TotalEnergies SE (TTE) 2006 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to your Total second-quarter results 2006 conference call.

At this time all participants are in a listen-only mode.

Later we will conduct a question-and-answer session and instructions will be given at that time. (OPERATOR INSTRUCTIONS).

Just to remind you that this conference is being recorded.

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

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

Thank you very much for your introduction.

Hello, everybody, and thank you for calling in today at the beginning on August.

Once again we are reporting a new record level of (indiscernible) earnings for Total.

Our second-quarter adjusted net income was $4.2 billion which was an increase of 16% compared to the same quarter last year.

Our adjusted earnings per share increased by 18% to $1.82.

For the 12 months ended June 30th our ROACE was 33% at the business segment level, which excludes mainly the Sanofi contributions, and 29% at the Group level, which (indiscernible) again the most profitable of the super majors.

This performance shows how we are continuing to benefit from the very strong oil market environment.

Looking at the recent news flow it is clear that we have been successful in taking several important steps to advance our strategy and to further secure our long-term goals.

I must say that we feel very comfortable with the visibility offered by the Group's portfolio of projects and by the diversity of the opportunity set.

But having said that, the (indiscernible) was weaker than expected in the second quarter.

So I will cover these different points while reviewing the segments -- the activity of the (indiscernible) segment.

Starting with the upstream -- our adjusted net operating income expressed in dollars increased by 27% in the second quarter and our adjusted net operating income per barrel increased by close to 40%.

This demonstrates again our sensitivity to higher oil and gas price with realizations at the top of the industry and continued discipline on technical cost.

Despite this improvement we have been disappointed by our production volumes.

In the second quarter we produced 2.3 million barrels of oil equivalent per day.

Compared to the same quarter last year production was lower by 8.6%.

This was due to several factors.

First, minus 2.5% for the price effect on reported volumes.

Second, minus 2% for the dilution in Nigeria.

Then minus 1.5% for (indiscernible) effects including especially the divestment of our mature U.S. onshore assets.

Then again, minus 0.5% for the remaining affects of hurricane in the Gulf of Mexico.

And finally minus 2.5% primarily for scheduled maintenance on (indiscernible) in the North Sea and (indiscernible) in Angola.

Excluding this element the positive impact of new Field startups was mostly offset by normal declines and price impact of unscheduled maintenance essentially in Norway.

The message that we would like you to take away today is that the second quarter should be the low point in our production, (indiscernible) are both back on-stream. (indiscernible) announced in the third quarter 2006 should be comparable to the third quarter 2005 and also to the second quarter 2006, therefore we do not expect major variances here.

More importantly, the Dalia Field should start up in the fourth quarter and this is 240,000 barrels (indiscernible) and we are the operator with 40%.

And finally, by 2007 we will have several other startups coming online.

Including Dalia and all the smaller startups, my best estimate for the full-year 2006 production would be something close to 2.4 million barrels of oil equivalent per day.

This assumes that Brent is around $60 per barrel, that there is no significant improvement in Nigeria compared to the situation in the second quarter, and it takes also into account a divestment we made earlier this year.

Now let me say a few words about our sensitivity to the environment and the so-called squeezed [bisque].

It is true that we are seeing some cost pressure and also that some countries have increased their tax rate.

But the reality is that the oil market environment has been improving at such a rapid pace that we are making strong profits and benefiting from every increase in the oil price.

A good measure of this is the upstream ROACE which has continued to increase with (indiscernible) as you can see in the press release -- increase up to 43% for the 12 months ended June 30th.

Perhaps another interesting measuring is the cash flow that we are generating in the upstream.

Looking at the first half 2006 compared to the first half 2005 cash flow from upstream operations increased by 40% to $8.9 billion.

The net cash flow which is CapEx after divestment increased by 56% to $4.6 billion.

For the longer-term now or (indiscernible).

We are globally on track with our target of close to 4% per year (indiscernible) growth for the 2005-2010 period.

We have recently announced several successes in exploration in new joint ventures that will add to our long-term growth and I'm speaking now for the period now after 2010 -- that is 2010-2015.

In exploration we have been very active this year, and I will come back on this point.

As we have said before, we are always ready to spend more for exploration if we have good opportunities.

And this clearly has been the case so far this year and we have moved quickly to take advantage of them.

Our successes in exploration were very good, so we have been shooting more seismic and we have been drilling more wells than initially planned.

Some of our most important recent discoveries and appraisal wells include the two Gulf of Mexico wells which consume and enlarge the adjacent discovery of the Great White Field.

Moving to a discovery of a new zone on the already launched Mobil (indiscernible) development project in Congo, (indiscernible) the fifth discovery (indiscernible) Angola Block 32.

By the way, we have now two drilling rigs on Block 32 and we plan to drill several more wells there by the end of this year.

[Ima] 12, a discovery in the recent acquired (indiscernible) in Nigeria which contains the presence of substantial gas (indiscernible) close to the Bonny LNG plant.

Through the first half of the year we are investing about twice as much on exploration in 2006 as we did in 2005.

We have drilled more than twice as many wells than in 2005 and we are enjoying a better success rate; in fact, a success rate above 50% which is extremely high.

We have also been able to secure some very promising acreage including some of the blocks in Nigeria that fit nicely with our existing positions.

Some blocks in the high-pressure (indiscernible) area in Norway which could become (indiscernible) area.

And some (indiscernible) in the Northwest shelf of Australia which we think are very attractive.

In addition, we are in the final negotiation stage for the (indiscernible) of Block 15 and 17 in Angola.

So clearly we are having a very good year in exploration and this should improve the visibility of our post 2010 growth profile.

Moving now to the downstream.

Adjusted net operating income for the downstream segment increased by 7% in the second quarter to $1 billion.

The second highest level ever recorded for us.

The performance in downstream was achieved despite the 15% decrease in the TRCV refining margin indicator which fell to $38 per ton in second quarter, (indiscernible) well below the record set after the (indiscernible) last year, but still high by historical standards.

Compared to what the TRCV indicates, our second-quarter results reflect mainly the benefit of our exposure to the strong U.S. gasoline market, the contribution of our (indiscernible) refinery in Texas and better operating performance.

Our refinery utilization rate was 86% in the second quarter compared to 82% in the second quarter last year reflecting a lower level of shutdowns.

But as in the first quarter 2006, our utilization rate was lower than expected.

For the rest of the year only the (indiscernible) is scheduled for maintenance and that will be in September or October.

In terms of news, we just announced that we have initiated the startup of the distillate hydrocracker, DHC, in our Normandy refinery on time and on budget.

This will progressively increase our higher margin light product yield by 50,000 barrels per day and we expect to fully enjoy the benefit of the DHC in the fourth quarter.

Given the second-quarter refining environment, this would operate on something like $200 million per year of additional net cash flow.

The downstream continues to be a strong cash flow generator for the Company and the segment (indiscernible) for the 12 months ended June 30th is very strong (indiscernible).

Chemical now.

With the spin-off of Arkema complete, the chemical segment is now more focused and composed of only the specialties and the best chemicals.

Under IFRS rules the historical (indiscernible) of Arkema are shown only as discontinued operations and are no longer included in the comparisons of operating results.

Adjusted net operating income for chemicals decreased by 12% mainly due to lower petrochemical margins in Asia and cracker turnarounds.

Again excluding Arkema from all periods, the ROACE for the chemical segment was 11% for the 12 months ended June 2006 compared to 15% for 2005 and 15% for the 12 months ended June 30, 2005.

Let me explain on this point.

We have recomputed the impact of the Arkema spin-off on our business segment, ROACE, by taking into account all the activity that we actually distributed.

In the first conference call -- in the first-quarter conference call this year I remember answering a question by saying that the (indiscernible) impact to ROACE would be about 1% at the Group level.

For the last two quarters the (indiscernible) impact of the spin-off for ROACE on the chemicals was actually close to 4% and at the business segment level it is in fact about 2% which is very sizable.

At the corporate level, the balance sheet continues to be very strong with a net debt to equity ratio of 30% which is within our target range.

Overall our effective tax rate for the quarter was 55.5% which is at the same level as the first quarter.

Our return to shareholders in the first half 2006 hit a new high of $7.5 billion which represents about 5% of our market cap and was composed of $2.3 billion for the spin-off of Arkema, $2.6 billion in dividend and $2.6 billion in share buybacks.

The buyback program is ongoing and through the start of the year, including share opportunities in July, we have bought back about 2% of our shares.

As of the end of July our share buyback program has reduced shares outstanding by more than 20% since it was started in 2000 which is buying a significant margin the best in the industry.

What you must know as a reminder to conclude this introduction -- as most of you know, we will make a media management presentation next month and we will wait then for a detailed review of our strategy and outlook.

For now before I take your question I just would like to review some of the achievements made so far this year.

Again we have been very active in [phasing] all of the good opportunities we can find, particularly in this environment.

Last year clearly was a very good year in terms of Company development.

In 2006 we have already made more announcements and we have initiated new giant projects.

A few examples -- in the upstream we have announced 12 promising discoveries and appraisal wells notably in the Gulf of Mexico and in West Africa.

We have increased our presence in new regions such as Australia, and we have entered into promising new acreage, particularly in Norway, Canada and Nigeria.

We finalized the (indiscernible) of our U.S. onshore assets for participation in giant (indiscernible) field.

We have signed agreements for LNG in Nigeria and (indiscernible) China (indiscernible) China.

We signed a purchase contract with Qatargas 2 for 5.2 billion tons per year of LNG over 25 years.

A further step to finalizing our entry into this project, that will be finalized in September.

In the downstream we have entered into an agreement with Saudi Aramco to build the two (indiscernible) refinery and in Europe we have initiated the startup of the Normandy DHC project.

The spin-off of Arkema has been completed successfully.

And finally, we have reached a favorable outcome in the (indiscernible) arbitration.

In addition to that we are working on other projects as well of course, and we are considering that we can continue to increase earnings over the long-term thanks in part to a return to a (indiscernible) period of strong growth.

Of course this will allow us to extend the track record of delivering high returns to our shareholders.

So now it was a bit long -- I'm sorry but I think it was important to cover all these points.

Now I'm ready to answer your questions.

(OPERATOR INSTRUCTIONS).

Neil McMahon, Sanford Bernstein in London.

It is Neil McMahon with Sanford Bernstein in London.

I've got a few questions just on outlook for the dividend and the buyback in the back half of the year.

You've got EUR14.6 billion on the balance sheet.

I'm just wondering what is your failing and outlook there?

Maybe associated with that, if you have any further thoughts on what to do with the Sanofi stake in 2007 or beyond and then I've got a follow-up question.

Okay.

May I suggest that you don't take a lot of attention to the cash that we have in the balance sheet at the end of June.

It just is a result of some arbitrage that we are making in finance, but in front of that you have some short-term financial debt.

And finally, the net treasury remains at a relatively modest level, something like EUR1 billion.

And you will see that at the end of the year we should come back with a more lower level for the cash on the asset side of our balance sheet.

Concerning the dividend, clearly this will have to be discussed by the Board in the third quarter.

Clearly we have in mind to continue to develop an active policy.

You have seen that last year and the years before we have increased our dividend very significantly.

And clearly given the evolution of our profits, we should continue to be very, very active or our dividend policy.

Concerning the share buyback, you know that for us it's for the way we adjust the giving.

And if we were to continue with the environment that we have now product delivery should finish the year with a buyback -- I would say something between 3 to 4% as up to now.

We have bought something like 2% in the beginning of the year, so probably something between 3 to 4% depending upon the level of the oil price.

Concerning Sanofi, you know we have clearly stated that this was not for 2006.

That we (indiscernible) that Sanofi is not a core business and that we'll dispose our stake in Sanofi I would say progressively and in opportunity, clearly.

I think this is what I wanted to say as an answer to your questions.

Thank you for those.

Just an additional question.

Some of your comments were around the step-up in exploration activity versus your plan for this year.

And I was wondering what you were planning on doing in Nigeria.

Were you planning on drilling any extra wells in Nigeria this year in the deepwater as part of that step-up in activity?

The answer is, yes.

Not only in Nigeria, but surely in Algeria.

Because I think as we have some exploration permits, as we have made some discoveries necessary now to appraise these discoveries and to continue to explore all the permits that we have.

So clearly we will continue.

Great.

Thanks a lot.

Thank you for being with us today.

Jason Kennedy, ING Edinburgh.

Sorry about that -- technical error.

Can you update us on the news flow surrounding Saudi Arabia's interest in the pipeline associated with the Dolphin project and whether this could complicate things there?

Secondly, have you got any clarity on North American production profiles facing contribution later this year and going into 2007?

And finally, I noticed that Iraq is expecting to begin talks with oil companies shortly in the next few months.

Could you remind us of any potential outstanding commitments or ambitions for Iraq?

Okay.

Concerning the Dolphin project, it's clear that this project is very well advanced from a technical point of view.

The pipe has been put in place -- I think it started two years ago.

And from a technical point of view we should be ready to start the production in the next summer I would think, the middle of 2007.

And we are very comfortable that the production should start clearly in the middle of next year.

Having said that, I wouldn't want to comment, this issue being two countries Saudi Arabia and the Emirates -- I'm sure that they will manage to find a solution.

But again, for the project -- for the starting of the project we are confident that we should be able to start in the middle of next year.

Concerning now North America, since production profile -- in fact, I have to mention that the Matterhorn platform is now ready to be back in production and what else -- I can say -- the gas pipe is, yes, just to give maybe more details -- the gas pipe to evacuate the gas has been repaired.

But the old transportation pipe which belongs to Chevron is not fully yet repaired.

So work is done now and if everything goes well I think that the Matterhorn could be back on-stream probably in August depending on the success of the pipe's testing process.

And as to the production, it should reach progressively something like (technical difficulty) Matterhorn 20,000 barrels of oil equivalent per day.

The last question was for Iraq.

I noticed what you said, more clearly we have relationships with representatives of the administer of this country as we had always had in the past.

It's clear that there is a huge potential.

You know that in this country there are at least five giant oil fields one of which of them has proven reserves something between 3 to 8 billion barrels of reserves, so it's huge.

But clearly we do not think that the present situation in this country is good enough (indiscernible) -- could enable us to send some people in order to start some work.

So I think clearly it's a country with a huge potential but it's not safe enough in order that we can envisage to start developments in this country.

Okay.

Thanks for that.

Maybe just on the North American production -- is there a contribution from Canada as well?

Yes, I'll just speak for Matterhorn, but in Canada I think by memory we have two starting up, one with (indiscernible), I think it was 30,000 barrels per day, (indiscernible) 10 and we are expecting another phase (indiscernible) but this will be -- probably this will be for next year.

Does that mean by the fourth quarter you could be seeing maybe 25,000 to 30,000 barrels a day from North America?

Yes, absolutely.

Okay, thanks.

Nicki Decker, Bear Stearns in New York.

Good afternoon, Robert.

My question is on Nigeria.

Would you just comment as to what you think is realistic in terms of bringing that production back on from a timing standpoint?

And also, the Brass LNG deal, maybe you could give us a little more color on your thinking there?

I suppose that you were speaking of the disruptions in production that we have to some difficulties with local populations.

So it's extremely difficult first to comment and to make a prediction.

The only thing I can say is that the government of this country would like very much to reach a settlement.

And I just hope that at the end of the day they will manage to do that as soon as possible in good conditions for everybody.

Concerning the Brass LNG project, which is a new project, we have announced I think two days ago that we have entered into this project.

It's of course very early to be very specific.

What I can say is that the idea is to build an LNG plant with two [trains] with each capacity of 5 million tons per year with a starting up which is planned in 2011.

We have in mind to supply these two trains for about one-third of the throughput and this gas will be supplied out of our interest and we have especially in mind a discovery that we recently made in (indiscernible) 112, 117.

Clearly it's a very big project.

I think as to the -- we may have in mind a very big number for the cost of be plant, but we are very confident that we should be able, especially given the level of the gas that we may have in mind even if we are very cautious -- satisfactory profitability.

Robert, is the progress at Brass at all threatened by current events in Nigeria?

No, because I think this project should be on the coast.

And (indiscernible) your point I do not see any difficulty for the supply of this project.

And clearly you know that (indiscernible) a Nigerian company has a 51% interest -- or 49% interest in this project.

And it is clear that the government of Nigeria attached great importance to develop this project as quickly as possible.

So for all those reasons we are very comfortable that we should be able to develop this project in due time and in a cautious way.

Thank you, Robert.

Thank you.

Daniel Barcelo, Banc of America in New York.

Good morning.

Thank you.

Your downstream strategy globally has lacked some U.S. exposure over time.

Given what we've seen in the U.S. with record margins I didn't know if you were reconsidering even perhaps more organic or other investments in the area.

And also, as part of a strategy to hit the U.S. market, is there any ability for you to do more than what you already do with your exports from Europe on the gasoline side?

And then related to that, with Deer Creek what type of upgrader options do you have within the concept of the North American downstream market?

Thank you.

Clearly we do not have in mind to develop our downstream operations in the U.S.

Through that in the second quarter of 2006 the situation was extremely favorable for refineries in the U.S. in terms of margin.

But these refining margins in the U.S. at least in the past were very volatile.

And taking interest in a U.S. refinery would mean also taking some commitments with regard to the environment.

Globally speaking we have the feeling that the on average status of U.S. refineries is relatively poor and that would mean also for us if we would want to do something probably to accept to spend a lot of money.

Even in the past quarter the demand was relatively high for gasoline in the U.S., probably this will not last very long.

And quite frankly, we think that we should have better opportunities in other parts of the earth, I would say especially the Middle East or why not the Far East -- but more Middle East to develop our downstream business especially in refining.

Concerning our exports of gasoline to the U.S., we are still in line with a level of something like 5 million tons per year of gasoline.

It's clear that at the same time we also have to have in mind to balance our situation.

And for that it's clear that we need to be able to produce more diesel oil and this was the justification of the building of our DHC now Normandy refinery.

As you know, we are totally in balance in Europe.

We have a huge deficit in diesel oil that we import from Russia and a huge surplus of gasoline that we export to the U.S.

So clearly we are very happy with this situation; that is to say to have the possibility to export our gasoline to the U.S. because clearly it is something that is and that should remain very positive for the level of the refining margins in Europe.

Having said that, we do not have in mind to build new plants in Europe just to increase our exports of gasoline to the U.S.

And also a point that we have to take into account, by the way, in Europe is that we have been granted some cut off for CO2 emissions.

And I think clearly this is something which is also important.

Concerning -- or in addition to that, I just would like to say that we have a very good, even if it is small, a good position in the U.S. with our (indiscernible) refinery.

We are very happy.

It works very well, very efficient and we have as a project to build a coker which is a significant investment with about $1 billion.

Concerning now Deer Creek and what we may have in mind to treat the overall is that we will produce in Canada.

Clearly we are considering the building of an upgrader in Alberta that could have a capacity of between 200,000 and 300,000 barrels per day.

We are studying what could be done for this (indiscernible).

Before that we will have also to study the best way to refine JV oil that we will produce before the starting of the upgrader in Alberta.

And again, we are now in the middle of our studies.

I know that the presentation should be made to the executive committee in September of this year.

So clearly it's something that we are studying very deeply, very carefully.

And I think that we should be ready to both treat the production that we will produce before 2013-14 and at that time I think that the upgrader should start up.

Thank you.

David Klein, ABN Amro in London.

Good afternoon.

A question on CapEx if I may.

Can you update us on the CapEx outlook for 2006 and also for the CapEx outlook further out given all the business development announcements you've made in recent weeks?

Okay, so CapEx.

What I can say is that in the middle of 2006 we are in line with our annual projectile with $6.8 billion.

I remember you that we announced at the beginning of the year a CapEx of $13.5 billion.

So we are just in the middle.

For the rest of the year I think we should stick more or less with this budget.

The only point is that we may have a higher figure for our exploration expenses.

Remember that we had in mind something like $1 billion in our budget.

Probably it will be significantly higher, maybe $1.4 billion.

But in fact the good news is that if it is higher it is due to older discoveries that we have made and the necessity to evaluate these discoveries and for that to make additional exploration wells.

And for the future, especially 2007, it's something that we will cover in September when we make our strategic presentation.

Thanks.

It will not decrease.

Okay, so thank you, David.

Some other questions?

Jonathan Rice, Citigroup in London.

Good afternoon, Robert.

I had just -- most of my questions have been answered, but I had one question about your exploration success.

I wondered if you could give us any idea of what sort of resource additions we could expect from this first-half drilling that seems very, very strong.

I think it's clearly too early.

I think we have to wait the end of the year.

Remember, when I discuss this type of issue I'll usually say that every year we produce something like 900 million barrels of oil equivalent.

That thanks to exploration we are able to discover something between 8 and 900 million exploration which means that thanks to exploration we're able to renew our production.

And if we want to be able to continue to increase our production, and this is for the period after 2010, it's clear that in addition to that we have to find some additional way to enter into new ventures.

I'm confident that given all the good results that we have had since the beginning of the year we should be able at the end of the year to meet our yearly target and possibly to be above, but it's really too early yet.

But clearly we are very, very optimistic.

That's great, thank you.

Irene Himona, Morgan Stanley.

Good afternoon, Robert.

Two quick questions.

First of all, your adjusted profit includes the impact of marking to market of derivatives under IFRS.

Could you just give us an indication of the size or at least a sign of these, please, for the first half this year versus last year?

And secondly, Indonesia, there's been some new flow recently.

Could you just clarify what impact if any this may have on the Group?

Thank you.

Concerning the mark to market of derivatives, may I suggest that you come back to (indiscernible).

But globally speaking the figures are very small.

And concerning Indonesia now, there are several topics, but as far as our production of gas is concerned, I think that we should be able to continue to deliver our own share of the (indiscernible) plant which means that especially given the difficulties that some others may have, our share in the (indiscernible) in fact could even increase.

Also your point in Indonesia is that I think that we have taken another permit and clearly with the idea to continue to develop our exploration activity.

Thank you.

Alistair [Seine], Merrill Lynch in London.

Good afternoon, Robert.

Two quick questions.

First, can you just make some sort of generic comment about the trading and shipping profits in the quarter?

It seems like some of your peers have announced quite big trading numbers in second quarter?

And secondly, the increase in the stake in Cepsa, does that change anything in the way you're consolidated in the accounts?

Okay.

Well, trading and shipping is an activity that I know pretty well as I've been asked to supervise this activity, but we do not report the results of this activity.

It is fair to say that the results were good -- a little above the results of last year.

But I think nothing that could have very significant impact in the decrease of the downstream results.

Concerning Cepsa.

You know that we managed finally to sign an agreement with Santander.

After we have got the approval from the European commissions we will (indiscernible) fair the shares go responding to the call to Total we will get these shares.

As a consequence of that our stake in Cepsa will increase from 45% to a little less than 49%, 48.8 or 9%.

Clearly the idea is to continue to treat our shares in Cepsa with the equity method.

We will not change the method of consolidation.

As in fact we will not have the control of Cepsa.

And yes, maybe one way to say because I read one paper saying that finally the agreement that we negotiated with Cepsa was not a very good one.

It's not the feeling that we have.

We have to abandon 3.7% to cover our share of the tax cost but in front of that we will have the full benefits of the call and the value of the call is something like EUR600 million and given the present table of the share price of Total.

So I think it was a fair negotiation and we have recovered our rights and we are very happy with that.

Absolutely.

Thank you very much.

Jon Rigby, UBS in London.

I've got two questions, one on the downstream and one on the upstream.

On the downstream, how will you characterize the impact of some of the downtime you had with the refineries in the quarter?

Was that something that sort of was an equal and opposite effect to what looked like very strong trading conditions that you would have enjoyed in the quarter vis-a-vis selling gasoline into the U.S. for instance?

And also just on the downstream, are there any planned shutdowns or downtime likely to be consistent with the gradual startup of the DHC?

And then in the upstream, it now looks like there are three potential projects -- LNG projects in Nigeria, expansion to [NRNG] where you're a partner and you said before that some of these new gas reserves might go to that.

Your new position in Brass which is to invigorate it -- that project of course okay LNG as well do think Nigeria has the capacity, that the industry has the capacity or indeed Nigeria has the gas for all those projects to go ahead in the timeframe the partners envisage?

I will speak for our own interest and the answer is clearly yes.

Looking at all the gas resources that have been dedicated for LNG, I think we should have enough for the trains that are built and forecasted.

And concerning this last project, Brass, I think that given especially the discovery that we have made, we should be able clearly at Total to fulfill all our commitments.

And but of course, as we are also part of the project, it's very important that not only Total but the other associates are able to meet their own commitments.

Clearly this is a case for an LNG.

And I think it should also be the case for Brass especially at the time it will be launched.

The second question was for the downtime in refining.

We can estimate that we have lost something like 50,000 barrels per day, especially for the coming quarter.

But in front of that of course the shutdowns that we had for the second quarter will be achieved.

So finally -- excuse me, I have to check a few figures.

So in 2006 we had a rate of utilization of 80, 86% I think.

In front of that we had a shutdown for maintenance of our Province refinery and some non planned shutdowns, yes.

And yes, some non-planned shutdowns, yes.

It was essentially mainly in (indiscernible) which is one of our refineries in the UK.

For the second part of the year I think there will be only one shutdown -- there is only one shutdown which is planned which is a cracker or (indiscernible) refinery.

It should be shut down in September and October I believe.

And we can expect that for the refineries we should come back with a higher utilization rates.

So I think we have 86.

I've just hope that we should be able to be above that.

And (indiscernible)

I understand -- you answered my point about the LNG plants with respect to the gas in Nigeria, but what about just the ability of both the contracting industry which you obviously have very close relationships and with the sort of infrastructure of Nigeria?

Can three expansions of three -- two greenfields and an expansion be being built simultaneously in Nigeria as is appears to be the implication of the projects?

Just one second.

Yes, concerning the Total schedule for the different projects that we have in Nigeria.

The idea that we may have in mind is that we will start with Brass and probably after we'll have to move to the [Train] 7.

I just would like to emphasize the importance that the government of Nigeria as attached to the development of Brass.

And clearly we should have again the gas availability, the gas resources to supply this new project.

Thanks for discussing.

Neil Perry, Morgan Stanley in London.

Good afternoon, Robert.

My question really is around CapEx and I appreciate you're not going to give us the actual program until September For next year.

But you were very explicit about the rate of cost inflation.

Can you actually talk about what the rates of cost inflation actually are in your business and whether that is now reaching a level where you might consider some project deferrals perhaps on deepwater where a number of other companies are commenting that they aren't going to take these high rates, particularly in the face of an increase in the rig fleet.

So perhaps you could talk about that.

And also the cost pressures you might be feeling in the downstream on your upgrading program?

Concerning the level of the CapEx, it's clear that we have had over the last three years strong increase in the cost of our services especially drilling platform and in some cases we may have seed costs increasing from $150,000 per day to rent a drilling platform to $450,000 per day.

First, for all the development that we have we have clearly secured all the (indiscernible) platforms that we need or we will need for the development and we shouldn't have any surprise which means that -- surprise, of course, for the development has already been fixed.

It is also (indiscernible) for exploration.

And for exploration as well we have secured also some drilling platforms for the next five to six years in one case.

Well having said that, you know that there is know a lot of drilling platforms that are being built.

I have in mind 90 in the U.S. and 30 to 31 drilling platforms for deep offshore or (indiscernible) deep offshore.

And all these platforms should come on stream let's say over the period 2007-2010.

Which means that the market should improve at least for oil companies and I mentioned a lot of projects.

But as you may have seen, this, our long-term project, the developments should start probably in two or three years and at that time I think that we should recover better levels for the cost of all services.

Or in any case by the way.

We have been in a situation where we had to postpone an investment because the cost was too high.

And in any case also given I would say relatively cautious assumptions for the oil price, given the CapEx that we have to take into account given the new context for the price of oil services, we have always been able to justify the launch of all our investments, all our projects.

More cost pressure in the downstream, (indiscernible) there is also some cost pressures that maybe we'll have to be cautious for the refineries that we have as a project in Saudi Arabia.

But may I just take the example of the DHC refinery and our (indiscernible) refinery where we have been able, by the way, to achieve this project within the budget and within the timing.

In addition to that, I don't think that the pressure that we have seen in the refining is much lower than the pressure we are seeing with drilling platforms.

Okay, thank you.

Mark Gilman, Benchmark.

Good afternoon, Robert.

I had a couple of questions if I could, please.

First, the Alaminos Canyon discoveries in the Gulf of Mexico, I assume that they are in the lower Tertiary.

Could you confirm that please?

You assume that?

I assume that the Alaminos Canyon discoveries you've announced are in the lower Tertiary play.

Is that true?

May I suggest that you come back to (indiscernible) because, no, I cannot confirm that point.

I'm sorry.

Okay.

Secondly, with respect to Venezuela, was there any impact on production in the quarter associated with the continuing difficulties in negotiations with that country?

And also, did you record in your results the additional extraction tax in the second quarter?

It's clear that we lost the production of (indiscernible) and this has represented something like 7,000 barrels -- 7,000 to 8,000 barrels per day.

You know that many things have been announced concerning the evolution of the taxes, but what I would like to say now is that concerning [Synco] is that we have contracts at all levels with Venezuelans to try to solve an issue for Synco especially and for the order I said that we have in Venezuela, as we have also our interest in the [platform model] (indiscernible) and the other being the (indiscernible) area.

Concerning Synco -- again, we have some discussions with Venezuelans.

I think they have been very impressed by what me have made to develop Synco, to build the upgrader -- which works pretty well by the way.

And it's fair to say that everybody, I mean Total and the Venezuelans, is aware of what is at stake and I think that we all -- that finally both will be able to find a solution that is available and acceptable for everybody.

And while it's difficult for me to say more now as we have some discussions, I think we have to be a little optimistic.

And it's clear that this is very important for us if we want you have the possibility also to develop some further operations in this country.

And I think it's important for the country to develop -- to have some other development in order to increase in the production.

Thank you, Robert.

If I could, just one more.

Could you clarify what you mean by the fact that your purchase of the 5.2 million tons of LNG from Qatargas to essentially confirms your participation on an equity basis in the project?

In fact, our participation in this project is the result of several agreements.

You have commissioned agreement, you have participation agreement, you know that we have now finalized still the preliminary agreements for -- the preliminary commercial agreements.

We have finalized the commercial agreements.

And now we still have to finalize the shareholder agreements and, again, we are very well advanced and this should be done in September.

And the fact that we have been able to finalize the commercial agreement I think is an important step just to show everybody that we are now very close to finalizing the shareholder agreement.

And again, it should take place in September.

Just one more if I could.

Could you give us a rough idea of what the financial impact will be on your results of the increase in your Cepsa interest to nearly 49% assuming that there's going to be some additional amortization associated with reaching that level?

It's a very precise question.

Again, the cost by the way of this addition and 4% is being very low.

We shouldn't have any goodwill to depreciate.

So while moving from 45 to 49%, it means that we should increase the profit -- our profit in Cepsa should increase by 8% of what they are now.

And I will see with my colleagues if we can give an answer very quickly.

That would mean about EUR10 million per quarter or EUR40 million per year, right?

That's the deal of the century, no?

Thank you, Robert.

Tim Whittaker, Lehman Brothers in London.

Hello, Robert.

Could I come back to your CapEx budget?

You said at the turn of the year that you expected it to be $30.5 billion going forward, in subsequent years as lower activity offsets expected inflation.

Now I'm interpreting from what you've said that you don't expect that number to go down and it could go up.

Could you say whether your expectations for inflation of costs have changed since the start of the year or alternatively whether your view on the level of activity has gone up?

What is clear is that concerning 2006, up until now we are in the middle of the budget, budget of 13.5.

Maybe it will be a little higher than the budget given especially the higher level of our exploration expenses that we anticipate.

In our budget we had one for exploration.

Probably we should finish the year with 1.4.

But if it is 1.4 maybe instead of having 13.5 it will be 13.9.

But I think as it is for good reasons because in front of that we'll have additional reserves for us it is not an issue.

And the second question, it's not an easy one.

We presented our long-term plan for exploration and production to the Board in July and it is clear that in the evolution of -- the increase of our CapEx over the last three or four years, part of that is due to cost inflation, part of that is due to initial projects.

And the consequence of that is probably we'll have to spend in the future more than we anticipated before.

But in front of that there will be some cost increases, but there will be, and this is very important, a level of preparation of the next decade which is much more important.

And I think this is very important for us to be able to continue to increase the production after 2010 and now it's clear that we have more and more a much better visibility of the evolution of our production for I would say the period 2010 to 2015.

To be more specific, I think it's difficult to say more without any figures.

So I will try to cover your point in September more specifically.

Okay, thank you.

Could I ask a couple more things?

On buybacks, you've done 2% up to the midyear, you said 3 to 4 by the end of the year.

Does that imply a slowdown?

And finally, could you give an update on Stockman?

No, I'm cautious -- I'm always cautious.

I don't know.

I think probably yes, if we were to remain with that it should be maybe 3.5 to 4.

But again, it's the way we adjust figuring.

So it will be what it will be depending upon the level in the oil price.

We don't have any program for buyback and, by the way, I don't know how we could have a program for buyback.

The program will be defined by the financial structure or the balance sheet of the Company.

Concerning Stockman, in fact we have no news.

So I think you may have listened that a decision could take place -- this started in March and we are now, I don't know, maybe end of August, September.

But we have the feeling that we have made good proposals.

We have to be cautious because it's a huge project, not easy from a technical point of view.

But it's also a project with a lot of gas reserves so this will say something very important for the future.

We have a feeling that we have made a good proposal, now we have to wait and see probably a few more weeks, maybe a view more months, I don't know.

Okay, thank you.

[Jean Luke Froman], [CMCIC] Securities.

I have a question on the maintenance of (indiscernible).

Did it have an impact on the production of the second quarter or (indiscernible) the first quarter?

What was the impact?

It looks like the production of (indiscernible)

We started at the end of May and the impact of the shutdown of (indiscernible) for the third quarter production is something (indiscernible) something like a little less than 30,000 barrels per day.

Yes, something like that.

Thank you.

[Jay] Williams, Cazenove in London.

Just a very quick question on the downstream business.

I wonder if you could give us a feel for how you're seeing both refining and marketing margins trending as we go into the third quarter and how you think they might pan out or play out for the year as a whole?

Thank you.

It's difficult to give any prediction.

What I just can say is that for July it was $34 per ton, that is to say a little lower than it was for the second quarter.

And for the rest of the year I think that $30 per ton could be a reasonable figure, but I will not put my head on the table.

Ann then also just quickly, on the marketing side.

How are you seeing marketing margins going across Europe, please?

Marketing margins, I think they were positively solid and we do not expect any significant changes.

They were in the second quarter a little lower than they were in the second quarter of 2005.

But no, we do not expect any significant change and this should remain like the other, that is to say a good level on average in Europe with some countries, of course, much bigger than some others.

The German market continued to be a bit weak; the Italian is a good one.

I think it should remain as it is.

Okay, thank you.

Bert Van Houganre, (indiscernible).

This is Bert (indiscernible).

Most of the questions have been answered, but I just have two remaining ones.

First, in view of the cost pressures which have been discussed, especially in the oil sands, you already mentioned the (indiscernible) and Joselin, but do the cost pressures force you or induce you to delay or reconsider the expansion of the project?

That's the first question.

And second question, what's the update on your Saudi Arabia joint venture, the (indiscernible) for the gas exploration?

Concerning your joint venture for gas exploration, I think that we have, as our technician said, we have spudded the first exploration well I think one month ago, a few weeks ago, which is the beginning of the drilling campaign so it's too early to say something.

We have to wait at the end of the drilling which is not an easy one, by the way.

Having said that, it is clear that our geologists are more optimistic or much more optimistic than they were at the beginning.

But that doesn't mean that at the end of the day we'll be able to find something.

From an operational point of view I think it's fair to say that things are going well.

I think there is no problem between the (indiscernible) partners and, again, that the operations are going well.

Concerning oil sands in Canada -- concerning oil sands in Canada, we do not intend to delay the project because of cost pressure.

What is important now is to define a good way to solve this issue.

That is to say at the end of the day to be able to convert the oil into light oil that could be easily marketed.

And before we reach we are able to start up the upgrader or what will be the best way to convert this heavy oil into a light oil.

And again, this is where we are and up to now we are in the middle of our studies and we are not able to say more.

But if we assume something like $40 per barrel I do not see why we should have to delay the starting up of the production because of cost pressure or for services.

Clearly something that we do not expect at all.

Okay, thanks very much.

Gordon Gray, JPMorgan in London.

Actually my questions have all been answered.

Thanks very much.

Okay, thank you.

So some other questions?

So I just would like to thank you everybody very much for being with us at the beginning of August which is in France traditionally a month for holidays.

But thank you again for being with us.

Good-bye.

Ladies and gentlemen, thank you for your participation.

This concludes today's conference.

You may now disconnect your lines.

Thank you.