TotalEnergies Navigates Transition with Strong Hydrocarbon Output in Q1

TotalEnergies SE has positioned itself at the high end of its hydrocarbon production guidance for the first quarter of 2025, projecting output of 2.5–2.55 million barrels of oil equivalent per day (Mboe/d)—a 4% year-over-year increase compared to Q1 2024. This growth, driven by strategic project ramp-ups and LNG resilience, underscores the company’s ability to balance its energy transition ambitions with hydrocarbon efficiency. Yet, challenges in refining margins and working capital dynamics reveal the complexities of operating in a shifting energy landscape.

Growth Anchored in New Projects and LNG

The company’s Q1 performance reflects progress in high-margin, low-cost projects. The Mero 2 offshore Brazil development, a joint venture with Petrobras, and the Akpo West field expansion in Nigeria contributed significantly to production gains. These initiatives offset the $4.7 billion divestment of Canadian oil sands assets in late 2023, which TotalEnergies deemed inconsistent with its low-carbon strategy.

LNG production also proved critical. Despite a 6% drop in European refining margins (European Refining Margin Marker, or ERM, fell to $44.9/ton in Q1 2025 from $71.7/ton a year earlier), LNG prices averaged $10.00 per Mbtu, stabilizing cash flows. This resilience contrasts with refining and chemicals, where overcapacity in European petrochemicals and biofuels pressured margins, though refining margins improved slightly.

Financial Nuances: Working Capital and Sensitivity to Oil Prices

TotalEnergies highlighted a $4–$5 billion seasonal working capital increase in Q1, typical of winter demand cycles but amplified by timing-related dividend payments from equity affiliates. This reduced Refining & Chemicals cash flow by $200 million versus Q4 2024, illustrating the operational volatility in its integrated model.

The company’s sensitivity analysis reveals that a $10/barrel rise in Brent crude (currently projected at $75.7/bbl for Q1) could boost adjusted net operating income by $2.3 billion, underscoring its reliance on oil prices. However, the refining segment’s struggles—ERM down 37% year-over-year—suggest that even with higher production, margin pressures persist in some divisions.

Strategic Crossroads: Transition vs. Hydrocarbon Dependence

TotalEnergies’ results highlight the tension between its decarbonization goals and hydrocarbon dependency. While the company has reduced oil sands exposure and prioritized LNG and renewables, hydrocarbons remain its profit engine. The Integrated Power segment, for instance, maintained stable earnings of $450–$500 million in Q1 but lacks the scale to offset refining headwinds.

Investors should note that TotalEnergies’ 2025 capital expenditure guidance of $14–$15 billion allocates 40% to low-carbon projects, signaling a long-term pivot. Yet, near-term cash flows still depend heavily on oil and gas.

Conclusion: Steady Growth Amid Sectoral Challenges

TotalEnergies’ Q1 performance demonstrates its capacity to grow hydrocarbon output while adapting to a lower-carbon future. The 4% production increase, driven by strategic assets and LNG, positions it favorably against peers. However, refining margin pressures and seasonal working capital swings remind investors that energy transitions are uneven.

Crucially, TotalEnergies’ sensitivity to oil prices—where a modest $10/barrel uplift could add $2.3 billion to its bottom line—suggests its stock could outperform if Brent stabilizes above $80/bbl. Conversely, persistent refining overcapacity in Europe poses a risk.

For now, the company’s balanced approach—prioritizing high-return projects while hedging against volatility—appears to be working. Yet, the path to decarbonization will require sustained discipline in capital allocation and navigating the sector’s twin engines: hydrocarbon efficiency and renewable scale-up.