclude that they have both outperformed its industry and benchmark average. Indeed, most ratios are thoroughly ahead such as the P/E ratio LTM (8.2 vs 1 vs 0.5), the P/Bk ratio (1.3 vs 1 vs 0.6), the P/CF ratio (5.2 vs 1 vs 0.5), and the EV/EBITDA ratio (3.9 vs 1 vs 0.3). However, for the company, only the P/Sales ratio (0.7 vs 1) and EV/Sales ratio (0.8 vs 1.1) are slightly lower than the industry average. These ratios indicate that TotalEnergies is strongly valued and performs well compared to its industry and benchmark.

Figure 12

6.4 Financial Forecasts

As per the financial forecasts, TotalEnergies is expected to grow in the coming years. As per its income statement, the forecasted numbers show that its sales are expected to grow in 2025, almost doubling its original figures of 2021 (161 vs 215). The same scenario for the company’s EBITDA, equaling 33. 697B EUR in 2021 and expected to reach 43.466B EUR in 2025. Lastly, TotalEnergies’ net income of 16.038B EUR is forecasted to reach 19.377B EUR in 2025. Thus, we can see that the company is growing at a stable and steady rate.

Figure 13

Moreover, TotalEnergies’ forecasted balance sheet also indicates growing figures. For instance, the company’s total assets are expected to reach 287.625B EUR in 2025, compared to its 2021 baseline (255.904B EUR). As per its net debt, TotalEnergies will be expected to drastically reduce its debt levels to 8.869B EUR in 2025 (vs 26.937B EUR in 2021). This indicates that the company has managed to both be profitable and rely on its internal assets to clear off its debt. Last but not least, TotalEnergies has proven once more its profitability by enabling its shareholders to increase their equity levels. Indeed, the company’s shareholders' equity was equal to 97.437B EUR and is forecasted to reach 2025 123.417B EUR, indicating that the company has enough assets to cover its liabilities and repay its shareholders in case of a liquidation.

Figure 14

The company’s cash flows (from operations and financing) are expected to increase in 2025. For instance, cash flow from operations is expected to grow from 26.518B EUR in 2021 to 33.018B EUR in 2025. The same scenario from the cash flow from financing (-22.234B EUR vs 14.547B EUR). This means that TotalEnergies is diversifying its cash flow drivers and earning more profit to retain it. However, only cash from investing is expected to lower to -16.248B EUR in 2025 compared to 2021 (-11.908B EUR). This could signify that significant cash is being invested in the company's long-term health, such as research and development.

Figure 15

Lastly, we can analyze TotalEnergies’ share performance and expected performance. As per its forecasted EPS, figures are expected to grow at a rate of 8.70x in 2025, compared to a 5.83x rate in 2021. Similarly, the company’s dividends per share are also expected to increase, reaching 3.36x (vs 2.72x in 2021). As per cash flow per share, it is forecasted to grow by a 4.82-point basis, reaching 14.87x in 2025 compared to 2021. Lastly, the most notable increase relates to the book value per share. Indeed, the book value per share of a company indicates the performance of its stock relative to its market value. As TotalEnergies’ book value is expected to increase (54.87 in 2025 vs 36.64 in 2021), the stock is expected to be perceived as more valuable.

Figure 16

Risks and Mitigation

7.1 Risks

7.1.1 Protectionist Measures Affecting Free Trade and Economic Sanctions Regime

Against a backdrop of increased geopolitical tensions and risks of deglobalization and fragmentation between nations in the form of protectionist measures, trade tensions between certain countries restrict the free trade of goods and services, financial flows, and international transfers of labor or knowledge. These tensions, particularly when they require modifying the contractual framework of partnerships or the operating conditions of projects, are likely to hurt TotalEnergies’ business and operating income. If TotalEnergies were unable to manage the impacts of these commercial tensions appropriately, it would potentially incur significant increases

in costs for developing its projects, losing markets, and seeing its production or the value of its assets fall, which could adversely affect its financial situation.

Furthermore, economic sanction regimes, combined with export controls, can target those countries in which TotalEnergies operates and thus restrict certain types of financing or access to critical technologies, impose restrictions on the import, export, or re-export of several goods and services, and hinder TotalEnergies’ ability to continue its operations. In certain situations, the economic sanctions multiply without being necessarily coordinated at the international level. For example, in addition to hefty financial sanctions, the breaching of economic sanction regimes adopted by the United States may lead the authorities to impose measures that freeze companies out of the US market, such as a ban on using the US dollar, the currency in which most of TotalEnergies’ financings are denominated.

7.1.2 Increasing Regulation Around Energy Transition

COP 28, which took place in Dubai (United Arab Emirates) in December 2023, reaffirmed the objective to limit global warming and called on the Parties to accelerate the energy transition while underlining the challenges raised by the current geopolitical situation and the aspirations of the developing countries. Civil society, numerous stakeholders, and States are encouraging reductions in the consumption of carbon-based energy products and the establishment of an energy mix more geared towards low-carbon energies to meet the requirements of the fight against climate change, particularly given the objectives set by each State in the context of the Paris Agreement. However, the pace of change in the energy mix of countries must consider the needs and ability to adapt of the various energy consumers, who expect energy players to supply them with cost-effective and environmentally friendly energy. In this context, companies in the energy sector are led to deploy actions aiming at reducing their greenhouse gas emissions. They will also be able to help create solutions that reduce the CO2 emissions associated with the customer’s use of their energy products, as well as technologies and processes to capture, store, and reuse CO2. Consequently, they may be led to change the energy mix of the products they offer while at the same time having to manage the cost and the execution of projects supporting the energy transition.

Therefore, an insufficient ability to adapt to the pace of deployment of the energy transition, as well as an inadequate anticipation of the climate or sustainability regulations, of the evolution of the demand or of the energy cost to be effectively borne by the populations, could affect TotalEnergies’ outlook as well as its financial position (lower profitability, loss of operating rights, loss of revenues, increased funding difficulties), reputation or shareholder value. Indeed, increased pressure from stakeholders linked to climate issues relating to the company's oil and gas activities could lead to future climate-related legal actions against it. These actions could aim to suspend or prohibit oil and gas projects being considered or under development and equally target the challenges linked to greenhouse gas emissions from projects and other societal aspects. In a similar way to legal actions launched in France under Duty of Care against the company or launched against other companies in Europe, these legal actions could target the global emissions of the company and its stakeholders as well as the objectives set by the company for reducing its emissions, thereby obliging it to go beyond these objectives or even reduce its production of fossil fuels at a faster rate than envisaged in the current strategy. In both cases, these legal actions could impede the company from achieving its medium- and long-term objectives and its ability to finance the energy transition and achieve carbon neutrality by 2050.

7.1.3 The Effects of Climate Change and Extreme Events May Expose TotalEnergies to a Cost Increase and a Disturbance of the Continuity of its Activities

Climate change and extreme events (natural catastrophes, pandemics, etc.) potentially have multiple effects that could harm TotalEnergies’ operations. The increasing water scarcity could be detrimental to operations, rising sea levels could harm certain coastal activities, and the proliferation of extreme natural or weather events (such as floods, landslides, etc.) could damage onshore and offshore facilities and/or the associated logistical infrastructures. All these factors could increase the difficulties of operating and the costs of the facilities and adversely affect TotalEnergies' operating income. Moreover, climate change can expose TotalEnergies to an increase in its costs. For instance, more and more countries are likely to adopt carbon-pricing mechanisms to accelerate the transition to a low-carbon economy, which could hurt some of the company's activities and lead to a loss of competitiveness and a cost increase.

In Europe, TotalEnergies' industrial facilities participate in the CO2 emissions trading system (EU-ETS). The financial risk associated with purchasing these allowances on the market could increase following the system's reform that was approved in 2018. This emission allowance market entered its fourth phase in 2021. TotalEnergies estimates that approximately 30% of the emissions in the EU-free allowances will not cover ETS scope over the period from 2021 to 2030 (phase 4). At the end of 2022, these allowances were about €80/t CO2, and TotalEnergies estimates that this price could reach more than €100/t CO2 in phase 4. TotalEnergies considers a minimum CO2 price of $100/t (or the current price of a given country, if higher), and beyond 2028, this CO2 price is inflated by 2%/year. On the assumption that this CO2 price would be at $200/t, then inflated by 2%/year beyond 2028, i.e., an increase of $100/t compared to the base scenario from this date, TotalEnergies estimates a negative impact of 15% on the discounted present value of all the company’s assets (upstream and downstream).

7.2 Mitigation

7.2.1 Record Profits for TotalEnergies in 2022

In a context of strong market tensions in relation to, notably, the prohibition of crude oil or oil product imports from Russia, TotalEnergies’ refining margins have reached exceptionally high levels in 2022 despite the rise in energy costs. Nonetheless, the margins continue to be characterized by high volatility. Indeed, Russia's military aggression against Ukraine in February 2022 and its consequences have increased oil prices above $100/b, amplifying the bullish trend noted since the second Semester of 2021 about a lack of hydrocarbon investment. They have remained at high levels over the full fiscal year, notably supported by the decision of the OPEP+ countries to decrease the production quotas and the anticipation of the implementation of the European sanction on Russian oil since 5 December 2022.

7.2.2 TotalEnergies, a Company Aiming at Revolutionizing the Energy Sector

The energy transition is underway, but the world still uses fossil fuels to meet 81% of its energy needs. Therefore, to keep global warming to well below 2°C, in line with the Paris Agreement, the world must drastically reduce its consumption of fossil fuels (coal, oil, gas) and make the world energy system evolve by building the new low-carbon energy system at a much faster pace. Investing in two energy systems simultaneously is necessary to meet the challenge of the energy transition and still ensure that reliable energy is available in the short term at the lowest possible cost. Firstly, we must ensure the current system continues to operate responsibly, and at the same time speed efforts to build a new system centered on low-carbon energies (renewable electricity, biofuels and biogas, clean hydrogen, and synthetic fuels, CCS solutions for offsetting residual fossil-fuel emissions). Leveraging two measures that will deliver immediate results is possible. That means replacing coal with energy

applications whenever possible and investing heavily to improve energy efficiency. That, in essence, is TotalEnergies’ strategy: to continue providing the energy the world needs now, notably natural gas to replace coal, while responsibly and sustainably accelerating the transition to low-carbon energy solutions. This is how, in practice, TotalEnergies supports the goals of the Paris Agreement, which calls for reducing greenhouse gas emissions in the context of sustainable development and the fight against poverty and which aims to keep the increase in average global temperatures well below 2°C compared to pre-industrial levels.

Indeed, the energy transition depends, first, on electrifying energy use, which will require a massive increase in green electricity. TotalEnergies is expanding across the entire electricity value chain, from the production of intermittent renewables for flexible power generation to natural gas, storage, trading, and sales, with an eye on profitability. Its goal is to build an Integrated Power segment with a return on average capital employed higher than 10% and to rank among the world’s top five providers of solar and wind energy by 2030, with a gross capacity of 100 GW and an interim target of 35 GW by 2025 (the company reached 17 GW as of year-end 2022).

Moreover, the energy transition depends on developing new, low-carbon energies (biofuels and biogas, clean hydrogen, and synthetic fuels combining hydrogen and carbon) that TotalEnergies has the core skills to produce. The company is expanding into these new markets by focusing on circular resource management and deploying less mature technologies to test its business viability at its sites. For natural gas, a transition energy, TotalEnergies is pursuing growth across the liquefied natural gas (LNG) value chain to consolidate its position as the world’s third-largest supplier. LNG plays a key role in the net-zero roadmap for many coal-consuming countries. It is also a perfect partner for intermittent renewable energies: flexible, controllable CCGT plants ensure a secure electricity supply in the face of unforeseen weather events and fluctuations in demand.

Hence, as they evolve, the energy markets are becoming increasingly interconnected and interdependent, particularly since electricity – the energy at the center of the transition – is secondary, meaning it depends on other energies and markets. Therefore, the integrated multi-energy strategy of TotalEnergies and its solid financial base are strengths that allow it to be a major player in sustainable energy the world needs and make the most of the current changes, including the potential price volatility they may cause. Similarly, because TotalEnergies is ambitious to be at the forefront of the energy transition, it will likely be at the forefront of potential regulations as well.

7.2.3 A Booming Interest in Renewable Energies Around the World

The global energy crisis is driving a sharp acceleration in installations of renewable power, with total capacity growth worldwide set to almost double in the next five years, overtaking coal as the largest source of electricity generation along the way and helping keep alive the possibility of limiting global warming to 1.5 °C. Moreover, energy security concerns caused by Russia’s invasion of Ukraine have motivated countries to increasingly turn to renewables such as solar and wind to reduce reliance on imported fossil fuels, whose prices have spiked dramatically. Global renewable power capacity is now expected to grow by 2 400 gigawatts (GW) over the 2022-2027 period, an amount equal to the entire power capacity of China today. This massive, expected increase is 30% higher than the growth forecast just a year ago, highlighting how quickly governments have thrown additional policy weight behind renewables. The report finds that renewables are set to account for over 90% of global electricity expansion over the next five years, overtaking coal to become the largest source of global electricity by early 2025.

The war in Ukraine is a decisive moment for renewables in Europe, where governments and businesses are looking to replace Russian gas with alternatives rapidly. The amount of renewable power capacity

added in Europe in the 2022-27 period is forecast to be twice as high as in the previous five-year period, driven by a combination of energy security concerns and climate ambitions. An even faster deployment of wind and solar PV could be achieved if EU member states rapidly implemented several policies, including streamlining and reducing permitting timelines, improving auction designs and providing better visibility on auction schedules, and improving incentive schemes to support rooftop solar.

Beyond Europe, the upward revision in renewable power growth for the next five years is also driven by China, the United States, and India, which are all implementing policies, and introducing regulatory, and market reforms more quickly than previously planned to combat the energy crisis. Because of its recent 14th Five-Year Plan, China is expected to account for almost half of new global renewable power capacity additions over the 2022-2027 period. Meanwhile, the US Inflation Reduction Act has provided new support and long-term visibility for expanding renewables in the United States.

Utility-scale solar PV and onshore wind are the cheapest options for new electricity generation in a significant majority of countries worldwide. Global solar PV capacity is set to almost triple over the 2022-2027 period, surpassing coal and becoming the world's largest source of power capacity. The report also forecasts an acceleration of installations of solar panels on residential and commercial rooftops, which help consumers reduce energy bills. Global wind capacity almost doubles in the forecast period, with offshore projects accounting for one-fifth of the growth. Together, wind and solar will account for over 90% of the renewable power capacity added over the next five years.

Therefore, as we can observe an overall increase in interest in renewables, we can believe that the world will be more and more prepared to face climate change and prevent environmental catastrophes.

ESG assessment

While the product portfolio of integrated oil and gas companies is not suited to contribute to sustainable development goals, TotalEnergies is engaged in environmentally and socially beneficial activities, including solar power, alternative fuels, and access to cleaner energy solutions in developing countries, which it plans to significantly, expand until 2035. The company has established management procedures in key sustainability areas such as occupational health and safety, human rights, climate strategy, and facility safety. However, it is involved in human rights, business ethics, and environmental controversies.

8.1 Environmental Assessment

8.1.1 Carbon Emissions

With regard to greenhouse gas emissions, TotalEnergies is committed to shrinking its carbon footprint from production, processing, and delivery to its customers. To begin with, the company is moving forward with an ambitious action plan to reduce the greenhouse gas emissions for which we are responsible (Scope 1+2 emissions at the company’s operated assets) to a strict minimum. The company also invests in carbon storage and sequestration projects to “neutralize” its residual emissions and to be able to offer those CCS solutions to its major industrial customers. Although the speed of transition will depend on the pace of change in government policies, consumer practices, and corresponding demand, TotalEnergies has embraced the need to offer its customers affordable, less carbon-intensive energy products and to lend support to our partners and suppliers with their low-carbon strategies. Drawing on the actions already taken to revise our energy offerings and reduce carbon emissions from our operations, in 2022, TotalEnergies published an outline of how our businesses might evolve as we become a carbon-neutral energy company by 2050, together with society.

By 2050, TotalEnergies would produce:

• About 50% of its energy is in the form of low-carbon electricity with the corresponding storage capacity totaling about 500 TWh/y, on the premise that it develops about 400 GW of renewable capacity,

• About 25% of its energy, equivalent to 50 Mt/y of decarbonized fuels in the forms of biogas, hydrogen, or synthetic liquid fuels from the circular reaction: H2 + CO2 e-fuels,

• About 1 Mb/d of oil and gas (about a quarter of the total in 2030, consistent with the decline envisaged in the IEA’s Net Zero Scenario), primarily liquefied natural gas (roughly 0.7 Mb/day, or 25- 30 Mt/y) with very low-cost oil accounting for the rest. Most of that oil would be used in the petrochemicals industry to produce about 10 Mt/y of polymers, of which two-thirds would come from the circular economy.

That oil and gas would represent Scope 1 residual emissions of about 10 Mt CO2e/year, with methane emissions almost eliminated (to below 0.1 Mt CO2e/year). Those emissions would be offset in full by projects using nature-based solutions (natural carbon sinks).

8.1.2 Energy Management

As an integrated oil and gas company, the majority of TotalEnergies' product portfolio comprises petroleum products that are incompatible with the need to tackle global climate change. Yet, the company has increased the share of natural gas in total hydrocarbon production from 35% in 2005 to about 47% in 2021 and expects to increase the share of natural gas in the sales mix to 50% by 2030. The company engages in several initiatives and fields of business that have the potential to contribute to the achievement of sustainable development objectives. At the end of 2021, the company had a gross renewable electricity generation capacity of more than 10 GW. TotalEnergies has the goal of expanding the power generation capacity from renewables to 35 GW by 2025. Additionally, the company promotes the development of alternative fuels such as second-generation biofuels and, through its 'Total Ecosolutions Program,' the development of products and services with environmental benefits. The company has established the target to increase the net sales share of low-carbon businesses including renewable energies, energy storage, and bioenergy from 0.5% in 2015 to 20% in 2035. Furthermore, TotalEnergies has developed the 'Total Access to Energy' program, a source of initiatives for energy solutions adapted to underprivileged populations. The company aims to sell five million solar lamps in Africa and reach 25 million people on the continent by 2025.

8.2 Social Assessment

8.2.1 Labor Practices

TotalEnergies’ Vigilance Plan is based primarily on the Code of Conduct, which defines the company’s values, including safety and respect for others, and their application to human rights, the environment, and people’s health and safety.

The Code particularly sets forth TotalEnergies’ compliance with the following international standards:

• The principles of the Universal Declaration of Human Rights,

• The United Nations Guiding Principles on Business & Human Rights,

• The principles set out in the International Labor Organization’s fundamental conventions

• The principles of the United Nations Global Compact,

• The OECD Guidelines for Multinational Enterprises, and

• The Voluntary Principles on Security and Human Rights, or VPSHR.

The Code of Conduct, which can be accessed on TotalEnergies’ website, is aimed at all employees and external stakeholders (host countries, local communities, customers, suppliers, industrial and commercial partners, and shareholders).

8.2.2 Supplier Auditing

The Fundamental Principles of Purchasing (FPP) set out the commitments expected from suppliers in various domains, including human rights and safety in the workplace. A company directive reaffirms the obligation to annex the FPP or to transpose them in the selection process as well as in the contracts concluded with suppliers of goods or services. The prevention of risks relating to working conditions, especially forced and child labor in the supply chain is a major area of concern and one of the company’s commitments. In this context, the company is implementing a program of engagement and assessment of its priority suppliers in these fields. TotalEnergies assesses its suppliers in terms of respect for human rights at work through on-site audits carried out by an independent third party. The company's objective is to assess the performance of its 1,300 priority suppliers by the end of 2025 in terms of sustainable development (human rights and working conditions, environment, and climate) using assessments covering all these aspects. Amongst these 1,300 priority suppliers, 500 are those suppliers that account for more than 50% of the company’s expenditures on goods and services, and 800 are identified as those representing the highest risk in terms of human rights and the environment in view of their field of activity and the countries where they operate. In 2022, 200 suppliers were audited, and an audit plan for 2023 targeting 300 suppliers was launched. In total, 430 high-risk suppliers in terms of human rights have been audited since 2016. These audits covered 160,000 suppliers' workers worldwide in 77 countries. 181 suppliers required the implementation of action and monitoring plans, of which 53 have been fully completed (validated by a follow-up audit) - positively impacting the working conditions of more than 14,000 of their employees. 128 suppliers are being monitored. A 2023 audit plan, targeting 300 suppliers, was defined in 2022, with the target to achieve 1,300 suppliers audited by the end of 2025.

8.2.3 Equity, Diversity & Inclusion (DEI)

The diversity of its employees and management is crucial to the company’s competitiveness, appeal, and capacity for innovation. TotalEnergies promotes an inclusive corporate culture at the highest level by the Company Diversity and Inclusion Council, which is chaired by a member of the Executive Committee. TotalEnergies intends to propose an inclusive working environment to create collective conditions that allow everyone, whoever they are, to assert their personality, ideas, and energy to bring the best of themselves to the common project and promote the development of everyone's potential. The various opinions and career paths yield innovative solutions and new opportunities. Thanks to its motivated, enterprising workforce, the company can carry out ambitious projects and provide every employee with the opportunity to give meaning to their work and find professional fulfillment. The company boasts genuine human potential with nearly 160 nationalities represented in its workforce, a presence in nearly 130 countries, and more than 740 professional skills. In order to continue the existing momentum, the Diversity roadmap sets out the targets for 2025 on gender balance and internationalizing management bodies and senior management:

• 30% of women in the Executive Committee (25% in 2022),

• 30% of women in the G70 (32.9% in 2022),

• 30% of female senior executives (27.5% in 2022),

• 30% of female senior managers (23.8% in 2022),

• 45% of non-French nationals’ senior executives (37.4% in 2022),

• 40% of non-French nationals are senior managers (34.2% in 2022).

Moreover, the company has a long-standing commitment to promoting equal opportunity, diversity, and inclusion, which constitute, for everyone, a source of development where only expertise and talent count. In 2018, the company decided to adhere to the Global Business and Disability Network Charter of the International Labor Organization (ILO) and is gradually implementing these principles in its subsidiaries.

8.3 Governance Assessment

8.3.1 Board Structure

Regarding TotalEnergies’ governance structure, the board chair, Patrick Pouyanné, is not independent. However, a lead independent director has been appointed to offset this concentration of power (as of May 11, 2022). Furthermore, most of the board members are considered independent. The company has established board committees in charge of audit, remuneration, and nomination, all predominantly comprised of independent board members. The company discloses its remuneration policy, as well as the compensation received by executives, and the remuneration policy provides for long-term incentives, which could facilitate sustainable value creation. The company has established a board-level committee responsible for sustainability matters, with half of its members being independent (as of July 27, 2022). Up to 45% of the short-term variable remuneration of the CEO depends on the company’s performance in occupational safety, diversity, carbon emissions, and energy efficiency and the company's position in rankings published by non-financial rating agencies. TotalEnergies has established a code of conduct and additional business ethics policies stipulating comprehensive rules regarding essential elements such as corruption, conflicts of interest, and insider dealings. Adequate compliance mechanisms are in place, including employee training on code provisions, compliance audits, risk assessments, and basic third-party anti-corruption due diligence.

8.3.2 Ethics

TotalEnergies operates in many different countries with disparate and complex economic, social, and cultural environments, where governments and civil society have especially high expectations of the company as an exemplar. Within this context, TotalEnergies strives to act as a vehicle for positive change in society by helping to promote ethical principles in every region where it operates. Accordingly, TotalEnergies is committed to respecting internationally recognized human rights wherever it operates, especially the Universal Declaration of Human Rights, the Fundamental Conventions of the International Labour Organization (ILO), the U.N. Guiding Principles on Business and Human Rights, the OECD Guidelines for Multinational Enterprises and the Voluntary Principles on Security and Human Rights (VPSHR). The company refrains from resorting to artificial or aggressive tax planning and in particular is committed not to create subsidiaries in countries generally acknowledged as tax havens and to repatriate or liquidate existing subsidiaries, where feasible. Furthermore, TotalEnergies is fully committed to fighting corruption and has adopted a zero-tolerance policy in that area. In addition to that commitment, it lends active support to initiatives promoting greater transparency. TotalEnergies publishes an annual report in its Universal Registration Document covering the payments made by the company’s extractive companies (fully consolidated entities) to governments and the full list of its consolidated entities, together with their countries of incorporation and operations. The company also publishes a tax transparency report, which provides additional

information on the taxes paid in its main countries of operation. TotalEnergies published a report based on the new EITI (Extractive Industries Transparency Initiative) guidelines in November 2020, which are designed to promote transparency in the trade of raw materials. In accordance with the EITI framework, of which it has been a member since 2002, TotalEnergies advocates for the disclosure by countries of their petroleum contracts and licenses.

Conclusion

In conclusion, TotalEnergies presents promising prospects for potential investors. With its compelling business model and its ability to effectively capitalize on emerging renewables, engage in growth-focused strategic acquisitions, and streamline its core business operations better, the company is well on its way to capturing growth opportunities and cementing a solid market position. Coupled with favorable market conditions and a strong ESG profile, investing in TotalEnergies is recommended to maximize gains and achieve long-term sustainable returns.

References

• TotalEnergies. (2022). Universal Registration Document 2022. [online] Available at: https://totalenergies.com/sites/g/files/nytnzq121/files/documents/2023- 03/TotalEnergies_URD_2022_EN.pdf

• Deloitte Research Center for Energy & Industrials. (2023). 2024 Oil and Gas Industry Outlook. [online] Available at: https://www2.deloitte.com/us/en/insights/industry/oil-and-gas/oil-and-gas-industry-outlook.html

• International Renewable Energy Agency (IRENA). (2022). World Energy Transitions Outlook: 1.5°C Pathway. [online] Available at: https://www.irena.org//media/Files/IRENA/Agency/Publication/2022/Mar/IRENA_World_Energy_Tr ansitions_Outlook_2022.pdf?rev=6ff451981b0948c6894546661c6658a1

• Reuters. (February 8, 2023). Big Oil doubles profits in blockbuster 2022. [online] Available at: https://www.reuters.com/business/energy/big-oil-doubles-profits-blockbuster-2022-2023-02-08/

• ESG Today. (December 12, 2023). TotalEnergies Announces a Series of Startup Acquisitions to Boost Electricity Business. [online] Available at: https://www.esgtoday.com/totalenergies-announces-a-series-of-startup-acquisitions-to-boost- electricity-business/

*Do note that all of this is for information only and should not be taken as investment advice. If you should choose to invest in any of the stocks, you do so at your own risk