TotalEnergies Q3 income hits three-year low as refining margins plunge

French oil major TotalEnergies third-quarter profit hit a three-year low of $4.1 billion on Thursday, slightly missing expectations as refining margins and upstream outages dragged down earnings.

Adjusted net income was down 37% from a year earlier and 12.7% lower from the previous quarter's $4.7 billion. The result just missed analyst expectations of $4.2 billion.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) fell 23.6% year-on-year to $10 billion.

Earlier this month, TotalEnergies warned its financial results would take a hit as its margin for converting crude oil into refined fuels declined 65%.

Global refining margins have dropped sharply in recent months in the face of weaker economies and the start-up of several new refineries in Asia and Africa, while oil prices fell 17% in the quarter - the largest quarterly decline in a year - on worries about the global oil demand outlook.

The company's shares were down 2.8% at 1402GMT.

The tough environment for refineries marks a return to the long-term trend that had been briefly interrupted by sky-high profitability following Russia's invasion of Ukraine, Chief Executive Patrick Pouyanne told analysts.

"Some small European refineries which were supposed to shut down were maintained as the industry stopped to capture good margins," said Pouyanne. China's private refiners, known as 'teapots', are also adding to supplies.

"I think the hard times are set to come back, there are too many small refineries in Europe and everyone has to do their part," he added.

Pouyanne said Total was too small to cut production but would examine its six European refineries and convert the weakest into biorefineries producing renewable fuels.

Total has already converted its La Mede site in southern France into a biorefinery, while the under-conversion Grandpuits, near Paris, will be operational next summer.

In addition to a 83% drop in quarterly refining and chemicals division profits year-on-year, Total's integrated LNG division also made 21% less than the third quarter last year, with the company citing low gas market volatility as a hamper on trading profits. Integrated power, which includes renewables, was down 4% from a year ago.

RBC analyst Biraj Borkhataria said Total reported "weaker cash generation relative to expectations", and that while "divisional estimates were broadly in line with consensus ... estimates have been falling following the recent trading update."

TotalEnergies took a $1.1 billion impairment related to the August bankruptcy filing of U.S. subsidiary SunPower, and its exit of several South African offshore blocks.

Quarterly hydrocarbon production of 2.4 million barrels of oil-equivalent per day was at the low end of guidance given at half year due to security-related disruptions in Libya and an outage at the Ichthys LNG plant in Australia.

The company confirmed $2 billion in share buybacks for the fourth quarter and decided a third interim dividend of 0.79 euros per share for 2024.