TotalEnergies SE (TTE) 2003 Q1 法說會逐字稿

Good morning and good afternoon, ladies and gentlemen and welcome to today's Total Fina conference call.

I should now like to hand over to your chairperson today.

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

Good afternoon.

Robert Castaigne is here now to tell us [indecipherable] Total Fina Elf during the shareholders' meeting that took place this morning in Paris.

So thank you everybody for participating in this conference call.

First of all, I would like to comment briefly on the performance of Total Fina Elf for Q1.

I will review the oil market environment and the different segments of activity and then I will take your questions.

Overall, I can say that we had a strong first quarter with EPS up 90% in the last term.

This performance is due largely to a better oil environment both in growth and to continued programs and also to the active impact of the buyback program.

Oil market environment.

The oil market environment was more positive overall in the first quarter of 2003, than in the first quarter of 2002.

The 49% increase in Brent Oil prices compared with the very high European refining margin, more than offset the impact of an 18% decline in the dollar versus the Euro.

However, high petroleum product prices not only for [indecipherable] put pressure on this margin.

Results.

In this context, operating income from the business segment, increased by 61% to €3.9b in the first quarter 2003.

Net income, excluding non-recurring items, increased by 49% to €2.12b in the first quarter 2003 from €1.42b in the first quarter 2002.

Earning per share, excluding non-recurring items, rose by 55% to €3.28 per share.

In dollar terms, earnings per share increased by 90%.

The net debt to equity ratio at March 31, 2003 in 2003 was 22.1% compared to 28.6% at December 31, 2002.

We maintain our 30% target for the gearing, keeping in mind that we are soon going to pay €2.6b dividend.

Highlights for the first quarter 2003, I just will limit to some elements.

Concerning the Upstream, you may have seen the hydrocarbon production increased by 5% to 2.62m barrels of oil equivalent per day in the first quarter of 2003 from 2.4m barrels of oil equivalent in the first quarter 2002.

I would just like to add that this after a negative impact of products and sharing contracts.

You know that under these contracts we recovered our costs through some quantities of oil and when your costs are higher those quantities are lower and the impact of the increase in oil prices in products and sharing contracts is - minus 2.5% and the 5% is the net increase after this negative impact of -minus 2.5%.

In addition to that, I would like to add is that the impact that we enjoyed of high OPEC quota that was something like an additional 50,000 barrels per day but we also transferred the products at our place in Venezuela which had the negative impact of 17,000 barrels per day.

Concerning Downstream, I think it is worth to know that the operating income increased sharply to €780m in the first quarter 2003 from €295m in the first quarter 2002.

Chemicals, the operating income was more or less stable, €116m compared to €121m in the same quarter one year ago.

I would like to mention also, that in specialty chemicals, the sale of the SigmaKalon paints business was finalized at the end of February 2003.

The net impact of the sale of paints in the accounts was negligible but made of two elements which cancelled one another.

The capital loss of around €200m was recorded in what we call other income and charge, line of the profit and loss account and the tax credit of an equivalent amount was recorded in the provision for income taxes.

Concerning now the outlook and what we can say at the conclusion for the first quarter.

The first quarter 2003 results clearly demonstrate Total Fina's ability to deliver substantial production growth while at the same time performing very competitively in terms of profitability as indicated by the 17% return on average capital employed over the 12 months ended March 31.

Since the second quarter began, the oil market environment has remained relatively [indecipherable] despite the steep decline in oil prices after military action took place in Iraq.

As you may have seen, we have now an oil price which is around $23, $24 per barrel and in Europe we continue to enjoy relatively good refining margins in the range of $20 - $25 per barrel.

In addition to that, we [indecipherable] our 2003 targets of synergies, productivity and also the 5% growth in the hydrocarbon production for 2003.

Thank you for all your attention and I am ready to answer your questions.

Ladies and gentlemen, we will now call for questions.

Should you wish to register a question at this time, please do so by pressing the number '1' on your telephone keypad.

To cancel your question, please press the '#' or the pound key.

Once again, ladies and gentlemen, to register your questions at this time, please do so by pressing the number '1' on your telephone keypad.

To cancel your question, please press the '#' or the pound key.

The first question today comes from Dave Thomas.

Please go ahead with your question, stating your company name.

Good afternoon.

This is Dave Thomas from Commerz Bank.

I want to ask a question about the Downstream.

It was an extremely good performance there.

Not entirely explained by the very strong refining margins.

Could you comment on how the marketing margins were in the quarter?

Also in terms of refinery utilization, you saw 4% growth year on year, outside of France and where that growth actually came from please?

In the Downstream, in fact, I can add that marketing margin was, especially in some countries, negatively affected by the increase of oil petroleum prices that in some cases was difficult to pass through to the consumers and it was especially the case in the UK.

Concerning the rate of utilization of refineries, I can say that we had a refine volume of 2.44m barrels per day, which was present in the rate of utilization of 92%.

In fact, again in the first quarter of 2003, we had two shutdowns, one with the refinery at Lange (ph) and another Le Med (ph) in the South of France.

Just to say that we suffered some negative impact development marketing margins and we didn't fully recover the very good rate of utilization of refining capacity, which means that we continue to generate a separate program in the refining and marketing in the first quarter of 2003.

Is there any way you can quantify how much that would be?

No.

I just prefer to say, remember we announced for 2003 globally speaking for synergies and product and growth target for something like €1.1b that delivered on the operating income and I would prefer to say that we can see and we are confident with this target for the whole year.

Okay.

Thanks very much.

Thank you.

The next question today comes Tyler Dann II .

Please could I have your question stating your company name.

Bank of American Securities.

Good afternoon.

How are you?

Very well.

And you?

Very well thanks.

I wondered if you could please comment on two things.

Firstly, the return on average capital employed at your reference conditions.

I don't believe you mentioned what that might be for this quarter on an annualized basis.

And my second question is related to your exploration expenses which do seem to be down significantly and this is not necessarily out of line with what your peers are doing, but I wanted to get your comment on whether this was a function of less exploration activity or higher exploration success.

Concerning the profitability.

We mentioned a 17% figure for the last twelve months in terms of return on capital employed for all segment activity of the Group.

For the first quarter in fact, if you make the calculation, you will find something like 21.5%.

But I think that it is not very meaningful to speak of profitability in terms for one quarter and after that your question was about profitability in the reference environment on a quarterly basis.

Quite frankly, it is something that we do only once a year and that we will produce when we have seen the 2003 results.

After that, you asked a question concerning the exploration of [indecipherable] for the first quarter of 2003, compared with 2002.

I think it is fair to say that this exploration was relatively successful in 2003, but also again it is very difficult to draw a conclusion when comparing, especially for exploration the results of the chart is for one quarter to the similar quarter for the previous year.

But clearly our exploration [indecipherable] and I gather that in dollars we have about the same figure for 2003, compared to 2002 that it was $150m and I think that we should stick with this figure.

Thank you.

It will be concerning exploration to be more specific, I can remind you that we made some discoveries especially in Langulie (ph) in Block 17 where we made two discoveries and I think that we made also another interesting discovery in Brunei in Block [indecipherable] I think.

Yes, you are right.

Very good.

Thanks very much.

Thank you.

Our next question today comes from Fred Leuffer.

Please go ahead with your question stating your company name.

Good afternoon.

It's Fred Leuffer from Bear Stearns.

Just a couple of questions.

One, can you update us on mergers and recapture program?

Were there savings in the first quarter.

Was there a reduction in headcount?

Secondly can you give us an idea of what the European margin, the refining margin, did in April?

Our European margin in April, I think it was a little above $20 per ton, that is to say a good figure.

In fact, the precise figure is $26.

So I was a bit conservative.

Concerning now, your question concerning the savings impact in [indecipherable] for 2003, again I said the whole figure including synergy , productivity and growth was €1.1b for 2003.

We think that more than 60% will be for growth and besides that there will be further savings especially in Downstream and in Chemicals.

For Downstream we have in mind something like €300m and I think that in Chemicals we should have something like €200m.

Any reduction in headcount in the quarter?

In the headcount, it is something that we do not account quarter by quarter.

I can say two things.

You know that in the middle of 2003, this will be the end of the social plan that we launched at the time of the merger, many people will leave the group.

Of course, in addition to that, we have to take into account the fact that with the divestments of the paint activity, headcount of the group will be reduced, or was reduced by more than 10,000 people.

The last point that has to be mentioned is Chemicals in France.

You know that at the beginning of 2001, we started a restructuring program and I think that this restructuring altogether involved about 1,500 people out of the total of 12,000 people, just to give you the magnitude of this restructuring program that we are implementing in France, especially in the area of Chemicals.

All right.

Thank you for that.

If I can just ask one last thing, which I don't think I am going to get, but I'll ask anyway.

Can you provide Oil and Gas price realizations by region?

I think it is something that we should be able to provide.

For the first quarter 2003, the average was $3.39 per million btu which has to be compared to $2.64 per million btu, for the first quarter 2002.

So we shall present an increase by 28.4%.

Of course this is very important as you will see in 2002 that in the US the gas price increased by 178% from $2.3 to $6.3 per million btu and this was the possibility of some of our competitors which makes our position in natural gas in the USA our [indecipherable].

What about Liquids realization?

Liquid realization also.

Yes, it was about $30.9 per barrel, that is to say 50% less than the Brent price.

And do you have any comparable -

That is to say, excuse me, $0.60 per barrel less than the Brent price.

And how about the year ago price?

The year ago price, it was a little above $20, $21 per barrel.

A really different price.

Okay.

$20.1 a barrel.

On average for the first quarter 2002 and I remind you that the average price for the first quarter 2002 was $21.1 per barrel.

Terrific.

Thank you very much.

Which means that the difference has been reduced.

Yes.

Thank you.

Thank you.

The next question today comes from Al Anton.

Please go ahead with your question, stating your company name.

Yes, Al Anton, Karl Forsheimer and Company .

I notice that your depreciation depletion and amortization was down about 5%, whereas your production was up 5% and you had no major divestments.

I wonder what the cause of that decline in depreciation was?

The decline in depreciation was in Euros.

We could have expected in fact higher depreciation in the dollar, despite the dollar against the euro decreased by something like 18%.

But in front of that, of course, as you mentioned we had the fact that the growth of the production.

We also had an increase of the [indecipherable] dollar which had for the extreme an impact of 8% of the depreciation.

In addition to that, we had some small reduction of reserve attached to some pollution, which didn't mean by the way that this had declined.

No, because at the same time we managed to increase the reserve base.

But this explains why in fact we have I would say a small reduction by 5% in euros and we should have more, especially if we [indecipherable] what I mentioned, especially concerning the Novagen in Norway.

Thank you.

Our next question today comes from Irene Himona.

Please go ahead with your question, stating your company name.

Good afternoon.

It is Irene Himona from Morgan Stanley.

I have two quick questions.

First of all on Refining and Marketing.

Can you give us any indication of the trend in trading profit this quarter?

Secondly, in Chemicals could you say something on the environment for the chemicals business as we enter the second quarter, in terms of volumes and margins?

Concerning our trading and shipping policy, you know that we do not disclose this figure, but I can say that we have an increase of our shipping profit, especially as we had a strong increase of the [indecipherable] .

And I think concerning the trading profits, we are about the same in fact for the first quarter of 2003 compared to 2002.

Something that I think it was, let me get the difference.

Yes.

It was about the same.

Then, concerning Chemicals.

It is clear that Petrochemicals so far for the first quarter of 2003 of the high-priced of the NASDAQ stock.

The situation is now much better as up to now we managed, when I say we, I should say the Petrochemicals, managed to maintain the price of polymers, while we, up to now benefited the reduction of the NASDAQ price.

But we also had a slight reduction of the volume, which is not a positive sign, of activity.

Concerning intermediate chemicals, the situation here of the activity, continued to be relatively medium and I can that it is relatively good activity for specialty chemical business.

Thank you very much.

The next question comes today from Doug Leggett.

Please go ahead with your question, stating your company name.

Good afternoon, Robert.

It is Doug Leggett from Citigroup.

A couple of questions, if I may.

First of all on your CAPEX.

The CAPEX looks a little bit light in the first quarter, compared to your €8.7b target for the year.

I wondered if you could just comment on your exchange rate assumption that you are still using parity and what the peso expenditure might be over the course of the year.

Secondly, on the cash-flow, I was a little bit surprised by the scale and direction of the working capital move.

I was just wondering if you could give us some color as to what is behind that, please?

I think concerning the CAPEX, I think that for the whole group for the first quarter of 2003, the CAPEX was €1.5b, of which in one figure of €1.2b for Upstream, €0.13b for Downstream and €0.18b for Chemicals.

You mention, you are right, a budget of €8.7b.

The budget was established with €1 equal to $1.

Of course as the [indecipherable] for CAPEX are in fact in dollars, especially for [indecipherable], if we take one quarter off €8.7b, we should find something like €2.2b minus 7%.

This leaves something like €2b which has to be compared with €1.5b for the realization of the CAPEX for the first quarter of 2003.

When I look segment by segment of activity I have for the Upstream €1.2b which is a figure slightly lower than I would say is the average of the budget and 25% of the budget which is normal.

Usually we have a higher figure for this CAPEX in summer time, due to weather conditions.

So I think it is normal to have a pretty low level for the first quarter for the Upstream.

Compared to the Downstream, the level of CAPEX is extremely low - €0.13b compared to €1.3b for the 2003 budget.

Again in the Downstream, I observe year after year that the first quarter is very low in terms of CAPEX as usually we do not have for 2003 a lot of very specific investments.

It is essentially [indecipherable] on CAPEX and usually we use the first quarter to assess the news of maintenance investments, which are made usually in the second part of the year.

In Chemicals €0.18b, again it is a very low level.

This is due to the fact that we will [indecipherable] and probably the CAPEX will be postponed to the following year.

So this is why at the end of the day we finished with €1.5b.

Adding to that, clearly in the extreme we will achieve the budget in terms of CAPEX.

We can expect lower levels for Chemicals and for Downstream, we will be at the budget level, or slightly less.

You had another question concerning the working capital.

We have working capital for the first quarter of 2003 which is in fact due to a very specific point.

It is essentially due to the fact that in Germany, the taxes for the last quarter of 2002 instead of being paid in 2003, are paid in December.

They are paid in that month for various reasons due to the German situation.

This is why and other construction taxes for the first quarter in 2003 in Germany, will be paid in the second quarter, and this is why in fact, we enjoy this impact, which is relatively important, something like €500m.

So this explains why there is a reduction in the working capital.

There is also, by the way, is the fact, the consequence of the sale of our paint activity.

Okay, that's very clear.

Thanks Robert.

Okay.

The next question today comes from Kathy Arnfeld.

Please go ahead with your question, stating your company name.

Hi.

It's Kathy Arnfeld from CSFB.

Good afternoon, Kathy.

Hi Robert.

I just had a question about share buybacks, because obviously you undertook a fairly aggressive share buyback program in the first quarter.

I just wanted to know what your thinking was about the rest of the year and also what your current thinking was on your stage and plan of Santa Lavo (ph) in terms of valuation there?

Concerning the share buyback, you may have noticed that we bought back 1.9% of our liquidity during the first quarter, [indecipherable] first quarter with a dividend of 22% then the impact of the dividend payment will be something like 8% in terms of giving which means that at the end of March after payment of the dividend that will be paid in May, we have [indecipherable] of 30%.

This means that all the free cash flow after CAPEX, and I would say after March 31, 2003, will be used to make additional share buybacks.

You will remember that we consider that from the financial point of view after CAPEX, so after payment of dividends, we are balanced with an oil price in the range of $16 per barrel, which means that if we can enjoy an oil price bigger than $16 per barrel, and add in addition to that, we will have paid the dividend virtually, we should be able to continue to make share buybacks and for a significant amount in the last quarter of 2003.

Concerning our take in terms of Santo Lavo we see something like 24.6%.

We consider that with the present level of the share prices in the Santo Lavo it was not in our interest to make disposals, with the Santo Lavo share price that was in the range of €50 per share.

So we decided just to wait a bit of time especially as we continue to be very optimistic with not only the present situation of Santo Lavo in terms of profit and they have announced for 2003 profit increases that should be in the range of 20%.

We are also optimistic about the evolution of Santo Lavo for the future giving all the upsides that we see, especially with the new products.

We think that was in the interest of Total to wait a bit of time before selling additional Santo Lavo shares.

Thank you very much.

Thank you.

The next question comes today from Alistair Syme.

Please go ahead with your question, stating your company name.

Good afternoon, Robert.

Good afternoon, Alistair.

A couple of quick questions.

Throughout 2002, you talked about Total's realized refining margin being a little bit lower than the TFCE indicator margin.

I wonder through the first quarter of 2003 whether it might be the other direction?

Whether your realized margin might be significantly higher?

Yes.

It is true that in 2002 we suffered what we call a price effect, because this was due essentially to the lowest level of the gasoline price as we are under the strong [indecipherable] of the exports of gasoline from Europe to the US.

As far as I remember, I think that this price effect was extremely small, in fact, close to zero in the first quarter 2003.

I think it will be negligible, no?

Okay.

Thank you.

My second question was just on the number of share options you expected to be issued in the second and third quarter?

Share options?

Yes.

It was the idea is to issue, I think it is 3million options and we have decided to issue stock options and we will issue new shares.

We will not buy shares, because I think under the French law we may have some problems and I think it is better to issue new shares and at the same time to buy back the same quantity of share.

Okay.

Thank you very much.

Thank you.

The next question today comes from Neil Perry.

Please go ahead with your question, stating your company name.

Hi.

It is UBS Warburg.

Can I just ask a question about the tax rate and also about the balance sheet.

About the balance sheet first.

You often run with quite large sums of cash on the balance sheet, but I notice that at the end of the quarter you are running at €13b.

I wonder if you could just comment on why you are doing that?

Just because we decided before the war in Iraq to increase the liquidity and to achieve that we increased the level of our short-term debt in very good conditions.

I think it was usually six to nine months' operation just to cover the period March to September/October.

In fact this was made with no cost and we did that for something like €5.4b.

As you can see especially in the cash flow statement.

You may see in the cash flow statement increases in the financial short-term debt of €5.486b.

Yes.

This was just made I would say for safety reasons.

But clearly, we will repay this short-term debt progressively before the end of the year.

I think before the end of September.

Okay thank you.

Then I had a question on the tax rate.

You've given us some --?

Tax rate.

I think this is a good question and it deserves a comment.

The upper end tax rate for the Q1 2003 was 44.8%, but this is after a tax credit linked to the disposal of paint which means that if we exclude this impact, that was I will remind you €200m, the tax rate for the Q1 was in fact 47.9%.

That's nearly 48% compared to 45% for the tax rate for Q1 2002 which means that in fact we had an increase from 45% to 48% for the tax rate in the first quarter of 2003.

I can give some explanation to that.

First remember that we had an increase in the tax rate in the UK, that was decided last year I think in April or May.

Secondly I think we also had an increase of the tax rate in Nigeria and we have recovered a good profitability on some of our operations.

In addition to that, in some countries, we had an increase of the tax rate when there is an increase in the oil price and this took place actually in Nigeria in Angola.

So I think this is the explanation I can give to explain why we had an increase in the tax rate in the first quarter of 2003.

Thank you.

Just finally, can you tell me what tax rate you use when you target return on capital employed under your midmarket conditions?

What tax rate is in that calculation?

I think it is something like 45% on average.

Yes, on average it's about 45%.

Thank you very much.

Thank you.

The next question today comes from JJ Traynor .

Please go ahead with your question stating your company name.

Hello, it's JJ Traynor from Deutsche Bank.

I want to ask actually some questions about the longer term production profile, I'm afraid that's all about Russia and Iraq.

Just on Russia, do you see your way back into the Vancor (ph.) Project given what's happened with [indecipherable] and Anglo Siberian.

On Iraq, I notice that on the News Wise this afternoon the Chairman is saying that you have an MOU.

It was some Iraqi assets or projects.

Could you talk about what the MOU covers, is there a legal basis for that in international law?

Then I suppose the same questions but the other way around.

If you take away Russia and Iraq out of your longer term production outlook beyond 2005, what does the production profile look like on that basis?

First of all I can say that in our long term production profile we have not taken into account nothing concerning Russia, nothing concerning Iraq.

Similarly more specifically concerning Vancor (ph) and the takeover of [indecipherable] on Anglo Siberian, just consider, we have a contract with Anglo Siberian, which is by the way a company incorporated in the UK.

Even with the takeover of Anglo Siberian that contract is still valid.

So we are ready and willing to carry on with this project.

Concerning Iraq.

In fact we negotiated not MOU but a production sharing contract [indecipherable] but these contracts were not signed as we were not in the position to implement them, given especially the embargo of the United Nations.

So we haven't signed anything in Iraq and of course we have not taken anything from Iraq concerning our products and profiles for the coming year especially the further period year 2003 - 2007.

Now concerning Iraq, we expect to see an open and transparent bidding process.

We think that everybody, especially the Iraqis will benefit from such an approach.

I can also add that Total is very familiar with Iraq.

You know that we were born in this country and we believe more specifically believe that we are concerning the [indecipherable] we have, the timing advantage as we have already carried on with some studies concerning these two fields.

That's all I can say now.

We have to wait out what the situation will be.

Can I just go back for some clarification on that?

So on Vancor (ph.) you say you had a contract with Anglo Siberian.

Yes.

Could you say what that covered, was that the full development of the field or was that for technical studies?

Then on Iraq, to have done those feasibility studies on those fields, wasn't there some sort of contractual framework in place?

Didn't you sign anything at all before you spent that money?

No, we signed nothing.

Basically you have to know that one of these two fields, I don't know which one, if it is [indecipherable] was discovered by [indecipherable] in the past.

It's [indecipherable] that was discovered by [indecipherable].

So there is good reason to have good knowledge that this, or one of these fields.

We made some internal developments, but some studies here in Paris.

Concerning Vancor (ph.), in fact we have signed with Anglo Siberian an agreement to enter into the Vancor (ph.) permit with 52% stake.

We have full support of the local administration and we think also that we could bring clear value in the opening of this field.

Even our technicians feel that if there may be clarification [indecipherable] we think that we have acquired some right and that we intend to have our rights respected.

Okay.

Thanks very much indeed.

Thank you.

Once again ladies and gentlemen to register your questions at this time please do so by pressing the number '1' on your telephone keypad.

To cancel your question please press the hash or the pound key.

The next question today comes from David Klein , please go ahead with your question stating your company name.

Hi this is David Klein from BNP Paribas.

Good afternoon David.

Hi.

Two questions for you.

You mentioned earlier the plan to restructure the Chemicals Division in France announced at the start of 2001.

I wonder if you could just update us on the progress of that restructuring to date and the expected timetable.

Secondly, could you just more generically, on Russia comment on whether you are comfortable with your current degree of exposure or whether you would welcome a higher exposure to the country at this stage?

Okay.

Concerning our Chemical restructuring in France, I think we are doing well.

You know that in order to implement a restructuring in France you have to respect some legal requirement, especially concerning the relationships with the Unions, which is something that was made progressively.

As a consequence of that, we managed to close something like 24 sites and some others should be closed in the coming months.

I remind you that from a strategic point of view chemicals represent now 26% of our capital employed.

The idea is to reduce this weight from 26% to 20% and we think that in this 20% Petrochemicals should represent around 50% and special chemicals plus some [indecipherable] chemicals should represent the order of 50%.

I think that we also stated that we intended to divest some of our chemical activities and I think that we mentioned a figure of €500m per year for our divestments in chemicals.

Concerning Russia, what is clear just now, our financial exposure in Russia should be in the range of $100m which is a very low figure.

Clearly we have in mind to increase this figure.

This will depend of course on the premises that we have.

You know that we are more concerned with our development in Russia and approach consisting to develop [indecipherable] like Vancor (ph.) or [indecipherable].

What we've done is to take interest in companies.

So this is why we are clearly looking at the possibilities to build-up our business in Russia.

But eventually through the developments like the one I mentioned.

Thank you.

Thank you sir.

There appear to be no further questions on the telephone lines at this time.

I do apologize we've just had a question registered from Neil Morton.

Please go ahead with your question stating your company name.

Yes good afternoon it's Neil Morton from DRKW.

I just wanted to follow-on from your comments on Russia.

As you've said ,your strategy to date has been to develop your exposure on a project-by-project basis.

Yes.

I just wonder if that strategy will remain intact in the likely absence of PFAs?

Secondly, given the absence of down stream exposure in Russia will those projects by necessity need an independent export solution?

No, I think you are right.

Maybe we should be flexible in contractual terms in other countries.

By the way, we have shown that we were flexible.

You are right also to mention that in some cases to make some developments we may have an issue concerning the sale of the crude that could be produced because in some cases the export may be an issue.

The alternative would be to sell this crude oil onto the market.

So there are clearly some things we have to take into account.

This could be an issue maybe for Vancor (ph.).

Concerning [indecipherable] I think it's a different story as it is a huge gas [indecipherable] in the Bearing Sea with gas reserves that should be in the range of 100 TCF.

That's great.

Thank you.

Yes, the next question?

The next question today comes from Freid Syrenges (ph.), please go ahead with your question stating your company name.

Good afternoon.

I'm of ABN Amro Asset Management.

Yes, good afternoon.

Hello.

The question is regarding CAPEX.

What is the strategy for CAPEX?

You have indicated 8.7 for this year.

I am interested in rough indications if you can give them for the years after that.

What is today's visibility?

Could you also indicate how much you would label maintenance CAPEX and how much you would label growth CAPEX?

Looking at our long-term plan, in fact with one euro equal to one dollar for the next 3-4 years, we have CAPEX something between €8.5b - €9b.

That is to say that CAPEX should remain at a constant level which is by the way the level we had the year before.

I think if on an ongoing basis, it would be difficult to increase this CAPEX level unless we accept to have lower criteria, especially in terms of profitability, which is something that we are not ready to take.

Also concerning the long-term assumptions for the oil price, we continue to take our, I think, conservative assumption, of $17 per barrel.

You asked a question concerning what could be considered the maintenance CAPEX and the growth CAPEX.

It's not so easy to answer that question.

I would say that concerning Upstream, CAPEX for [indecipherable] was something like €5.5b per year.

I think that maybe one third of that is for maintenance and two thirds for growth if I can think like that.

So refining, essentially maintenance, as you know we will have only one big investment which is a conversion plant that we have announced, by the way, that will represent something like €500m.

After that, between now and 2009, there will be one or two [indecipherable] investments [indecipherable].

We think concerning the Downstream that we should remain with a [indecipherable] capacity [indecipherable] between now and 2007/2008.

Concerning chemicals we should have especially in Petrochemical, [indecipherable] we may not exclude to have some growth CAPEX.

Okay thank you very much.

Okay.

The next question today comes from Jason Kinney (ph.) please go ahead with your question stating your company name.

Hi it's Jason Kinney(ph.) from ING Financial Markets.

A quick question if I may.

Has there been any progress with the buy back contract to develop phase 11 of South Pars in Iran?

We have some difficulties concerning the South Pars contract.

I would say that we are negotiating with the Southern Iranian Oil Companies for the development of phase 11/12 of this gas field.

The feasibility study of this development is now complete and we have some discussions concerning the contract with [indecipherable].

What the idea is to be available soon to develop that energy plant.

So we have some discussions with National Iranian Oil Company in Iran.

Thanks very much.

Another question?

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