TotalEnergies SE (TTE) 2004 Q2 法說會逐字稿

Good afternoon ladies and gentlemen, and welcome to the TOTAL second quarter and first half 2004 Results Conference Call. [Operator's instructions] Just to remind you all this conference call is being recorded.

I would now like to hand over to your chairperson, Mr. Robert Castaigne.

Please go ahead with your meeting, sir, and I will be standing by.

Thank you very much.

Good afternoon and good morning to you in the States.

Today we say a few words about the second quarter results, the market environment and each of the business segments, and then I will take your questions.

As a whole, we had an unreservedly [indiscernible] quarter.

In the Upstream we continue to increase production.

We made progress on our development project and we had some good exploration success.

In the Downstream we had the benefit of a very favorable environment.

The Chemicals continued to struggle despite our restructuring efforts.

Adjusting for special items, the Group profitability of 20% was at the top of the industry, and we set a new record for earnings.

Special items were not very significant in either period and, in fact, were limited to just the Chemicals segment.

You have the details in the earning release.

So, excluding the special items from this point, I can say that our second quarter results, expressed in dollars, reached the record level of $4.21 per share.

An increase of 34% over the same quarter last year.

In euro terms, earnings per share were €3.49, an increase of 26% over the second quarter of last year.

To explain the difference between the increases, the dollar was weaker by about 5% in the second quarter 2004 than in the second quarter last year.

The return on capital employed for the Group was 20% for the 12-month period end June 30.

Our annualized second quarter return on capital employed grew to 23%, which is at the high end of the major oil peer group, after adjusting for special items.

The [defining] factor for the quarter was the oil environment.

Brent increased by 36% to more than $35 per ton.

The increase in our gas price was lower due to gas market conditions and [lag] effects.

And our refining margins were very strong, increasing to more than $34 per ton, which is nearly double the level of last year.

As I said, the dollar was weaker and petrochemical margins in Europe were substantially lower as well, pushed down mainly by higher [indiscernible] prices.

Cash flow from operations was €2.6b in the second quarter, down from €3.1b in the same quarter last year.

Given the stronger link to decrease in cash flow of operations, this explained by [indiscernible] in working capital.

Our CapEX increased to €1.9b in second quarter, bringing the year-to-date investment to €3.5b.

This is in line with our estimate of $10b for the full year, and we confirm that this is our target investment level for the year.

We paid the 2,300 dividend in May which represented nearly €2.9b.

We have continued to buy back our shares.

For the first 6 months we have bought back 12.4m shares for €1.9m.

This combination of dividends and buybacks during the first half represented in dollars about €4.8b return to shareholders.

In addition we announce at General Meeting that we will pay our dividend now semi-annually.

So the first semi-annual dividend payment will be made on November 24.

The exact amount will have to be approved by the Board of November 9.

Just to remind you of the order of magnitude, we plan to distribute about one-half of the [prescribed] annual dividend.

Taking into account the dividend paid, as well as the November dividend we have committed to, as well as the shares that we have brought by-- that we have bought back through June, written to shareholders it is more than €6b.

In addition, with the free cash flow that is left after the net CapEX and dividend, we are continuing to return cash to our shareholders through buybacks.

In July we brought back another 1.3b shares, which means we have taken out 2.1% of shares so far this year, and about 17% since we began the program 4 years ago.

Going forward, we intend to maintain financial discipline to invest in growth-oriented projects that to-- meet our criteria; to have a competitive dividend policy; and to maintain dividend at about 20-30% after share buyback.

Now I would like to touch on the operating segments and first the Upstream.

In the Upstream, operating income in the second quarter 2004, expressed in dollar terms, increased by 44% - which put TOTAL among the very best in the industry..

In euros, operating income increased by 36% to €3.1m.

We see that this 36% increase in operating income was stronger than the 23% increase in the net operating income.

This is due to higher notional tax rate which is related to the production rate for the quarter.

Our profitability for Upstream has increased to a very competitive level of 31% for the 12 months ended June 30.

Clearly we are benefiting from the high oil price and, as I have said, we increase production by 3.7% to 2.6m barrels of oil equivalent per day, despite the negative high price impact on production sharing contract volumes.

As you know, there is a indirect relationship between the oil price and our production volumes from production sharing contracting and buy-back contract.

And to be more specific, for every $1 per barrel increase in the price of oil, we use about 5,000-7,000 barrels per day of reported production.

We have some planned shutdowns in the second half that is worth mentioning.

During the third quarter, Walker 13, North Sea, will be higher than last year.

And in the fourth quarter, we are going to de-bottleneck the [Sinco] upgrader, to increase its capacity, I would say, up to 200,000 barrels per day of [zinchoben].

These operations are temporary, of course, but they will have an impact on volumes.

Having said that, the Upstream segment is performing well and we are pleased with [recent] start-ups and production increases.

Such as the Yucal Placer, Amenam, and Matterhorn fields.

We are totally on track to achieve our long-term growth target of 4% over year on average to 2008.

Two projects - thanks to projects like [Danielle and Rosa] in Angola;

Dolphin in the Middle East and [Akpo] in Nigeria.

We have made some discoveries in the Caspian Sea and the [Canela-1] offshore in Angola.

We are currently drilling exploration wells in many countries such as Libya, Algeria, Nigeria, Congo and the UK.

And we think that we should have some more good news to report to you in the coming weeks or months.

Downstream - moving to the Downstream segment.

We had a very strong quarter with the operating income up 59% to €727m.

Refineries throughput increased by 5% and then, of course, our refining margins were very strong - about 95% quarter-to-quarter and up 12% half year to half year.

Offsetting these positive factors was weaker dollar and moderating the world marketing margins in Europe.

Chemicals now - in Chemicals operating income fell to €147m in the second quarter of 2004, from €184m in the same quarter last year.

Also, the Specialties performed well.

The situation is still difficult for Intermediates, and more especially for petrochemicals, in part because of higher raw material costs.

We are making progress with our CIP project.

This CIP is our plan to create what will be an independent company, made up of our chlorochemicals, intermediates and performance polymers.

We have completed the required notification information process with the labor representatives.

We have named the key managers and the final structure should be in place by the end of this year - in fact, probably, beginning of the fourth quarter.

Our [basic] is to work towards spinning CIP in 2006 depending, of course, on market conditions.

Before closing, I would like to mention a couple of things.

First, the [Sanofi] merger closed last week, and we should know very soon the results of this operation.

Depending on the result of the offer, we should own about 13% of the new combined company.

We expect the market to value the Company more attractively, once it begins to benefit from the merger synergies.

Our plan is still to divert this [part of the valuation] over the medium-term, so we should benefit from the higher valuation.

At [Forsesar], the arbitration is ongoing, so we cannot comment on this issue.

So, in summary, we had another very good quarter, as well-- well into the third quarter now, the oil market environment continues to be favorable - both in terms of oil price higher than $40 per barrel, and refining margin above $30 per ton in Europe.

We are confident that our plans to continue growing the size and profitability of the Company are secure, and we will continue to put us among the very best performers in the industry.

So, thank you for your time, and now I am ready for your questions.

Thank you, sir. [Operator's instructions] Our first question comes from David Klein.

Please go ahead with your question, sir, announcing your company name and location.

Hi, this is David Klein from Exane BNP Paribas speaking.

Good afternoon, David.

Hi.

A question on the tax rate.

There was a significant increase in the underlying tax rate in the quarter to, I think, 51%.

You mention in the press release that there is an impact from Nigerian volumes.

Yes, especially, yes.

I mean remember Amenam is a development which has been made in the same work as the old concession [system].

With higher tax rate-- tax rate higher, especially when you apply it is high.

Maybe can add the new developments will be a production sharing contract with lower tax rate.

Sorry to have-- for having interrupted you.

In fact, you mainly answered my question but-- Are saying that at lower oil prices, the tax rate on that project would be considerably lower?

You mean for Amenam?

Yes.

Yes, I think, yes.

So your estimate, your guidance on mid-cycle tax rate is unchanged?

Yes, I think it is fair to say that.

Okay, thank you.

Yes.

The next question?

The next question comes from Neil McMann.

Please go ahead with your question, sir, announcing your company name and location.

Hello, it is Neil McMann with Sanford Bernstein.

Yes.

Good morning or afternoon.

Hi.

Just got a few questions.

The first one, just that you commented on both the Chemicals proposed divestments and Sanofi.

Obviously, you are going to see quite a lot of cash coming from both of those divestments as you go through 2005 and 2006.

Have you got any specific plans of what to do with that cash?

And especially if commodity prices stay in the $30 per barrel range going forward?

Well, first concerning CIP, we have in mind in fact [to speed up] [indiscernible] The truth be in fact, the effect will consist to distribute the shares.

So, CIP to our shareholders.

So, in fact, there will be no cash for us.

Concerning Sanofi, well it is clear that it is not [co-holding] for us, and we still have in mind to divest, I would say, the opportunity of stake in Sanofi, when we think the share price will be attractive enough.

And, clearly here, the idea is first to give the money back to our shareholders.

Because it is suppose we have in mind to make an acquisition.

It is always a very difficult exercise to try to match, first an investment, and secondly, divestment in Sanofi.

Having said that, now the oil price is relatively high, $40 per barrel [at the most].

So it is clearly not a good timing at this stage to make an acquisition.

If later on there are some possibility, of course, we continue to study them but we have nothing in mind now.

Really, that was leading to the second part of my question which was - it seems like very much your 2008 plus strategy seems to hinge around certain parts of the portfolio, which look like Venezuela have the oil.

And again creating oil sands.

Just wondering where you stand in Venezuela?

What is the new petroleum law and future investment there?

And also do you need an acquisition in Canada to get exposure to more oil sands acreage?

Okay, considering Venezuela, the first-- the first piece.

To me, Venezuela presents a [indiscernible] to present [indiscernible].

And after that we should be able to increase the production of Sinco from 165,000 barrels per day to 200,000 barrels per day.

I think that I thought that idea is try to increase our access to two-thirds heavy oil.

And we have had some talks with [indiscernible] in order to see how we could have access to further acreage, with the idea to develop Sinco 2 operation.

Concerning [Kennedy] and [Alsance], you know that we have now an interest in the Surmont project.

And it is clear that if we have the possibility to develop our position in Kennedy and Alsance, we do it.

But I think up to now we have not been in the position to announce something.

Concerning possibility to make some further acquisition to help the growth after 2008, it is clearly-- Well what we have in mind will maybe not doing I would say further acquisition but trying to develop the [third part] policy as we call it internally.

That we have developed, delivered of Total, I would say 10 years ago.

So these to-- to study what could be the possibility for us to give up some of our position in OPEC countries.

And we have some talks with some of these countries, and we will see if we have the possibility to enlarge our business in these OPEC countries.

So it is more what we have in mind to help our growth while we have done to make, I would say, genuine acquisition.

Great, thank you very much.

Thank you.

The next question comes from Andrew Archer.

Please go ahead with your question, sir, announcing your company name and location.

Yes, good afternoon.

It is Andrew Archer from Commerzbank.

Good afternoon, Andrew.

Good afternoon.

Just a couple of question on Chemicals again and on CapEX.

You had some mixed reporting from your competitors.

Just wondered if you could give a bit more background as to your experience during the second quarter?

And your outlook for the remainder of the year, as far as you can see it?

And then, secondly, on CapEx, it is good to see that you got the $10b target for the full year still in target.

I just wondered that, obviously the environment in terms of exchange rates would indicate that, on a like-for-like basis, you would have thought the dollar amount would come down.

So I wondered if that was still something that you were seeing, or whether there are any other moving parts behind that number?

The total barrels for the [monthly] are in dollar.

If we take-- If you take the region of total investment for the first six months of the year, then you will find in dollars something like $4.35.

Which means that our CapEX in dollars for the first part of the year, represents more or less 44%, 45%, of our $10b budget.

And we think that we should be in line with the budget for the CapEX in 2004.

Concerning the outlook for Chemicals for the second part of 2004, in fact to be a little bit more specific, in Chemicals we have to make the distinction between petrochemical, intermediates and specialty chemicals.

Specialty chemicals are going pretty well and we think that these trends should continue for the second part of the year.

Intermediate chemical, I would say, are recovering - slowly maybe.

But the situation should continue, maybe with some slight improvement.

This will depend on especially for intermediate chemical, of the evolution of the euro-dollar parity.

Concerning petrochemical, I think this will depend - as far as the European petrochemical is concerned - this will depend potentially on the level of the [NASQA] price.

And if we think that we may continue with relatively high level for the oil price, we can expect a situation that is still a bit difficult for the petrochemical in Europe, in the second part of the year.

Despite the fact that we have seen first sight of recovery, with some increases of the volumes.

Okay, thanks very much.

Okay.

Yes, next question.

The next question comes from Irene Monaghan.

Please go ahead with your question, madam, announcing your company name and location.

Good afternoon, Robert.

It is Irene Monaghan at Morgan Stanley.

Good afternoon, Irene.

Two quick questions if I may.

Firstly on the 4% volume growth in the quarter.

Could you perhaps give us an idea of what the PSA effect actually was?

And, also, I remember in the first quarter there were a number of exceptional disruptions.

I wonder if there was anything unusual this quarter?

And then my second question is on the Toulouse provision.

I note that you have put aside another nearly €100m on that.

Could you give us an update as to what the cumulative provision is to date, and what is going on there?

Thank you.

Yes, concerning the production, the PSA effect for the second quarter is one-- minus 1.9%.

So it-- But besides that, there was an increase of the OPEC of about 0.7%.

So it should make the calculation, this should give you an [indiscernible] growth of something like 5%.

And, as far as I remember, we had no major shutdown during the second quarter.

Okay?

And your second question concern the level of production for Toulouse, and level of provision for Toulouse.

It is-- It was something like €950m, and we have had after tax €100m - that is also before tax, €150m, which means that now before tax the total level of provision is something like €1b and €100m.

And do you see that increasing further in the future?

Well, quite frankly I think that now we should be at the end or fairly close to the end because we have now [indiscernible] the [indiscernible] of the claims.

And I think that we are fairly well-positioned with this level of provision now.

Thank you.

Next question.

Our next question comes from Mark Gilmen.

Please go ahead with your question, sir, announcing your company name and location.

Hello, Robert.

It is Mark Gilmen at Benchmark in New York City.

I had a couple of Upstream questions if I could?

Yes, please.

[Inaudible - over-talking] 2 in Angola.

Could you indicate what the next plans are [Inaudible - line interference] and sanctioning and development?

Secondly, could you give us some clarity on the Middle Eastern liquids volume, which continued to decline in terms of the impacts of production sharing contracts, buybacks in Iran, and other factors that might be contributing to that?

Okay, concerning next plan in Angola.

By the way, I am pleased to tell you that we have just very recently got the approval to launch the development of [Boulder].

This should be confirmed by letter but I think that we got the approval.

And for the rest, I think the development should continue according to the plans that we have already the opportunity to present.

Concerning Middle East, it is true we have had a decrease of our production in the Middle East from 419,000 barrels per day for the first quarter 2004, to 382,000 barrels per day for the second quarter.

And this is due to two things - first, the end of the [Thierry] project.

And then the effect on the higher oil price on the buy-back contract.

For the months to come, for the future, more generally we should benefit of the production coming from the second phase of [Nurund].

And also from the second phase of [Al-Halij] in Qatar.

That should come on-stream in the coming weeks.

So I think that we should recover, not normal level, I would say in the range or above 400,000 barrels per day in the Middle East.

Thank you, Robert.

The next question.

The next question comes from [Jean-Luc Hormann].

Please go ahead with your question, announcing your company name and location.

Jean-Luc Hormann, [CNCIC] Securities.

Could give us the status of the Aktote development plant?

And, additionally, do you have an estimate of when oil mining license might be awarded?

Excuse me, could you repeat your question?

I was wondering if you had an idea when the oil mining license for the [Aktote] developments might be awarded?

Yes.

Concerning Aktote - first I would like to remind you that Aktote is a major discovery and now the engineering study is processing very well.

The Aktote production is expected to start, to contribute to the production target of 2008.

And concerning the oil mining license, I think that it should be awarded soon.

Thank you.

Okay.

The next question comes from Matthew [Ladstone].

Please go ahead with your question, announcing your company name and location.

Hi, it is Matthew Ladstone from Goldmans in London.

Yes, good afternoon Matthew.

I had one question and then a couple of follow-ups on some earlier questions.

In terms of the Upstream division, the actual revenue line for the quarter was something like €900m lower than in the first quarter, despite broadly unchanged volumes quarter-on-quarter at the higher oil price.

Could you explain how much of that decline is the lag effect on gas pricing?

And how much of it is actually related to the gas and power activities?

And then in terms of the follow-ups, on tax rate.

If we assume an unchanged oil price for the remainder of the year, would you expect the tax rate to remain more like 51%, 52%, instead of the 49% which was the original guidance.

For- You mean for the rest of the year?

For the rest of the year?

For the rest of the year, in fact, the price of [indiscernible] will be at [indiscernible] of several [double] points.

And that will not go in the [indiscernible] the good direction from this point of view.

There will be, as I have mentioned in the introduction, that we should have some set downs in North Sea for maintenance.

And in Venezuela for the debottlenecking of Sinco.

So even if we have lower tax rates, especially in Nigeria - suppose that we have lower oil prices.

It is clear with that, if we take the portfolio of our production, there will be a reduction during one or two months but some productions with lower tax rate.

So I think, as a consequence of that, we should remain for the second part of the year with pretty high tax rate.

I do not want-- I would not want to make any forecasts but it is clear that objectively there will be two events that will contribute to increase a little the tax rate.

Concerning the turnover for the Upstream, I think that at the end, it is very difficult to comment quite frankly.

I think at the end of June we had the balanced situation, that is to say we were not [nice earner] of early [stir] or in early stir.

At the end of the first quarter, quite frankly, I do not know whether we were.

And concerning the turnover, you have to consider that, in fact, we produce about one-third oil and two-third-- one-third gas and two-third oil.

And the oil price increased by 36% and the gas pipe by 8%.

Thanks.

I mean that does not really explain the fall in revenue to the first quarter.

Okay.

And my final question on Sinco and phase two.

Could you confirm whether you would be interested in pressing ahead with that expansion under the new hydrocarbon law in Venezuela?

Or would you need to just try and tie the expansion into the terms of the original Sinco project?

Just one second.

Could you repeat your question concerning Sinco?

Sorry.

Yes.

You mentioned earlier that you were obviously looking in the medium-term at Sinco phase two and had discussions with [Pedavaser].

Obviously, since you undertook the original project there the tax terms have been tightened, and the royalty terms as well.

Would you need to see reversion to the original fiscal regime to justify the expansion?

Or could you press ahead with Sinco 2 under the new hydrocarbon law in Venezuela?

Quite frankly, of course, we do not know yet the tax regime.

Well, what I can say is that we certainly need to stress on [indiscernible] interest to develop in a practical way the Sinco 2 operation.

And clearly that should have-- that should be very positive from the economy's point of view.

Concerning the taxes, quite frankly, we already do speak about that and I would not want to say more.

Very sorry.

Okay, thank you very much.

Yes.

Next question.

The next question comes from Neil Morton.

Please go ahead with your question, announcing your company name and location.

Good afternoon.

It is Neil Morton from DRKW in London.

Good afternoon.

Couple of questions, firstly on the working capital - sharp increase of about €1b.

On the balance sheet it seems to have appeared as other creditors and accrued liabilities.

I wonder if you could give us some color on that?

And secondly, on the second half shutdowns, whether you could quantify those?

Okay.

Concerning the working capital, in fact, by the way the working capital is something that there is significancy from one quarter to the other one.

During the first quarter the working capital decreased by about €1b, and in the second quarter it increased by €1b.

So, that is to say, we have at the end of June about the same working capital as the one we had at the end of December 2003.

Concerning the increase that we have had in the second quarter, I can say that a little more than 50% of this €1b increase in the working capital, is clearly linked to the increase in the oil price.

And then, in addition to that, we had small increase in the oil inventories.

And the other explanation - there is another one I think.

I think that is all I would like to say about that now.

Eventually I think maybe that, let us say, 60% of this increase is due to the increase in the oil price.

Besides that, there is a very small increase due to a small increase in oil inventory than [indiscernible].

The [little] on [indiscernible] [point] is there has been, I would say, an exception - not an exceptional - relative to high payment of taxes.

Because that in some countries we have to make a higher payment of taxes and one has been made, I think, in at the end of, or the beginning roughly.

And this is the last explanation that we have for this increase in working capital.

So, partly due to the oil price increase - small increase in the oil inventories and the tax effect.

Concerning the second half shutdown.

In fact, in the North Sea there will be a shutdown for [Olwyn] and [Denbard] in connection with the plant and some pipelines.

Overall, I think it should be a normal maintenance, and [Ecofisk] which should be a large turnaround.

And concerning Sinco, the shutdown should last something - I had in mind one month and a half - yes, 45 days. [indiscernible] during the shutdown of Sinco we should have the possibility to produce part of our production of [indiscernible] oil.

So there will be a kind of compensation with that.

Okay, that is great.

Thank you.

Okay.

The next question.

The next question comes from [J Trainer].

Please go ahead with your question, announcing your company name and location.

Hello.

This is JJ Trainer from Deutsche Bank.

Hello, how are you?

Two very different questions.

On the Chemicals performance, I wonder if you could give us an estimate of the US contribution to the Chemicals earnings versus rest of the world?

Maybe a percentage or something?

And give us an indication of what the CIP businesses earned on the half or on the quarter?

And secondly, very differently, on the LNG strategy.

When we add up the LNG Upstream growth that we can see.

That seems to be in excess of the LNG re-gas capacity that you are planning.

Am I right in thinking that you are planning to become an LNG trader?

And what are your plans for US LNG re-gas?

Yes, concerning the contribution of US petrochemical - I think in terms of turnover it should represent - I do not know 20% maybe, 20%, 30%.

I think - I do not have any precise figure but in terms of volumes, I think it should be more or less be the order of magnitude.

Concerning the contribution of CIP, the operating income of CIP should be something like 20% of the operating income of the chemical branch, so--

Can you just confirm that the US Chemicals were in profit?

I think the answer is yes but I think it should be a small profit.

In fact, if I remember well, petrochemical margin has not changed from even [slightly] increase of 2% in second quarter 2004, compared to the second quarter 2003.

And so I think maybe we try to check that, if the petrochemical in the US was in a positive situation for the second quarter.

I think the answer is yes, especially because the recovery was much better in the US.

And then because of the petrochemical margin was much better in the US than they were in Europe.

And then you had finally a question concerning the LNG production.

Could you repeat the question?

The question was to do with the equity volume growth in LNG that we can see, which seems to be larger than the LNG re-gas capacity that you are building.

So the implication is that you are going to become a trader of LNG.

You mean for the future?

For the future, right.

And also, do you plan to take part in US LNG re-gas capacity?

Yes.

I think it is something that we are contemplating for the future.

Having said that, we are-- we also have in mind that this until 2008 and 2009, there should be some, I believe, it is [renegotiation] in the US.

Just if we take into account the [re-investigation] terminals that already exists with that.

We think that it is important for us to take some position [embedded] one or two of the [renegotiated] terminal in the US.

But, quite frankly, if we do that we try to do it in a good way, and we think that this is not, I would say, not an issue for the next 2 or 3 years.

It is more for the longer-term.

But we have a lot of contacts, and some I would say discussions or advanced discussions to develop the position in the [indiscernible] in the US, yes.

Okay.

Thanks very much.

Thank you.

The next question comes from Jason Kenny.

Please go ahead with your question, announcing your company name and location.

Hi, it is Jason Kenny from ING Financial Markets in Edinburgh.

Yes.

Good afternoon, Jason.

Congratulations on your results and your profitability today.

And I know you mentioned the Upstream [profitability] of 31%.

I was wondering if you could provide some clarity on the Downstream [profitability] and also the Chemicals [profitability]?

And then, if you could relate those back to your reference environment as detailed in the full year 2003?

Just so we know how far ahead of targets you can be at the minute.

Yes.

Concerning Upstream or Downstream for the last 12 months, as profitability as we have said, we said to the last 12 months.

And so we have the 31% for the Upstream, 17% for Downstream, and 4% for Chemicals.

And, quite frankly, it is very difficult to reconcile just like that the profitability with the environment.

It is something, it is an exercise that we do, we present to you in the road show beginning of September.

Clearly you will [read your opportunity] in this to start the fact that during the first part of 2004, we have increased our operating profit by €900m just - no, not €900m, but €700m.

But about €300m was due to the environment, after it became into account the decrease in the dollar as we are in euro.

And that was €400m as a result of our internal reports in terms of growth and productivity.

Once again, concerning the link between the profitability and the oil price, we will give you all the detail in the beginning of September.

Great, thanks very much.

Thank you.

The next question comes from Tim Whittaker.

Please go ahead with your question, announcing your company name and location.

Hello, Robert.

It is Tim Whittaker at Lehman Brothers in London.

Yes, good afternoon Tim.

Good afternoon.

A question first of all about your buybacks and your gearing level.

I am presuming that, even though your gearing level is towards the high end of range at the end of the quarter, that does not effect your ability to buy back shares?

Could you confirm in the comment you made about the Rosa development, that there has been no linkage to any gas gathering oil and [g] scheme, and the agreement is on the Rosa development?

And, also, could you update on the way you believe you have reached in Kazakhstan, in terms of the pre-emption on Kashagan?

Concerning, yes, the buyback.

It is clear that, in fact, the buyback is adjusted in order to maintain the gearing at a level something between 20% to 70%.

By the way, you may have seen that Moody's decided to increase our reputation with double AA with a very positive outlook.

Concerning now Kashagan and the question of any possible stake of the government in Kashagan field.

We have some discussions with [Kazakhstan] [we feel], with a view to achieve to complete the sale of British Gas stake.

What is clear in the contract is that all the partners have felt it right in case of divestments of one of the joint venturer.

But having said that, we also need the approval of the Kazakhstan government to implement such a divestment, or acquisition for us.

Then we still have some discussion with [Kazakhstan].

So it is that we like very much to take this opportunity to take in the operation.

Concerning the condition of Rosa approval, there is-- I do not see what you mean.

In fact, I think it is a normal course of business.

It may take some time in order to get the approval to launch the development.

And always clear that it was-- we found that it was a bit [long] but the reason was that [indiscernible] commissioned those specific conditions for this approval clearly.

On Kazakhstan, are you saying the consortium is moving towards a position where they would let the government have that stake?

Is that what I heard you say?

Just-- Again, I would not want to be more specific because, again, we have some discussions.

And you would understand that I cannot interfere with the discussion that we have with the Kazakhstan government.

Sure.

Thank you.

The next question.

Our next question comes from Ian Reed.

Please go ahead with your question, sir, announcing your company name and location.

Hi there, Robert.

It is Ian Reed from UBS in London.

Yes, good afternoon Ian.

Two questions please.

Firstly on unit costs.

Some of your competitors over this reporting season have talked about general increases in unit costs in the industry, of anything up to 30%.

And I wonder whether you would like to comment on what you are seeing at TOTAL in terms of general industry inflation, and any specific things?

On whether you can put a number on that?

And, secondly, on the Downstream - you have achieved significantly a better result in terms of dollar year-on-year growth in the Downstream.

Some of your, again some of your competitors, who have refining in the US, marketing in the US, whereas you do not really.

I wonder if you could comment on why your result was so good, if you like, compared to them?

And also what the outlook you see for marketing margins in the second half of the year?

Yes.

We start by the second question.

I am pleased to see that our performance in the Downstream was particularly good compared to the performance of our competitors.

And I think that we have clearly taken the full advantage of the very beautiful networks of the refining that we have in Europe.

That has enabled us to optimize the management of our refineries.

On the marketing side I think that we also have the feeling that we performed very well.

But, you know that when they [read] the oil [soon] all pipe increases, we may have some delay in order to push through the increase in the product [priority] at the level of the consumer.

Concerning the situation - yes, I will come back - concerning the situation of Downstream now.

We continue, by the way, to have a very good refining margins, I would say above $30 per ton above or significantly above.

Clearly, there is some shortage for the light products in the [indiscernible].

I draw you especially to the fact that the consumption of light products in the US is increasing significantly.

And you know that in addition to that the refiners, especially in Europe, have to comply with the new specification.

And, I think, as a consequence of that, probably means there has been some reduction of the effective production capacity of some products, with the new specification.

And clearly this probably is part of the explanation of the very good, very tiny margin.

But we are then for the future optimistic, maybe.

I am not saying that we will continue with declining margins at the present.

But we should continue to have, I would say, a relative new, good refining margin in Europe.

And concerning the marketing margins, I think they have now stabilized I would say, at satisfactory level.

Concerning now the products in the [CL] stream.

What I can say is that, clearly, we have had-- we have seen some increases for the new development.

But, at the same time, we have managed to maintain our [retail listing] cost.

So that if I speak for 2004, you know that last year our technical cost was something like €7.3b.

I think that we should have probably an increase in 2004.

I have a feeling that this increase should be limited or very limited, especially because of all our efforts with a view to maintain the [listing cost].

But the increase in the contract that we have now, clearly will have an impact and develop the [depreciation] in the future.

But for the years to come, I think that we should continue to be in a very competitive situation compared to the other oil companies.

Thank you.

Yes.

Next question.

[Operator's instructions] The next question comes from [Irene Monaghan].

Please go ahead with your question, announcing your company name and location.

Hello, it is Irene Monaghan again at Morgan Stanley.

Just a quick question, Robert, on your exports of gasoline to the US.

I believe in the first quarter you mentioned something like 20%.

Can you say what it was in the second quarter?

No, I do not have any precise figure but I tell you what I do is that on a yearly basis, more or less we export something like 5m tons per year on gasoline to the US.

We are probably the main exporter of gasoline to Europe and to the US, and I think that this flow of exports has clearly continued being in the second quarter.

I do not have a precise figure in mind for that.

Thank you.

Mr. Castaigne, we appear to have no further question at this time.

I hand back the conference to you for any further comments.

Okay.

Well, just I would like to thank-- to thank you everybody for being with us.

Especially at this time of the summer where it is in France a lot of people are on vacation.

So, thank you again for being with us this afternoon.

Good bye.

Ladies and gentlemen, than you for your participation.

This concludes today's conference.

You may now disconnect your lines.

Thank you.