Oil companies face sometimes contradictory injunctions from their stakeholders (to supply low-cost energy, to reduce carbon emissions, to share value creation between employees, management and shareholders via dividends and share buy-backs for the latter) and increased regulatory pressure. Carbon neutrality and the scenarios, in particular those of the International Energy Agency (IEA), are unequivocal: achieving global carbon neutrality by 2050 depends on a complete phase-out of fossil fuels, which rules out any new oil and gas development projects starting today.

To maintain their growth and profitability against a backdrop of rising demand for oil and gas between now and 2045, as forecast by OPEC, oil companies are currently maintaining their fossil fuel production and making only a moderate commitment to renewable energies and emission reduction techniques, given the scale of the transformation required.

For European investors, regulatory pressure is making them increasingly reluctant to finance oil production activities. The securities of fossil fuel producers have already been excluded from certain portfolios. Similarly, bank financing and insurance cover for new oil and gas projects is being withdrawn.
 

▪THE ESSENTIAL TRANSITION OF TOTALENERGIES' BUSINESS MODEL
In 2021, TOTALENERGIES has announced its intention to become a major player in the energy transition and one of the world's top five producers of renewable electricity. The energy mix of its activities has changed since the Paris Agreement in 2015, from 65% of sales in oil to 43% in 2023 and an estimated 30% in 2030, accompanied by an increase in low-carbon energy activities from 2% to 10% in 2023 and an estimated 20% over the period.

TOTALENERGIES’ investments in renewable energies are relatively high ($4.9 billion in 2023) compared with those of other players in the oil sector. However, the Group expects oil demand to continue to grow between now and 2030 and is still directing the majority of its investments towards fossil fuels ($11.9 billion, or 71% of its total investments).

However, if we compare TOTALENERGIES with its peers in the non-oil energy sector, the Group's relative position in renewable energies is still weak. While TOTALENERGIES had a gross installed renewable energy capacity of 22.4 GW at the end of 2023, its main European competitors had much greater capacities. E.ON had a gross installed connected capacity of 85 GW and invested €1.9 billion during the year, ENGIE a gross capacity of 41.5 GW with €4 billion of investments in 2023 and IBERDROLA a gross capacity of 62.8 GW with €5.4 billion invested in 2023.

▪REDISTRIBUTION TO SHAREHOLDERS
Since the 2015 Paris Agreement, and despite the sensitivity of its results to the price of crude oil, TOTALENERGIES has distributed at least one third of its earnings in the form of dividends (with the exception of the 2017 and 2022 financial years) and has carried out substantial annual share buyback plans since 2018.

In the last two years, the redistribution to shareholders has even exceeded the total amount of the Group's investments. In 2022, the total redistribution amounted to $18.2 billion (of which 10.5 billion in dividends and $7.7 billion in share buy-backs) and in 2023, the total redistribution was $17 billion (of which 7.8 billion in dividends and $9.2 billion in share buy-backs).

TOTALENERGIES mentions the lack of availability and profitability of renewable energy projects11 as a reason for not allocating more financial capacity to these projects. However, it seems to us that a smaller redistribution in the form of share buybacks could provide the group with the financial resources it needs to invest at the right time and accelerate the transition of its business model towards a truly "multi-energy" group.

▪ SHAREHOLDERS’ ACCOUNTABILITY
To align the interests of TOTALENERGIES’ various stakeholders, consideration could be given to strengthening the Group's financial capacity to accelerate the transition of its business model.

In a context of increasing regulatory and political constraints and media pressure on fossil fuel producers, shareholders now have a choice to make:
- exclude TOTALENERGIES shares from their portfolios (thereby transferring the risks to another balance sheet),
- maintain their investment in TOTALENERGIES shares to benefit from short-term returns while bearing an increasing level of risk (reduced oil and gas production, downgrading of assets, etc.),
- maintain their investment in TOTALENERGIES shares and exercise their shareholder rights to accelerate the Group's transformation and thus benefit from the positive effects on long-term valuation.

In order to facilitate the implementation of TOTALENERGIES’ climate strategy, we therefore propose that a resolution be included concerning the share buyback programme, deleting one of its purposes, which is to cancel shares.

In French law, it is the general meeting that authorises the Board of Directors to buy back the company's shares (up to 10% of the capital) and "defines the purposes and terms of the operation, as well as its maximum amount".

Reducing the value of the share buyback programme by prohibiting shares from being cancelled is tantamount to removing the short-term attraction of a positive effect on the share price. On the other hand, this would free up additional financing capacity for the company, which could be used to transform its business model towards less carbon-intensive activities that would ensure long-term growth.

However, as shareholders cannot make a choice that would apply systematically to resolutions presented at general meetings held between now and 2030, an identical resolution should be presented each year from the 2024 general meeting onwards.

This draft resolution is therefore proposed for approval at the General Meeting on 24 May: it relates to the modification of one of the purposes of the 4th resolution, which is to cancel the shares bought back. It therefore aims to significantly reduce the immediate theoretical benefit to shareholders of this share buyback programme and to reduce the amount actually used by the company to cancel its shares. If this external resolution is passed, such a decision, even if legally limited in time, would strengthen the Group's financial "strike force" in the face of the challenges of the energy transition it must make.

If you wish to co file this resolution with us, please contact Denis Branche (denis.branche@phitrust.com) and Alix Ditisheim (alix.ditisheim@phitrust.com, +330155350755).