TotalEnergies faces investor scrutiny as debt rises and shares lag

TotalEnergies is reducing its quarterly share buyback program from $2 billion to $1.5 billion amid challenges in generating strong returns while investing in renewable energy, with potential further cuts anticipated.

The company's CEO, Patrick Pouyanné, will meet with investors to discuss concerns regarding poor stock performance, rising debt levels of $26 billion, and skepticism about the profitability of its clean energy transition.

Despite efforts to expand into renewable energy sectors, the financial returns from these investments have been modest compared to traditional oil and gas projects, prompting plans to raise $3.5 billion through asset sales to improve returns and reduce leverage.

TotalEnergies has faced a stock decline of about 15% since shifting to ordinary shares, compounded by political instability in France and ongoing issues in oil and gas markets that have affected investor confidence.

Recommendation Rating: Cautious Outlook for TotalEnergies

TotalEnergies (NYSE:TTE) is currently confronting the challenge of demonstrating its ability to generate solid returns while making substantial investments in renewable energy. The French oil and gas giant announced on Wednesday that it will reduce its quarterly share buyback program from $2 billion to $1.5 billion, with potential further reductions to $750 million planned for next year.

CEO Patrick Pouyanné is scheduled to meet with investors in New York on Monday to address several pressing concerns. These include the company's lackluster stock performance relative to its industry rivals and the CAC 40 index in France, a dramatic increase in debt levels to $26 billion over the past year, and skepticism regarding the profitability of its transition to clean energy strategies, as reported by Bloomberg News on Sunday.

Despite TotalEnergies’ aggressive expansion into renewable sectors such as wind, solar, and battery technologies, the financial returns generated from these investments have been modest when compared to traditional hydrocarbon projects.

In an effort to mitigate these challenges, Pouyanné has committed to raising $3.5 billion through asset sales by the end of the year. This strategy includes divesting partial stakes in various renewable projects, aiming to reduce leverage and enhance overall returns. However, the company continues to face significant obstacles, including the risk of oversupply in oil and gas markets, weak demand in European petrochemicals, and complications within its refining operations.

Since the shift from American Depository Receipts (ADRs) to ordinary shares in April 2024, TotalEnergies’ stock price has seen a decline of approximately 15% in dollar terms, contrasting with gains experienced by other European competitors. Additionally, political instability in France has further diminished investor confidence in French equities, contributing to the overall negative sentiment surrounding the company.