Categories Earnings Call Transcripts, Energy

TOTAL SA (NYSE: TOT) Q1 2020 Earnings Call Transcript

TOT Earnings Call - Final Transcript

TOTAL SA (TOT) Q1 2020 earnings call dated May 05, 2020

Corporate Participants:

Patrick Pouyanne — Chairman and Chief Executive Officer

Jean-Pierre Sbraire — Chief Financial Officer

Analysts:

Michele Della Vigna — Goldman Sachs — Analyst

Jon Rigby — UBS — Analyst

Irene Himona — Societe Generale — Analyst

Biraj Borkhataria — RBC — Analyst

Lydia Rainforth — Barclays — Analyst

Christian Malek — J.P. Morgan — Analyst

Martijn Rats — Morgan Stanley — Analyst

Oswald Clint — Bernstein — Analyst

Thomas Adolff — Credit Suisse — Analyst

Presentation:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Total Q1 2020 Results Conference Call. At this time, all participants are in a listen-only mode. Today, there will be two presentations. Total’s first quarter results and 2020 action plan update, followed by a question-and-answer session. Then a presentation on Total’s climate ambition, followed by another question-and-answer session. [Operator Instructions] I must advice you that this conference is being recorded today.

And I would now like to hand the conference over to Mr. Patrick Pouyanne, Chairman and CEO of Total. Please go ahead, sir.

Patrick Pouyanne — Chairman and Chief Executive Officer

Good afternoon, everybody. Welcome to our Q1 conference call. And let me start by saying that I hope that all of you and your families are safe in front of this pandemic, which is COVID-19, and that you are coping well in these extraordinary times. I really think that the word, extraordinary is the right word, literally sense, I would say. None of us never thought we could experience such macro environment, such oil price crisis at the same time.

So we have a lot of ground to cover this afternoon for this call. So that’s why I joined Jean-Pierre, not to leave him alone and to cover the various crisis that we are facing. We are facing again this healthcare crisis and our priorities are the health of all our people and the continuity of our operations. And I would like to just to say, to pay a tribute to all the efforts and commitment and responsiveness of all our teams around the world, who are working together to ensure the continuity of our operations during the crisis, really they are doing a great job. So thank you to them, all of them.

The second crisis is the oil price crisis, it’s unprecedented, I would say. I had — in my speech, I always say there is volatility and we experienced volatility is difficult. I know that the oil industry would like to see a stable world. I think we are absolutely unable in this industry to stabilize anything. We will come back on it and it has of course some consequence that is — which is financial framework of our company and we will come back on it with the update of the action plan.

But I just would like to tell you, that of course for the fast past five years, we have strengthened our balance sheet, we have high graded our asset base, we have lowered our breakeven and so fundamentally, and I will come back on that, we consider that Total is very well positioned to weather this storm. I would even add that myself I become a veteran of tough times. I took my position in 2014, just before the first downturn began. So we begin to have some good recipes to face the situation and fundamentally in what we believe, is that priority should be given to self help. This is I think is the sense of all the plans we will present to you.

But at the same time, as you know, we are also to prepare the medium and long-term with cash flow, but we have this immediate and short-term challenges and which means, of course, the evolution of the energy landscape and the climate policy. So that’s clear that we have work, and together, today by the way, I think it’s a good symbol, but at the same time, we speak about in immediate channels and action plans and also medium and long term, we have issued a renewed climate policy, which is a result of quite a lot of work with the Board of Directors and including the engagement with some investors of the Climate Action 100+ coalition, I will come back on it. And so I will address that issue as well in the second part.

In order to avoid the mix of the Q&A, we proposed to have two different session. One, after Jean-Pierre has introduced the Q1 results and myself the update of the action plan, we’ll have the first session and then we’ll go to the medium and long-term because I’m afraid if we mix both, all the questions will be more on the short term than the medium and long term. But I think it’s also important to have some time. So I prefer to dedicate around one hour and 50 minutes for the first part and 45 minutes for the second part.

So now I will leave the floor to — before there was P2, now it’s JP2, so I’m P1 and JP2, so I need to give him nickname as well. So JP2 will give you all the Q1 results.

Jean-Pierre Sbraire — Chief Financial Officer

Thank you, Patrick. So, as you know, the first quarter environment was marked by a 30% drop in oil and gas prices, a 20% decrease in European refining margins and a collapse in projected demand in line with the COVID-19 crisis. In this context, Total, nonetheless reported revenue and results. The debt adjusted cash flow was $4.5 billion, down 31% year-on-year and the adjusted net income was $1.8 billion, a decrease of 35% year-on-year.

Let’s move to the production. So the upstream production was 3.1 million barrels of oil equivalent per day during the first quarter, an increase of 5% compared to a year ago and stable compared to the previous quarter. So we continue to benefit from ramp-ups, mainly for the major offshore fields in the North Sea, Culzean, and Johan Sverdrup and Egina in Nigeria, as well as our LNG giant fields like Yamal and Ichthys. So, the contribution of these ramp-ups were partially offset by the security situation in Libya, the redevelopment of the Tyra Field in Denmark and natural decline [Indecipherable] 3% per year.

Our Integrated Gas, Renewables and Power segment, so IGRP, reported again strong first quarter results. Adjusted net operating income was $0.9 billion, an increase of more than 50% year-on-year. In addition to higher volumes, this strong results reflects the resilient pricing of LNG in our portfolio. Notably, the contract sales. It reflect as well the value of global integration including the increased use of European regas capacity and the strong performance of LNG trading. Renewable activities increased their contribution as well during this quarter.

As you know, we are committed to procuring high quality growth for this IGRP segment, which is key to the energy transition and to further diversifying our integrated model, notably into low-carbon electricity. And I know that Patrick will come back on that later. The stability and sustainability of the IGRP contribution strengthens our performance, particularly since the low-carbon electricity business is outside of the oil price cycle. In the first quarter, we continue to expand IGRP along the entire integrated gas and low-carbon electricity chain.

LNG sale increased by 27% year-on-year, close to 10 million ton in the first quarter. Thanks to the ramp ups of Yamal and Ichthys, as well as the startup of the first two Cameron LNG trains in the US. Growth installed renewable power generation capacity increased by almost 70%, low-carbon electricity generation increased by 10%. We continue to grow our customer base rapidly at 9% in the quarter and we announced almost 6 gigawatts of new projects.

Let’s move to E&P segment. So this segment generated adjusted net operating income of $0.7 billion in the first quarter, down from $1.7 billion a year-ago. So, how can we explain this $1 billion decrease is due mainly to the price environment of course and the deterioration of the oil and gas prices that has negative impact of about $1.2 billion. And these effects was partially compensated by the increase in volume, mainly from the ramp-up I mentioned already. Important I think to point out that E&P maintain continuity of normal operations throughout the quarter. We had no virus-related stoppages and significant supply chain issues. We are making progress on the major projects under construction and we announced by the way two discoveries in Suriname, plus one in the UK, North Sea.

Refining and Chemicals generated $0.4 billion of adjusted net operating income, down 50% compared to the same quarter last year. R&C was impacted obviously by the 20% decrease in refining margins reflecting weak product demand and by the reduction in refinery utilization to 69%. The Feyzin refinery in France, the Satorp refinery in Saudi Arabia were both shutdown for plant maintenance in the first quarter. And as you know, the distillation unit at Normandy remain shutdown after the fire incident occurred last December. Petrochemicals is lot better than refining, benefiting from the lower feedstock costs. Steam cracker utilization was above 80%.

Marketing & Services generated $0.3 billion of adjusted net operating income, a decrease of 12% compared to the first quarter 2019. M&S, Marketing & Services, was also affected by low project demand, notably in China during the quarter because of COVID-19, but also in France in March. Sales were down 10% year-on-year, driven mainly by 11% decrease in Europe.

For the group, the first quarter adjusted net income was $1.8 billion compared to $2.8 billion in the same quarter last year. And as already explained, this reflects the impact of lower oil prices, lower refining margins and lower demands. The group debt adjusted cash flow was $4.5 billion compared to $6.4 billion in the same quarter last year. This $2 billion decrease was driven mainly once again by the drop in the oil and gas prices, more or less $1.5 billion effect and the decrease in downstream cash flow for an effect of the $0.6 billion. In addition, dividends from equity affiliates were lower year-on-year due to the environments and timing effects.

Let’s move to investments. So net investments during the first quarter were $3.7 billion, organic capex at $2.5 billion, down 12% compared to the first quarter 2019 and net acquisition were $1.2 billion in the first quarter. So $1.6 billion of acquisition mainly for Adani Gas Limited in India and the second tranche on Arctic LNG 2 in Russia and asset sale for $0.5 billion, mainly the Block CA1 in Brunei that we sell to Shell and interest in the Fos Cavaou regas terminal in France.

Since the start of 2019, we sold $2.5 billion of assets and we announced a further $0.7 billion, which are still to be closed. But given the less favorable context of asset sales, particularly for upstream assets, we are refocusing the asset sales program to infrastructure and real estate.

The balance sheet remains strong with 21% gearing at the end of the first quarter. Gearing was negatively impacted by the working capital builds in the first quarter of $2.7 billion. This working capital builds is mainly due to seasonal or temporary effects. And I will give you three elements that contributed to this working capital builds during the first quarter.

So first, our gas and electricity B2C business generates more receivables from our customers in winter time when consumption is higher. The second element of this explanation is directly linked to the environments, the tax liability of our subsidiaries, particularly in Marketing & Services segments were reduced in Q1, and on top of that we had our trading entities that we are building the stocks to benefit from the contango in the markets to prepare the future, and we hope that, of course, that it will be completed in additional results in the future.

Having said that, as the working capital is a critical element for Group’s cash, we have put together an action plan focusing on working capital release and we made the decision by the way to incentivize our manager on their performance regarding the working capital. By year end, in the $30 per barrel environment, we anticipate $1 billion working capital release.

Let’s move to our net liquidity. So this net liquidity at the end of the first quarter was $21 billion. So it is $9.5 billion of net treasury. So I mean, the cash minus the debt that has a maturity less than 12 months plus $11 billion of undrawn credit lines. And in April, we reinforced this liquidity by adding — sorry, $10 billion of additional funds, so we issue more than $3 billion of long-term loans on the market at competitive terms and we drew $6 billion out of a newly negotiated credit lines.

So, summarizing the first quarter results, our business segments were resilient in a weaker environment and the strong balance sheet, the low cash flow breakeven, puts us in a favorable position to cope with the challenges ahead.

And I leave the floor to Patrick to define the way forward.

Patrick Pouyanne — Chairman and Chief Executive Officer

Okay, thank you JP2. We are good like the results, which were quite resilient in this difficult environment. But the Q1 results, let me be clear, may be the best of the year and we don’t know where we go, but I can anticipate that the Q2 results will be much lower because in fact in Q1 when we look to the impact of the COVID-19 it was mainly for business in China and M&S during the first two months. And I would say since March 6, for the rest of the Group, so it’s more or less one month, I would say, which has been really impacted plus some inventories effect by the end of the quarter. But I think Q2 will be more complex and it’s why by the way we made something today, I will make something today, which is quite unusual, which is to give you more guidance. But all we can see the year to be honest, is not a very good easy exercise because with extraordinary circumstances are characterized with a lot of uncertainty and the way we can, the economy can exit — European economy — US economy will exit from this special period of confining, will be as quick as in China or not, a lot of question marks. But I think it was good to give you more guidance and to correct a certain number of anticipation compared to what we told you in February.

So first I will you use few slides. The first slide is of course to tell you that we are facing with all teams of the Group around the world, this COVID-19 challenge and priority being of course the health of all our people and again the continuity of our operations in safe — in a safe way. So a lot of people and also our employees are working from home and it works. I would say the IT systems of the Group are also resilient. We kind of have more than 20,000 people working same time from distance, it’s working well. We have also, of course, reorganized all the operations on the ground with a more rotating teams in order to be sure that they don’t cross each other. We have taken some measures to put in terms of protective equipment, masks are mandatory in the company, you cannot enter into any site of Total without having, if you have a temperature which is abnormal and we take the temperature of everybody coming, so, and of course we dispatch company sanitizer gel and we also reorganized, we are by the way in today in France, reorganizing all the offices and on other sites in order to be able to keep a social distance between the people, which is, I would say what is required by the health authorities. So this is of course obliging us to find new ways to work, but it seems to work, and thanks to the efforts of everybody.

Operations we have implemented some business continuity plan, which means that we have in our subsidiaries limited staff to what is essential. People looking to if we can ensure again all the production of the sites and the access — maximizing the availability. We control, of course strictly the access to the sites on all the offshore platform. There are some — if we think there is a risk of PCR testing, we put the people in quarantine before they go offshore, so actions have been done in order to ensure that continuity.

Customers is also important. Our retail network is open at 95%, which is quite high. And unfortunately, to be honest, when I always would look to the statistics, the business is not at that level. In France, we have, we have lost almost 70% of the business in marketing, in Germany it’s around 35%, 40%, but our people are there and we have reorganized there to keep the social distancing. We continue to supply gas and electricity and we take care of course of our communities as much as we can. So we are providing some masks in some of our countries and when we acquire some of masks, we give some of the masks we acquire to our communities. We have put in place some special program in particular in France, but in other countries as well in order to provide free gasoline to some healthcare professionals, it’s a strong, strong move in France, 1.2 million people healthcare professionals have received a card containing EUR30 of gasoline and they appreciate a lot. So it’s strong, it’s good to demonstrate that, I would say the solidarity which will support in this difficult times, it’s a value of the company and we have to demonstrate it with our communities around us. So that’s the COVID-19. Again everybody is on board and we are on the first line of this war.

Then of course following slide. The oil market, this is a crisis we face. I will not make you a lot of lessons you already rethink. What I would just say is that, of course, you know that we are facing a clear over production. We have really in our industry a difficulty to adapt our production capacities and our production levels to the demand. We have even done the contrary during one month, growing the supply instead of lowering it. I think [Indecipherable] producing countries, have very much seen the dramatic effect on the oil price and have decided to take actions by putting in place some quota not only the OPEC plus countries with almost 10 million but other countries are joining the Group, including by the way a country like Canada, will come back on the Total case where obviously, today, it makes little sense to produce oil when you have a negative margin on variable costs.

And so, but we, the industry is facing the situation. Of course, I met a journalist this morning who was telling me, compared to ’15, I told him it’s much more an unprecedented situation because in ’15 we were facing inventories growing from 58 days to 70 days. Today we have jumped to 90 days. And this is of course the most difficult part for all of us is that not only we could face shortage of inventories but more fundamentally that means that it will take time before to be able to decreases these inventories, which means — and by the way, I was — in the announcement by the OPEC Plus countries on April 10, what was interesting was not only the quota of 10 million barrel per day immediately, but it was a fact that they afford to maintain quotas until the end of 2021, 6 million barrel of oil per day.

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And of course, this is a fact that re-changed really resulting inventories, which put pressure on the price. Again difficult to anticipate, but this is an old feeling we have. This is why again we took various situation and March 23, we presented to you and we communicated immediately our first action plan, that we need to reinforce today.

Next slide. So on the next slide, back to fundamentals, which will you — I want to remind you because it’s very important, each company is entering into this crisis with different, I would say fundamental. Ours today are much better to weather the storm than the ones we were facing in 2014. Low gearing, excluding lease around 17%, and for more fundamentally a cash breakeven, which is under $25 and $22, $23 per barrel and the action plan we will put in place, we will lower this breakeven. So these two fundamentals on which we were — I was insisting as being earlier the core strategy of the company are giving us today competitive advantage and this time of course to use this advantage compared to other competitors.

I would also say that like you see this stable, but our capex today, our organic capex are the ones which were there. We’ve also some lessons learned, which was to keep some flexibility. Our flexibility in our capex and what would be present you is if we can quickly decide to cut the organic capex is because again organic capex part of that we are flexible and it’s around $3 billion, but we can activate quickly. And we can activate them, because we had the contracts designed to be able to activate, so we can stop some rig contracts in order to stop to make infill wells in Angola, or elsewhere in the world. So this was the lessons learned from 2014-’15, which has been implemented in the company in a disciplined way, that we can leverage today.

But the crisis is there and the chart on the left — on the right of the slide demonstrate that it’s even, it’s quite a big gap in terms of cash. In March, when we made our first action plan, we evaluated the pure price impact. We have taken an assumption and they’re wrong of course, but the average of the coming nine months is $30 per barrel. So we took the first quarter, which was around I think $50 plus a — so a fee coming quarter at $30, so it’s an average of $35 per barrel. In March, we only evaluated the price impact metrics, I would say the sensitivity. So it was around $9 billion, taking into account the lower refining margin, gas price. So we gave that figure to make a plan.

What we have done since after this action plan, we have asked teams to re-base the budget. So there was an intense work to be done everywhere in the company. I must thank all our teams for this hard work, but the idea was of course for them, one, to absorb the cost actions plans on opex and capex to confirm our first plan and to put it in the figure, so that it is shared, and you can’t save all of it. But also to better evaluate the impact of the crisis on obviously the activity, on the production on one side, on the refining on the other side, and the marketing and sales. So, and these came, they came back to us and today with the assumption we took with evaluated gas gap not at $9 billion but around $12 billion. This is why we need to reinforce our action plan today.

So the next slide. So in terms of production, you had a guidance in February that we could raise our production by 2% to 4%. The 2% — between 2% and 4%, I remind you, that it was linked to the closing of the Anadarko assets. Today, we are evaluating all these guidance on production. We say 2.95 million to 3.00 million barrel per day. It will be the kind of course of the way that the OPEC countries will implement with discipline their quota. I’ll be clear, as a policy of Total, my instruction in the group is, we apply the quota everywhere it’s required by the country. It’s our interest honestly, and of course, we have some countries where it will hit Total like Abu Dhabi, Iraq, Nigeria, Angola, Kazakhstan. Less, not so many, in fact, when you look at the list. So we have the quota OPEC Plus, we’ll have — we are voluntarily reducing our production in Canada to give out our operators on dividing more [Phonetic] by two, even more on one of the fields.

But I think that’s part of the contribution. We had also an effect which was by the way taken into account at Q1 production already the Libya conflict where we have two field, Ashara and Waha, which are closed down, shutdown, only the offshore production is producing, and some impact on some gas local demand that we can see because of the COVID-19 as well. So we give that guidance of 2.95 million to 3.00 million. Honestly, if all the quotas are really well implemented, it should be next to 2.95 million rather than 3.00 million, but it’s difficult to understand or what will happen during the coming nine months.

Second slide in terms of impact of activity at downstream. So there again, clearly we have an impact of the lower demand. That’s true, but all refineries had some, I would say issue — availability issues during the first quarter, like normally what was mentioned by Jean-Pierre that was lost because of the fire at the end of last year. We had also some turnaround in some of our plants. But today in fact, our refineries are running in Europe, but I would say around 60% more or less. And we have some of the refineries, like Grandpuits, which was going out of the turnaround, we decided not to restart it for the time being, like Feyzin as well.

And so when we look to, of course, the demand will come back when people — and the business, the economy will wake up again after this, I don’t know, we say confining maybe, the people are today closed in the — they cannot really work. So the demand will come back, we said expect it. What we anticipate is a utilization rate of our refinery rather around 70%, 72%, 75% compared to what we had done last year, around 85%. So it’s a decrease of I would say at around 15% of utilization rates, which of course will impact the cash flow from refining.

On the contrary on petrochemicals, we have clearly a better news, I would say, it’s more resilient business for two reasons. One, in fact, the demand is not so impacted. Demand for plastics, for food and for hygiene are quite strong today for obvious reasons. And also petrochemicals, we have some flexible crackers and we benefit in that business from, I will say, a low cost naphtha or low cost ethane. So we have a capacity to have a certain resilience and the results are fine and are good. So that’s a good news, which we compensate given not fully because the size of businesses is not the same, but that’s a good element.

On the marketing and services, clearly, we are suffering hardly today during the second quarter in particular in Europe. M&S is mainly around for retail network around Europe and Africa. And in Europe we observe, I would say we think around the demand decreased by 50%, as our fixed costs and variable cash margins is around 50%. That means that if you lose 50% of your revenues, you have no cash flow out of this business during the quarter. So that’s why we have an impact more or less we evaluate around $600 million. So all in all, when we look at the guidance we give you for the downstream cash flow for the year is around $5 billion to $6 billion. I remind you in February, it was $6.5 billion. I think, we gave you $6 billion to $7 billion, so it’s $1 billion of difference. We’ll see maybe we are little pessimistic with the $5 billion, but it’s difficult to anticipate and I think it’s good to give you such a better vision of where we go for the next — for the rest of the year.

So then, so that means that we have to put — to upgrade, I will say, to update and to upgrade the response to the environment. In Total, we strongly believe it’s a philosophy that we have to help ourselves, so we have to take actions by ourselves. Maybe you have noticed, but I was one of the first CEO in France to say that we’ll not ask anything, any help from the state, no form. I think, it’s good to believe to have this self-help, to keep our independence and to be able to because the company is strong enough, the fundamental is good and we know that we can add some resilience internally.

So on the capital side, the reduction we announced $3 billion in March, today we are increasing these capital savings by additional $1 billion. Of course, we have activated there again on on the organic capex and it’s around more than $3 billion, I would say. All that was flexible capex, we have also stopped some few feed projects which were not maybe in a less priority today. I would also say that — and I will come back on it, but Occidental officially told us that we cannot acquire the Algerian asset. So that of course released part of the acquisition budget. Of course on the same time, maybe we are prudent. Algeria was around $2 billion. We released with the everyone because we also know that I would say the divestment budget is much more complex to execute. It makes no sense to me and so to try to sell an asset like Bonga in Nigeria. It was public when we tried to — when we put on sale, we stopped the sale because we don’t want to lose value on the upstream assets and upstream assets of high quality like this one.

So we are replacing it, we overwrite it, but it could take time to execute it. So $1 billion additional is coming from, I would say, fundamentally the M&A, the net investment budget, the net M&A budget, net acquisition budget. And at the same time, again, I repeat it, and its linked to my second part, we maintain our low carbon electricity investments at $1.5 billion to $2.0 billion. On the opex savings, we announced $800 million, we — difficult to increase it a lot but together with a bottom-up approach coming from the teams, we have set a new target to $1 billion. And to be clear, I announced this morning that I’ve proposed to the Board to reduce my salary by 25% and the Executive Committee has decided to follow this effort with me with 10% until the end of the year. I think it’s — for us it’s a message of exemplarity within the company. We are asking big efforts from everybody.

Again we don’t want to release to — no idea to decrease the workforce. We have freezed the recruitment, which means reduced the loss to be honest. We will more or less recruit in 2020 the level of people that we have recruited in 2015-2016. So we are back to these tough years but we have — we prefer to, we trust people who are today in the company to execute all the savings programs and we show some exemplarity by applying this decision on ourselves. You can see on the slide that Refining and Chemical will benefit from $1 billion of energy savings, which will be in fact good for the margin which is not so high because of the demand but it will help the Refining and Chemical — or refining business to face the situation. So we don’t add this $1 billion as a clear saving because it’s part for me of the refining margin, the assumption of refining margin.

And then we have shareholder return, because again, we have to help by ourselves, but we are also to ask to our shareholders some effort. So we are planning at $60 per barrel like we announced in February, a cash shareholder return of around $9.5 billion, $7.5 million plus $2 million, more or less. You know that we have decided immediately to stop the buyback in March. We have, and I will come back on the share — our shareholder return with the mindset of the Board in at the end of my presentation later. So I will not describe it now, but the message that we have proposed a limited one-shot skip option and I will come back on it on the last quarter of the 2019 final dividend. But at the end, the result is that we will give back to our shareholder return $7 billion, instead of $9.5 billion. $7 billion, if you take the slide number 4, you will see that the cash flow from operation is around $15 billion, so it makes around 45%. So it’s not too bad.

So that means that we appraised a lot and we attach value to shareholder return despite these difficult circumstances.

We came to next slide. This one I will not comment it long, it’s the same slide we used in ’15, ’16, the four key words which are the motos of the company. HSE, delivery, costs and cash. Be excellent of what we control. Everybody I think around the company is motivated. H because of Health, COVID, S because Safety because, of course that’s a fundamental, it’s been more fundamental, when difficulties are there, not to have any accident, and E — and I will come back and say the other part is CO2. And everybody is mobilized on this challenge as well. Delivery because it’s the only way to generate cash flow, so increasing the availability the use of our assets. The costs, I’ve already explained. And the cash, no need to say that it’s the art of the war. So, growth as the company and like, because of the cash is a growth of the company, yes, we have decided to clearly reward people and our top executives on the capacity to release this $1 billion of working capital because it’s also part of what we must manage in the company.

So to summarize these, next slide, the 2020 action plan. Four, five key figures today. Cash preservation $7.5 billion through our cash savings, plus $1 billion working capital release. Guidance, production guidance 2.95 million to 3.00 million. Downstream CFFO $5 billion to $6 billion. And liquidity, which obviously very important to what Jean-Pierre explained you, I think it’s key. We have increased it, we have taken actions as well. We never know where the financial systems could go. So we prefer to have some cash in our pockets, in our treasury rather than outside. So net, I think it’s a net liquidity, which means it’s a gross treasury plus undrawn credit facilities minus the short-term debt at the 12-month of $25 billion. And we know you know that we attached some value to maintaining our grade A credit trading, which we are — where we are today.

I would like to before to the give the floor to Q&A, to make some comment, next slide, on what are the mindset and the discussions at the Board level, on the shareholder return. I’m sure, it’s clearly a debate that has been put on the public domain [Indecipherable]. And I read a lot of papers during the weekend, interesting papers. I would say the way we look at it we discussed it. First, of course, the first responsibility of the Board is to preserve the future of the company and that’s important, but at the same time the Board has strong trust in the fundamentals of the company. And I think if today we have the investment case in Total is referring two major differences compared to some of our competitors, which are these low breakeven another 25% and the low gearing under 20%. That means that we can use our balance sheet to weather the storm and towards the shareholder return.

And really the discussion of the Board is that we are convinced that it’s a good time to show the difference, and to use our competitive advantage to demonstrate why the investment case in Total is superior to those offered by some competitors. The second element of the debate was, yes, at the same time, unprecedented market condition, extraordinary circumstances. So what is the level of cautiousness but also no overreaction. And sitting at the Board, yes, we have a lack of visibility, but we should not make premature decision and overreact. Let’s wait, we can resist. We are — we have some resiliency. Let’s see, with the visibility, maybe not Q2, by the way, I think it’s better by Q3, because Q3, we will see either US economy, European economy, the speed to recovery to more normal level. We’ll have also better ideas of the way that the OPEC Plus countries are really implementing the discipline of implementation of the quota. So, a better visibility as well on the oil market.

So we think that it’s — we have again the balance sheet to resist. So no overreaction on our side. And I will also say that in the timing issue discussion, it was clear to us, but yes, we can be very quick in Total to make some M&A deals. But when it comes to shareholder, it’s better to think twice and we value the long-term relationship. It’s a matter of trust. We build trust with time, and we know we can destroy it quickly. So I would say that’s the point.

So on cautiousness, of course there is a dose of a certain cautiousness as well, stopping the buyback I think was obvious. You have observed that we have decided that to offer this scrip option for only and it’s a one-shot of scrip option, so 2019 dividend, final dividend to the AGM. You can see that, so it’s again, $1 billion of cash savings. We have, by the way, bought more than $500 million in the first quarter. So it’s a balance there more or less. Having said that what is important is that what the Board has decided as well, it was not in the resolution, which means that we have rejected the idea to offer the scrip dividend for the full year 2020 because we don’t have any resolution and you know in the French legal system, it’s the AGM has to decide a scrip dividend.

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So on the AGM of May 29, only the scrip dividend for the final quarter will be offered but not for the rest of the year. Again, because we are the fundamentals and we are ready and the Board is clear what we can use this balance sheet, leverage the balance sheet. I would also say in the — with the same idea, but in fact, when we look to the size of the dividend of Total, around EUR7 billion, EUR7.5 billion [Phonetic] depends — it’s in euro, so it depends on the exchange rate, between $7 billion and $8 billion. When we make our tests, about $40 per barrel, there is no problem we can finance our investments, we can pay the dividends. And so we are comfortable, and again balance sheet is up to weather the storm.

At the same time, that’s true, but then I have read some papers, interesting papers from some of you, but there is an opening debate in our industry, we all have I would say a progressive dividend policy doing several years. Today, there are some voices about should we switch to more valuable dividend linked to payout policy like some mining companies. I think this is some dialog we cannot that, which we need to share with our shareholders. Again, it’s important to have inputs and in the same way that we have engaged with our shareholders about the climate policy, I think it’s even more important to engage with them at such a topic and to share it.

So, but the mindset of the company of the Board and it’s why strong confidence in the fundamentals of company, we have — we prefer to wait and to have a better visibility of the macro environment on the oil markets and to engage and to have the inputs of investors, because if we have to face a longer crisis, if the price remain at $30 per barrel or under for long, obviously, we’d have to take action, and that has to be shared with our shareholders.

So I’ve been a little long on this one, but I think now we can enter the Q&A.

Questions and Answers:

Operator

[Operator Instructions]

And your first question comes from the line of Michele Della Vigna of Goldman Sachs. Please go ahead. Your line is open.

Michele Della Vigna — Goldman Sachs — Analyst

Thank you. Thank you very much and congratulations on the resilient results in such a difficult environment. I had two questions, if I may. The first one is about LNG. We are seeing a clear divergence between LNG prices and Henry Hub, which are leading to negative margins, at least this summer. I was wondering if some of these movements perhaps have made you more wary in terms of increasing the exposure to US LNG and have made other projects like the one you’re developing in Mozambique actually more resilient and less risky from a basis perspective?

And then the second question I wanted to ask you is, if possible, to break down organic versus inorganic in the $14 billion budget and to clarify on the Occidental Africa acquisition if effectively the second part of the transaction with Algeria and Ghana have been canceled or just delayed at this point in time? Thank you.

Patrick Pouyanne — Chairman and Chief Executive Officer

Okay. Thank you, Michele for you questions, always very interesting and challenging. I would take the first one on LNG first, you have noticed that our LNG activity has been quite resilient. By the way second quarter from this perspective will be, should be quite resilient as well because in fact on a long-term price we have a sort of six months of delay between the oil price and the LNG formulas. So it’s the second half of the year, we should see more impact of the lower oil price. It is clear that yes we face today people talk lot about the oil market, but the gas markets are suffering a lot. It was already because since last year. So we have an exposure to the area but clear, we will by the way probably we are on the way to I would say cancel some of the of the LNG tankers during summer time in order to limit some losses.

It’s true that we have an offside, I would say we have projects. We are working still on one project, the ECA projects in Mexico because it’s on the Pacific Coast and together with Sempra, we see a lot of value. You save more than $1 per million BTU of just the trip to Asia. So this one — such a big project. So, this one I think and I think we are in line with Sempra and Mitsui, we should move forward coming months. Other projects, the answer is, no. I’ll be clear, we are not in — I mean I’m not very — we are not, today is a priority not to invest more in merchant projects in the US.

So clearly, we have the extension in Cameron. We’ll see with Sempra where we go. And a greenfield project like option we have with Tullow Oil, and I think there is no reason would be a trend to move forward on this one, and that’s true as well like you said. From this perspective, the acquisition of the Mozambique LNG project is quite — was a different nature. We always explained, but it was a project, which was developed by Anadarko, as we see in the old way. We have long-term contracts linked, most of them to oil prices, to — and so that was the big interest for us on the Mozambique, not only the size of the resource, which can stay for many development but also the quality I would say, of the portfolio of values. And so that’s, that’s one of the things.

So that’s true, but we have already said, I think in February, we have a lot of LNG in our portfolio. We have enough projects not time to it maybe the excess ECA. The status of Oxy, maybe I will — as I told you on — no, nothing is canceled, let me be clear. There is an SPA, which is valid and the long stop date is one year after the Mozambique closing, which means, end of September 2020. And you know the issue, everything is public, because all that has been disclosed to the SEC. So, you can find all the contracts, but the Algerian sale, Oxy notified us that they cannot deliver towards the Algeria asset, because of the position of Algeria authorities, we want to keep — we want in fact fundamentally to keep the operator as it is today. So, Oxy will remain as an operator.

And so they did not approve in fact the change of control of Anadarko to Oxy, and they approved it, but just to — under the condition not too to sell it. So that means Algeria will not be done, unless Oxy finds a way to come back to us according to the contract. And on the Ghana, it’s — things are moving on, and again we’ll not elaborate more on it, because it’s — we have a contract with Oxy and so we’ll — it’s between the two companies that we have to decide the way forward.

So organic versus M&A, I would say in the $14 billion, — I’m not sure to have the figures, probably something like $10 billion to $11 billion, and $3 billion to $4 billion. Yeah? All right. $11 billion and $3 billion. $10.5 billion — I don’t have exactly the figure, but just to give you some range.

Michele Della Vigna — Goldman Sachs — Analyst

Thank you.

Operator

Thank you. And your next question comes from the line of Jon Rigby of UBS. Please go ahead. Your line is open.

Jon Rigby — UBS — Analyst

Thank you. Yeah, just a follow-up on those two questions. Is it possible — there’s obviously a lot of moving parts in iGRP and results held up very well in 1Q. Assuming everything else is held flat, what would you estimate would be the effect on 3Q or 4Q results from the fall in oil prices in 1Q, I guess as a way of you being able to make that estimate just arithmetically?

And then also just to follow up on the comments you made about Ghana, is that deal still alive even with you not being able to complete on Algeria? And particularly, I guess with all the other things that are going on that were not conceived of in the original contract, it would seem to me is that what you’re attempting to call — what Oxy will be attempting to complete on, is a very different transaction to the one that you thought you were getting into a little over a year ago? Thank you.

Patrick Pouyanne — Chairman and Chief Executive Officer

Okay. On iGRP, the part of the reserve, which is linked to the LNG plants — LNG assets is around — out of the 900, is around 400 more or less. So this part will be impacted. And you can imagine that if the oil price divided by two, it will be impacted in a way, which has to be evaluated for more proportionately. I don’t have exactly the figures. Ladislas will come back to you, but more or less, the order of magnitude. So it’s not so big, in fact, but there will be an impact, mainly on the results of the LNG assets on the second half of the year.

On Ghana, I think I just answered to you again, a lot of things have changed, including the new environment. So we are working with Oxy on it. And as I said before, I think all that is also linked to position of the Ghana authorities and also linked to the environment. But you knew and you know very well I think that the main — the attractiveness of Total in Ghana was not at the same level in the other assets because it’s non-operated asset. And so we have less appetite for this one than we had for the other one.

Jon Rigby — UBS — Analyst

Okay, that’s clear. Thank you.

Operator

Thank you. And your next question comes from the line of Irene Himona of Societe Generale. Please go ahead. Your line is open.

Irene Himona — Societe Generale — Analyst

Thank you very much. Good afternoon. I had two questions, Patrick. Firstly, if oil were to average not $30, but around $25 for the rest of the year and given the lack of visibility and if you need the environment to save [Phonetic] another $2 billion, $3 billion, what is the process of introducing a further dividend scrip? Would you call an extraordinary meeting? And why not get authorization now given the uncertainties just in case it is needed?

And then my second question, just in terms of short-term guidance in the second quarter. What can we anticipate for the group tax rate in Q2, in the current environment compared with 30% you had in Q1, please? Thank you.

Patrick Pouyanne — Chairman and Chief Executive Officer

Okay. I will leave the second one to my CFO, expert in tax. And for the first one, now lets be clear, and I’m very clear. We know the negative impact of the scrip. We know that there is a dilution that our institutional investors do not like it. We know that we have used it from 2015, 2017, maybe by the way, we keep it too long. I know you take some lessons from the past. And by the way today at — when the price, the share price is around EUR42 or EUR40 per share, the dilution effect is even larger. So, it’s not for us the right tool. So be clear, the decision is clear. We will not convene any special AGM to introduce the scrip. So it’s why it has been very clear. And clearly, in fact for us, it’s not the right tool if we have to face a higher storm, like you described.

But again, we think that the fundamentals of the company are good — strong enough, and we are comfortable with what we said. I think we have other flexibilities like the one we discussed just before about M&A, which could come to help the company if we need to help more the company. So, I think — so that’s clearly for me, it has clearly been a negative decision from the Board about this ID, because again we — the dilution is too odd and has as a negative effect. And by the way, you — in fact, at the end, you borrow money at 8% or 9%. So I mean — so it’s quite expensive. So, no, it’s not the right way to reorganize the shareholder returns.

On the tax rates, Jean-Pierre?

Jean-Pierre Sbraire — Chief Financial Officer

I’ll take the tax rate question, Irene. So at $30, $35 per barrel, we could expect group tax rate around 15%, taken into account E&P tax rates in the range 25% to 30%.

Irene Himona — Societe Generale — Analyst

Thank you very much.

Patrick Pouyanne — Chairman and Chief Executive Officer

And just to complement, Irene, you know that in France, when we put a resolution, it’s not an option for the Board, we are obliged to use it. So its complex. So it’s why we don’t want to be tricked to be trapped. We just keep for one year, because once it’s voted in France, we cannot decide not to use it, it’s not like some of our colleagues in UK, have the authorization in option, but we don’t have it like that.

Irene Himona — Societe Generale — Analyst

Thank you.

Operator

Thank you. And your next question comes from the line of Biraj Borkhataria of RBC. Please go ahead. Your line is open.

Biraj Borkhataria — RBC — Analyst

Hi, thanks for taking my questions. Two, please. The first one is on some of the details you provided. So thanks for all the comments on the levers you’re pulling. One of the big ones is obviously the balance sheet. So you’ll be adding to debt over this period. So I was wondering how you think about the upper limit on the balance sheet. I think within your compensation scorecard, there is a 30% ceiling on your net debt ratio. So should we consider that as a hard ceiling? And then the second question is on production volumes. Regarding the shut-ins that you referenced in the near term, can you comment on what this means for your production capacity into 2021 and how much you lose there? Thank you.

Patrick Pouyanne — Chairman and Chief Executive Officer

Okay, good, clear. I think, if the Board puts this — no, it’s not the right time to change the variable pay of the CEO, to be honest. So these criteria, we have put in place a few years ago when I took my job on the gearing, incentivizing the management to take to pay attention to that level of debt. So 20% maximum, 30% zero. Again, I’m not — so, I think the objective was clearly under 20%, we do our — or best to be under 20%. And I think we are far from going to 30%. I have some — we have some room to maneuver there. I think in the simulation with what we said about the working capital release and despite by the year end, at $30 per barrel, we should be around 21%. I think this is what we have simulated, so maybe higher than that. So yes, 30% is more than our feeling, but with my personal objective is to maintain it lower than that.

But again we don’t take decision and the Board does not take decision only linked to one of the criteria of the CEO. When we came to use the balance sheet and in this exceptional circumstances, we are able to to take decisions independently of the criteria. Production guidance, I think, yes, there will be some impacts, in fact, that we when you decide to not to drill some short cycle wells but we don’t have the benefit last year, so it’s probably around I don’t have the figure, I think I read something around 50,000 barrel per day. But again, we saw short cycle, so if we want to reactivate them we will be able to do it as well. So, that’s clear, but this could have an impact let’s say around 50,000 barrels per day to give you an idea.

Biraj Borkhataria — RBC — Analyst

Okay, thank you very much.

Operator

Thank you. And your next question comes from the line of Lydia Rainforth of Barclays. Please go ahead. Your line is open.

Lydia Rainforth — Barclays — Analyst

Thanks, and good afternoon, everyone. Just one quick question. In terms of the approach that you’re taking around [Indecipherable] also the digital recruitment going. Can you just talk about how you actually seeing that, whether that’s changing in terms of the update that you gave this morning? Is the intention still to keep those two businesses largely unimpacted? Thanks.

Patrick Pouyanne — Chairman and Chief Executive Officer

Again, yes, new energy capex, which means, what I call low-carbon electricity and it’s fundamentally it’s either renewables or marketing — marketing B2C or B2B business like the one we have invested in India. We have a budget, which was announced between $1.5 billion to $2.0 billion. I can give you, probably it will be nearer to $2 billion, than from $1.5 billion, this year in 2020, because we have already done some deals and certainly organic. It’s also inorganic, we are building a business. So we need to be serious about it. I think it’s part of the future of the company. So we’ll keep that. And again, we should be around $2 billion, because we have done already these investments in at any. The first quarter has been very active when you read the — if you read the key facts of the press release, there is more key facts on the farm than on the rest of the company. I think 2 gigawatts in India, 2 gigawatts in Spain, 1 gigawatt in Qatar, 1 gigawatt in France.

So yes, we think is part of the strategy and this one is — could be considered as flexible, but we don’t consider it as flexible, because we are building the broader energy company that TOTAL wants to become. So it’s — and by the way, I would add another element, which is important. When you look to this type of business, I know that we have a reputation not to offer the same profitability. When I see 10% of return, which is what we are able to do today after in our lower capex model when you know we invest in 100% of an asset, renewable asset and then we sell 50% of it and we leverage from this, I would say, farm-down part of the profitability. This type of assets 9%, 10%-plus compared to an upstream asset which is volatile at $30, it’s good to have this type of assets as well in the business.

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So fundamentally, I see these new low carbon energy, low carbon electricity assets are bringing to the company and to the group a sort of more stable balance of revenue. It will take time before it will be at the size that will influence fundamentally the global business model. But — so, that’s all the reasons why we intend to stick to this investment. So that means that if we make $2 billion by the way this year out of $14 billion, it makes something like 13%. So people think [Phonetic] — so we are slowly growing the investment, the share of investments in this business unit.

Lydia Rainforth — Barclays — Analyst

Okay. Thank you.

Operator

Thank you. And your next question comes from the line of Christian Malek of J.P. Morgan. Please go ahead. Your line is open.

Christian Malek — J.P. Morgan — Analyst

Hi, thank you. And thank you, Patrick. And also I hope you and JP2 are staying healthy, especially with the stress navigating company through this crisis. So a couple of questions, first, regards to the capital frame, the logic of sustaining dividend at these levels in the context of CFFO. And the second question is on the impact of the capex cuts in the future oil production.

So regarding the level of the dividend now your dividend essentially CFFO is on the highest, it appears that the European oil is just under 40%. Regardless of the impact from this current crisis, do you think this is a relatively high level and it limits your ability to spend more energy transition and your oil growth as some of your peers have argued that cutting the dividend is a key enabler. The second question sort of links into that which is to understand how much oil production has been deferred as a result of the capex cuts this year and if you were to just raise capex, so flipping it around if oil moves higher, would you allocate into new energies or oil? Can you give us a sense of how you sort of reallocate that marginal growth in capex? I’m just trying to understand on whether the updated energy transition policy comes at the expense of lower market share and oil, over the medium term? Thank you.

Patrick Pouyanne — Chairman and Chief Executive Officer

I think by the way today, again, we have to as I said in my — in my presentation, we are very comfortable. We know that in oil and gas company, we’ll have some volatility and we have to accept a certainty this time to use to leverage its balance sheet in order to maintain a certain level of returns to shareholders. At the same time, again as I said is barrel at the $30 for longer, for very long, there is a certain limit to what we can do, you know, but at $40 per barrel, the cash flow generation, if in a stable activity I would say is around $19 billion per year, $19 billion, $7 billion of dividend, I have $12 billion for investing. I think we are fine with that. We have — that means yes, we have to make some choices. And from this perspective on the second question, I think $1.5 billion to $2 billion as an average we are fine to grow it steadily. This morning you notice probably in the — I will come back on it in the climate statement that we said, that we reached 20% of our capital allocation by 2030 or sooner, which means we have time to grow it. We think that there is also a certain level to build. Is it — so I don’t think that these and I understand perfectly the question, but we — but these dividend at this level is impairing the execution of our strategy.

The capex cuts impact on this year projection are really minimum. I mean when you have a capex program of infill wells that you cater to the second quarter and third quarter, the production could produce is I think matter of 10,000. By the way, this would have been done in countries like Angola, where you have some quota. So I think our decision was just maybe anticipating OPEC’s [Phonetic] decision, so I think it’s almost very limited impact in fact for next year. For next year, it has a bigger impact.

Where should we allocate capital if we have more cash? Again, I think, to be clear, we don’t — we have a roadmap of growing steadily these low carbon electricity business, if we take time, we need to learn, we have to identify the right opportunities, there is no hurry. We are releasing the roadmap for climate until 2050 with some steps. And I will come back on it in my next presentation. So I don’t feel that today we have — we have the necessity to free some cash from the dividend to transfer it on increasing the capex of this business unit.

But if we have more, I think, priority will be to allocate the capital to where we have the higher return. And so if my short-term wells in Angola are quite by the way, they have a good return, 20% or something like that, providing the price come back to an acceptable level. We will reactivate this flexible capex. As part of the business model we have defined to have a sort of flexibility of the capex we allocate also to the upstream part.

Christian Malek — J.P. Morgan — Analyst

Thank you very much.

Operator

Thank you. And your next question comes from the line of Martijn Rats of Morgan Stanley. Please go ahead. Your line is open.

Martijn Rats — Morgan Stanley — Analyst

Yeah, hello. It’s Martijn Rats of Morgan Stanley. I had two questions as well. I wanted to ask about the downstream guidance. This figure of cash flow of $5 billion to $6 billion for the year. Last year, I think both the various downstream divisions together generated $7 billion. And this year, we still have multi-millions of barrels a day of demand destruction. I know like 2Q was particularly weak, but across the year it seems like a very small drop for the dramatic events that have just unfold, which I was hoping you could sort of explain that to us, why isn’t the downstream weaker given the level of demand destruction? In 2009, we saw very, very weak downstream results across the industry and that was based on just 1 million barrels a day of demand destruction. Honestly I generally sort of don’t fully understand how that works. So if you can explain that, that would be much appreciated.

And secondly, I wanted to ask JP2, what his estimate is of the amount of headroom that exists within the current credit rating? That would also be very useful.

Patrick Pouyanne — Chairman and Chief Executive Officer

Okay. So on the downstream. I think downstream is a mix of different cash flows. As you know, we have refining, where clearly we’ll have lower cash flow, a lower utilization, which is directly impacted by the lower demand. The M&S business, you know what we observe in China is one month after the end of I would say the full closure of the country, we have reached levels of business, which are around 80%, 85% back to the normality. So if we are back to that level or coming back quickly in Europe, which is why I told you, when we think that we could, I would say we are generating normally yearly around $2.5 billion of CFFO, we give you that we could lose 600. So maybe we are missing thereby 100, 200, but not more. Petrochemicals could do good very well. I mean, so we are optimistic on it. And don’t forget that in refining and all these business downstream are also traders. The trading business, the trading business loves times when you have a lot of volatility and contango, by the way they have borrowed some money to the Group. Part of the increase of the working capital is linked to our traders. We are storing. So I’m more optimistic than JP2. I think that working capital of today will be a big benefits of the tomorrow before year-end. So we have to deliver. So all in all, my view Martijn is that to be, to give you the full story, I was the one who pushed five to six, my downstream people are little more optimistic, they look more to the six to five, but I am little like you, but I would be surprised to have less than the guidance that we propose you.

Jean-Pierre Sbraire — Chief Financial Officer

So regarding credit rating, as Patrick mentioned to you, of course, having a good credit rating is very important for us and to maintain A credit rating is part of our priorities. What I notice is that despite the revised slide [Phonetic] deck from both S&P and Moody’s that was, this was revised in March or in April, we maintain our rating. So that’s true that our perspective changes from stable, or positive to negative on both S&P and Moody’s side. It was — it was, by the way the same for all our peers. So it’s true that either the prices remains at $30 per barrel, I think as our peers, we lose one notch probably, but it’s, it’s not what has been confirmed till now by the agencies and so we will have to wait and see. At present time S&P, is minus trending make makes calculation using $30 per barrel price deck for 2020. That’s would for 2020, ’21, they use higher price stake. So once again if we remain at $30 per barrel over a long-term period, probably we’ll not be in a position to maintain this rating, but we will definitely keep A rating. So that’s once again it’s one of priority.

Patrick Pouyanne — Chairman and Chief Executive Officer

Yeah, the A rating has always been linked to the gearing and all these business. So it’s important for us, but we have some room there to manage that.

Martijn Rats — Morgan Stanley — Analyst

Great. Thank you.

Operator

Thank you. And your next question comes from the line of Oswald Clint of Bernstein. Please go ahead. Your line is open.

Oswald Clint — Bernstein — Analyst

Thank you very much, everyone. Thank you. Yeah, obviously, very tricky to call demand recoveries. Let’s think about next year, over the next five years, I guess, and some of your peers are finding it obviously very tricky and some of them have a bit more comfort around the path for demand recovery. So I just wanted to know if you as a team have with your experts and with your people on the ground have formed some view of how demand might recover from here. I mean, jet, fuel, traveling, people flying, people traveling by car and public transport, etc. That’s my first question.

And then secondly, obviously, quite impressive to see another countercyclical acquisition here in terms of Uganda, it’s characterized as low cost barrels. I just wanted to maybe test that assertion. Is it truly low cost including transportation and pipelines? Is it — I mean, at least at the forward curve, I seem to be getting around 10% return. I just wonder what I might be doing wrong there or is there some type of expression of oil prices recovering potentially back up to the $50 or $60 level, please. Thank you.

Patrick Pouyanne — Chairman and Chief Executive Officer

So recovery, I would love to be able to answer to your question, but part of the uncertainty. To be honest, I’m more optimistic about cars and the Jets. The cars, if you observe, in many — in China, is that in fact people are using more of their cars because they are afraid to use public transportation than before. So I think once again, people are free to move and that’s a question mark. I think, they will come back to use their cars and we expect, I would say, the retail business to come back to certain normality. The jets, I’m more afraid, but for me, as long as we don’t find a vaccine or I don’t know which medicines, I’m afraid the countries will close their borders and that there will be limited — it will be difficult to fly again around the world. I mean, because each country, each government will have a first priority to safeguard the health of their people. So I’m more pessimistic about the jet fuel business than for the gasoline and diesel business which is more, I would say continental business than our oil business, but [Indecipherable] I would love to have a precise answer to your question.

On the second one, yes, I mean there is a big huge amount of barrel, 1.5 billion to 2 billion barrels, so it’s onshore, it’s not very difficult to produce. Yes, there is a pipeline, it’s true as well. We all know that, but we know that when we look to this type of projects, we have some threshold and if we have done this acquisition, which is quite good compared to the previous deal, we have done, we have divided almost by two the cost of acquisition. So it was we have been quick to find a solution which is too low. If we have done it is because we expect at least 10% return on this, even at a lower price.

Oswald Clint — Bernstein — Analyst

Okay, fair enough. Thank you.

Patrick Pouyanne — Chairman and Chief Executive Officer

I will take last question and maybe we — after the second session of Q&A, we could take the ones, but I would like to move to climate. The last question maybe.

Operator

Yes, of course sir. And your last question comes from the line of Thomas Adolff of Credit Suisse. Please go ahead, your line is open.

Thomas Adolff — Credit Suisse — Analyst

Thank you. Just one clarification on the dividend. I guess the decision on the dividend today, as well as some of the commentary you made on the call, suggest to me that your view on the macro for the medium and longer term has not changed. So basically, what you’re saying today is, let’s wait and see COVID-19 may not have any structural implication on how oil is consumed and I want to wait until maybe 3Q 2020, to see how economies recover and what the outlook may be for 2021, before making a fundamental decision on the dividend. Is that how I should think about the dividend and the dividend decision?

And then secondly, just going back quickly on LNG and LNG or Integrated Gas contributed very strongly again and it did so in the fourth quarter as well. I wanted to know a little bit more about the US LNG, whether it contributed positively in the first quarter and how we should think about the rest of the year? Clearly, when you look at prices today it’s out of the money. Thank you.

Patrick Pouyanne — Chairman and Chief Executive Officer

Okay. I mean Thomas, you did not listen everything what I said. I told you, that we have strong fundamentals and that we have time we can use and leverage the balance sheet to maintain the dividend. I think it was a more fundamental message that I delivered. I also told you that we think that and Board think, that it’s premature to take decisions when we see nothing because you could, which means — doesn’t mean that we’ll take, but we put a question mark on the dividend policy on the Q3, I just told you that we think that we’ll have a better visibility by Q3 and that it shared some fundamental. I mean I’m reading like a lot of papers. Again, it can change the visibility and the price could remain as I said, because of our inventories at $30 per barrel, $40 per barrel, but as I told you also, $40 is very different from $30. So it’s a question of appraisal of how long it will take to recover this oil price.

On the medium and long-term, no, I think, again, what we said about oil, of course linked to the demand, but you know when you don’t invest or your invest — the investments in E&P will again be lower than before. The shale oil, which was the way to ensure the production will be impacted and quite quickly. According to our model when we — if you have a decrease of shale oil production by 2 million barrel of oil per day this year, and people are more or less reducing their investment it could become 4 million barrel of oil per day next year. And so, it could accelerate the miss in terms of production. Of course all that is linked to the pace at which demand will come back and that I don’t have a crystal ball.

So we think that again this type of decisions we have, we have the capacity of our balance sheet and our low breakeven to be resilient to — and not to overreact, that for me is the main message and so there is no, I didn’t give you a missing point in Q3 to tell you we’ll take another decision than dividend, it’s not what I told you. I told you that we can be resilient and the fact that by the way, we decided to give up on any scrip option for the coming year is, I think, a clear signal of trust in our fundamentals.

On US LNG, I have — I don’t know if we know the answer. We know we are short [Indecipherable] of our purchases represent 25% although sales around 10%. I would say that for me despite what I know, that in IGRP I can tell you, that in first quarter the trading of LNG has been quite positive. And it’s also linked to the capacity to have all these world network of sources of LNG in the US, in Australia, in the Middle East. So it’s part of the system that we have established. And what I observe is that quarter after quarter, they are improving their results. So I think this is also part of the business of arbitrations between the different sources of LNG, which is a business model they want to develop. So I mean we have some pluses and some minuses, but what I observe is that again and even you know when we acquired the NGV gas capacity in Europe, it was considered as a burden. Today, we are full at 80%, and we make money out of it with all of these type of assets. So I think the message around LNG and one of the strengths of what we have built is more to have a global system with productions and outlets and customers and regas capacities, which allow them to optimize it.

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