TotalEnergies posts strongest profit in nearly three years as Iran war lifts oil prices

By America Hernandez

PARIS, July 23 (Reuters) - TotalEnergies posted a 67% second-quarter earnings rise on Thursday, its best quarter in nearly three years, buoyed by higher oil prices and strong profit margins for refining fuels resulting from Iran-war-related supply disruptions.

The French oil major said production is expected to grow in the third quarter, although exports are dependent on freedom of passage through the Strait of Hormuz.

"Hormuz is a battleground and the risks of crossing are extremely high ... We are beginning to consider this could become the new normal, with the strait opening on and off," CEO Patrick Pouyanne told analysts on a results call.

TotalEnergies' adjusted net income was $6 billion, in line with expectations, according to a consensus of analysts polled by LSEG, as strong refining and oil trading offset weaker LNG earnings. That compares with $3.6 billion in the second quarter of 2025 and $5.4 billion in the first quarter of 2026.

The company maintained its $1.5 billion share buyback scheme for the third quarter, helping lift its shares 2.7% to €76.30 by 0902 GMT. The stock has risen 37% so far this year.

IRAN WAR BOOSTS PRICES, MIDEAST PRODUCTION RECOVERING

The Iran war has disrupted traffic through the Strait of Hormuz, cut supplies and driven crude and gas prices to multi-year highs, creating a windfall for oil majors such as Norway's Equinor which also posted strong profits.

TotalEnergies' exploration and production earnings reached $3.2 billion, a 64% rise from the same period a year ago and 25% higher than the first quarter of 2026, as Middle East operations slowly come back online.

Pouyanne said upstream and downstream segments were both benefitting from the war, which is unusual as usually a higher upstream oil price means smaller margins on refining fuels.

He said TotalEnergies' refineries, mostly in Europe, have maximized diesel and jet fuel production, which are earning the best premiums given low inventories across the continent.

STANDOUT REFINING AND OIL TRADING, LNG DISAPPOINTS

Income from refining and chemicals, which includes TotalEnergies' oil trading division, rose 362% to $1.8 billion, helped by stronger fuel margins and robust oil trading — eclipsing last quarter's standout $1.5 billion contribution.

Its SATORP refinery in Saudi Arabia should return to full capacity by the end of the third quarter after sustaining damage from attacks.

The LNG division earned $807 million, a 22% drop that TotalEnergies said in last week's trading statement was due to trading underperformance amid flat demand in Europe.

Pouyanne said his traders had positioned themselves to expect a European gas price rise that did not materialise.

"But the story is not over ... our traders are stubborn and gas prices have now rallied in July, so we can expect to go back to some overperformance again," Pouyanne said.

TotalEnergies will soon finalise its exit from its 10% stake in the sanctioned Arctic LNG 2 plant in Russia, he added.

The electricity division was down 7% at $533 million, but cash flow excluding working capital was up 28% due to TotalEnergies nearly doubling its portfolio of gas-fired power plants in Europe after closing a deal with EPH in April.

NEW PROJECT STARTUPS

In Namibia, a final investment decision (FID) on the 150,000-barrels-per-day Venus development is expected this month, while authorities have given approval for the transaction bringing Galp into the concession where Venus is located.

In Suriname, production on the Gran Morgu development will begin in the first half of 2028.

In Cyprus, the Cronos gas field development will receive FID next week.

(Reporting by America Hernandez in Paris. Editing by Dominique Patton, Elaine Hardcastle and Alexander Smith)