TotalEnergies (TOT) Balances Debt and Renewables Growth Amid Profit Slump

TotalEnergies, one of Europe’s largest oil and gas companies, faces a pivotal moment as it navigates declining profits and rising debt while pursuing aggressive investments in renewable energy. CEO Patrick Pouyanné’s recent earnings call sought to reassure investors that the company’s long-term strategy remains intact, even as Q1 2025 results reveal financial pressures in traditional energy segments. Here’s how the numbers stack up—and what they mean for shareholders.

Profit Declines Highlight Structural Challenges

TotalEnergies’ adjusted net income dropped to $4.2 billion in Q1 2025, marking a 5% sequential decline from Q4 2024 and an 18% year-over-year fall compared to Q1 2024. The drop was driven by:
- Weak refining margins: European refining margins fell 59% year-on-year to $29.4/ton, with operational issues at France’s Donges and the U.S.’s Port Arthur refineries exacerbating losses.
- Lower oil prices: Brent crude averaged $75.7/barrel in Q1, down 9% from the same period in .
- Seasonal cash flow pressures: A $1 billion reversal of working capital gains from Q4 2024 and higher inventory levels strained liquidity.

Debt Rises, but Management Stresses Balance Sheet Strength

The company’s gearing ratio (debt-to-equity) climbed to 14.3% at the end of Q1, up sharply from 8.3% at year-end 2024. However, Pouyanné emphasized a “normalized gearing of 11%” when excluding seasonal working capital effects, arguing the rise was temporary. Key metrics to watch:
- Share buybacks: Despite the debt increase, totalenergies confirmed $2 billion in buybacks for Q2, and raised its dividend by 7.6% to €0.85/share.
- Investment focus: Capital expenditures surged 38% year-on-year to $4.9 billion, with $4.5 billion allocated to low-carbon projects like wind farms, solar arrays, and green hydrogen initiatives.

The stock has underperformed broader energy indices amid profit concerns, but its renewable investments may offer a long-term tailwind.

Renewables and LNG Offer Growth Counterweights

While traditional segments lag, TotalEnergies is betting on three pillars to drive future returns:
1. Upstream production growth: Hydrocarbon output rose 4% year-on-year to 2.56 million barrels of oil equivalent per day, fueled by projects in Brazil (Mero-4), the U.S. (Ballymore), and Nigeria. Management reaffirmed its >3% annual production growth target for 2025.
2. LNG contracts: New deals in India, the Dominican Republic, and Texas’ Rio Grande project are expected to stabilize cash flows as LNG prices remain elevated.
3. Renewables expansion: Acquisitions like Germany’s VSB (adding 22.7 GW of renewable capacity) and green hydrogen partnerships (e.g., 30,000 tons/year for RWE refineries) are accelerating the shift toward low-carbon energy.

Risks and Uncertainties

• Oil price volatility: With Brent trading below $70/barrel since April, further declines could worsen refining margins.
• Geopolitical risks: The Russia-Ukraine war and U.S. trade policies threaten European gas markets and LNG trade flows.
• Debt sustainability: While TotalEnergies’ normalized leverage appears manageable, investors will scrutinize whether debt continues to climb as capital expenditures rise.

Conclusion: A Dividend-Backed Transition, But Patience Required

TotalEnergies’ Q1 results underscore the challenges of balancing short-term profitability with long-term energy transition goals. While profits have dipped, the company’s $17–$17.5 billion annual investment guidance and shareholder returns signal strategic confidence. Key data points to back this:
- Cash flow resilience: Despite the Q1 decline, cash flow from operations excluding working capital averaged $7.1 billion over the past four quarters, sufficient to cover dividends and buybacks.
- Growth in low-carbon assets: Renewable capacity has doubled since 2020, and green hydrogen projects now total 60,000 tons/year—a critical step toward decarbonization.
- Production momentum: Upstream growth remains on track, with projects like Brazil’s Mero-4 (expected to add 120,000 barrels/day by 2026) bolstering cash flows.

Investors should weigh these positives against near-term risks. If oil prices stabilize above $70/barrel and LNG demand holds, TotalEnergies’ diversified portfolio could deliver steady returns. However, patience is key: the energy transition is a multi-year journey, and profits in legacy businesses may remain under pressure until renewables scale further. For now, TotalEnergies appears to be managing the tightrope—though the next few quarters will test its balance.