TotalEnergies SE (TTE) 2002 Q3 法說會逐字稿

Good morning and good afternoon ladies and gentlemen and welcome to the TotalFinalElf Conference Call.

I would like to hand it over to Mr. Robert Castaigne.

Please go ahead sir and I will be standing by for questions.

So good morning and good afternoon.

And first of all I would like to thank you for participating in this conference call.

First, I would like to comment briefly the performance of TotalFinalElf for the third quarter.

I will read you the oil market environment and the different segments and then I will take your questions.

Overall we had a strong third quarter, when we expressed our digits in dollar to be comparable to [inaudible].

TotalFinalElf is the only major to show an increase in its earning per share excluding non-recurring items.

It is a modest increase of 4% but it compares favorably to an average decrease of 14% for our competition.

This performance was due largely to our own internal efforts and self-help programs.

Hydrocarbon production rose by 14% in the third quarter of 2002, as compared to the same quarter last year.

In addition, we actively pursued our share buy-back program, actually achieving our full year target three months in advance.

First the oil market environment.

For the third quarter 2002 the average Brent price rose by 7% to $27 per barrel.

However the other parameters reflected weaker market conditions relative to a year ago.

The dollar depreciated sharply against the Euro, about 10%, and the European refining margin fell to $8.6/t in the third quarter of 2002 from $12.9/t in the third quarter 2001.

I come now to the results.

Within this context, operating income from business segments excluding non-recurring items fell by 9% to EUR2.8m.

Net operating income from the business segments excluding non-recurring items declined by 14% to EUR1.5m in a round figure, in the first quarter of 2002.

The larger percentage decrease in net operating income versus operating income is due primarily to the larger share of the more heavily taxed Upstream segment in operating income.

Net income excluding non-recurring items fell by only 9% to EUR1.6b in the third quarter of 2002, due mainly to the lower cost of net debt.

Earnings per share excluding non-recurring items showed a limited decline of only 6% to EUR2.4, thanks to the share buy-back.

Again, in dollar our earnings per share was up 4%.

During the third quarter 2002, TotalFinaElf bought back 8.6 million of its shares for EUR1.2b.

At September 30th 2002, the number of fully diluted shares was 665.2 million shares.

The Group's net debt to equity ratios gearing was 25.9% at September 30th, compared to 28.2% at June 30th.

I remind you our target is 30% of the gearing.

So I come now to the highlights for the third quarter 2002, starting with the Upstream.

Hydrocarbon production rose by 13.7%.

This increase was achieved despite the OPEC quarter reductions, which had a negative impact of about 1.8%.

Production growth was driven primarily by a number of start-ups occurring since the third quarter 2001, including Girassol in Angola, the Sincor upgrader in Venezuela, South Pars in Iran, Nuggets and Huldra in the North Sea and Deir Ez Zor in Syria as well as the ramp up in production at the Elgin-Franklin fields in the UK North Sea.

Concerning the downstream now.

The operating income excluding non-recurring items fell to EUR107m in the third quarter 2002.

This decrease in operating income was due to the sharp deterioration in the downstream environment first.

And I will mention especially lower European refining and marketing margins, the weaker dollar relative to the Euro, a more difficult environment for specialties, notably aviation fuel and heating oil.

And also lower shipping rates.

This I mean the impact of the these elements was made worse by major turn-arounds that we launched for maintenance, safety and product specification upgrades, which were particularly heavy during the third quarter of 2002.

Note that we were low turn-arounds in the third quarter last year.

This year, third quarter, turn-arounds have affected our refineries of Normandy in France, Leuna in Germany and Natref in South Africa in which in Natref we have [inaudible] 36%.

Substantial turn-arounds will continue into the fourth quarter of 2002.

Having said that I can add that the self-help programs have continued and partially compensated for the impact of the weaker environment and the refinery turn-arounds.

Concerning Chemicals now.

The operating income excluding non-recurring items increased by 20% to EUR269m in the third quarter 2002, primarily due to better performance from the specialties.

I can add that unfortunately the rebound in petrochemical margins that we saw at the beginning of the third quarter did not last.

In October 2002 we have announced that we have agreed on a proposal to sell the SigmaKalon paints activities to Bain Capital.

The proposed sale is consistent with plans announced in 2000 to reposition and to re-focus the Chemicals segment.

Now concerning the outlook.

Before I would like to recall that finally for the first nine months of 2002, investments for the business segment were EUR6.3m with Upstream accounting for 73% of the total.

Divestments in the first nine months of 2002 were EUR1.5m and were comprised primarily of sales of financial participations and non-strategic assets.

Free cash flow in the first nine months of 2002 were slightly less than EUR4m.

The buy-back program targets of 2.5% of our shares over the full year 2002 was achieved in October.

From January through October 2002, TotalFinaElf bought back 17.9 million of its own shares for EUR2.6m.

Today the Board decided to cancel 23.4 million shares.

This will allow the Group to continue buying back shares.

To wrap up, we had a strong third quarter and we are delivering our announced plans for self-help and production growth.

Over the past 12 months return on capital employed was 14% which I think, is very competitive relative to our peers.

I would like to thank you for your attention and I am now ready to answer your questions.

Thank you.

We will now poll for questions, using our quick queue-polling feature.

If you have a question, please press the number '1' on your telephone keypad and the hash or the '£' sign to cancel.

That's the number '1' on your telephone keypad to ask a question and the hash or '£' sign to cancel.

Please stand-by while participants are ready for the questions.

The first question today comes from David Celine.

Please go ahead, announcing your company name.

David Celine, your line is open.

We will take the next question from David Celine?

This is David Kline from BNP Paribas, perhaps it's me you are intending to signal.

Ah, it was a mistake in your name?

My apologies for not recognizing this.

Hello, David?

Mr. Castaigne, can you hear me?

Oh yes, absolutely, yes, go ahead.

Two questions, firstly on oil and gas production.

Can you give us your current thoughts on the 10% growth target for 2002?

And secondly, on the turn-around activity and the refining and marketing division in the quarter, can you quantify the negative impact of that turn-around activity on operating income?

Okay.

So concerning the target for the oil and gas production increase in 2002.

I concede the 10% target that we have set up loosely.

Secondly, concerning the impact of shutdowns.

I can say that we estimate this impact as far as in the operating profit of the third quarter to EUR100m.

In this EUR100m, there is first a cost of this shutdown that has been lower, in fact slightly lower, but lower than what was expected and covered by the provisions.

Then as a consequence of that, we had to review the provisions for the shutdown to come over the next year.

In addition to that, of course, we have had the lack of production, that is to say, lack of margin and also slightly lower valuation of the productions from the refineries that were shutdown or partly shut down.

And altogether we estimate the impact to EUR100m.

Thank you.

Next question?

Thank you.

Firstly, apologies to Mr. Kline for announcing his name incorrectly.

And the next question comes from Dave Thomas.

Please go ahead, announcing your company name.

Good afternoon this is Dave Thomas from Commerzbank.

Just firstly, and carrying on from the last question on refining and marketing.

In Q4, do you expect heavier or lighter turn-arounds than you have seen in Q3?

That's the first question.

Secondly, with respect to your share buy-backs, is it likely that you will have any more this year now that you have cancelled the 23.4 million shares and my last question is to do with OPEC exposure, perhaps brought about by a statement by Mr. Margerie back in October.

Could you please advise what exposure you actually have to OPEC and how you perceive this will develop within your 2007 planning horizon?

Thank you.

Okay.

So I will answer the first question and we expect that the impact of the shutdown, that will take place in the first quarter, should be lighter than it was for the third quarter.

Your second question concerns the buy-back.

The idea is that we should continue to make some buy-back between now and the end of the year.

And after that, you know that in fact the buy-back is a result of our cash flow, of our Capex, of our divestments and gearing that we have fixed as a target at a level of 30%.

And you may have seen by the way, that at the end of September, our gearing was something like 25.9%.

Concerning our exposure to, of our production to the OPEC country.

It represents something like 21% of our oil production and we think that this exposure shouldn't send significantly between now and 2007, given the way we see the evolution of our productions over the coming year.

Okay thank you very much, that's very helpful.

Next question?

Thank you.

The next question comes from Colin Smith.

Please go ahead, announcing your company name.

Hello Robert, it's Colin Smith from Credit Suisse First Boston.

Good afternoon.

Two questions.

First of all, can you let us know what you think the Capex out-turn for the year will be given the EUR6.3b you have spent year-to-date?

And secondly, just on your explanation for the impact of the turn-around, I am not sure I really quite followed how the cost of the shutdown was less than provisioned, you end up with sort of EUR100m coming off your numbers?

Perhaps if you could explain that a little bit more?

I will come back on this point.

Concerning the Capex.

We announced I think at the beginning of the year Capex of EUR9.7b.

As we are I would say only at the level of EUR6.3b, it's clear that our final figure should be more in the range of EUR9b, rather than EUR9.7b.

In fact in the EUR9.7b there was something called new development in the Midstream activities that will not be done.

And the second point, yes I would like to come back to the costs of shutdowns, big shutdowns that we had in the third quarter.

I think I told you in my previous statement that we had no shutdowns in the first quarter of 2001.

You know that in our accounting system, progressively we position the cost of the shutdowns-- I would say between two shutdowns-- and this is met progressively.

And so typically, if our provisions are correct when we make a shutdown, we should have in our accounts a provision that should be sufficient to cover the cost of this shutdown.

But of course, we do not cover the loss of margin, because it's impossible to do that and I don't think that it should be accepted from an accounting point of view.

And here we have in fact several elements.

First the cost of shutdowns was higher.

A little higher than what was expected, especially because we had decided to increase, I would say the safety control in order to improve, generally speaking, the safety at our operations.

So the conditions as a consequence of that, we had a cost that was higher than the provision that we passed in the past, in order to cover the costs.

Secondly, we consider the fact that we had higher costs for shutdown had led us, or should lead us, to increase, to review the provision that we set in the past of the shutdowns to come in the future.

So we had to re-calculate the provision in order to take into account the bigger costs that we have offset in the third quarter.

So we had to re-value the provision for shutdowns that we had in our accounts and I speak now for the shutdowns to come in 2003, 2004 and 2005.

And this is the second point that we had to take into our third quarter accounts.

And of course, in addition to that, we had to take into account the loss of the margins due to the reduction of production of petroleum products, as well as the fact that our productions-- the value of some of our productions as a consequence of this shutdown, was lower than expected.

So just to be clear, the EUR100m is what exactly?

That's the higher spending you provisioned for and an increased provision-- something from increased provisions prospectively?

Yes absolutely.

And is that all of the EUR100m, how much of the EUR100m is that?

Oh, I think its part of that.

Let's say maybe one third, something like that.

And the EUR100m includes no impact from the loss of margin on the product sales.

Is that correct?

Yes the EUR100m includes everything.

That is to say the cost of present shutdowns that was not covered by the past provisions, re-valuation of the provision for the shutdown that should take place in 2003, 2004 and 2005, and finally the loss of margins.

It includes everything.

Can I just ask then, if I were to add that back to the EUR170m you reported, it still looks like quite a significant sequential drop versus Q2 albeit that it looks like European refining margins, well in our numbers doubled and in your numbers virtually doubled sequentially?

Was there anything else?

Yes, you are right.

But there is another point that I think I mentioned in the statement, which is the decrease in, I would say both in marketing margins with the exception of Germany.

And secondly, we had lag effect especially in our marketing activity of jet fuel.

You know that we fix the price of the jet fuel at the beginning of every month in accordance with the price of the [production].

So when we are in a period with an increase in the oil price and the petroleum product price, it's clear that we have a negative lag effect and this also is part of the reduction in operating profit that we have had in the third quarter.

In addition to that of course there is the impact of the decrease of 10% of the dollar against Euro.

Thanks very much.

Next question.

Thank you.

The next question comes from Philip Dodge.

Please go ahead, announcing your company name.

Yes good afternoon.

Two questions.

The first one is about the natural gas price lag effect that you mentioned in the release.

Can you be specific about the amount of that in the quarter?

Yes.

In fact, concerning the gas prices, we have two effects.

We have first price lag due to the fact that on average I think the prices in the North Sea have not changed.

In fact we had a small decrease by a few percent as fuel price increased by 7%.

Which is the first point.

The second point, which is not properly a price lag, is the fact that you know in Argentina our gas price has been fixed in [inaudible] and this has had a consequence relatively limited given the magnitude of our production in Argentina.

But it does also add a negative effect on the valuation of our gas production.

What was the effect of the portion that's indexed to oil prices with the lag?

Was that part of a negative comparison?

We more or less-- I think the impact of the price lag should be around, if I check, in the range of a little more than EUR100m.

Okay.

Thank you.

Something between EUR100m and EUR160m.

Okay and I also wanted to ask you about the sale of the paint business and whether you estimate that the proceeds from the sale can be re-invested in a way that will offset or more than offset what that business had been contributing to profits?

I think I will answer in a different way.

The proceeds we think will become part of our treasury and I would prefer to answer in terms of capital employed.

In Chemicals you know that the capital employed are now something like EUR11b.

More or less the capital employed in paints was about, a little less than EUR1b.

In addition to that, you know that in Chemicals, in this EUR11b, there is something between 35% to 40% for petrochemicals and balance for intermediates and specialty chemicals.

And what we have in mind more or less is between now and 2007, is to maintain the level of capital employed in Chemicals, while the capital employed especially in Upstream will increase strongly.

So the idea in fact is to re-balance our different activities in Chemicals.

That is to say to eliminate some of them and to concentrate on the ones that should be much better positioned, especially in terms of growth.

Taking also into account the positions that our Group has in these different activities.

And as a consequence of that, we should have between now and let's say 2007, an increase in the share of our petrochemical activity and probably a reduction of our intermediate activities.

And let's say a small increase of our specialty activities.

So the idea in fact is more to re-balance in order to have some flexibility to deadlock some of our Chemical activities which are very well positioned and to eliminate the Chemical activities like paints that we have decided to sell.

That I think was a little too far from our industrial interest and that I think would have a better value in some other hands.

Understood, thank you very much.

Next question?

Thank you.

The next question comes from JJ Traynor.

Please go ahead, announcing your company name.

Hello it's J. J. Traynor from Deutsche Bank.

Can I ask a couple of questions on the gas business please?

Good afternoon, JJ

Hello, firstly just in the very near term, I understand there have been some operational issues around the Bontang L&G plant and the gas fields that feed into that.

Could you talk about if there are any impacts from that in Q3 and if there is going to be any implications for Q4 there?

And secondly, I guess a broader question, just looking at some of your press releases over the past couple of months, you are taking on a lot of gas if you like onto the balance sheet for trading.

So I am thinking of things like Meg Gas, the cargo you are buying from Oman.

So as ultimately your portion of the [inaudible] L&G plant.

Do you think in the end you will need to buy into more, if you like, more downstream gas assets to land that gas?

Things like L & G terminals and power plants, or is this going to be an ongoing trading position for you?

I will first answer the second question.

I think that we have as a target to develop our L&G business.

And it is more and more clear that to take bigger position in the L&G business we probably have to take some commitment.

We have already started by the way with the development of [Stolwit](pf).

But this is it.

To take some commitment in order to be able to take I would say part of the L&G production if we want to be accepted as long-term partners for new developments in L&G.

And this could lead us to take some positions, I would say in the infrastructure.

But in fact we think that what would be more important is not necessarily to take some capital position.

If I can say it like that in English.

But to take some commitment especially through-put commitments in some reclassification terminals.

Concerning marketing assets that you mentioned we have not in mind to increase significantly our marketing positions in natural gas.

Concerning now your first question concerning Bontang.

Well it's true that we had little reduction on the production output of [inaudible] but the main reason of this reduction is in fact the consequences of the blow out that we had on the [Tulu] field which occurred, I think in March.

And as a consequence of that we had to delay a little the drilling campaign.

But having said that, the shortage is very, very limited and we think that it should concern something between 325 cargoes out of about 360.

So I think it is something like 1%-1.5%.

So, I think the impact-- if we have little reduction and we are speaking of something like 1%-1.5%.

That is to say something very, very small.

Does that answer your question?

It does, just on the first question I guess part of my question was on the power side, whether you think you're looking to expand into power generation?

Power side I think, no.

I think our strategy is more [oil] activity.

I would say a strategy of [niches].

I don't think we couldn't justify to develop strongly our power business just to secure some outlets for the share that we might have in additional L&G projects and so the answer is no.

Okay, thanks very much.

Next question.

Thank you the next question comes from Peter Nichols, please go ahead announcing your company name.

Hi, it's Peter Nichols, ABN AMRO.

Just a couple of questions if I may.

Yes.

Just going to the refinery maintenance this quarter and next, Q3 and Q4.

Can you just give a bit more background as to what maintenance is taking place in Q4?

Are you carrying and was the pipeline so heavy?

Are you carrying out work in advance of environmental specification changes?

And the second question is I wonder if you could just elaborate a bit more on the cancellation of the shares and what the restrictions are?

If you hadn't cancelled the shares would you have been prevented from buying back more shares in the remainder of this year?

No, in fact it's the opposite.

I will start answering this question.

You know that we are not allowed, under the French law by the way, to hold or to control more than 10% of our equity.

And before the cancellation I think that we can hold or own something like 8.5%, 8.8% of our equity and in order mainly to have the possibility to continue the buy-back and not at any time to have more than 10% of our equity.

It was absolutely necessary, compulsory in fact, to cancel the shares that in fact we could cancel.

That is to say all the shares that we had with the exception of the shares that we bought to cover the stock option plan, as well as some shares that are owned by subsidiary of subsidiaries and that were bought by [inaudible] a long time ago.

And that we cannot cancel because they are not owned by the mother company.

And there is some tax issues attached to these shares.

So, just to summarize we are have in fact to make this cancellation in order to have the possibility to continue the share buy-back.

Concerning the shutdown in the first quarter.

First I told you that the impact should be lower than what it was during the third quarter.

Second point, we have in the first quarter, the end of [Luna] turnaround, which has already started up again and also the shutdown of [Deus] in France and I think partially [inaudible] in the Netherlands for part of the quarter.

And I think again, we had to strengthen the-- fix the control-- which is no doubt the explanation of the higher cost.

And also to take into account maybe something that I didn't mention.

It's on the works dedicated to the compliance to the new specification that will take place by, in 2005.

Thanks very much.

Next question.

Thank you once again may I remind participants to press the number '1' on the telephone keypad to ask a question and the hash or '£' sign to cancel.

The next question comes from Neil Perry, please go-ahead announcing your company name.

Good afternoon, it's Neil Perry from Warburg.

Good afternoon.

Good afternoon.

Two questions please.

One is just on trading.

Within that downstream number could you just give us any indication of the change in the contribution from trading either from the Q2 or from Q3 of last year?

And secondly, a bit more broadly, some of your competition have had some difficulties on volume growth where you obviously haven't.

But the focus seems to be moving a bit onto the amount companies are spending.

How would you respond to the suggestion that perhaps the way to run the upstream business is to generate lower rates of volume growth than you are offering but spending less money to achieve it?

Concerning now-- hello, do you hear me?

Yes, I can hear you.

Okay, concerning the trading activities, the results of the trading activities.

In fact we have had no significant change between third quarter 2001 and 2002.

But what we had, having said that, is the reduction, in fact a small loss I think, of our shipping activities just because of the strong reduction of the French rates that took place between 2001 and 2002.

Secondly, concerning the volume of-- I think in fact as you may have seen in our strategy, we try not only to develop the company.

That is to say to increase our oil and gas production but to try also to do it with good profitability.

And of course then this is a real issue because we have now, as everybody, surpluses in cash flow.

And in fact we thought that for our shareholders it was better use to use this additional cash flow to make some share buy back rather than to accept to take additional upstream projects that would require much higher oil prices to have good profitability.

So, it's a choice that we have made.

That we made in the past to continue to take only projects that should deliver good profitability, something like 14, 15% in real terms after taxes with a long-term oil price of $17 per barrel.

And we have decided not to change this policy and I think it was-- it is justified to do it.

Okay.

The idea in fact is to have in nominal terms, something like 17%.

This is a 15% worth in the real term.

So 17% in nominal terms with $17 per barrel.

And the policy of the company-- I think that we have always been very clear with this point and we don't want to change.

So, you would say that it's a good discipline would you to keep that volume growth target explicitly at--?

Yes, it's the feeling that we have.

Okay, thank you.

Next question.

Thank you the next question comes from Donald Nayman(pf) please go ahead announcing your company name.

Donald Nayman, ICAP, good afternoon.

Good morning or good afternoon now.

I have two questions, the first pertains to chemicals.

Subsequent to the sale of the paint business your capital employed in the intermediates and specialties appears to be already at the 50% level that you are projecting for 2005 or 2007.

Does that suggest disappointingly that there will be very little restructuring of or disposals of businesses in the specialties and the intermediates going forward?

That's my first question.

My second question pertains to several cost elements of your upstream business.

Could you tell us in Euros how much the increase in the UK tax rate cost you in the third quarter?

Could you comment on the future trend in DDNA depreciation per barrel, which seemed presumably because of the mix of barrels to be much lower in the third quarter than last year?

And third, do you have any updates on your prospects for technical costs, which I believe at the end of the second quarter, management felt were unlikely to reach the $6.50 goal that had been established earlier?

Thank you.

Okay, mainly very, very precise questions.

Concerning chemicals.

Paint disposal in fact will take place.

The closing should take place early next year.

Somewhere I think in February.

That is to say we will not see in the accounts at the end of December 2002.

Secondly, in fact, I agree with what you said that it's clear that in Chemicals there will be some additional disposal and restructuring because there will be some disposals.

But there are also some restructuring just right now involving I would say both reduction of staff that has been announced and also some products of manufacturing.

But in addition to that there will be also some developments and I told you that could be significant in petrochemicals, depending upon the [possibility] that we will have to see and probably much more limited in some of our intermediate activities as well as in our specialty chemical business.

And what is clear is that our staff will see reduction of our intermediate and specialty chemicals and I think that some movements will take place, I would say in one or two years time.

We have some ideas and things will be made progressively as we have made for paints.

But you know it is always difficult, in fact impossible, to speak before having done what we want to do.

After that, if I take my note, you take a question concerning the UK tax.

I think I could answer your question in saying that more or less the impact of the UK tax change should represent about 0.5% of our return in Upstream.

As you know, the capital employed in Upstream, you can have an idea of what we expect from the UK tax changes.

Concerning the DDNA per barrel.

I think that now they should increase less than the production goals especially in the third quarter of 2002 compared to the third quarter 2001.

In fact I think it's a little less or similar to-- [audio break]

And concerning the technical cost, I think it's true that we posted a target of $6.5 per barrel for 2005 and we had already the opportunity to say that we'll be able to reduce our technical cost but it will be very difficult to reach the $6.5.

Especially because we have seen over the last two years higher levels for the price of oil services.

That no doubt was due to higher levels for the oil price which was a good point but negative consequence.

Also prices of oil services increased over the last three years and this will have some consequences on the technical cost for the future.

Anyway the impact should be relatively limited.

But I think that now our technical costs are going to be in the range of $7.1 per barrel and we will announce I think probably at the beginning of next year, the revised target for the technical cost in 2005.

Okay thank you very much.

Next question.

The next question comes from Irene Hiren, please go-ahead announcing your company name.

Good afternoon Robert it's Irene from [Morgan Stanley].

Good afternoon.

Hello.

My first question concerns the amount of unsuccessful exploration costs, which were down 20% in the nine months and 40% in Q3.

I was wondering if you could expand a little bit on the reasons behind this?

My second question, would you be able to quantify for us the amount of self-help in Q3?

The amount of?

Self-help in the third quarter.

In the first half you announced EUR700m of self-help of which growth was EUR500m and synergies the balance.

I was wondering if you could update us as to what happened in Q3?

And my final question is on Argentina.

Could you remind us, could you quantify for us what the value of Peso dominated assets is and whether you might take any currency adjustments this year?

Thank you.

Concerning our assets in Argentina.

The idea is to review the book value of our assets, especially marketing of gas and the total assets in Argentina.

And I think that we should be led to make some adjustment of our book value in order to reflect the situation as it is today.

Concerning self-help.

It's always a difficult exercise to estimate the self-help on the quarterly basis.

Of course it's something that we do internally.

But we do not want to publish a figures, as we did by the way, last year.

But taking into account a figure that we have internally, what I can say is that we have [globally] in line with the figures that we gave for the whole year.

That I remind you was EUR1.2b as an improvement of the operating profit given a constant environment.

Your first question concerned the unsuccessful costs.

What I can say is that we had in the third quarter a small reduction, I don't know if it answers your question, of our exploration charges due to, I would say, a pretty good level of success of our exploration.

So I don't know if it answers your question but it [was a plus] for the third quarter compared to the third quarter 2001.

Okay, thank you very much.

Next question.

Thank you, the next question comes from Eve Levine, please go-ahead announcing your company name.

Thank you all my questions have been answered.

Thank you, the next question comes from Matthew Langston, please go-ahead announcing your company name.

Yes, good afternoon it's Matthew Langston with Goldman Sachs.

Good Afternoon.

Two questions on the E&P.

Firstly, I was wondering if you could give us your average dollar realizations on a barrel of oil equivalent basis at third quarter.

And then secondly whether you could give us some specific guidance for the nine months of the year on production levels from South Pars, both on oil and gas please.

Thank you.

South Pars you said?

Yes please.

[inaudible].

I think the average oil price for our production was about 96% of the Brent price by memory.

And concerning the production of South Pars, you know that this production started up for the first time I think, end of March 2002.

This project implied four production trends.

The fourth one, the last one has been put on stream mid September and the production should progressively increase to reach a plateau.

That by the way we should reach this month but it's a bit too early too say.

But what we expect for the plateau to be reached by the end of 2002 is a production of 80,000 barrels per day and production of gas of 2 billion cubic feet per day.

The last point that maybe should be mentioned is our remuneration is, I would say is produced with the production of [inaudible].

So, I think it's difficult to be more precise concerning South Pars.

I can say that in fact everything is going very well and in accordance with our plan.

Okay, thank you very much.

Okay next question.

Thank you the next question is a follow up question from Dave Thomas please go ahead Sir.

Yes?

Yes, hello again.

I just wanted to ask with respect to the full year production, how you actually see yourself as achieving that?

Where are the main contributions going to be given the average rate to date?

It looks to me like you have to produce something like another 200,000 barrels a day of oil equivalent to get your full year target.

Yes, I know.

Well you know that we are now at the end of the year and the tradition, the winter production is significantly higher than the summer production.

It's the point that you can see with the evolution of our production of last year.

I think that in December we see if I remember well, in 2001, we produced something like [2.4].

That was the target for the year 2002.

So I think given the [inaudible] of the production we should be high up in a position to reach our 10% target.

By the way, when we commence the 14% of the production increase in the third quarter, it is after the impact of the OPEC cut off 1.8%.

But even with this impact we should be able to reach our 10% target.

Okay, so you're not assuming any other incremental projects coming on in December?

No, I don't think that we have projected the true [inaudible] but we should have some [inaudible] of our new production that should take place and especially concerning the feel out there.

Okay, that's very helpful thank you.

Thank you the next question comes from Mr. [DeBoueau], please go ahead announcing your company name

Mr. DeBoueau from Peter [inaudible] Brussels.

I have a question regarding the production liabilities.

Will the current environment for equities induce your [inaudible] to set aside additional provisions to cover potential gaps in its insurance liabilities at the end of the year?

Of course, it's an issue that we have reviewed taking into account not only the situation of the market but also the reduction of the interest rate which has had consequence on the rate that we should use now to estimate the discounted cash flow.

Of the discounted value of our commitments as well as the rate that we should take in order to estimate the profitability of the assets that were invested to cover the commitments.

Just to come to the result, there will be no impact or no significant impact in 2002.

I think something between EUR0m and 10m.

Concerning 2003, the impact should be limited.

I would say the impact on the operating profit should be in the range of EUR100m negative.

If we assume a decrease of the markets by 30% between the end and the beginning of 2002.

In fact you know in fact in France where we employ a big part of our people, we have I don't know as we say in English, repetition, a system of repetition.

That is to say the active people pay for the retired people.

So we have a system which is very different from the system that we know especially in the UK and in the US.

So we are not at all sensitive to the depreciation of the market for the retirement in France.

Yes, but why a negative impact in 2003?

Does it mean that the equities are not valued to markets at the end of 2002?

Yes they are but in fact, you know that when there is a decrease, this is spread over a certain period of time.

I think it is 15 years and [inaudible] when we took everything into account the impact is a maximum impact should be in the range of EUR400m.

So on a worldwide basis for the company.

Thank you very much.

Thank you there appear to be no more further questions, I would like to hand the conference call back for any further or closing comments.

Okay, so I just would like now to thank everybody for being with us today and goodbye.

Thank you that concludes today's conference call, you may now disconnect your lines.

Thank you for participating, goodbye.