TotalEnergies SE (TTE) 2004 Q3 法說會逐字稿

Good morning and good afternoon ladies and gentlemen and welcome to the Total third-quarter results 2004 conference call.

At this time all participants are on listen-only mode.

Later we will conduct a question-and-answer session.

Instruction will follow at that time. (OPERATOR INSTRUCTIONS) Just to remind you all this conference call is being recorded.

I would like now to hand over the conference to the Chairperson, Mr. Robert Castaigne.

Please go ahead with your conference and I will be standing by.

Thank you very much.

Good afternoon and good morning to you in the States.

I'm very pleased to report to you that we had a very strong quarter, which is a new record in both dollars and euros.

It seems that we are once again among the best in the industry in terms of overall profitability and returns to shareholders.

Of course we had been helped by the oil price in Europe in refining margins, but I can say also that our strategy for growth and our financial discipline has played an important role.

Hydrocarbon production (ph) set a new record for operating income.

It was the case despite the 2.5 percent decrease in reported production compared to the same quarter last year, and this was mainly to more significant shut-downs (ph) in the North Sea and to the price effect on production sharing contracts.

If we exclude the larger for downs and the price impact, the dollar and gross rate for the upstream was about 4 percent for the third-quarter and about 5 percent for the 9 months.

In the downstream the environment for refining continues to be very favorable and our operating results expressed in dollars shows the best quarter increase among the majors.

Chemicals showed strong improvement in part because petrochemical margins were much better and also because of our restructuring programs.

Looking now at the third-quarter results, net income expressed in dollars set a new record of $4.73 per share, an increase of 55 percent over the same quarter last year which was due partly to our strong buyback program.

The retail and capital employed for the group was 22 percent for the 12 months ending September 30.

The new alligned (ph) third-quarter retail and capital employed was 24.6 percent which means that in this environment Total is at the level of the best in the peer group.

These returns reflect the high validation from the oil prices we are enjoying today as well as the strength of (indiscernible) which is to see the very high quality of our upstream assets and in the downstream, our position as the largest refiner marketer in Europe.

For the first 9 months we invested close to EUR5.5 billion which is about $6.7 billion.

This is in line with our target of $10 billion for 2004.

In addition, in September we agreed to acquire 25 percent plus 1 share of (indiscernible).

Also we announced today that the Board approved the first semiannual dividend of EUR2.4 per share payable on November 24.

This is about EUR1.5 billion that would be paid to shareholders which is in addition to the EUR2.9 billion for the annual dividend paid in May.

In addition to the dividend we are continuing to buy back shares.

In the third-quarter we bought back 4.1 million shares for EUR4.7 billion.

In October we bought back 1.7 million shares, bringing the total for the first 10 months to 18.2 million shares for EUR2.9 billion.

Looking at the combination of EUR4.4 billion of dividends for this year and EUR2.9 billion of buyback through October, you can see that this represents already a return of our shareholders of EUR7.3 billion or close to $9 billion.

If you're wondering how we can do this I can say that Total has one of the lowest cash breakeven points in terms of point price and we are very sensitive to this favorable environment.

The Board has authorized a consolidation of 19.9 million shares this month so our ability to continue buying back shares over the coming months has been (indiscernible).

Let me emphasize that we are returning cash to our shareholders and that we are also investing for future growth at very competitive rates compared to our peers.

ROE at the end of the third-quarter was 22.2 percent compared to 28.5 percent at the end of the second quarter.

However, the dividends that we paid this month which is EUR1.5 billion will have the effect of increasing our ROE by about 5 percent.

Now I would like to touch on each of the operating segments starting with the upstream.

Operating income in the third-quarter of 2004 expressed in dollars and cents increased by 48 percent.

We have the highest marginal tax rate in the upstream which is mainly due to the production mix of the quarter.

Over time we expect this rate to decrease as the production mix changes.

We have the lowest rate technical cost of volume, and a high valuation for production which is due to the high production of (indiscernible) in our portfolio.

As a result, the retail and capital employed for the upstream annualized for the first quarter is more than 34 percent.

Now let me take this opportunity to clarify some points what this did to oil prices.

First, our sensitivity to quote prices.

For every dollar per barrel increase in the price of Brent, the annual after-tax benefit is little less than $300 million.

Although the sensitivity is not perfectly linear for all price levels, it is a good indicator even at the current prices.

But of course you have to take into account the gas price effect and in fact the increase of the gas prices in the third-quarter has been lower than the increase of the Brent price.

Second point, as prices increase there is a negative impact on entitlement volumes.

This is linked to the production sharing and buyback mechanisms which cover about 25 percent of oil production.

For every dollar increase in the price of crude, the number of barrels that we take as an entitlement for cost recovery on production sharing contracts decline by about 5 to 7000 barrels per day.

That being said, let's look at our first quarter production performance.

(indiscernible) for the third quarter was about 4 percent for the first 9 months, and about -- for the first quarter was about 4 percent in for the first 9 months about 5 percent thanks mainly to the production growth of 2003 shut-downs (ph) and also to the 2004 shut-downs such as (indiscernible).

Scheduled shut-downs in the North Sea had a negative impact of close to 100,000 barrels per day as we are sitting (indiscernible) gross.

The shutdowns were significantly larger than in 2003 due to the deconditioning of the system and its consequences on the growth and (indiscernible) and also due to maintenance on Echo 6 (ph).

The PSA (ph) effect on top of that pushed the third-quarter production down by 2.5 percent compared to last year.

For the 9 month basis reported production growth taking into account all of these factors was 2 percent.

The maintenance work in the North Sea is now behind us so we have this production back on line in the first quarter.

However, as you know, we began to scheduled turnaround on (indiscernible) and (indiscernible) in October.

The damage had very little impact on our of Mexico production in the third-quarter but some platforms and pipelines were damaged.

We do not expect all of these facilities to be repaired before the end of the year and estimate the impact on gross profitable production will be about 30,000 barrels of oil equivalent per day.

In summary I think it's fair to say that the oil segment is coming well.

In 2005 we expect to add several new (indiscernible) including LNG (ph) in Nigeria and the growth project in the North Sea.

We are actively pursuing new opportunities in LNG (ph) and as you know we have the option to secure 1 billion cubic feet per day of recertification capacity in (indiscernible) project into the U.S. beginning in 2009.

As a last remark as you have seen from the many press releases issued over the past months, we are having a very good year in exploration.

Moving now to the downstream.

We had a strong third-quarter with operating income up 124 percent in Euros and 144 percent in dollars.

European refining margins are very strong at 125 percent from the first quarter last year to (indiscernible) which is a most doubled the average of the past 10 years thanks to strong fuel demand across the accounting period.

Marketing margins declined especially in Germany, the UK and France.

And finally, finite utilization rates was 93 percent in the third-quarter.

In September we launched some unscheduled turnaround on 5 of our refineries.

The impact of the first quarter operating income was less than EUR50 million and we expect the first quarter impact to be in this same range.

In the chemicals segment now operating income increased by 209 percent to EUR315 (ph) in the third-quarter 2004.

This improvement is due to better market environment and also reflects the benefits of the restructuring programs we are implementing.

European petrochemical margins increased by about 30 percent in the third-quarter compared to last year which explains much of the improvement we are seeing.

Stronger petrochemical demand combined with successful starts to reduce downtime has allowed us to increase our utilization of this (indiscernible).

Specialties are performing well.

The intermediates showed some improvement but continue to struggle in part because of higher material costs and the dollar weakness.

Our project to speed up the core chemicals intermediate and therefore (indiscernible) products moved forward in October with the creation of Arkema.

We are totally on track to work the spinner for Arkema in 2006 depending of course on market conditions.

So, in summary, to conclude, we had a very good third quarter.

We are well into the fourth quarter now and the oil market environment continues to be favorable both in terms of oil price and refining margins.

I can also add that the petrochemical margins continue to be at satisfactory levels.

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

Going forward we intend to continue with this strategy.

We will invest our profitable growth.

We will repurchase the dynamic dividend policy and we will maintain final discipline with (indiscernible) around 25, 30 percent.

And we will use share buybacks to manage our figure flow.

Thank you for your time.

And now I'm ready for your questions.

(OPERATOR INSTRUCTIONS) Tim Whittaker.

Lehman Brothers.

I have 2 questions.

Firstly in the upstream you're showing a significant fall in cash flow from operations, and you explained that mainly due to change in working capital.

Could you explain what that change is?

And secondly in Latin America have you heard anything on tax rates on revised tax rates from the Sinco (ph) project?

And on Bolivia where you made the discovery, are you able to give any information on the potential changes in the hydrocarbon law there?

Concerning the evolution of the cash flow in the upstream; in fact, this has been affected by some very big payment of taxes that we have made during the third quarter.

We may have to pay 1 quarter or another of the balance of taxes in one country or another that may reach in some cases EUR1 billion.

So it's really difficult on the quarterly basis cash flow for the upstream.

Second question, concerns taxes in Venezuela.

You know that Mr. Chavez announced the end of the tax holiday regime.

You know that when there is a Sinco project we had a tax holiday for the royalties for a period of 9 years, I think.

And 9 years that is to serve something like 2009.

He announced at the end of this tax holiday for the royalties now at the end of 2004.

In fact given our agreement at the end of the tax holiday, in fact should have occurred something in 2007.

That is to see a little in advance.

What I can say at the same time we'll have some discussions in order to have the possibility to develop a Sinco (ph) II operation, maybe its formerly Sinco (ph) has been notified of this change but not yet the shareholders of Sanko.

Again, maybe in South America I think, Bolivia, it is a bit too early to say something on the implementation of the new law.

Thank you very much.

Jonathan Wright.

Good afternoon, it's Jon Wright from Citigroup.

Two questions, first on CapEx you highlighted that you're on track for this year $10 billion.

Do you see any pressure on future years in the guidance you've given?

And secondly with Novatek, I wondered if you could give us an update on how that is progressing and pursuing the 25 percent stake there?

25 percent of --?

Of Novatek.

Oh, okay.

Concerning CapEx for this year first we spent something like $6.7 billion at the end of September compared to a project of $10 billion.

Usually our CapEx are a little higher in the last quarter so this is why I think we should be more or less in line with the $10 billion project.

And for the future I think that in the order of magnitude I would say something between 9 to $10 billion if I stay to the last long-term plan that our Board has just approved.

Concerning now Novatek, at Novatek I can say that we have -- we are now ready to sign the definitive agreements with the shareholders of Novatek, and in fact we are still waiting for the approval from the Russian antitrust authorities, that is to say we are now very close to agreement.

Thank you.

Fred Leuffer.

Fred Leuffer with Bear Stearns in New York.

I have 2 questions.

First on the dividend, it's a little more than a 2 percent increase if we cut the May payment in half and look at it on that basis.

It was a little more modest an increase than we had expected, and I'm just interested in your thinking regarding the interim versus the final payments.

Do you still intend on keeping the payments roughly equal?

And also given the strength in earnings and free cash flow and a relatively low dividend payout ratio, why have you been so conservative with the dividend?

That's my first question.

And the second question, you'd mentioned success in exploration and I'm just wondering if you could give us some indication of what reserve replacement might look like in 2004?

Okay.

Concerning the dividend, the interim dividend, yes, it's true that if we take 50 percent this gives 2.35 and we have decided to round that to 2.40 in order to follow the rules that we have fixed.

You say that we are conservative concerning the dividend policy.

In fact when you look at the evolution of our dividend compared to the evolution of the others, I think that in the last -- the last 4 years, we multiplied the dividend by something like 2.5.

Which is maybe of course we started with a low figures but this increase I think is of an order of magnitude of the increase of the dividend of the others.

Concerning the dividends that we'll pay in 2005 related to 2004, we continue to procure an active policy and of course this will also to be determined and to be approved by the Board in February.

But we continue to work an active policy for the evolution of our dividend.

Concerning the reserve replacement for 2004 I think it's clearly too early to say something.

You know that this is calculated once a year but it is true that in 2004 I would say again we should have very good results in exploration.

Some of them, a lot of them have been already announced since the beginning of the year.

And I think some of the discoveries especially in Africa that should be announced in the coming weeks.

So we are very satisfied with our exploration successes in 2004.

Thank you.

Jean Declamat (ph).

Jean Declamat, (indiscernible) Securities.

I would like to know you have news on the (indiscernible) development and the prospective date for the authorization of the Nigerian authorities?

Concerning (indiscernible), there are still some discussions with the Nigerian authorities and our partner and I think that we are still waiting for the results of these discussions.

I think that we are very satisfied from the results and the feedback we see from the Nigerian authorities from the technical point of view.

As to the production of (indiscernible), we have in mind a start up in 2008.

Thank you.

Jason Kenny.

Hi, it's Jason Kenny with ING.

Just following up on the earlier dividend question, the interim payment was around a 36 percent payout.

Can we expect a 36 percent payout for the full year dividend in May next year?

Secondly, totally different there is an outstanding core production versus Argentina which I was expecting to be resolved in the Q4 of this year.

Is that still the plan?

And finally, any progress on Yemen LNG sales into Korea?

Yemen LNG, I think we are still some negotiation to commercialize the production and I think it's necessary to have reached some agreement before LNG (ph) project but quite frankly we are very confident that at the end of the day we should be able to launch it.

Concerning the dividend, I think the dividend, the interim dividend corresponds just to rounding figure of 50 percent of the dividend paid in 2004 related to 2003 and we cannot draw any conclusion especially in terms of the payout.

I think that in 2005 our idea is to continue to have an active policy in terms of dividend but having said that, I confirm that we are fixed on a greater prime payout of 50 percent and I think progressively we should stick to this policy.

Having said that, now we have a very good favorable environment.

We don't know what the environment will be later on; maybe we come back with a much lower price.

We have to be very (indiscernible) in order not to be in the situation to us to reduce the dividend.

I think last year we had a payout of 40 percent which continued to increase the dividend in 2005 and I would probably say to have -- I would say a progressive policy and if we have some surplus of cash to use it for the buyback.

Concerning Argentina, I think the target of Total is to improve our situation in this country in every segment of activity.

We are seeing some improvements in regards to employed especially expressed in dollars.

The gas price has been slightly better for the third quarter of 2004.

And concerning our upstream position, I think we haven't seen any significant changes but I think we continue to operate under good conditions and I think it's too early to say more now.

No resolution expected on the fact that you are suing for a $1 billion?

No, quite frankly it's a sensitive issue and I would prefer not to comment now.

Because when you have discussions like that it's very important to keep things confidential.

Thanks.

Andrew Archer.

Commerzbank Securities.

Just a couple of questions, please.

The refining and marketing result was very good one.

I just wanted to know what kind of contribution exports to the U.S. made in the quarter and whether that changed particular from your experience in the second quarter?

And then secondly, on Russia, I just wanted an update on what the state of negotiations regarding the Vancore (ph) project were?

Quite frankly, concerning negotiation with Vancore (ph), in fact we have 2 points.

First is the development of (indiscernible) Vancore (ph), and I think that we should be able to reach an agreement, and we have in mind to exert the option that we have in order to develop this field.

And concerning (indiscernible), in fact we are negotiating with (indiscernible), and again when we are in the middle of negotiations, I think the best thing is to say nothing about that if we want to try to be successful.

So contribution of U.S. exports, as far as I know for our group, more or less we export something like 5 million tons a year of gasoline to the U.S.

And what I can say is that this is difficult to give you a figure of the contribution of these exports in terms of results, but what I can say is that these extremely high level of exports of gasoline from Europe to the U.S. is no doubt a driver of the very good refining margins that we have had during the third quarter.

And by the way, the refining margins in Europe continue to be at a very high level since the beginning of the fourth quarter.

That's great.

Thanks very much.

Neil McMahon.

I hear nothing.

Hello?

Bear with me one minute.

I think the line was cut.

The line is open now, sir.

You may go ahead with your question.

Sorry about that.

Can you hear me?

Yes, I can hear you now.

Good.

Just got a few things.

First of all, on the buyback policy, could you give us an idea of what we could expect in the fourth quarter and going into 2005, in terms of buybacks after the share cancellation yesterday?

Secondly, could you give us an idea in various West African countries you've been spending a lot of money initially getting your projects up and running, and your cost oil component in your PSA's must be coming to an end.

I'm just wondering if we're going to see higher taxes on individual projects in say Angola and other areas?

Then finally, just maybe a quick walk-through in terms of the petrochemical margins and demand you're witnessing worldwide; where did the real strength come from?

Concerning the buyback, of course, (indiscernible) the buyback depends on the cash flow, and the cash flow depends on the oil price.

After the consideration that has been decided by the Board, the shares controlled by the group will be 5.5 percent, which means that we have the flexibility to buy back 4.5 percent of our equity.

But again, this flexibility is something that we should be able to renew every year.

During the fourth quarter, we continue to make some share buyback.

Of course, we will have to pay the interim dividend, and there is another point that I believe we have not disclosed.

You know that at the end of the year, we move to the new accounting standards, ISRS (ph) and this is will have a negative impact on our giving, that is to say an increase by something like 5 percent to finish our year.

With giving of 30 percent in the new standard that is to say something like 25 percent which will represent accounting standard.

And in 2005, again, you have to force a buyback, you have to keep in mind that our group has cash breakeven of $18 per barrel.

That is to say, with $18 per barrel we are able to spend something like 9 to $10 billion and to pay a dividend equal to 50 percent of the profit that we would have with $18 per barrel.

So if we enjoy in 2005 with a low price let's say 25, $30 per barrel it is clear that we should have a lot of possibilities to make some significant share buybacks.

Concerning the taxes in West of Africa.

I think it is very difficult;

I can only give a general answer.

We have to distinguish between the countries and in the country between the different contracts if you take the example of Nigeria, you have to make a distinction between onshore which has a very high level of taxes, something like 88 percent more or less and the offshore, with much lower tax rates.

And also in some countries especially in West Africa too, in some cases we have some contracts that already give us some increase of the share of the hosting country in case your price increases on a mechanism on sliding scales as we say.

So I think it is very difficult to be more precise.

Having said that, as I said, I think in my speech you may consider that the sensitivity of our profits to any increase of oil price by $1.00 per barrel, the figure that we gave is that something like a $300 million per barrel increase continue to be true even in the present circumstances.

So it was a general answer.

Oh, yes there was another one concerning the petrochemical.

On petrochemical I think the situation continues to be good as there is especially strong demand for our (indiscernible) in the U.S. and in Europe. (indiscernible) is still a strong driver for margins both in Europe and in the U.S.

And I can add also that Samsung is a strong contributor for us.

No doubt that it was a good move to take 50 percent in Samsung Petrochemical.

Thank you.

JJ Traynor.

Deutsche Bank.

I just every quick about the chemicals business, the Arkema business.

When should we expect to see some separate accounts for that business and do you think there needs to be any sort of write-down in there before the spin out?

We'll report the results of Arkema as we start reporting results of Arkema for the first quarter of 2005.

It is clear that in order to spin out Arkema about successfully we need first to have good market conditions.

We also need to improve some segment of activities of Arkema and especially in some cases to reduce the cost basis.

So it's a bit too early to say more.

You know the situation in France.

So I cannot say more now on this specific point.

Right.

So in terms of whether there is an impairment charge, it's too soon to say whether that's necessary or not?

It is something we cannot exclude to do, yes.

Thanks very much.

Irene Himona.

Irene Himona, Morgan Stanley.

I had a question on the $10 billion CapEx.

I was wondering what level of technical cost you factor into that one?

You have been talking about cost inflation for a little while and some of your competitors have had to increase capital spending because of that.

In the September presentation I believe you mentioned $8.00 per barrel.

I'm trying to understand whether there is any risk of capital expenditure increases here?

Thank you.

We have to distinguish between technical costs and CapEx technical costs I think you know that we will report with technical cost once a year and although it is clear that we know already that there will be the consequences of a low dollar, the consequence is also of lower volumes especially in the buyback contracts.

And I think that altogether there will be probably a small increase compared to the technical cost we had last year in 2003.

Concerning more generally the CapEx, the development cost, it is true that the (indiscernible) that we receive from new developments show enough pressure on cost of construction.

Concerning the operating cost, the lifting cost, I think that up to now we have managed more or less to maintain these cost thanks hopefully to the big size of the new (indiscernible) that we operate and that we are developing.

Okay?

Thank you very much.

Alistair Seim (ph) from Merrill Lynch in London.

Good afternoon.

I'm just trying to get wee handle on the downstream earnings.

You've seen a modest improvement versus second quarter.

Is there anything other than refining and marketing that is contributing to that?

In particular I'm interested in your captive shipping business and also if there's any accounting effects from the turnaround at the end of the quarter?

Oil shipping -- it is true that by the way shipping it is going very well especially as we had to renew our long-term charter after the year, in fact we managed to do it in conditions that appear to be now very satisfactory.

I think the results of our shipping activity clearly are improving.

Second question concerning the turnaround effect.

Yes, we said that from the third quarter we had some shutdowns for maintenance in some of our refineries.

That will continue during the fourth quarter and we think that the impact for the fourth quarter should be more or less the same as the one we had for the third quarter, that is to say something lower than EUR50 million in terms of operating profits.

Can I ask whether the move to turnaround at the end of the quarter corrected any LIFO adjustments?

Any what?

Any LIFO adjustments?

Any inventory adjustments that you put through those numbers?

No, you know that in fact we report our results on the replacement cost basis in support by the way that we use the LIFO method in order to have a LIFO adjustment that could be in this case if we were reducing our inventories at the time is very low.

First we do not use the LIFO method and then the prices are very high so no we will not have any LIFO adjustment.

Okay.

That's brilliant, thanks.

Dominique Patre (ph).

Good afternoon.

I have 2 questions.

The first one point of clarification regarding the $10 billion CapEx guidance, does it include the acquisition of Novatek or not?

And the second question you have mentioned that your sensitivity to all pricing has been entered during the quarter by the time lag related to gas prices.

Is it possible to quantify this impact of time lag of gas prices?

Thanks.

I would just give you the prices strategy for (indiscernible) that was $3.54 per million Btu in the third quarter of 2004 compared to 3 or 4 for the third quarter of 2003.

That is to say an increase by 16 percent.

Your last point I will remind you that the production of gas should represent in terms of energy content of barrel equivalent something like one-third of our global production.

Concerning now the CapEx for 2004, we posted something like $6.7 billion at the end of November which represents two-thirds of 10 as we are at three quarters of the year which means that probably without Novatek we should be a little lower than 10 and with Novatek that could mean something like a little higher than 10.

I would just remind you that Novatek on a global basis should represent something like $850 million.

So I think with Novatek it should be higher and without it should be slightly lower.

Something 9.5 and maybe 10.3, 10.4 at Novatek.

Thank you.

Hugh William (ph) from Casanova (ph) in London.

Robert, hi, it's Hugh Williams.

Just a quick question also on the downstream business.

You were aware of the strength in refining margins through the quarter.

But could you make some comments please on the marketing background, and how you see marketing margins progressing through the quarter and maybe some outlook as we go into quarter 4 and maybe into early next year as well?

Please.

Marketing margins in fact during the third quarter suffered a little everywhere without the exception of (indiscernible).

And on a Brent decrease when compared to the third quarter 2003 was something like -11 percent.

And for the first quarter I think at the beginning there was still under pressure but we can imagine that if there is as we have seen some reduction in the oil prices from something close to 50 barrel, a little (indiscernible) we can imagine we should recover better results from operations in certain parts of the first quarter.

But the impact of lower marketing margins of course is smaller as the impact that we can have with good refining margins because the order of magnitude is not the same in fact.

Understood.

Maybe just as a join on to that.

Is it possible to give us a feel for any ongoing self-help measures you're applying in the marketing areas trying to improve the situation?

Self help in marketing, yes, in fact there are two countries where we are -- we have some plans to improve our situation.

This is in the UK where we have a plan to restructure our networks and to abandon service stations with highest costs and we have also some plans in Germany to improve the situation.

Updates (ph) that we in mind in terms of petro downstream was in terms of operating income EUR400 million over the period 2004, 2006.

That is to say we should say able given the same environment to improve the ability in the downstream by EUR400 million after 3 years.

EUR400 a per year after 3 years.

Thank you very much.

(OPERATOR INSTRUCTIONS) David Klein (ph) from Exane (ph) in London.

David Klein with Exane.

Two questions for you on the upstream.

Firstly on the debottlenecking work on Sinco upgrade that is taking place.

Will you continue to produce heavy oil during the period of debottlenecking?

And if so, what will be the expense of the lost production during the debottlenecking process?

And secondly just on your oil price realizations, I wonder how with oil prices as high as they are how your oil price rate realizations evolve relative to Brent?

Is there an expansion of the discount to Brent when oil prices are as high as they are today?

It's clear that when the oil price is very high the difference with Brent price increased a little but I think now we are I would say in the range of 1 or a little under $1.00 per dollar per barrel now.

Now when we are in the range of (indiscernible) that is a situation of now.

Sinco, yes, we are producing now some heavy oil, but we will see at the end of the shutdown the quantity of heavy oil that we have been able to produce.

Concerning the shutdown from (indiscernible) of Sinco 1, I think that it is going well.

We are totally in line with the time schedule and this should enable us to increase the production of Syncrude (ph) from something like 165,000 barrels per day to 180,000 barrels per day at Syncrude which produce significant quantities of heavy oil now.

Mark Gilman.

Hello?

Mr. Gilman, you may go ahead.

Can you hear me?

Yes.

I had 3 questions if you please.

First, you mentioned your technical costs continue to be low; however, our calculations indicate that the unit depreciation depletion cost for the upstream segment continues to increase.

I was hoping you could clarify what is driving that?

Secondly, you made some comments regarding the impact of entitlements on reported production levels and production sharing contracts.

Could you confirm that this relationship is nonlinear and that perhaps the 5 to 7000 barrel equivalents per day is a bit low for oil price levels where we are right now?

Third and finally, could you amplify somewhat on your Caribbean refining and marketing strategy?

I have yet to hear the Company discuss this previously.

Concerning entitlements of PSC (ph), I think more or less whatever the level of oil price we are I think a figure of on average of 6000 barrels of oil equivalent per day per dollar is a good figure.

Concerning now your other question concerning the technical cost, I say that we continue to have good figure especially compared to the others.

If you make some calculations you may find some increases in technical costs in the third quarter compared to the third quarter of 2003.

And I think this increase in per barrel can be in particularly explained like that.

First you have -- I think it would be better first to focus more on 9 months figure than on the quarterly figure.

If I take the figure of the third quarter 2004, in fact we have had some I would say pretty high figure concerning depreciation of bonuses of money and provisions.

And besides that we had the consequences of the pretty low level of the dollar and you know that some of our cost, especially in France and Africa are in Euros, some are in (indiscernible), some are in pounds.

And by the way the impact is relatively significant.

And finally you also have to take into account if you want to compute the DD&A per barrel, you have to take into account the specific situation caused by contract.

Let's take the example of (indiscernible), it's clear that when the oil price is higher, the quantity of oil to which we are entitled are lower and we have to depreciate the amount of the CapEx that we have spent on a lower level of production.

Technically, there is a positive impact on the cost of this production.

This explains why we should have in 2004 and again I think it should be better to take the figure for the first 9 months and increase on the DD&A and as a consequence an increase on the technical cost in dollars per barrel.

But I think that we should continue to be at a very good level compared to the others.

Yes and you had the third question concerning the Caribbean strategy.

Quite frankly this is relatively marginal compared in the framework of our downstream activities.

We have now as far as I remember some positions in Jamaica, Puerto Rico and also in the French Caribbean.

Globally speaking I think that we manage to have a good profitability at this I would say niche markets, but globally speaking in absolute terms, the impacts are relatively small in the framework of all in the framework of our profits downstream.

Okay?

Thank you, Robert.

Colin Smith from CSFB in London.

Can I just take you back to the dividend again?

First question was can you say how the Board looks at dollar-Euro relationship when it's thinking about pay out given the bulk of your earnings are essentially dollar related?

And the second point was just a point of clarification.

Did I hear you answer to an earlier question say you were looking at a 50 payout?

You are asking too many things at the same time.

Sorry.

Did you get the part of my question?

Could you repeat?

The second part was did I hear you in answer to an earlier question say that you were thinking about the 50 percent payout in relation to an $18 earnings number?

No.

I said that when I was asked a question about the possibility to make some buyback.

And in answering to make some further buyback in 2005.

And in answering this question, I just said that the cash breakeven for the Company was $18 per barrel, and to be more specific I added that with an oil price of $18 per barrel we should be able first to finance, to pay for CapEx something like 9 to $10 billion.

And on top of that we should be able to pay a dividend equal to 50 percent of the $18 per barrel which is in fact in this case which is breakeven.

This is a definition that we give to the breakeven.

The second question, when the Board decides on the level of the dividend, in fact the decision is made on our results in Euro.

Which is why I think billion dollars has been much bigger over the last 4 or 5 years in dollars than in euro.

But this year, we do produce accounts in euro but it is (indiscernible) reserves in euro.

Thank you.

Neil Morton (ph) from DRKW (ph) in London.

Question on LNG.

You mentioned in your comments that you'd finalized the deal with Cheniere for the LNG regas capacity on the Gulf Coast.

You also had the stake on the Mexican side of Altameda (ph).

Are you now satisfied with what you have on the Atlantic side?

Would you consider in the future looking at capacity in the West Coast for your Asia-Pacific LNG exposure?

And secondly could you perhaps give us an update on your Iranian LNG project?

I think that we are now satisfied with what we have on the Atlantic Basin.

On the Pacific side, I think what -- we are not looking in fact at the acquisition of any interest in (indiscernible) agreement in terminals in Asia on the Pacific side.

You know with the exception of (indiscernible) in India, which is not totally Pacific.

On the Pacific side -- excuse me, of Mexico so I think it was in Asia or I think it's true that I have in mind a project that we studied but I think no now seriously we have nothing of this kind and maybe this will have to be studied within the framework of the near possible project that could be supplied out of our gas in Bolivia but quite frankly this is for very, very long-term.

I think it's not to talk to more.

Concerning our LNG project in Iran, you know that in fact this is a project that has 2 aspects.

First the production of gas that will be produced out of the South Fields for the Phase 11.

And then the building of an LNG Plant.

You know that we have signed earlier this year a shareholder agreement with an IOC (ph) to create (indiscernible) LNG company; that we will have 30 percent of this Company.

I think we have we have some negotiation with New York (ph) for the development of Phase 11.

I think it's fair to say this negotiations have made some good progress and sometimes the Iranians themselves say that.

And I just hope that we should be able to conclude this negotiation let's say in the coming months or weeks, I don't know.

We have the feeling that we have made good progress.

That's great, thank you.

(OPERATOR INSTRUCTIONS) Sir, we appear to have no further questions.

I will hand the conference back to you for any closing comments.

No, I would just like to thank you everybody in Europe and in U.S. very much for being with us today for this conference call.

So thank you again.

Ladies and gentlemen thank you for your participation.

This concludes today's conference.

You may now disconnect.

Thank you.