TotalEnergies : Notes to the consolidated financial statements for the first six months of 2021 (pdf – 433 KB)

TotalEnergies

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE FIRST SIX MONTHS 2021

(unaudited)

1. Accounting policies

The consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and IFRS as published by the International Accounting Standards Board

(IASB).

The interim consolidated financial statements of TotalEnergies SE and its subsidiaries (the Company) as of June 30, 2021, are presented in U.S. dollars and have been prepared in accordance with International Accounting Standard (IAS) 34 "Interim Financial Reporting".

The accounting principles applied for the consolidated financial statements at June 30, 2021, are consistent with those used for the financial statements at December 31, 2020. Since January 1, 2020, the Company has early adopted the amendments to IFRS 7 and IFRS 9 relating to the interest rate benchmark reform phase II. In particular, these amendments allow to maintain the hedge accounting qualification of interest rate derivatives.

The preparation of financial statements in accordance with IFRS for the closing as of June 30, 2021 requires the executive management to make estimates, assumptions and judgments that affect the information reported in the Consolidated Financial Statements and the Notes thereto.

These estimates, assumptions and judgments are based on historical experience and other factors believed to be reasonable at the date of preparation of the financial statements. They are reviewed on an on-going basis by management and therefore could be revised as circumstances change or as a result of new information.

The main estimates, judgments and assumptions relate to the estimation of hydrocarbon reserves in application of the successful efforts method for the oil and gas activities, asset impairments, employee benefits, asset retirement obligations and income taxes. These estimates and assumptions are described in the Notes to the Consolidated Financial Statements as of December 31, 2020.

Different estimates, assumptions and judgments could significantly affect the information reported, and actual results may differ from the amounts included in the Consolidated Financial Statements and the Notes thereto.

Furthermore, when the accounting treatment of a specific transaction is not addressed by any accounting standard or interpretation, the management of the Company applies its judgment to define and apply accounting policies that provide information consistent with the general IFRS concepts: faithful representation, relevance and materiality.

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1. Changes in the Company structure

2.1) Main acquisitions and divestments

• Integrated Gas, Renewables & Power
• • • In January 2021, TotalEnergies finalized the acquisition of a 20% minority interest in Adani Green Energy Limited (AGEL) from Adani Group. Adani Green Energy Limited (AGEL), a part of the Adani Group, has 14.6 GW of operating, under-construction and awarded renewable power projects catering to investment-grade counterparties.
  • Refining & Chemicals
  • • In February 2021, TotalEnergies finalized the sale of Lindsey refinery and its associated logistic assets, as well as all the related rights and obligations, to the Prax Group.

2.2) Divestment projects

• Exploration & Production
• • TotalEnergies has initiated the sale process of its 30.323% interest in the share capital of Petrocedeño in Venezuela. As mentioned in Note 8 Subsequent Events, this process led to the execution on July 9, 2021 of a Share Purchase Agreement with PDVSA.
    As of June 30, 2021, the assets have been classified as "assets classified as held for sale" for a null value. These assets are the shares of Petrocedeño, as consolidated under the equity method and recorded at their sale price; this transaction triggering a loss of $1.38 billion in the financial statements of TotalEnergies.
  • On July 30, 2020, TotalEnergies announced that its 58% owned affiliate Total Gabon has signed an agreement with Perenco to divest its interests in seven mature non-operated offshore fields, along with its interests and operatorship in the Cap Lopez oil terminal. The transaction remains subject to approval by the Gabonese authorities.
    As of June 30, 2021, the assets and liabilities have been respectively classified in the consolidated balance sheet as "assets classified as held for sale" for an amount of $398 million and "liabilities classified as held for sale" for an amount of $169 million. These assets mainly include tangible assets.

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1. Business segment information

Description of the business segments

Financial information by business segment is reported in accordance with the internal reporting system and shows internal segment information that is used to manage and measure the performance of TotalEnergies and which is reviewed by the main operational decision-making body of the Company, namely the Executive Committee.

The operational profit and assets are broken down by business segment prior to the consolidation and inter-segment adjustments.

Sales prices between business segments approximate market prices.

The organization of the Company's activities is structured around the four followings segments:

• an Exploration & Production segment;
• an Integrated Gas, Renewables & Power segment comprising integrated gas (including LNG) and low carbon electricity businesses. It includes the upstream and midstream LNG activity;
• a Refining & Chemicals segment constituting a major industrial hub comprising the activities of refining, petrochemicals and specialty chemicals. This segment also includes the activities of oil Supply, Trading and marine Shipping;
• a Marketing & Services segment including the global activities of supply and marketing in the field of petroleum products;

In addition the Corporate segment includes holdings operating and financial activities.

Adjustment items

Performance indicators excluding the adjustment items, such as adjusted operating income, adjusted net operating income, and adjusted net income are meant to facilitate the analysis of the financial performance and the comparison of income between periods.

Adjustment items include:

1. Special items

Due to their unusual nature or particular significance, certain transactions qualified as "special items" are excluded from the business segment figures. In general, special items relate to transactions that are significant, infrequent or unusual. However, in certain instances, transactions such as restructuring costs or assets disposals, which are not considered to be representative of the normal course of business, may be qualified as special items although they may have occurred within prior years or are likely to occur again within the coming years.

1. The inventory valuation effect

The adjusted results of the Refining & Chemicals and Marketing & Services segments are presented according to the replacement cost method. This method is used to assess the segments' performance and facilitate the comparability of the segments' performance with those of its competitors.

In the replacement cost method, which approximates the LIFO (Last-In,First-Out) method, the variation of inventory values in the statement of income is, depending on the nature of the inventory, determined using either the month-end prices differential between one period and another or the average prices of the period rather than the historical value. The inventory valuation effect is the difference between the results according to the FIFO (First-In,First-Out) and the replacement cost methods.

1. Effect of changes in fair value

The effect of changes in fair value presented as adjustment items reflects for certain transactions differences between the internal measure of performance used by TotalEnergies's management and the accounting for these transactions under IFRS.

IFRS requires that trading inventories be recorded at their fair value using period end spot prices. In order to best reflect the management of economic exposure through derivative transactions, internal indicators used to measure performance include valuations of trading inventories based on forward prices.

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TotalEnergies, in its trading activities, enters into storage contracts, which future effects are recorded at fair value in the Company's internal economic performance. IFRS precludes recognition of this fair value effect.

Furthermore, TotalEnergies enters into derivative instruments to risk manage certain operational contracts or assets. Under IFRS, these derivatives are recorded at fair value while the underlying operational transactions are recorded as they occur. Internal indicators defer the fair value on derivatives to match with the transaction occurrence.

The adjusted results (adjusted operating income, adjusted net operating income, adjusted net income) are defined as replacement cost results, adjusted for special items and the effect of changes in fair value.

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3.1) Information by business segment

1st half 2021	Exploration	Integrated Gas,	Refining	Marketing
(M$)	&	Renewables	&	&	Corporate	Intercompany	Total
Production	& Power	Chemicals	Services
External sales	3,257	10,588	40,054	36,880	7	-	90,786
Intersegment sales	14,433	1,555	11,890	186	68	(28,132)	-
Excise taxes	-	-	(630)	(9,890)	-	-	(10,520)
Revenues from sales	17,690	12,143	51,314	27,176	75	(28,132)	80,266
Operating expenses	(7,352)	(10,321)	(48,579)	(25,510)	(374)	28,132	(64,004)
Depreciation, depletion and impairment of tangible	(4,317)	(762)	(787)	(526)	(54)	-	(6,446)
assets and mineral interests
Operating income	6,021	1,060	1,948	1,140	(353)	-	9,816
Net income (loss) from equity affiliates and other	(973)	682	211	23	(5)	-	(62)
items
Tax on net operating income	(2,375)	(157)	(561)	(352)	54	-	(3,391)
Net operating income	2,673	1,585	1,598	811	(304)	-	6,363
Net cost of net debt							(652)
Non-controlling interests							(161)
Net income - TotalEnergies share							5,550
1st half 2021 (adjustments)(a)	Exploration	Integrated Gas,	Refining	Marketing
(M$)	&	Renewables	&	&	Corporate	Intercompany	Total
Production	& Power	Chemicals	Services
External sales	-	(44)	-	-	-	-	(44)
Intersegment sales	-	-	-	-	-	-	-
Excise taxes	-	-	-	-	-	-	-
Revenues from sales	-	(44)	-	-	-	-	(44)
Operating expenses	(23)	(62)	1,131	213	-	-	1,259
Depreciation, depletion and impairment of tangible	-	(148)	(13)	-	-	-	(161)
assets and mineral interests
Operating income (b)	(23)	(254)	1,118	213	-	-	1,054
Net income (loss) from equity affiliates and other	(1,482)	(96)	28	(43)	(62)	-	(1,655)
items
Tax on net operating income	(10)	59	(302)	(60)	2	-	(311)
Net operating income (b)	(1,515)	(291)	844	110	(60)	-	(912)
Net cost of net debt							10
Non-controlling interests							(14)
Net income - TotalEnergies share							(916)

1. Adjustments include special items, inventory valuation effect and the effect of changes in fair value.
2. Of which inventory valuation effect

- On operating income	-	-	1,140	206	-
- On net operating income	-	-	937	148	-
1st half 2021 (adjusted)	Exploration	Integrated Gas,	Refining	Marketing
(M$)	&	Renewables	&	&	Corporate	Intercompany	Total
Production	& Power	Chemicals	Services
External sales	3,257	10,632	40,054	36,880	7	-	90,830
Intersegment sales	14,433	1,555	11,890	186	68	(28,132)	-
Excise taxes	-	-	(630)	(9,890)	-	-	(10,520)
Revenues from sales	17,690	12,187	51,314	27,176	75	(28,132)	80,310
Operating expenses	(7,329)	(10,259)	(49,710)	(25,723)	(374)	28,132	(65,263)
Depreciation, depletion and impairment of tangible	(4,317)	(614)	(774)	(526)	(54)	-	(6,285)
assets and mineral interests
Adjusted operating income	6,044	1,314	830	927	(353)	-	8,762
Net income (loss) from equity affiliates and other	509	778	183	66	57	-	1,593
items
Tax on net operating income	(2,365)	(216)	(259)	(292)	52	-	(3,080)
Adjusted net operating income	4,188	1,876	754	701	(244)	-	7,275
Net cost of net debt							(662)
Non-controlling interests							(147)
Adjusted net income - TotalEnergies share							6,466
1st half 2021	Exploration	Integrated Gas,	Refining	Marketing
(M$)	&	Renewables	&	&	Corporate	Intercompany	Total
Production	& Power	Chemicals	Services
Total expenditures	3,195	4,187	578	360	48		8,368
Total divestments	374	452	129	107	18		1,080
Cash flow from operating activities	8,571	1,347	3,228	1,102	(1,099)		13,149

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