TotalEnergies SE (TTE) 2003 Q4 法說會逐字稿

Good afternoon and welcome to this meeting about the Total results.

In fact it is more than Total results for 2003 because we are at the point of time where we come to the end of the first period, which was defined at the time of the implementation of the merger between Total and Fina, the [indiscernible] where we set targets for the period starting at the end of '99 up to the end of 2003.

So we will give you indications about how we met these targets.

Of course, we are entering into a new period now, so we will define new targets for the next five years.

So on top of the usual results presentation and the usual update on the strategy and the different businesses, we will have a summary of this four-year period that we have just entered now, and the new targets [indiscernible].

Robert Castaigne will start with a brief comment on the past, the results of 2003 and the period of '99 to 2003.

Then I will come back on the strategic issues of the different businesses and on the new targets for the next five years.

Good afternoon.

I will start with the 2003 figures denominated in dollars.

First, I would like to remind you that the environment was good in 2003 with a Brent price of $28.8 per barrel and a European refining margin of $20.9 per ton.

I must add that the environment was more difficult for Chemicals and Petrochemicals.

In these circumstances we managed for the first quarter to increase our profits by 29%, which I think is a good figure.

For the whole year, we reached $8.3b for the net income, excluding non-recurring items, which for the company is a [indiscernible] record, the previous record being reached in 2000 with something like $7b, and an increase for the whole year of the [indiscernible] of 40%.

In euros now, a net income for the full year of €7.34b, which gives an earning per share of €11.56.

This is, again, the highest ever, the previous record being reached in 2001 with €2.85 per share.

Concerning the operating income, €13b, which represents an increase by €2b compared to 2002, [at least a] €2b increase.

This is due mainly to a better environment and to additional self-help programs for them.

I will say a word about that later on.

Concerning the cash flow in 2003, first the level of CAPEX was something like $8.7b.

It represents a 6% increase compared to 2002.

Level of divestitures was something like €1.9b.

After CAPEX and divestitures, the net cash flow of all segments of activity was €7.4b, of which €4.3b for the Upstream, €2.3b for Downstream and €0.8 for Chemicals.

This €7.4b for the cash flow was used first to pay dividends, €2.7b, also to make additional share buybacks, 4.6%, for an amount of €4b.

Altogether, €6.7b.

In addition to that, we managed to reduce the gearing from 28.6% at the end of 2002 to 26% at the end of 2003.

If we now see what we have been able to achieve over the period '99 to 2003, in terms of [self-help targets] set at the time of the merger in '99.

We fixed some targets that consisted for the [indiscernible] to increase, given a constant environment, the operating income by €4.4b per year, that is over a four-year period.

We were led to increase this target from €4.4b to €4.8b.

At the end of this period, finally, after 1.1 achieved in 2003 for the self-help, we have reached the €4.8b target of increase of the operating profit in a constant environment after four years.

Concerning the production, we also fixed a target to increase the production by 5% per year, between '99 and 2003.

Finally, we managed to increase it on average by 5.3% per year, which is slightly above the target that we fixed.

At the same time, we have been able to have a very good profitability, as we are now at the highest level compared to the others, as you can see on these figures.

Since the end of 2000 we have made significant share buybacks, 15% of the capital of our equity between September 2000 and December 2003.

This has enabled us to increase the earnings per share between '99 and 2003, we have multiplied the earnings per share by 2.5.

As far as the other, it was something around 2.

Finally, dividend.

In euros, we have doubled the dividend from €2.35 to €4.70 per share.

This represents a 15% increase in 2003 compared to 2002.

That gives us a payout of 41%, which is now more or less in line with the payout of the other majors.

If we want to compare the performance of our dividend with the other super majors, as you can see our dividend has been multiplied by 2.5.

As for the others, it has increased by something between 20% and 30% over the period.

So I think it is a very strong performance, even stronger in the last.

So I leave now the floor to Thierry.

Thank you Robert.

Moving now to the Upstream, for the exploration and production.

First [new term] of production grows.

The improvement last year was by 5.1%.

You can see on this chart an illustration of the gap between the different majors, in terms of production growth during the last four years. [Indiscernible] production that we reached last year was 2.54 Mboe per day.

This growth has not been made at the expense of profitability.

As you can see, our ROACE last year in Upstream was at 29%.

So we have again fully benefited from the production growth in the context of high oil prices.

We will jump over this chart and move directly to technical costs.

The technical costs last year have been at $7.3 per boe, $0.5 per boe for exploration costs, $2.6 per boe for production costs, $4.2 per boe for DD&A.

In fact, after reducing very substantially the technical costs during the '90s and the beginning of this decade, we are now with a figure that is more stable.

We have had last year a negative impact of the evolution of the exchange rate between the dollar and the euro, which represents roughly $0.3 per boe, due to the fact that we have costs in euros in Norway, in some countries of West Africa.

So it means that excluding these impacts we have remained roughly at the same figure as the two previous years, which was at $7.1 per boe.

We also have to face pressure from higher service costs.

Our target is to try to stay roughly around the existing numbers, in terms of technical costs, for the future.

We have to recognize that it is relatively challenging, with the pressure from higher service costs.

In terms of exploration, 2003 has again been a good year.

There have been two new discoveries in Kazakhstan, two new discoveries in Angola, Block 17, one in [indiscernible] Block 32 (in Angola again), one in deep offshore in the US, Chinook, and a satellite of Franklin, West Franklin, in the UK.

The appraisals have also brought substantial contribution, with the contribution of the appraisal of Kashagan East.

In Nigeria, both Usan/Ukot and Nkarika, in Blocks 2 and 46, and some contribution too in Block B in Brunei.

To review our exploration [anchorage], we have acquired new permits in Saudi Arabia, Russia, Nigeria, Gulf of Mexico, Algeria and Mauritania.

Now moving logically from exploration to reserves, a few comments about reserves.

We have, of course, made detailed review of our reserve, as we do at the end of each year.

There are [reductions], upwards and downwards.

I think the previous years were far more upwards than downwards.

It is very logical because when you book a new field, you start with approved reserves.

Probably, you can pass a substantial part of the probably reserves from the status of probable, where they are not booked, to approved reserves, where you have more information about the field's behaviour.

Anyway, this means that we have increased our reserves by 2%, from 11.2 Bboe to 11.4 Bboe.

These figures represent 12.3 years of production at current rate.

Our reserve replacement rate for our consolidated subsidiaries has been at 145%.

The finding costs remain at a very competitive level of $0.7 per boe, and the full reserve replacement costs at $4.3 per boe.

To give a better view of what is the potential of our reserves, we have here indicated that approved and probable reserves represent approximately 20 years of production at current rate.

This year, approved and probable for each field represents a level for which we have as many chances to have a final figure above this figure than to have a final figure under this figure.

So for each field, at the end of the story, what will have been produced will have been a bit different from approved plus probable.

When you look at all the portfolio, with a very large number of fields (as is the case for us), it gives on the statistical approach a very good view of what we will be able to produce in the future from already appreciated fields.

It is why we think that this figure of 20 years of production is something that deserves attention.

In fact, when you make a valuation of companies, all the experts that do it (the investment bankers or elsewhere) make them on these approved plus probable reserves.

Now, growth for the future.

We set for the next five years a target of 4% per year (on average) growth for oil and gas production.

The figure is a bit lower than we had last year, which was only for four years.

This is due to two elements.

One is that it is a bit longer than expected, to get the approval to launch developments.

In cases like Kashagan, Dalia, Dolphin, for instance, a few large projects, it has been a bit longer than expected.

So we will do the growth that we expected, as you will see, on a five-year period in place of the four-year period but all projects have been maintained.

The second reason is the fact that we have now [reference] environments in Al Jurf, which is a $20 per barrel, versus $17 per barrel.

It has some impact on the entitlements to production.

For 2004, the growth will be driven by new start-ups, which are indicated under the column 2004.

In Norway, Venezuela and Nigeria.

It will also be driven by ramp-ups of developments that have started up in 2003 - Amenam in Nigeria, Al Jurf in Libya, Matterhorn in the US and Jasmim in Angola.

Looking a bit further than the next five years, between five and ten years from now, we think that we have a lot of projects in the picture.

First, on mature fields, reducing the decline.

Satellite developments in Angola, in the UK.

LNG plant expansions in Qatar in Nigeria.

Giant fields, for which there will be several phases of development, one after the other, like Kashagan, Dolphin Surmont at Athabasca, Snohvit.

New ventures that are under discussion or under evaluation, in Russia, Qatar, Iran, Angola and Egypt, and other projects at [indiscernible] in Venezuela.

We also have many recent discoveries to valorize, a third pole of production in Block 17 in Angola, the recent discoveries in Block 32 (also in Angola), in Nigeria there is Usan/Ukot, which seems a large discovery.

Of course, in this ten-year period there may be other projects coming from our exploration, [indiscernible] of ours next year.

So we are fairly optimistic about our capacity to maintain substantial production growth after 2008.

A word about LNG.

You probably already know our main position in terms of gas production and the [indiscernible] plant Indonesia, the Middle East, with Oman, Abu Dhabi and Qatar, [indiscernible] in Iran, Africa with Bonny LNG plus a project in Angola, Snohvit under construction.

On top of that, I would like to say a word the midstream LNG.

We have been more and more committed both to transportation and [regasification] terminals.

We have already two agreements.

One is to join Shell in Mexico, on the Altamira terminal, very close to the US border.

The second agreement in France, with Gaz de France, to build a new terminal together at [Fost] in the South of France.

We are under [urgent] negotiations for participating in the new terminal in Asia, and we are looking at opportunities in the US, in order to have the flexibility for marketing additional LNG coming from projects in which we will have Upstream interest.

So that is for the Upstream.

Now, moving to Downstream next.

In refining, the main new information is the launching of a relatively large investment at the Normandy refinery in France.

This is a distillate hydrocracker, an investment of €500m, to reduce a surplus of heavy fuel and allow an increase in diesel production, in order to adapt to the structure of demand in continental Europe.

This project has a very good profitability.

You know that we are fairly prudent, in terms of investment in Downstream, but we think that this refinery is a very large one.

We have to adapt it to the evolution of the structure of demand.

We continue our thoughts to better integrate refining and Petrochemicals.

It is more and more important, with the more and more precise specifications for motor fuels.

In marketing, things are going fairly well too.

In France we have put in place a market segmentation strategy, which works very well.

We have a limited number of service stations under new Elf colors, which is directly in competition with the supermarkets and hypermarkets.

This is profitable and has multiplied by two to three the volume of sales.

The rest of the network is rebranded as the Total brand.

Globally, we are [indiscernible], which has not been the case for a [long time].

Finally we are able to recapture some market share.

In the other countries, we have increased our position with some swaps in Portugal, Italy and Germany.

Globally, we try to grow the contribution of the non-fuel sales.

We have convenience stores, which are called Bonjour.

It works fairly well.

Globally for the Downstream, we have an excellent profitability on average.

We maintained strict financial discipline.

We pursued the effort to reduce working capital, and we have a lot of new action plans (450 of them in fact) to continue to improve our performance.

It means that we are very much confident that even with relatively low refining margins, we would have a good profitability coming from our Downstream.

You can see that for the last four years we have been at the top in terms of ROACE at Downstream amongst the majors.

To Chemicals now.

The situation for Chemicals has not been favorable last year, even if there have been some improvements in the American petrol, in the US Petrochemicals, and a good contribution coming from our new joint venture with Samsung in Korea.

In Europe, the environmental [indiscernible] has not been [generous], it has not been really favorable.

You can see its impact on Intermediates, where the operating income has been reduced by roughly half.

The Specialties has showed good resistance to this difficult environment.

If you correct the figures for change of parameter with the sale of paints, we have more or less maintained our performance of the previous year.

For Petrochemicals, we are revising downward our reference environment.

We think that the mid-cycle for Petrochemicals will be at a lower level than where it was during the '90s.

We continue to improve our own performance, reducing the breakeven in Europe and the US, pursuing the integration with refining (as I said previously) and implementing announced restructuring plans.

We have already closed three plants in France.

Simultaneously, we target growth in high-potential areas, mainly in Asia.

On the Middle East side, for the production, which depends on substantial [indiscernible] in Qatar, for instance.

Close to the main markets, with the Samsung joint venture in Korea.

For Specialties, things are going relatively well, I would say.

Hutchinson had a [indiscernible] to take ROACE, which is already close to 10%.

They have a very strong market position and we are able to manage them with a very different [indiscernible] organization, which is pretty efficient.

Between this Petrochemicals side of the business, and at the other end of the spectrum the Specialties, we have the Chlorochemicals, the Intermediates and Performance products, for which we are not fully satisfied with the situation.

This segment should be roughly 30% of our turnover in Chemicals, and 30% of our workforce in Chemicals.

Therefore, this business has a third of the tough competition in Europe, as a [consequence] of the evolution of the exchange rate between the dollar and the euro, because we are exporting a lot from Europe.

We are not fully satisfied with the way in which we are organized in the present way.

The ideal is to create as a first step within the Group, a new decentralized organization with (in fact) a company.

This would have a higher level of operational economy, its own functional services, and it would be closer to customers, with a more responsive decision-making process.

We feel that in the second step, this company will become independent of the rest of the Group.

What we have to do is first, in 2004, to reorganize, to have the [conversations] with the labor council and [indiscernible] create the new structure offering these activities on a worldwide basis.

We have also to improve the results of this business segment, in order to have a strongly competitive player.

Then, the second step, which will be in 2005 at the earliest and possibly later, depending on market conditions, is to make this company fully independent and allow it to start its independence under a good condition, which means not with too much debt on the back of this new company.

We think that in the Chemical activity, where there are a lot of players in Europe of a size of around €5b [downward], there will certainly be a consolidation of the Chemical industry and the new company should be able to hopefully take part in this consolidation.

Now, for the outlook at the corporate level.

First a few words about our reference environment.

As I mentioned previously, we have raised our reference environment from $17 per barrel to $20 per barrel.

The target is not to relax the selection criteria for investment.

In fact, for the big projects in exploration and production, we want to continue to select only projects that already have a satisfactory return of $17 per barrel.

The problem is more to give you a view of the general financial equilibrium of the Group, this is apart from the market conditions that we have seen.

Concerning the exchange rate between the euro and the dollar, we are raising the figure from $1.1.

We think it is a bit far from the position of the day.

On the other hand, when it came down at $0.85 we never moved the figure down under $1.

So we want to keep something that is a bit influenced by the short-term, but substantially influenced by the medium to long-term view.

We keep a very prudent assessment for the European refining margin, at $12 per ton, which is clearly the [one] that we have an [edge] on in the last years.

We have revised (as I said previously) our mid-cycle assessment for Petrochemicals.

Now looking to numbers.

For last year our ROACE, according to the environment that we have had, was 29% for the Upstream, 15% for the Downstream, 4% for the Chemicals and 19% for the Group.

Recalculating this return on the previous reference environment, the numbers were 14%, 14%, 11% and an average for the Group at 13.5%.

With the new reference environment there are ups and downs.

Ups for the Upstream, with an increase to 17%, and downwards for the Downstream, due to the exchange rate.

Downwards for the Chemicals, due both to the exchange rate and to the mid-cycle assessment.

Globally, I would say, there is a competition between the ups and downs.

At the Group level, these two visions of the two reference environments lead to the same figure, of normalized ROACE for the Group at 13.5%.

Now, looking to the future, our targets are to continue to grow the Upstream while keeping the return at the same high level (that is 17%) for the Downstream, with the action plans that I just mentioned raising the ROACE from 12% to 15%.

For the Chemicals, moving from the parameter of today to the new parameter without the Intermediates, and with productivity programs, we should be able to bring the figure for ROACE from 8% to 12%.

This means that at the Group level the figure would move from 13.5% to 15.5%.

So our commitment is clearly to continue to grow and to deliver in a relatively prudent environment assessment a ROACE of about 15%.

A few words about cash flow allocation.

We expect for the next years to have cash flow from operations of around $13b to $14b per year.

We expect to have CAPEX of $9b to $10b per year, with a high level of priority for the Upstream.

We will pursue a dynamic dividend policy, with a target of a 50% payout ratio.

It means, in other terms, that we are cash neutral after dividend at around $17 per barrel, and keeping a net-debt-to-equity ratio of around 25% to 30%.

This means that if we continue to [indiscernible] relatively high oil price, we will have a substantial share buyback program, the magnitude being adjusted to the environment and to a level of divestment.

Eventually, there are attractive opportunities (which is not the case at the present time), taking into consideration the possibility of acquisitions.

A few words about the Sanofi-Synthelabo Aventis merger.

This merger, in our opinion, will create value.

There are significant synergies.

There are possibilities of optimization, of [shared] research budget, for this larger Group, and a possible re-rating.

For our accounts, we will continue an equity consolidation method and have a substantial capital gain in 2004.

Our strategy towards pharmaceutical remains to divest in the medium term.

This being said, we feel that there is no urgency to divest.

We would like first to enjoy this creation of value before divesting.

Anyway, we would have an increased flexibility to exit at the right time.

It is easier to exist with a smaller share of a larger Group.

In the mean time, there should be a substantial value creation.

Just to summarize.

Our target in the Upstream production growth is 4% per year, with a profitability at 17% for ROACE at $20 per barrel.

For the Downstream, profitability being raised to 15%, with a prudent assessment for the refining margin.

For Chemicals, a reduction of the relative weight of Chemicals in ROACE by the Group, and a profitability target of 12%.

For Sanofi strategy, to divest while creating a maximum of value over the medium term.

So I think the company is in good shape.

We are very much convinced that we will be able to continue to deliver both growth and profitability.

Now we are ready, my colleagues and myself, to answer your questions.

Neil McMahon from Bernstein.

One of the things - when you look at your portfolio for the North American asset base - is really looking at how you are going to get enough import capacity for LNG in the future.

It looks quite difficult to do it without an acquisition for North American LNG import capacity.

Maybe you could comment on that.

Secondly, if you look at your strategy going beyond 2008, it seems like Total is focusing less on one or two single countries or single entities, but more on a bit of everything.

A bit of deepwater, a bit of unconventional heavy oil, oil sands, a bit of LNG, maybe even a bit of Russia and a bit of the Middle East.

Could you maybe tell us where you would think the company is going to focus going forward, if there are any particular elements of that strategy you want to focus on in that timeframe?

Thank you.

The problem of capacity of importing LNG in the US is a bit strange.

Firstly, people feel that there is a shortage.

Today there is no shortage.

The terminals are not fully utilized, but everybody is anxious about a possible future shortage.

So everybody wants to launch projects, plenty of projects.

Perhaps we will find in three or four years from now that there is a substantial excess of capacity for importing LNG.

This being said, we do not think that it is reasonable not to have any capacity available for our LNG operation, so we are in discussions with several groups of operators of LNG terminals to acquire some rights and probably some ownership in LGN import facilities.

In fact, what we have decided with the Altamira terminal in Mexico is already an entry point on North America.

We will need something more directly on the US.

On your second point, for the diversification after 2008.

In fact, it is already the situation today.

When Total and Elf were independent, they were more specialized, each of them, on some of the technological breakthroughs that are important for the future.

One of the jobs of the merger has been to have the full set of technical expertise for all the areas that are important for the long-term.

We want to try to mobilize all the opportunities.

We know that we will not succeed in all cases, but we think that we have the management, the technical expertise and the available workforce, to be able to follow a lot of projects simultaneously and have the best chances of continuing to have this substantial growth.

It is clear that LNG, extra heavy oil, deepwater, will be three areas of huge development but Kashagan (which is not particularly deep water with 400m water depth) will grow so very important for all the decades to come.

Russia - we will see.

Two questions on the Chemicals.

One is your adjustment on mid-cycle in the bulk business down to 550, I guess.

How much does that represent, do you think, in terms of lost synergies over the last three years, in sort of euro terms?

The second question is on the CIP business I am guessing that there is not a huge amount of operational or customer synergies with the other parts of the portfolio.

Can you confirm that will not lose anything that you have managed to put in place over the past three or four years?

On your first question, I think that synergies are (I would say) more linked.

Synergies between Refining and Petrochemicals are more linked to the requirements, in terms of refined products than to the requirements on the Petrochemicals side.

It is the fact that you have to play very precisely with the different products that come from the refinery, send more of them to the Petrochemicals plant, recover some products coming from the crackers in the Petrochemicals plant to enter into your motor fuel [pools].

Here are the main synergies.

So, it is not directly linked to the assessment, in terms of the cracker margin or the polymers margin.

So, I think the figures remain roughly the same.

It is more linked to the constraints on the refining side.

Concerning CIP, of course, we have looked carefully at the parameters to see where the connections between the different business units of the Chemicals are.

We think, for instance, for the Chlorochemicals, they are very much linked, in fact, to all the Fluorochemicals.

It is more important to have them within CIP than to say, "Well, that depends on some polymers produced by Petrochemicals".

In fact, most of the monomers produced by Petrochemicals are used for polymers [indiscernible], and we think that we will not have substantial losses by separating the two.

On the other hand, we think that this side of the business needs to be run a bit differently.

We think that it will be necessary to have a lot of asset management for CIP in the future.

They will have a lot of other companies of the same size with whom they will be able to make this asset management in order to offer the smaller number of producers in these intermediates, being in a better position in front of relatively large buyers that govern the market for the product.

It is Edward Westlake at ABN.

Two questions.

Firstly, the industry is raising its CAPEX and returns, I guess, are under pressure.

Is it better to be a counter-cyclical investor and perhaps have a slower rate of growth for a period to maintain your returns, or do you think that growth is more important?

Secondly, why did you think a hostile merger between Sanofi and Aventis would create more value for your stake than perhaps a friendly merger with another pharmaceutical company?

Who would like to answer the merit of the counter-cycle?

We have demonstrated them, I think, at the end of the '90s, when we decided not to cut the CAPEX when there was a low oil price.

I think it was a good decision.

We have been able to launch with relatively low cost projects that are now delivering their production at a period of high oil price.

This being said, I have difficulties imagining when the downturn of the cycle will come for oil price.

Perhaps we can ask Ian Howat, Head of Strategy, to make assessments.

I think if you look at our objectives going forward, we have the 4% per annum growth objective going all the way through to 2008.

That is done in a context where we expect to be able to hold our technical costs where they are now.

We have obviously not seen the decline in technical costs that we would have seen had the oil price been lower, but the oil price stayed down at $17.

I am pretty sure it has hit the $6.5 a ton technical cost that we had in mind.

We are clearly not going to do that now in the higher price environment.

We do expect to hold that technical cost steady, and therefore we will hit where there is a very high rate of return, but stable rate of return in the Upstream.

In Downstream, again, of course it is different.

We are improving the rate of return on a stable capital base.

In the Upstream, we are growing the business, we are growing the capital employed, but with a very high rate of return.

I think that if you do the calculation, you will find it an alternative strategy that is probably not going to create as much value as doing that very fast growth with that very high but very stable rate of return.

I will leave it to you to do the figuring out, but I think it is a bit of a no-brainer when you do the calculation.

I think that it is the best strategy to carry on like that.

Thank you again for your contribution to the interests of this question.

Concerning Sanofi, I would say that this merger has a lot of merit.

The problem is to negotiate a friendly deal you must be sure that you can negotiate it rapidly.

We had the impression that on Aventis' side, with the different views between the board and the management, it would not be possible to have a quick discussion.

If you begin to enter into a lengthy process, you are lost, in fact.

So we have preferred, together with the Head of Sanofi, to launch directly - I do not like the word hostile merger, because we have no hostility towards anybody, but I would say an unsolicited offer.

Fred Ligges (ph.), Cazenove.

Can you give us an idea of the EBIT contribution of the CIP businesses last year?

Excuse me?

Of the CIP business unit, the contribution to operating income last year, which those businesses made.

You said several times that the Sanofi Aventis combination creates value.

Do you think Sanofi can afford to pay any more to get a combination?

What do you think the answer will be?

Thirdly, could you update us on the [indiscernible] situation?

On the?

[Sepse] situation.

Robert, you can give the number on CIP.

[Inaudible].

This is in fact a combination of the EBIT of Chlorochemicals, that is why they are slightly negative.

For the two other segments they were slightly positive.

That is why we stress the fact that the new company will have first to improve its performance, to be launched independently with good chances of success.

Can I just add to that?

It has already been squeezed, both by the [indiscernible] and by [indiscernible].

It is one of our businesses that has the most impact [of all], not in terms of a translation effect but actually manufacturing in the [indiscernible] to export the [indiscernible].

So the very poor performance in 2003 was unusually bad.

In fact, that business had double-digit rate of return, if you look back to 2000.

So it has had a dramatic decrease in its profitability, partly because of the dollar and partly because of the general economic environment.

Concerning Sanofi [indiscernible] Aventis.

When you look at what the offer was, by comparison not with the day before the day when it was launched, but there was [indiscernible] in the last days [indiscernible].

The premium is close to 20%.

It is very much in line with what has been done for other deals.

We think that it is important that Sanofi and Sanofi's shareholders keep a sufficient share of the value of the synergy.

I forgot [Sepse].

There is nothing new on [Sepse].

Two questions on the option please.

Your returns target went from 16% to 17%, and the oil price went up by $3 in your base case.

You might have expected the returns number to go up a bit further.

Can you talk about what the other moving parts were in that, if technical costs are now to be held steady?

Secondly, we have seen others suffering from accelerated mature decline.

You have still got quite a big UK business.

Can you talk about the rates of underlying decline in your portfolio, and how they might compare with others?

Concerning the target for ROACE [indiscernible] you have given already all the elements.

There is a third one, which is not the largest.

This is the impact of the exchange rate.

You can see this in all the technical costs but it is sure that for our knowledge in operations and to some extent for our [indiscernible] operations we have some of the costs that are more in euros than in dollars.

Concerning the decline, we do not expect a huge increase of our decline rate in the coming years.

The big change that we will have is that our major [indiscernible] speak of production.

We have been able to grow our production in the North Sea between '99 and 2003, thanks to new projects, both in the UK, with a different [theme] and in Norway.

In the future, the solution will be different.

We will be going to continue to grow this business in Norway and we are right in at the peak of our production in the UK.

At the same time, we have a lot of new productions coming, with a very long plateau, which means no decline for 5, 10, 15 years, it could be more, 25 in some cases, depending on the projects.

Globally, with the change of the structure geographically speaking, of our production, with more production coming from giant fields in developing countries, which we will be able to keep a rate of decline for a relatively long period of time, around 3% or 4%.

They will be just in developing countries.

I think the only exception will be in Iran, with a share buyback, which already have a short plateau of production.

Next question?

[Indiscernible] from Amsterdam.

Three questions, on Upstream, Downstream and Chemicals.

First, Upstream.

Can you give us an idea of your current view and the future of reserve replacement going forward, in the next four or five years?

Secondly, I assume that you have not added to the reserves.

Most of your [indiscernible] projects, what have your reserve replacements been in 2003, if you would have added the proven reserves in the [indiscernible], both at about current [indiscernible] projects?

On the Downstream, the margin or the ROACE improvement target, of 3%.

How is that being split between the marketing side on the one hand and refinery on the other hand?

In refinery, will the improvement be largely thanks to the Normandy project, or do you envisage any other streamlining and efficiency improvement projects?

Finally, on the Chemicals side, the new company, CIP, you are creating, fencing off.

I suppose that in order to survive in the medium and longer term it will have to concentrate more on specs.

In order to do so, it will have to invest fairly large sums in R&D.

How do you see R&D going forward?

You have said already that in order to put it on its own legs you have to give it a nice balance sheet.

Can you explain how you see the R&D side and the [indiscernible] going forward?

I think that we have already [made] about figures.

If I had to give information about figures, replacement rate in three or four years from now, I could have requirement for an expedition from the SEC about how we make our calculations.

Let us just stick to the hard numbers and what we have seen.

You know already that for reserves, hard numbers, it is not exactly the same thing as for accounting.

In one case you have figures in the books, in the other cases you make your best assessment according to a certain level of [indiscernible], I think.

We cannot speak, frankly, of reserve replacements several years ahead from now.

The impact of the extra [indiscernible], it was the Orinoco and the [indiscernible] project has not been very substantial for last year.

We have just put [indiscernible] first phase of development and for [indiscernible] most of our routine [works] are already made previously.

Concerning the split in the Downstream, the split between the different businesses, improvement of the funds of refining, new investment in Normandy and marketing.

The 3% represents something like €400m pre-tax improvement of the operating income.

I have in mind that it is smaller than 3%, more or less [a simple omission].

I am speaking under the control of my colleagues.

Robert, do you have in mind more precisely what are the contributions of the different?

It is not a [indiscernible] between refining and marketing.

Refining, marketing and the Normandy investment.

The Normandy investment.

In terms of investment, I think the Normandy refinery investment is about one-third of the investment we have had.

In terms of the ROACE, unfortunately, refining margin is a terrible thing to talk about at this kind of meeting.

For the Upstream we can talk about the big picture.

It is mentioned on page 19 that there are 450 new action plans put in place.

You are talking about just the nitty-gritty and your total capital employed is going to come out at marketing, by improving top-line growth by the rebranding of Total and the Elf stations in France, for example.

It is going to come out of a lot of cost-cutting plans.

It is going to come out of a lot of control of capital employed plans, in terms of capital discipline, in terms of continuing to reduce the working capital.

I am trying to give an overall [indiscernible].

We cannot give it today.

Do not get it into your head that there are a couple of magic bullets in there that are going to give the essential part of that improvement.

It is going to be an awful lot of very nitty-gritty day-to-day improvements.

That is really what has been done since the mergers and that is what will continue to be done.

Normandy will be an unusually large part of that by comparison with what we have done in the past, but there will not be a [indiscernible] target.

Thank you.

Just a few words about the question of CIP.

The product of CIP, there is a growth demand.

It is roughly a similar growth to the GDP.

Some of the products are growing faster and some a bit more slowly.

So I do not think that with CIP we have to move to face the problem.

It is more to have a more balanced situation between producers and consumers of this product.

I think there are too many producers in Europe in this type of business and [not counting] companies which are catered and you will need some [indiscernible].

Just to wind up that question, because I am minded that it is getting late.

Thank you.

Adam Simenski with Deutsche Bank.

I notice that the discussion of new ventures under evaluation for after 2008 does not include the possibility of discussions with the Japanese concerning the [Aldebegon] field.

Is there any possibility that you may become involved in that project now that it has been signed by the Japanese?

In Iran [Aldebegon] was not on the top of our priority list.

It is more the LNG project that we had on the top.

This being said, if the Japanese are looking for partners, we will look toward their side and if we are [hit].

Just one question, so that we can take one question from everybody.

It is Neil Morton from Dresdner Kleinwort.

Over the past four years, you have benefited from self-help by an average of €1.2b per annum.

That has obviously come in no large part from the synergy benefits from Elf and from Petrofina.

Would you care to estimate the annual benefit going forward?

I would just like to mention that half of the €4.8m was coming from synergies and we do not have the same in the future.

There is another point that is changing, it is that we had in mind a reduction of costs per unit for the Upstream and now we are more in the idea of a stable figure.

So globally, the figure is a bit different.

On the other hand we should have to take into consideration the fact that growth would be 4%, but 4% on the broader base that what it was five years ago.

So we could make the calculation and give you the figure but it will probably be a bit less than half of it was for each year in the past.

It is [indiscernible] from [indiscernible].

Can you give a bit more thinking about the change in the mid-cycle assumption for Chemicals?

Looking at your chart and excluding the spike in 1995, it seems to be more the peak of the cycle rather than the [middle] of the cycle?

There have been a lot of internal debates on [indiscernible] because there is nothing definitive on that side.

We are not the only ones to review our mid-cycle assessments in Petrochemicals.

The idea is that they are productivity gains, which have been passed to the customers.

Clearly, there are also new productions coming with the [indiscernible] stock, which brings the margins down too.

We have tried to integrate in the best way possible, these elements.

We have tried also to avoid drastic [indiscernible].

So these I would say have been the main ideas behind this [instruction].

One question here and one there to conclude.

It is Andrew Armstrong from Commerzbank.

I have a question on CAPEX in 2004 and going forward.

You signalled slightly higher than previously indicated, although not as high as we have seen elsewhere.

I just wondered what the mix was on that increase between opportunity and cost and then just thinking about oil services and what the pressures are that you might be seeing there?

Well, the figures are a bit difficult to understand.

We spoke before of CAPEX in euros.

There is such a change between the euro and the dollar that we have [used] these figures in dollars, because most of modern currency price [indiscernible] as far as CAPEX are in fact dollar related.

When you move to dollars, you forget that there is an exchange rate impact on those of the CAPEX, which remains euro related.

So it is part of the explanation.

A second part of the explanation for the increase is in the refining with the Normandy refinery.

The third part of the explanation is with the investment in the midstream gas, the [regasification] terminal that we mentioned and at the end of the day there is just a few percent for the ENP itself, which is mainly due to cost of services.

Hi.

It is John Merrins of Morgan Stanley.

It draws perfectly into my last question.

I am a little confused how the cost of services are going up, if you look at the drilling rig rates which is probably 40% of the cost of well development since 2000.

It has been going downhill and whether it is trans-ocean or diving offshore they are basically having huge problems with utilization.

The seismic industry is on its back.

A lot of the European offshore companies have very low margins and tough times in 2003.

I am a little bit unclear how the service industry is a cause of the cost difficulties and whether in fact that is not going to increase going forward.

Well it depends a lot on the type of businesses.

If you take, for instance, all the deep offshore development where there are just a few competitors, where there are a lot of close contenders, you have a very substantial jump in cost of services, and the companies begin to recognize that they will improve their accounts.

I would say on some [indiscernible] this is not bad, because we do not want to lose too many of our subcontractors and be able to keep sufficient competition for the future.

We certainly have some very [indiscernible].

This is where the financials are, in a [low], but I can assure you that in the new development, particularly in the deep offshore, prices have increased very substantially.

Thank you very much for your attention and we can now meet around the buffet.