TotalEnergies SE (TTE) 2004 Q4 法說會逐字稿

Good afternoon, and thank you for coming to this presentation of our Results for 2004 that all of you already know, and the data, the strategy of the Group.

Just as an introduction, we'd like to highlight a few points. Of course, we have been helped, as everybody, by the favorable environment - the increase by one-third of the oil price; the increase by close to 60% of the European Refining margin; the rebound in Petrochemicals margin, but relatively late in the year for the European Petrochemicals. But on the other hand, for our accounting in euros we have been impacted negatively from the weaker dollar.

Concerning the action of the Company itself, we continue to have a successful Exploration program. We continue to grow substantially our Oil and Gas production in line with our guidance, excluding the price effect that (inaudible) has already been commented by a lot of our peers, our Hydrocarbon production last year was growing by 3.7%.

Concerning our Refining, the utilization rate has improved to 93%, and concerning Petrochemicals the Olefin production has increased a lot too, both due to availability of the plant, from the bottle-neckings, and also due to good market conditions, the Olefin production has grown by 12%.

We have continued to invest substantially - we'd say in line with the guidance that we gave 1 year ago with investment in 2004 at $10.7b, and we're correcting it for the impact of the exchange rate – in fact really in line with our [indications] that we gave. And in terms of results, well we have a [most] historical high of our adjusted net income at €9b, with return on average capital employed at the Group level at 24%.

So I will say, concerning the recent past, everything has been working satisfactorily and, of course, we will speak of the future. But I will ask first to Robert Castaigne to come back on some of the points of the financial performance of last year, and I will, myself, present the outlook for the different business segments at the corporate level later on. Robert.

Thank you. Good afternoon. Concerning the 2004 results, first I will concentrate on the analysis of the full-year results, starting with operating income from the Business segment, which increased by 32% from €13b to €17.1b. That is to say they increased by €4.1b. I can say that €3.7b can be explained by a better oil environment, by the strong increase in oil prices and Refining margin, decrease in the dollar against euro, but also the rebound of the Petrochemical segment, especially in the last part of the year. In the balance at [indiscernible] can be explained by both productivity and development of activities, especially in [indiscernible].

Adjusted net income was €9.04b. Maybe I have to give a few words of explanation. The net income, the bottom line income, was €9.6b. Besides that, we had non-recurring items for an amount of €0.7b, €700m, of which 1.7 is due to the gain on the Sanofi dilution, and -€1b is due to provision that we have made essentially in Chemicals. That is to say 1.7 minus 1. This explains 0.7 for the non-recurring items, which means that the net income before the non-recurring items was €8.9b.

And this €8.9b took into account some amortization of goodwill and intangible assets in connection with our stake in Sanofi Synthelabo, due to the merger between Sanofi and Aventis, as Sanofi had to use the purchase accounting for this acquisition. [Selling] the impact of our share in this amortization is .1, €150.1b in a rounded figure, which means that adjusted net income is €9b. So it's a way that we can explain our results.

Concerning now [inaudible], the profitability in our segments of activity. As you can see, we have been able to increase, and to increase strongly, the profitability in all our segments of activity. In the Upstream from 29% to 35%. This is largely due to the increase in the Brent price, 33% from $29 to $38 per barrel.

In the Downstream, also we had a very strong increase in the Refining margin. As a consequence of that the profitability increased from 15% to 25%, but in Downstream it's also fair to say that we continue, year after year, to make additional productivity.

And in Chemicals, the profitability - that was extremely small in 2003 - 3.5%, increased up to 8.5%.

As you can see, the capital employed was reduced in Upstream, Downstream and even in Chemicals. Upstream and Downstream, very clearly the impact of the reduction of the dollar against euro. In Chemicals, there is this impact, and in addition to that a consequence of the provision that I mentioned.

And globally speaking the total impact of the provision after tax was €900m, and this provision was essentially in Chlorochemical and in Polyethylene. You know that in the Chlorochemical, we have recently launched a deep restructuring.

Concerning now the performance of Total since 2000 compared to the performance of its peers, as you can see we, even in 2004, managed to stay at the highest level just as Exxon is the [indiscernible] above us in 2004, where we had, globally speaking, a profitability of 24%.

Concerning the earnings per share in dollar, we continued to have a good record since 2000, even if 2004 Exxon and Chevron, which took advantage of their strong position in the U.S., managed to increase their earning pressure in dollars a little more than us.

Concerning now cash flow allocation. As this segment of activity has been able in 2004 to generate positive cash flow, $5.9b for the Upstream, $2.2 for Downstream, $0.4 for Chemicals, altogether $8.5b. And this cash flow has been used to pay dividends.

You know that in 2004 we paid a normal dividend in May, and an interim dividend in November. Altogether it has represented something like €4.5b. In addition to that, we continue to buy back some shares for a global amount of €3.6b in 2004. So this you see, altogether €8.1b that we give back to our shareholders, and you can see with this map how the performance of Total, 8.2% of the market cap can be compared with what the other oil companies did, in terms of dividend and share buy-back in 2004.

Finally, the dividend. The Board will propose to the shareholders to increase the dividend by 15% to €5.40 per share, which means that between 2000-2004 in euro we have been able to increase the dividend by 64%. In dollars, it's above 200%. And you can also see that with such a dividend, €5.40 per share, we will have in 2004 a payout of 37%, which even if it slightly lower than it was last year, it is above the average between Shell, BP, Exxon and ChevronTexaco, and for some of them it is significantly higher.

Well this is what I wanted to tell you concerning the dividend cash flow allocation.

Thank you, Robert. Now moving to the different business segments, and starting with the Upstream. Well in 2004, first we increased our production by 3.7%. In fact, in reported growth it's only 1.8% because we have had a price effect on [indiscernible] volumes due to the fact that 27% of our production is coming from prediction sharing contracts and from buy-backs.

And, as you know, when the oil price is higher, we keep share of the profit which generally the PSC remains the same, and which grows in parallel with the oil price. But our entitlement for lifting crude or gas to recover our past costs is smaller because you need less barrels to recover the same amount of money. So it's just an accounting impact, and there's no economic or financial consequence. So in terms of contribution to profit it's [well the] 3.7% figure which is meaningful.

In terms of valorization, during a year where the spread between high-value crude and low-value crude has increased very, very substantially, we have been able to keep a relatively low differential by comparison with our peers, due to the fact that we are a bit less on heavy crudes, and -– for some of the heavy crudes we are in fact upgrading them to high-value crudes.

Our average Gas price has grown by - in a smaller proportion than the Oil price, about 14%, to $3.74/MBtu.

Concerning our technical costs, you can see on the chart to the right that we have been able to keep it at a very competitive level - in the past [indiscernible] figures of our competitors of 2004. Our figure has increased, but in the increase in fact, most of the effect is due to exchange rate impact for the production which are, for instance, the euro zone, or in Norway, and also due to the price effect on volume that I was describing, because when you divide an amount of the fixed cost by a smaller volume of production due to the price effect and entitlement volumes, you have some level of increase in that. And excluding these 2 impacts, our increase of technical costs have been $0.3/boe, around 4% which, I would say, is a good performance when you look to the increases in cost of oil services.

Now a few words about Exploration. Just to say that our Exploration efforts continue to bring a very good result. You know that we have an Exploration budget of around $800m per year, and it has allowed us, through discoveries and appraisal wells, to bring to our reserve base another 900m barrels of oil equivalent, with the main discoveries in Africa, but some of them too in Bolivia and in the Caspian. So we have had a very consistent performance for our Exploration cost in the last years, and when we look to the quality of the portfolio of project -– of prospects to be drilled, we hope that this will continue in the coming years.

In terms of reserve replacement, we have continued to have a good reserve replacement ratio, I would say, on the figures average if you exclude the price effect, because our reserves at the end of 2003 were as calculated at $25 per barrel. If we just take the SEC rules, we have to calculate our reserves at the end of 2004 on the value of the Brent at the end of the year, which was around $40 per barrel. So it reduces once more the entitlements, but the entitlements will be what the oil price will be in the years of production.

So it's a bit artificial to calculate that for reserve which will be produced in the next 15 or 20 years. So excluding this price effect, and calculating the reserves at $25 per barrel, both at the end of 2003 and 2004, on that 3 years average - which is the usual way – our reserve replacements rate is 131% for the consolidated subsidiaries.

At the Total Group level it's –- the figure is a bit lower at 116% because we agglomerate the first figure, mainly our concessions in [indiscernible], for which the amount of reserve is not linked to the ultimate reserves, but just linked to the length of the concession and what we can produce up to the end of the concession. But [the reality], later we will be able to obtain an extension of these concessions, so this reduction is reserves just linked to the shortening of the remaining duration of the concession as we see it today.

If you look just to the figure for 2004, because people have got so nervous about these reserve issues that all the figures are looking all directions, our reserve replacements rate of 2004, based on the – an oil price of $25 per barrel, has been 107% for the consolidated subsidiaries, and 102% for the Group. It means that through our Exploration effort and appraisal export, an improved recovery on existing fields, we have been able to replace our production.

And I have said, generally speaking, on top of that we had some reserves coming from deals with producing countries. We have protected all of these deals during last year, but not finalized them, but we expect to finalize some of these, particularly LNG deals, or gas deals globally speaking, and most of them being LNG in 2005. So very likely we will have a higher replacement rate for 2005, and we've no concern on that ground.

Concerning our portfolio of [full] and probable reserves which, in fact, is the most meaningful information, more meaningful that proves the [charge we find in] very restrictive way, we have a reserve life close to 20 years based on current production rates - 2 thirds Oil, 1 third Gas. And you can see on that map these reserves are located on a very large number of countries. Here we have indicated the most important. And we feel that we have a good geographical diversification, which is a strongpoint for the Company.

Looking now to production growth, we indicated last year a targeted growth of 4% per year up to 2008. We are extending this target up to 2010, and we feel that we can do it because there are a lot of very substantial new projects entering in the picture. You have in Russia the Novatek acquisition. You have in the Middle East new LNG projects. Some of them are not new but they are making a comeback - for the Yemen LNG, but now we are very close to a final decision. The others, Pars LNG and [Yemen] and Qatargas II are new. We have some oil, new oil discoveries which will bring substantial production in 2009, 2010 - in Norway, in Angola, in Nigeria. And when you see the list of this very last project that we have, we think we have really a good portfolio which would allow us to keep this substantial level of growth of Hydrocarbons production between now and 2010.

For the following period we have already a lot of ideas, and [you] would say it's more than ideas because, in some cases, the discoveries are already made - I would say [associates] of the Caspian Sea with very large ramp-up of Kashagan production. It's the case of Deep Offshore, West Africa, where with all the discoveries which have been made recently, there is still a lot of project to be in production after 2010. And we have also discussions, which are promising boost for Gas and for Heavy Oil for having additional trains in Nigeria, in Iran, for new LNG in Angola. For other Gas projects, an extension of Dolphin in the Middle East, an extension of our production - [we saw the return of Plat in] America where we have a huge reserve base. And concerning extra Heavy Oil, we have entered into discussions for Sincor II project in Venezuela, and we will have the full field development of the Surmont field in Athabaska.

So I will jump a bit above some [zooms] that you have in your booklet about West Africa, where the productions we should grow by 50% between 2004 and 2010; about the Novatek project, acquiring 25% of Novatek, for which we are waiting for a final green light from the anti-trust body in Russia.

In the Middle East it's mainly developments about LNG, and I jump to the chart indicating -- explaining our growth in the LNG business. We are already in a strong position in the LNG business among the international oil companies. We are number 2, together with ExxonMobil, and we intend to keep our –- even grow our market share growing, our LNG production by 10% per year in the next 5 years. And you can see the contribution of the different projects, the additional trains at Bonny LNG in Nigeria, in Oman, Train 3, the start- up of Snohvit. The Yemen project, we have 2 trains for which we have signed marketing agreements. Just in the last few days we have launched [indiscernible] for tender for the construction contract and we should be able to give the final green light by mid-year. And 2 projects for which the negotiations are well advanced, even if it's not yet the final green light, which are Qatargas II, and gas stream 1 and 2 in Iran. So, very clearly this is a segment of business which is growing very rapidly and for which we can [breed] long-term profitable positions.

Now a few words about Downstream. The results have improved very substantially in 2004, thanks mainly to the improved environment, but also with -– we continue to have substantial productivity gains, which [indiscernible] €150m pre-tax last year.

[indiscernible] our return on average capital employed was last year at 25%. If you will recalculate it in the usual environment, reference environment, which is a very prudent 1, the return on capital employed is a Refining margin at $15 per ton, an exchange rate between the euro and the dollar at 1.25, [up] last year 13%.

What is new, I think, in Refining is the fact that the Refining system, [specifically] when the world is facing some tension, some bottlenecks, and we have already [indiscernible] a few decisions to upgrade our Refining system. We don't [actually want to] grow it substantially, but to be able to create more value, having more conversion capacity, being able to treat heavier Crude, higher sulfur Crude, because there are very large spreads which mean a lot of additional value. At the same time, we would like to reduce out energy consumption in refineries, and limit C02 emission. This is the reason why we are increasing for the next 3 years, and close to 50%, our investments in Refining. You probably keep in mind that we have been very cautious in the past in keeping the capital employed in Refining at low levels. I would say it's a good point today to be with this low capital employed situation, and we think that we can afford to be a bit more [indiscernible] in the coming years, with a good outlook for the economics for these new investments.

Globally, our position in the Refining and marketing business has been an excellent 1. We have been regularly in the last 4 years at the top of the return on capital employed of the majors. But we think that we can do better, and always in this present reference environment, we think that we should be able to bring our return on capital on employed from 13 to 15%.

Chemicals now – well there have been a lot of contrasts in the environment of Chemicals in the last years, and even in 2004, between the first half - which we are still facing a difficult environment - and the second half which has been far more favorable. And this applies particularly to the European Base Chemicals. Return on U.S. Base Chemicals were very -– [they've seen quite] [indiscernible] margins have rebounded in the second half of last year. And we have had during all the year a very strong performance of our joint venture with Samsung in South Korea.

[Although] the performance of the Intermediates has remained at a relatively low level last year, but [indiscernible] has improved in the last few months, and we hope that will continue. And globally, the Specialties have continued to improve their performance all along the year. Globally, our return levels for capital employed in the Chemicals was at 8.5% last year. If we exclude of the [perimeter] Arkema, that we intend to spin-off at the beginning of 2006, the performance last year was 10% in an environment which is very close to the mid-cycle environment.

Concerning Arkema, just a few words to say that we are on track with the targets that we defined just 1 year ago. We have put new management in place, created the new Company, and we are preparing for spin-off and having this new Company being able to be run as an independent listed company. Simultaneously, we are looking to some restructuring to be sure that the Company will be in good shape at the time where it is spun-off, and we have particularly planned on the Chlorochemicals which were also suffering of an excess number of sites, concentrating on the most competitive sites, and this organization is underway. So we think that, with the market conditions that we know now, with all the work which is underway, we should be able to implement the spin-off at the beginning of next year.

Concerning the profitability target of the profitability -- the existing profitability and profitability targets for Chemicals, well between 2003 and 2004, after having the Petrochemicals put in mid-cycle conditions, we have increased our performance from 7% to 8.5%. Half of the improvement is linked to changing portfolio with the inclusion of Samsung Petrochemicals, which has a very good profitability; the other half being linked to self-help programs. And both in terms of growth and productivity gains, but for the future we intend to raise, in mid-cycle conditions for Petrochemicals - to raise the return from 8.5% to 12%. Again, nearly half of the improvement will come from a change in portfolio. This time it's the spin-off of Arkema with a low – relatively low – profitability, and the other half with self-help programs which are already well [identified].

So we have considered, in fact, all the businesses, or nearly all the businesses which will remain in the Chemical portfolio next year, are now at a double-digit figure in terms of return on capital employed.

Globally now, at the Group level our investment policy -– will always to continue with a strong development. We have set the CapEx budget for 2005 at $12b, 70% of it for the Upstream. This figure includes close to $1b for acquisition of 25% of Novatek. So we continue with a priority to Upstream. For the rest there is a bit different –- slight difference with the previous years. We have more in the Downstream, less in the Chemicals, more in Downstream linked to what I described in terms of Refining, and we should have roughly 20% of the overall CapEx budget devoted to Downstream and 10% to Chemicals.

For the following years, perhaps when we have written here 2006 to 2009, 2009 is perhaps a bit long for giving a guidance in terms of CapEx - to consider it more as an indication for 2006, 2007. We intend to have CapEx in the range of $10 to $11b per year, which is very much in line with the earlier estimate that we gave last year, particularly if you take in account the impact of the exchange rate assessment just moved from 1.1 to 1.25 from last year to this year.

In terms of cash flow allocation policy, here we have shown on the last of the charts, what is the magnitude of the cash flow deepening – the annual cash flow depending on the environment assessment. If you take the most optimistic – I don't care to call it optimistic when I would do the figures of the day – but the most optimistic which is on this chart with $30 per barrel and a Refining margin at $30 per ton, it could bring a cash flow around $19, $20b with investments around $11b, which will leave between $8 and $9m available.

The dividend could represent around 4.5 – probably calling it later 4.5 to 5, which should normally leave room for share buy-backs beating the magnitude of what we have done last year. But, of course, this will depend a lot on the final environment that we will face in the coming years, but I would say that there is a very high level of probability for us to be able to continue substantial buy-backs in the coming years.

We intend to keep our net-debt-to-equity ratio around 25, 30%. We were, in fact, using the -– all the accounting rules at 26.7% at the end of last year, but moving to IFRS, this will be recalculated adding roughly 4%, which will be between 30 and 31% under the new accounting rules, and we intend to reduce a bit of ratio during this year. We -- at this stage, we have no intention of divesting Sanofi-Aventis shares in the short term, because we think that there is an upside – a substantial upside – on the shares with the merger which is working well. And there are other taxation motivations for waiting a bit for divesting, because the tax on capital gains in France is progressively eliminated on the next 2 years.

Concerning our dividend policy, even if we are this year with – for 2004 – with a lower payout than the previous year, we confirm our target for a payout ratio of 50% in the medium term. In other words, it means there should be room for further increase in the dividend.

And just to summarize, our -– the continuity of our growth strategy which I think will continue to be well adapted with minimum changes, like increasing the investment in Refining, but well-adapted to the environment that we are facing. We will continue to concentrate a lot our attention on the Upstream growth, and keeping ambitious targets in terms of profitability. In the Downstream, strengthening our leadership position in Europe and Africa. But, at the same time, taking some selective growth elsewhere - in Asia, in the Caribbean – to give you a few examples. And in Chemicals where we have a lot of work underway, but progressing well, we're achieving a re-balancing of the portfolio and concentrating growth on this year.

So I think that the Company is not only in good shape immediately, but has also a lot of competitive advantages for the coming years, and I am very much confident that we will be able to continue to deliver high level performance for the years to come.

Now my colleagues and myself, we are ready to answer your questions. I think there are 2 microphones in the room.

Hello it's Matthew Landsdon (ph) from Goldman Sachs. Christophe reminded us yesterday that the best opportunities of value creation in the Upstream business comes through Exploration, and yet when we look at your slide highlighting your growth opportunities beyond 2010, many of those arise from already identified resources – Middle Eastern Gas for LNG, extensions of Heavy Oil in Venezuela, and obviously building around the [Caspian] discovery. How confident are you that the returns that you can earn on those kinds of assets are as good as, or better than, your existing returns that have been driven by an Exploration performance?

And as a subsequent question on the Sincor project, can you tell us on the basis of what you already know now, on the basis of costs and the fiscal framework, for the returns on Sincor II will be better than or slightly lower than you've got on the first Sincor asset?

Well Christophe de Margerie was perfectly right to say that we are creating a lot of value with the Explorations. The only problem with the Exploration is that if we were to double the Exploration budget, the return on the second half will not be at the same level that the return on the first half. So we want to remain selective. We think that our Exploration team has done a good job, and continuing to have a discovery cost under $1/boe is a very good performance. We do not intend to relax our rules for selecting new [appraisal], or new prospects due to be drilled. We prefer to concentrate on those who really can offer a good return.

So having this in mind we are able, with our Exploration appraisal effort, and after that all the efforts in improving recovery, to replace our [predictions] through the traditional way, Exploration development optimization. To be able to grow we need to have access to additional reserves, [working ones] mainly with developing countries, and I would say now mainly on Gas and [extra AV oil], there through we will be selective to embark only on the projects which offer a good return. We have turned down some projects which were offered because we felt that the terms were not convenient.

So I think the combination of the 2 should allow us to continue to have [those] at substantial growth and keep a good level of profitability. And I would say particularly for the LNG negotiations which are underway, I think in the 3 cases in Yemen, in Qatar and in Iran, we will have a profitability which is completely in line with the profitability we get from the Exploration activities. I think to take in account in the Exploration the fact that, well, you have to risk it, you have some positive wells, but you have also some dry wells, and you have to put them in the picture.

More specifically on Sincor II, the project will be a bit different from Sincor I. Sincor I is what we call a colt (ph) production. Sincor II will, at the requirement of the Venezuelan authorities, which wish to have a higher recovery rate in the Orinioco Belt, we will have a project with Steam Injection. And we will, of course, have to discuss in detail the contractual and tax treatment to be completely transparent. I would say that it will be difficult. It's not impossible to obtain the same terms for Sincor II than what we got for Sincor I when the oil price was at $15 per barrel. So we are extremely happy with the performance of Sincor I. Well, we will have to adjust to the reality of the day for negotiating Sincor II. But we think it's a good project, and it's [gendering] also a lot of reserves.

[inaudible]

Gordon Graham of J.P. Morgan. The slide you have in your presentation on Novatek talks about a doubling of production between now and the end of the decade. I wonder if you could just give us a bit more detail about the rough scheduling of that production growth, your assumptions for Russian domestic gas prices and whether that project fits in within your overall average 20% return at $25 equivalent for the portfolio? Thanks.

Well, Gordon, Novatek is a young company which has developed, in the last 10 to 15 years, fields in Western Siberia which, as you know is 1 of the 2 largest gas provinces in the world. And they have done an extremely good job technically and commercially. When we have made the valuation of this company, we have made a basic assessment, which is that this gas will remain for the domestic market and will have the pricing that you see on the Russian domestic market.

Concerning this pricing, there has been an argument between Russia and the European Union in the framework of the negotiations for Russian to join [WWTU] to raise progressively the gas price in Russia progressively, but remaining at relatively low level by international standards. So we have made, basically, our valuation on these assessments, but there could be an upside if 1 day there was a possibility of export, but we have not incorporated it.

This being said, demand is growing for Russian gas, both for export and for domestic purpose. Gas [indiscernible] is not growing its production at the present time, and there will be room for additional production coming from independent producers. And [indiscernible], there is a base in Novatek to grow regularly [even] on the next 5 years. The growth should be more, I think, not -– [indiscernible] not nearly [indiscernible] on the next 5 years to be close to [developing] between 2004 and 2010, which means big figures once it's -- it will be a huge gas production. Now we just have to solve this small problem with the anti-monopoly body, which is a bit surprising when you see that gas [inaudible] 84% of the market acquiring 25% of the [indiscernible] which has 4% market share, would not be a huge problem [that's for sure].

A question here?

It's Irene Himona at Morgan Stanley. Can you talk a little bit about the returns you've [inaudible] --?

Could you speak a bit louder please?

Could you talk about the returns you expect on the additional €1.5 per ton investment in Refining in Europe? And how much capacity do you think you will add by the end of the 3 or 4 year period of additional investment? Thank you.

Perhaps Ian, what with your background of the Downstream you are best placed for answering.

Well, I think –- not sure you can hear me? Can you hear me alright? You have seen that we are continuing to use $15 per ton for the TRCV margin, and to set our profitability targets. In fact, of course, the TRCV margin was running $30 last year and is remaining at $30 today, and there are pretty good reasons for assuming that European Refining margins will remain fairly strong for some time now. We're going to see the export across the Atlantic of gasoline coming to an end any time soon. We don’t see the very chronic shortage of diesel into the European market starting any time soon. So using these $15 per ton margin figures, we get a very good return on the Normandy Hydrocracker. We will also get very good returns, for example, on HDS desulfurizing investments. We were talking last night to the manager of 1 of our British refineries. We were talking about an investment that's just over 100 -– that's the Linjar (ph) refinery in the Humber Bank - investment just over $100m, which is going to allow the proportion of Sour Crudes in that refinery to move from 10% today to 50%. You can imagine that the Heavy, Light and Sweet/Sour differentials, what kind of return you're going to get in that kind of investment.

So if the TRCV comes back to $15, we'll get pretty good returns on those investments. If we're lucky enough to have the TRCV remaining up at $30, then there'll be very, very profitable investments indeed. As I said I think that the –- we don't see anyone rushing to build vast amounts of new Refining capacity. We think a lot of the tension that's in the market now is likely to remain there, so we'll have a very, very good return on some of those investments I would imagine.

What we're foreseeing really after the – in terms of the size of the investments we're going to do - after the distillate Hydrocracker, we're looking at some things like the desulfurizing investments I'm talking about in Lindsey. We're also looking particularly at – in a context of high energy prices – improving the energy efficiency of our refineries, and I think that, again, there are quite profitable investments can be made there. I really don't see us building any new distillation capacity or anything of that kind.

Okay thank you, Ian. Yes.

Hello, it's Jason Kenny from ING. 2 questions if I may. I was hoping to see some mention of Vancor in your 2005 to 2010 growth projects slide which, I think, was slide 14. Can you give us an update on negotiations there?

And secondly, is there still potential to invest Downstream in Canada in Refining to give you value chain upsides with your Heavy Oil Exploration in Canada?

Well Ian. Perhaps again you can --

I unfortunately didn't hear the second half of the question on [Refining]. Jason, what was the second half of the question?

Well you mentioned in September that there may be potential to invest Downstream in Canada to give you some --

Yes.

To give you some value chain upsides with the Heavy Oil there.

Yes. You know, I think that we're very interested in the Athabasca Heavy Oil and I really do think – and you've seen – I think you've seen – a characteristic of some of the [indiscernible] performances seem to have some substantial [debooking] of reserves in Athatbasca. I think if you're interested in the Athabasca heavy oils, it's going to be very, very risky indeed to just be selling bitumen. I think very much the best idea is to have some idea of what we're doing with Sincor already, which is selling [Yidarar] our Light, Sweet, Synthetic Crude or even going all the way to acquiring Refining capacity and selling products. So I think that is something that we're interested in – is that kind of upgrading and Refining capacity associated with the Athabascan heavy oil, that's for sure.

And for your first question [indiscernible] of the -– included Vancor in the chart for production growth between 2005 to 2010. It doesn't mean we don't have any more interest in Vancor. It just means that, well, negotiations are slow and we have preferred to be prudent and just mention there the projects which are a very high level of probability to deliver during this period of time.

[inaudible]

Adam Sieminski from Deutsche Bank. Thierry, a question for you and then back to Ian for another Refining question. Thierry, for you, could you update us on how things are looking in the Upstream in Iran? And has anything changed enough yet in Iraq to enable you to have discussions with people there?

And for Ian on the Refining issue. The Company strategy seems to be emphasizing Europe and Africa which are 2 of the slowest growing markets globally, and in North America, and China, Asia, seem to be the biggest. Is there - kind of like Jason's question - what can be done in North America and in Asia in terms of Refining growth in future?

Well concerning first the Middle East, Iran and Iraq are both among the largest oil carriers of gas and oil reserves, and we are, of course, interested in continuing to develop in Iran and trying to re-enter in Iraq. Concerning Iran, we want to embark on [the young] project with a good profitability. That's why you have seen that in the last few years we have not concluded [anyak heaven] because we felt that the terms which were offered by the Iranians did not offer risk-to-reward ratio convenient.

The picture has changed with LNG project. I think that there is probably some impatience in Iran, linked to the fact that they see a lot of LNG trains [indiscernible] in Qatar on the same field, and nothing on their side. So now they seem to be ready to accept terms which give us a convenient return, and it's why the negotiations have substantially progressed. Therefore just enough to allow us to start engineering studies in order to [indiscernible] if everything goes well, to give a final green light at the beginning of next year. It's a huge project with a 10m tons capacity with 2 trains, and a possible third train later on.

Concerning Iraq, well, being able to work in Iraq we need 2 things – 1 is that security is high enough to allow us send people there, and [I still - to say] it optimistically, room for improvement; and second, to have a framework for intervention of international oil companies. While the [indiscernible] authorities will not allow to commit the country for the long term, following the recent elections we can hope that during the first half of this year the situation will clarify. The new government in charge will define an adequate framework for investment for foreign companies. And from what we understand from our contacts with the Iraqi authorities, probably launch [Gulf contenders] for development of already discovered fields, but which have not been developed substantially up to now. And you know that we have worked [goal] studies made outside of Iraq for a relatively long period of time during the 90's in 2 of these fields in the south of the country.

So we will see in due time when the new Iraqi authorities will have [precised] their intentions how we could participate in the development of additional capacity of production in Iraq which, I will say, would be a good thing for a investor which would participate in it. And I think a good thing too for the [indiscernible] of the oil market, because it's sure that's 1 of the reasons for which there is so little spare capacity today, the fact that we are missing production that should have come normally from Iraq.

[inaudible]

Excuse me --– I --– the second question. It's not a lack of interest for my part on Downstream but, Ian, please.

Well a quick run-round the 3 continents then. You see Europe is growing very slowly. In fact, a European [diesel] demand is going very strongly -– is going very strong, of course at the extent of petrol demand which is declining. So the overall – and of course heavy fuel oil demand is also declining, so it's a great idea for us to build things like [Vista tigercrackers] to convert heavy fuel oil, which is in decline, into diesel, which is growing strongly. So there's still very interesting investments you can make in Europe in this so-called very slow-growing market.

As far as the U.S. is concerned, what we're liable to do in the U.S. is exactly what I've talked about, which is up-graders and refiners associated with heavy oil production in Athabaska. And, of course, there'll also be some kind of up-grader or refine -– on the refinery-associated the Sincor II project, which will also be in the U.S. I don't see us as a latecomer coming in and buying in American refinery markets. So I think that's excluded. And, of course, we're still 1 of the very big suppliers of gasoline into America from our European refineries today, so we're very happy about the fast-growing American market. I think that's it for [your area].

In Asia, we've signed the deal with Sinokem (ph) to develop a service station network around Beijing, so progressively we are developing in the Downstream in Asia. We've already got a share of the Dalian refinery north-east of Beijing. In the short term, I don't think we're going to go very much further in Asian Refining. I think much further down the road it's a question of would we do a refinery associated with a petrochemical plant, which some other people have done in China? We did actually have a look at that and we thought that the Samsung deal was a better deal, and that, in fact, has proved to be the case. It's been a very successful deal for us. But who knows? Some time beyond 2010 that might become another question again.

Okay thank you, Ian.

[indiscernible] It's Colin Smith from CSFB. I've sort of got 3 questions. First of all, just in this presentation you seem to be de-emphasizing normalized [ro-arching] which, obviously, isn't that surprising given where macro conditions are relative to your reference conditions. My first question is – is that fair?

My second point if –- is – if that's so, can you just talk a little bit about how you actually look to run the Company when you've got oil prices as high as they are, and the kind of cost pressures coming through, with the net result that you are making great returns in the Upstream but perhaps not quite the way that you would have originally expected, had we been in a lower oil price environment?

And my third question is what would actually persuade you to become more aggressive in investing in the Upstream, given the returns that you're making at the moment?

[inaudible]

[inaudible] on banking --?

[inaudible]

[indiscernible]

Well, on these different points. First on the development scenario, being at $25 per barrel, we have had more remarks about the fact that we weren't very far from the price of the day than remarks saying that, Well, was it really at the right timing to move upwards the assessment for the oil price? We – I think we have to be careful on 2 points; 1 is internally, but it's important to, internally, not to send the message [that well] the oil price [out to gas] completely changed. We have to have some good reasons to think that this has very substantially changed. But not give the feeling to our [schemes] that, well, controlling costs is not that [most] important now because anyway the oil price is so high. We have always to keep in mind the fact that in this industry we have known a lot of ups and downs in terms of oil price, and a lot of wrong assessments in terms of evolution of the oil price. So we want to keep some pressure on internally, so that people continue to control narrowly costs, even if it is difficult at the point of time where there is some over-rating in -– with the oil service company. And we will continue to change our project, our $21 per barrel, to be sure that remains economical at that level.

And, in fact your second question was a bit about the same topic of managing development in the context of some level of over-rating. Why we – under your [indiscernible] -- why we don't increase more the Upstream? I think because we prefer to have a high quality portfolio, high quality projects portfolio, than having a portfolio with high quality projects and medium quality project. And at the end of the day, if we have some additional cash available, when you look to the price of the stock, I think it's better for the valuation of the stock to [concentrate] on the top quality project and buy-back at a level of the stock which is not really very -- very high, than to [indiscernible] our profitability with a larger stock. So I think it is in the interest of the shareholders.

[inaudible]

Okay, 2 questions. Richard Mallory (ph) from Goldman Sachs. 2 questions. Firstly, in this result announcement, you've outlined the percentage of PSCs and buy-backs you have at 20% of the [sale]. [Your dressing] reverse that around for us and explain to us the percentage of license production you have, so that -– that has a genuinely linear relationship with the crude price as a result of [flat tax]. I'm just conscious that you also have some service contracts that [oust negligible leverage] to the crude price.

And the second question is, just related to trying to understand the chart on page 32 with regards cash flow generation moving forward in different macro environments, and the sensitivities provided on page 14 of the Results handout for 2005, if I multiply the $15 TRCV uplift by the 60m uplift that I get in earnings and the €200m [sensitive] that you had after tax – the Brent price in 2005, it suggests that actually your leverage between 20 and $30 Brent must be considerably higher than it was during 2005 where we had crude prices --

During 2004?

I think.

Your comparison with --?

Your [parting] question --?

2004.

Sorry yes. 2004 sensitivities must be actually higher than you envisaged they would be in 2005? Could you outline – is that a change in the cost structure? Is that a product of crude prices being considerably in excess of the $30 that you presented on page 32, and diminishing leverage to the crude price as it goes higher?

No, in fact when we speak of cash flow available, it all -– it is always a bit more complicated because when you take a year like 2004, with a huge change in the oil price during the year, our working capital requirement has changed a lot, and it has impacted the cash flow available in 2004. So in a stabilized condition the cash flow available for 2004 would have been higher than the figure that you have in [indiscernible]. And there is no big change in the sensitivity in terms of net result, or in terms of cash flow, to the variation of the oil price, or the Refining margin.

Concerning your first question, well we have now weight of the PSC and buy-backs in our [volve] production, which is around 27%, we expect that a weight of buy-back will decline, but it is a small component of the 27%. The weight of PSCs will increase because we have a lot of production coming in West Africa, in Kazakastan, which will be under PSC. Also it will grow progressively in the coming years. But you have to keep in mind the fact that when we are in concessions in developing countries, generally we have a very high tax rate. When we have PSCs we have a relatively low tax rate. So it will change – affect differently our accounts. You will see some reduction of entitlement to production by comparison with would – what it could have been with concessions.

But, on the other hand, where [indiscernible] -- where you will see lower taxes. And, at the end of the day, what we compare is the return on capital employed, and if I take – a good example is Nigeria. Now, most of the production onshore is under concession agreements with a very high tax rate in the future, and with the problem which is to get the financing of the shareholder – Nigerian part company, national company – in the future we will be mainly offshore with PSCs. We have no problem of cash [force] to the Nigerian party, and we will have a lower tax rate. So, at the end of the day, we will have an economy which will be as good offshore than onshore, but [simpler to handle] that what we have today. So you should not consider PSCs as second-class contracts. They may be extremely to convenient due to the fact that you can have to ask to the national company to finance its share of the investment.

Yes?

Hello, it's Alistair Seim from Merrill Lynch. Can I come back to the question on Exploration? Is there room, do you think, over the next few years, to grow the Exploration budget by taking bigger equity stakes in the licenses that you're after?

Well, it's a good idea, and we have already started increasing the level of working interest that we have in the Exploration joint venture, because we think that, with the size of the Company, we can afford to take on just 1 [block] a higher risk that what we have done 5 or 10 years ago. And as the number of attractive Exploration growth is not enormous, we think a good way to be able to grow efficiently our Exploration is that is to take a higher stake on these attractive blocks. That's [why] -– [on] a lot of them there is a lot of competition too. You may have seen on the last [indiscernible].

Okay, and just a last question?

Hello, it's Jon Rigby from UBS. Couple of quick questions, both on Gas. The first - as I understand that you met recently with the President of Argentina, I wondered whether you would be able to just update us on how you see developments in that country proceeding? And perhaps you could tie that in with some thoughts about Bolivia and that whole Southern Cone gas market?

And the second is could you just update me on where you stand on the development [indiscernible] been passed entry points into North America?

Okay, well on [Sabine pass] – because the answer will be a very short 1 – we have concluded an agreement with the owner of the [standing star] terminal, Chenier, and we think that it's a good agreement, an excellent location for a terminal, easily connected to the grid of main pipelines which will allow us to have a lower [indiscernible] costs in due time for having an outlet for the whole of our LNG projects coming in the picture.

Concerning Latin America and the Southern Cone, yes I met with President Kishner. Well he has made a lot of decisions which were not particularly favorable for foreign investors, but he seems now really to be concerned by the fact that the country could be short of gas. So we have defined, between the gas producer in Argentina and the government, a program for raising progressively the domestic gas price from an extremely low level to what will remain a low level by international standards, but not that much different at the end of the process of what it was before the peso crisis. Up to now they have respected this program, and we have insisted on the fact that it was really important that they continue to make the final steps of the [revolution] of the gas price. This being said, our gas production in Argentina remains profitable because we have fields which are relatively cheap to operate, but we think we should deserve a higher price.

Concerning Bolivia, well our Exploration has been extremely successful in Bolivia. Well we – [sometimes] we say to the geologists that they should select for their Explorations [success countries] which are in a better shape than Bolivia, but well, we have to be patient in this industry. You are speaking of the Yemen LNG project, we have worked on it for 15 years, and we just arrived now to the launching of the project. We do not intend to wait 15 years for Bolivia [actually], because we think that Argentina will require import – gas imports in the future, together with Brazil. Well we are [a bit at a stance] here at the present time because we have to wait for clarification of the political situation between the provinces [San Pacros and Cahera] - we have a -– the SF (ph) policing SF are -– which would like to develop rapidly and leave to the companies a decent return, and some influences at the central power where they are speaking of nationalization which means, in fact, doing nothing. So things have seemed to have evolved in a better direction in the last weeks, and for us it's clear that we are able to produce a lot of gas there if there are [some] reasonable conditions.

Well I think that time is running, and we are a bit short now. Thank you very much for coming to this meeting and I think we have a [indiscernible] just next door if you can stay a few more minutes.