TotalEnergies SE (TTE) 2006 Q4 法說會逐字稿

Good afternoon.

I think it is already good afternoon.

I will go quickly to the point, because I've been told by Jerome that usually you talk too much, which I am already doing.

But I still wanted to tell you that I am pleased to be with you today.

It's my first day, it's a beautiful place, and I will stop with that and, of course, say what I have to say about our perspective and quickly our result.

So, first, which is important, the continuity of our successful long-term strategy of growth and profitable growth works.

And you have here the different parts of the world we have been successful.

Qatargas II, at least signed, it is in Australia, a new area.

Jura, we are back in the North Sea where we can find now additional oil which we can produce quickly, being linked with existing facilities.

Egina, a new project in Nigeria.

Block 32, CLOV, Ofon, you know all of this.

We are delivering what we promised.

We have also, I am looking to Monsieur Mosconi behind me to see -- to be sure I will be talking of a refinery.

Yes, we are going to launch our coker in Port Arthur.

And the Jubail refinery, which is still a project on which I will come back certainly, which is linked to the price of oil, it's the high conversion refinery.

All of this gives us a chance to bring in two years' time almost 7b barrels equivalent additional to our portfolio.

I will come back on the reserves afterwards.

It's a good success.

All this being in what are the important parts in which Total wants to be increasing its production.

First, exploration as a whole, heavy oil, LNG and others.

You have the split of the 7b barrels on the right side of the slide.

All of what, again, we have decided to do and we told you last year has been successfully managed and done.

The Arkema spin-off, I think it's a real success for both.

And you see the success illustrated by the share value, which is more than 50% since we had the spin-off.

You have the Normandy DHC conversion.

We are, as much as we can, trying to have our refinery aligned with the needs of the market, so deeper conversion.

We are continuing the restructuration of our chemicals activities on the site of Arkema.

Repositioning our downstream assets, especially going much more on the markets where we have long-term demand, like Asia, the Dalia start up.

And as a former person responsible for E&P, I can tell you we've done all of our efforts to make sure that we will be coming on stream.

Cepsa, important thing has been resolved.

We now have direct access to our 49% interest.

And all this with what is a very important item, with more and more involvement and dedication to security.

And you see our safety performance, again, on the right part of that slide.

So, improved result.

Robert, if you want to --

[Technical difficulty] improvement of our results, as you can see here, with an increase of our net operating profit from $14.8b to $15.5b, that is to say EUR700m [sic - see slides].

This was essentially due to a better environment that added EUR1.8b [sic - see slides] due to the higher hydrocarbon price, a better refining margin, lower refining margin, in fact.

But as you can see, a big part of better environment has been compensated by volume effect.

Without the PSC effect, our production decreased by 3% between 2005 and '06, so this had an impact of minus EUR0.5b [sic - see slides].

Minus $0.5b due to the increase of costs, technical costs, especially in E&P with the higher cost for exploration.

But in front of that you will see that we have been able to have very good successes in exploration, as we will see it later on.

Productivity in downstream and chemicals, we must admit that last year -- in fact, part of this amount is also due to the fact that last year we suffered some difficulties due to the hurricane; we also had a strike in France.

And an impact of tax changes of minus EUR0.5b [sic - see slides], which finally to a certain extent is also a counterpart of the fact that we had the better environment.

So this is the way we can explain the $0.7b increase between 2005 and '06.

I maybe could add that the weight of upstream in this profit has increased from 68 to 70%.

Business segment profitability 29% in 2006; it is, of course, a very good level, despite the fact that it is slightly lower than it was 2005, 32%.

In fact, our profit increased by 5% but at the same time the capital employed increased by 17%.

And this is clearly what we have to pay in order to prepare the future growth of the Company.

In terms of capital employed, at the end of 2006 EUR45b, of which 57% for the upstream, 28% for downstream and 15% for chemicals after the spin-off of Arkema that has taken place in 2006.

Dividend now.

An increase in euro by 15% to EUR1.87 per share.

In dollars the increase should be at least 18%.

You can see the strong evolution of the dividend of Total between 2000 and 2006, on average 20% per year.

A very strong increase compared to the evolution of our peers.

In terms of payout, with EUR1.87 per share this should give us a payout of 34% compared to 32% last year.

Payout of 34%, which is more or less the average of the payout of BP and Shell and a payout which is well above the average payout of the U.S. companies.

And finally, in terms of return to shareholders, you can see the contribution of the dividend, $5b share buyback, same figure more or less, and also Arkema $2.4b.

So that is to say a total of $12.6b that we were able, last year, to return to our shareholders.

Well, now I will try to tell you how we intend to continue this successful story, especially vis-a-vis our shareholders.

First for the upstream, especially in that environment where we are facing more and more, I would say, inflation on costs it is important to maintain our competitive advantage, and especially our technical costs.

So you see that we have in 2006 been capable to keep it below the $10 per barrel.

It's only for 2006; be ready for being above $10 next year.

We do consider, in that environment, that it is an extremely successful result.

And as you can see on the left part of the slide, even in 2006, without knowing yet the figures of our friends and competitors, we are still at below the level of the best of the others for 2005.

That's extremely important.

So the best way to keep our way of increasing our investment in the deep offshore high technology means that we need to keep our investment under control.

So you see quickly that we go from $8.5 to $9.9, with $0.4 for exploration.

That's what I call good additional costs.

It's linked, you'll see it, with additional reserves, additional resources for the future.

And definitely we are suffering a little bit of lower production, but it's now improving in 2006 and 2007 and to come.

And the biggest part is linked with costs, inflation, new projects, maintenance, etc.

So we have a high quality portfolio, but it's important that we keep it under control with a strict discipline in the way we are launching our new projects.

So the result of our exploration policy is there.

In 2006 we have decided to increase the budget to $1.5b.

In fact, we have been spending a little bit more.

It has been creating almost 1.2b barrels equivalent, i.e. more than the production of the year.

That is probably the best result that we ever have had in exploration for the Company.

It is in our traditional areas for growth, like Nigeria, Angola and Congo.

But also back to places where we considered, not so long ago, that there was no more potential. [Inaudible] will know this.

United Kingdom, very good discoveries, and even better because they can be quickly produced being linked with existing facilities.

Those discoveries are in [again] in most of the countries where we are, but also in all the different areas of growth for the Company, like LNG and deep offshore. 70% are operated.

It's not an end in itself, but it proves, especially for exploration, that when you can use the good experience of your geoscience people, and especially geologists, you can really bring added value to the Company.

So, on the growth areas, and then we talk about the reserves.

So, we have increased our probable and proved the probable reserves, what we call the two-P, to more than 20b barrels equivalent, which is more than 20 years average life.

I'll come back to it.

At the same time, I think the Company is benefiting for an extremely well diversified portfolio.

We are in many countries probably the company, with Shell, which is present in more than 30 countries.

We do believe, even if sometimes it gives us some headaches, that it is the best way to have access to new opportunities.

And you have, at the same time, a company which is present in a very strong position in smaller numbers of countries.

And you have on that slide the countries where we have two-P reserves of more than 1b.

It's now amounting to almost eight countries.

A small change, the U.A.E., Emirates, which is now 1b, but that is linked with the concession which we still hope to renew one day.

And we consider this an extremely risk/reward well balanced portfolio.

You have on the right part, again, what we consider as all of our existing successful areas, plus the wish to enter in new countries.

Not new in the oil and gas activities, but new for Total like Australia and China.

Even if I insist on China, it's not only for upstream and it's also not only for what we do in China, but what we can do with Chinese companies linked with long-term partnerships.

So, to come back still to figures, it's important to make sure that what we have in terms of resources and exploration becomes effective reserves, and can be in our bottom line.

So, the one-P we have 102% replacement of proved reserves in 2006, with 110% on the three years period.

It's not as much that we have been doing in the past, but it is much more important to see that the two-P reserves is increasing to 127%.

And that's where we have definitely the growth of the Company is roughly, if you of course take out the production of the year, a mix of exploration, the 1.2b barrels, plus new businesses.

It's important to have new businesses to complete what we can bring through exploration.

I would like to say that we can double the exploration budget and have a double of reserves.

It's not as easy.

So we still have to be, at the same time, optimistic but careful.

So we need what we call business development, what we call either the three type contracts like Tahiti, like [Jaycreek] and like Ichthys in Australia, even if, to answer in advance one of your questions, Ichthys is not in the two-P reserve of 2006.

So that is our real potential for growth on the side of the 7b I was just talking about a few slides before.

So, I am pleased to say not any more as the E&P President but as CEO that we return to sustainable growth in terms of production, putting all the blame for what happened in 2005 on Mr. de Margerie.

But it's now good to see that we are back, as you can see, from August to more than 2.4m barrels per day in the third quarter.

And our new target and -- of 7% for 2007 is still our and my commitment.

We have introduced the OPEC quota difference.

I think it's important that we introduce it instead of saying it will be 7% without including OPEC.

You have 1%, roughly speaking, for OPEC.

It has not much real impact at our bottom line, most of it being on countries like Abu Dhabi where the margin is unfortunately too small.

So, the countries which will be making that growth real are those you know, Qatar, Dolphin.

Angola with especially Dalia, which is producing today 170,000 barrels per day.

Snohvit at least is coming into production.

Nigeria, we keep it as a potential if we can revive the production, which has been dropped up to now.

It's not part of our 6, 7% commitment.

And Venezuela, where there is still some question mark but it's really underway.

And if we'll continue on the next slide for the period 2006 to 2010, where we commit ourselves to more than 5% growth per year on average.

Of course, you know that it's based on the year 2006, which is not exactly what was expected.

So the 5% is a little bit more linked with what we promised in the past, between 3 and 4%.

What was important is to continue to grow.

We have, as I will show you afterwards, all of our projects now in the pipeline to prove that the production comes.

As you see, it is mostly on our traditional areas, like Africa, Europe.

But we now restart increasing our production in the Middle East and that is very important.

So, again, on the right part of the slide you'll see that we increase this production in our new targets like LNG, deep offshore.

And heavy oil remains, for this period, still limited.

In fact, it's limited to existing production in [Attarvasca] and the first phase of Sherman in Canada.

What is important is we can, with all of this investment, limit our decline rates on our mature fields.

And the good mix between new projects and old projects are doing that we can still limit this decline to 3.5, 4%, which is probably one of the best of the industry.

That's why we need to bring new projects on a regular business in our portfolio.

So, after 2010, which is, I would say, today or yesterday in certain cases, we continue to take the risk of having a list of all of our projects with deadlines in terms of production date.

You see that until 2010 most of our projects are already committed except a few ones.

And for the period after 2011 they also are mostly, not yet of course, decided.

The [filing] dates are not there, but they are already well prepared and organized.

Except, of course, one on which there is a real question mark, which is Pars LNG in Iran, where the decision to launch a project will not be, as you know, based only on technical and economical grounds.

So for this we have this capacity from the 2.4m barrels, or close to it, of 2006 to come to the 3m in the 2010/2011 year and then continue our growth on something which will be, I hope, at something close to 3, 4% per year.

So we go quickly, to give you a chance to have questions and answers.

LNG.

We insist on LNG, which is an important part of our growth short term, medium and long term.

You know that the market is extremely promising, especially in the United States.

Asia is still an important one but due to the size it has a relatively smaller effect.

But it's a market which is growing by roughly 10% per year and Total in that market is taking a share of 13%.

So we are slightly above the average, which is a tremendous success if you know all the competition and especially the one of national oil companies.

So we had 9% growth in 2006.

We will commit ourselves on a 10% growth from now on.

And as you can see on the right part of the slide, Total is positioning itself among the best in the industry.

Well, we are behind Shell, but in front of the others, with a well-balanced portfolio - it's not on this slide, but you can see it on the previous one - between the Atlantic Basin, Middle East, and I hope one day Australia on the side of Indonesia.

So we are well placed on the trading side to be playing a good game with maximum profit return for the Company.

So, if you come back on the -- quickly on this one, where you have at the same time not only the production but our re-gas capacity and our, let's say, long-term contracts.

We also want to be part of the trading activity, so we are buying gas.

Not only from the company in which we are having an interest, but it's important to be a player in the market.

And the re-gas capacity, which is close to it, is not totally the result of [le Azal].

But still, as you know, we don't have all of our gas in our gas facility.

But we don't consider that being long in re-gas facility, in the existing market, is something which is needed; at the opposite.

You see very quickly that there will be more facilities available than what is needed.

So what is important for us is to use this still capacity of buying gas and using our re-gas facilities to leverage our production growth in the LNG business.

Downstream, one slide to insist on our wish to continue to invest in one of our successful core business.

I will come back afterwards on what we consider a mix which is satisfactory for our Company and which gives a good return as a whole.

We continue to invest EUR1b per year through 2010.

It's a relatively important figure.

We keep, and we want to keep, in Europe a first quality industrial tool.

We are making it adapted to the market, more conversion, less sulfur, and definitely much more linked with all environmental concern and security.

That is the dedication of our refining people.

Second, in the Americas, and especially North America, we want to combine our wish to be more present in the conversion, like the project we have decided for Port Arthur, but also to try to, not to try, to make a real link between upstream and downstream.

And finding the best way to keep within the Company - being in the upstream or being in the downstream, that's not important, that's analytical - but keeping the top margin, either refining margin of the Attarvasca production in the Company and not to give it to third party refiners who are just [whipping] us, but no chance they will see a penny from this.

There is no reason we will take the risk and give it to others.

And Asia, which is definitely in terms of real new activities, i.e. new projects, Middle East and China, but mostly Middle East, we have this project of Jubail, this high conversion project.

It means that we try on a slide which you don't see here to focus on what is giving us the best chance of reward, i.e. we think that price of oil will remain high.

It's important to keep this result in having deep conversion refineries.

And one day, who knows, on the side of also gaining deeper conversion on our [inaudible] to find ways, maybe, to find integrated projects between E&P, chemicals and refinery on China.

So, as Robert said, globally for the -- for all the Group, but it's important to notice that it's not new but it's confirmed, the downstream, even with its strong investment activity, is one of the good contributors to the net cash flow of the Group.

I insist on this because quite often people are talking about refineries, saying okay, it's old fashioned, etc., etc.

Well, you have here on that slide the proof that it's definitely contributing to the success of the Company.

And we can at the same time make it even more profitable in doing this DHC Normandy, maybe through our questions we will tell you where we are on this.

But it's important that we go into more deeper conversion, and that we improve the reliability of our industrial investments.

Chemicals, the third leg of the Company.

I don't know if it's [inaudible] with a third leg.

It's a strange animal, but it's the third leg.

So, the differences with the previous years in an environment which is certainly good, but which we consider as being -- remaining good, we have now achieved a level of ROACE which is satisfactory.

It's around 12%, a little bit more, mostly in our specialty chemicals activities and traditional petrochemicals.

It's something which is, as you know, not as sensitive to the price of oil, so we consider this when it is economical, like it is now, as a good element in the mix of our portfolio.

It gives also a net cash flow which is good, even if at a time where we have also to consider investing.

But not, of course, in traditional areas but in places where we find either feed stock at good price, like in the Middle East, or close to the important markets with a strong growth, like in Asia and China in particular.

At the same time, don't worry, or if you worry, we don't intend to increase the capital employed of the chemicals above the existing level.

I will come back to this with a perspective for the long term of the Group.

So, I said it this quickly, we have -- we consider a favorable outlook for petrochemicals, especially if we go more and more on the Asian market.

We have been able to develop our good joint venture with Samsung, which we intend to develop.

We have been able, as you can see, the industry as a whole but Total in particular, to really effectively have the price of naphtha, the price of feed stock, or the feed stock, well integrated in ourselves.

Even better, if you look at 2006 we have been able to increase the selling price more than the cost of the feed stock.

And at the same time we are continuing to keep this portfolio at the top quartile, i.e. we need more than ever, just like for refining, to remain one of the best if we want to be competitive in those very competitive areas.

And that is the target of the Company.

You have for this the ranking of our crackers in the different areas of the world, and you see that Total is among the top in the first and second quartiles.

So, again, investment, it's needed if we want to be good.

At the same time, it's a little bit to certain areas.

EUR1b roughly through 2010, not EUR1b per year like for refining.

It's mostly, of course, in the Middle East.

And we are willing to develop this activity in coordination with the other core business of the Group to make it in places where it is very much appreciated.

A combined activity like in China or like in the Middle East, where we can present the Company as being providing those countries with all of our top qualified businesses, i.e. upstream, downstream, petrochemicals.

Qatar is a very good example.

We would like to do the same in China.

So those are for the three legs.

Now, talking about the future.

Well, we, as we told you, increasing our capital expenditures; close to $16b in 2007.

It's true it is on the upper limit of what we said, but it's all bringing real additional growth and projects.

We are, thanks to this, capable to increase our exploration budget from $1.5b to $1.7b.

We are spending all the money needed for having all of our huge investment, huge development coming on stream in the near future.

You have all of the lists here;

I will not recall it.

But we at the same time continue to invest in our mature fields, mature areas, where there is still a chance first to be much more reliable, and also to increase our recovery factors.

So if you see on the graph of the right you have the split of our investment, which is roughly 40% in the producing assets, but now close to 60% of the growth to 2010 and post 2010.

So we are really, to use the same expression, fueling the growth of the future.

And we consider this as a profitable investment in areas, especially Asia, where we can be closer to new additional demand.

Again, this is a split between our traditional activities, deep offshore that is for the upstream, heavy oil, LNG and other liquids and gas.

As you can see, for the period 2007/2010 the heavy oil is still limited [instrument].

The investment will come much more after 2010 to meet our targets of production.

Profitable growth, which is the support of creation of value.

I have the feeling to [spoken in French].

What is important to see is why is our ROACE at those levels?

What is pushing it upward?

And what are, of course, still the pressure downwards?

Well, upwards it's the good relative weight, what I call the mix between upstream and downstream.

We have been increasing our capital employed in the upstream.

We are close to 57% in the upstream at the end of 2006.

We are today investing around 70% or more in the upstream.

It doesn't mean that we are not interested by the others, but we are trying to make it profitable as a mix.

We insist on productivity programs.

More than ever we have to have extremely fiable, reliable, installation.

Not only to place the communication, because it is the best way to achieve our business.

We have to commit ourselves to security to environment.

And at the same time we will see it will be giving us access to additional production.

At the same time we are suffering of higher costs, even if we keep it under control.

Additional taxes, well, it's part of the environment.

You cannot go to $70 per barrel and keep the taxes at the level they were.

What is another subject is definitely the complexity of our projects, and it's not only true for the upstream; it's true for refining and petrochemicals.

That's also a link between higher costs, higher cost complexity.

We also have to be careful not to answer too much in what is doing the best, because we are the best.

We also have to think how to do things in a simpler way to avoid to be faced to additional costs.

So, you -- we have left you on the right part of the slide with certain ways of calculating yourself what could be the impact of different criteria on our net cash flow.

What is important is, first, we commit ourselves on a 5% growth from 2006 to 2010.

We continue to think that we have everything in hand to have this growth, even if it will not be at 5% after 2010.

We will continue to increase our productivity in downstream and chemicals.

And with all of this, as Robert was saying, for 2006 we intend to continue our dynamic policy of dividend, keeping Sanofi Aventis as a potential, being cash related, for improving what needs to be improved if necessary at the appropriate time.

So, not to conclude but to give some highlights, not only on figures but also in terms of quality.

More than ever, priority to safety and environment; that's a must.

Resource policy, we've been talking with a lot of you separately or globally on one of our challenges for the future.

We have to be present in countries where they want us to be more and more using locals and not only expatriates.

I do think it's a good policy, but it means definitely a lot more of formation, and how to find ways to get people at the right level of skills at the time we are asking for more and more technology.

The high-quality upstream portfolio has to remain.

Exploration, we are doing our best to keep this potential not only for one, two years but on five to six years' time.

We have all the rigs needed to cover this activity.

Project management for not only upstream but downstream and chemicals.

It's considered -- Total is considered and needs to remain as being one of the best in our capacity to delivery our projects on time and within budget.

And at the end strengthening our research and development expenditures.

It's more than ever necessary to prepare the future at a time where we see that we, like it or not, all of the fields we will have to develop, all of the operations we will have to do also in the refining and chemicals, will be more and more sophisticated and needs really additional research to make sure that we really are capable to maintain those projects economical.

And to finish on certain figures, you see that we have the capital employed by segment, which is well diversified, first in terms of region or geography.

The opposite of what people say sometimes.

You see that OECD countries, even if we don't have yet Australia on stream, is representing an important part of our activities.

And the decline is reduced, especially with the success of our activities in the U.K.

And if you look at our competitors, when they sometimes say that they are well placed in OECD, definitely they will have to join us in non-OECD countries if they want to continue to be successful.

Especially in the upstream, but also in the refining and chemicals, that's where it will be developed.

So we consider that Total being present before the others as a better chance to face what is sometimes difficult times.

And well-diversified activities in all of our downstream, chemicals and upstream projects.

Before giving you the chance to have questions, I would like to say a few words on what happened recently.

Well, you know this.

We have -- the Company has decided to split the President Director General function in two, with a Chairman of the Board and a CEO.

I am pleased and hope to be able to face off of our commitment as CEO.

I am pleased to have a chance to continue to work with Thierry Desmarest as our Chairman.

It will be certainly decided what I consider, as we have been doing brilliantly with our merger between Petrofina, Elf and Total.

It has been very well managed, but it's up to you to tell us a way of moving things to [him to me].

And I wanted on that side to say how much he has been doing for the Company as CEO, and how much I still believe he will be continuing to do as Chairman of the Company.

But he is not present today and I know he would've liked to say what he said yesterday in France, that he has been pleased to work with all of you.

So, on his behalf I am saying this.

He was pleased.

I will be also pleased, trying to continue as well as he has been doing the success of the Company for our shareholders.

Thank you.

It's Jon Wright from Citigroup.

I just had a question about your production growth.

You've expressed it in terms of a trajectory of $40 per barrel.

Could you give us an idea of what that growth profile would look like on a flat $60 oil price, please?

You are making the question intelligent in saying flat, so that I cannot escape it.

In saying if it's $60 first and then $70, etc.

Well, we still believe it's better to give you a figure with $40 to avoid but roughly speaking we think that it will be something like 0.5% less.

But definitely I will still prefer to be at $60 per barrel with lower production than at $40 with higher production, and I am sure you still all are agreeable with me on this.

Thank you.

It's Matt Lanstone from Goldman Sachs.

A couple of questions on West Africa and a question on management of surplus cash flow.

On West Africa, could you comment first on Nigeria?

There's reports that the militants have now threatened to take over the Bonga FPSO.

How well are your colleagues at Shell able to defend that?

Is that fantasy or is it a real risk and what do you think about that?

And then, on Angola, it's also been reported that the Angolans, as part of joining OPEC, have asked operators to reduce production back to the original nameplate level of facilities rather than looking for efficiency gains for higher production.

So what are your thoughts there?

And then, on the cash flow side, Robert, you mentioned yesterday that the headroom for buybacks is perhaps lower this year, given the starting point on gearing for the year.

You obviously went for another very big increase in the dividend.

Should we read anything into that?

Is there a preference for dividend growth rather than buybacks in terms of utilization of surplus free cash flow?

Robert, do you want to answer first on the --?

Yes, I can do that.

Yes, it's true that last year, as we enjoyed a very high oil price, we managed finally to do both, to pay a good dividend with a 15% increase, to make a $5b buyback.

In addition to that, we were able to distribute Arkema shares to our shareholders.

And all together, it was about $12b that we were able to return to our shareholders.

This year, in 2007, we will have a further increase of our CapEx.

We do not know what will be on average the oil price for 2007.

Clearly the idea is first to continue to develop the Company and to accept to do the CapEx -- to spend the CapEx that are necessary for that.

Concerning the dividend, it's true that it's our policy to continue to have an [technical difficulty] policy in terms of dividend, possibly to continue to increase the payout, as we managed to do, from 32% to 34%.

And it is also clear that with this -- due to this contract the buyback is in fact what -- it's in fact the way we adjust the balance sheet at the end of the year.

As we started with a gearing of 34%, the target is clearly to try to come back with 30%.

So finally, maybe if the oil price is lower than it was last year, CapEx bigger or dividend a little bigger, yes, the buyback should be certainly lower this year unless we come back with a much higher oil price.

Just to make it a very positive signal, the buyback of shares is not an investment program.

It's the result, as Robert says, of different results.

But we prefer, it's our goal first to deliver profitable growth, sustainable in the long term, and that's what we are paid for and that's what we think our shareholders are expecting from us.

But if the only thing would be to increase the buyback, well, the best thing in that case is to sell some of our assets at a price which is much higher than what it is in the share value, and we can do it.

So today, is priority to those long-term investments, especially in the upstream.

And, as Robert said, well, if there are extra cash for buyback of shares, it will be done, as it's normal.

And as you've seen, Total has been the first and the biggest contributor to this in the past.

To come back on -- I try to avoid Nigeria but it will be difficult.

Well, it's difficult to predict what can happen in Nigeria.

Definitely the situation is difficult.

We all are facing security problems and I must say the industry is behaving quite well in doing things all together, so that we can get the benefit of each other understanding of what's going on and to use all the security potential for all of us and not individually.

It proved that when we want we can be clever as a group in the industry.

At the same time, it's true there is, coming closer to the election, more and more threats on installations and people.

Well, at the same time it exists, we have to be extremely cautious.

We will never accept to put at stake any of our employees and we insist on any; it's nothing to do with being locals or ex-patriots, they are all Total employees.

Now, for the time being, we consider that we can provide them with security.

We decided to bring back the families.

If there is a need to do more, well, we will reduce it to the point where we can keep only people capable to manage the installation, so we don't leave them lost in the middle of nowhere.

But to predict what it is, I cannot say.

So, at the same time, it's just like when you have bomb alerts.

If each time there is a bomb alert you quit the building, well, that means you will never be in your building and you can go fishing.

So now they are threatening Bonga.

Well, they can threaten the Eiffel Tower, what can we do.

So I am serious on this.

It's a serious concern, but at the same time let's also keep things in already difficult situation.

And I think we have to be careful not to be part ourselves in what is the wish of certain of those people, is to scare us to the point we will be forced to leave.

So please, if you can, help us to contribute not to say what it is, but not to over design it and that will be really then a nightmare.

Well, for Angola it's, I think, much more satisfactory news.

Well, I don't believe I told you that the entry of Angola in OPEC will have any real impact on their production growth strategy.

They are extremely clear on their needs for cash.

They need cash for delivering much more to their people than what they have been doing in the past.

It is with the support of the United States, of the IMF, the World Bank, and of course of Total, and we don't see why they will stop projects in the middle of their development.

So what they are today doing in OPEC is being silent partners, like Iraq, for probably a lot of the same reason except security, i.e. they cannot be part of a reduction program.

As I said, it doesn't mean that from time to time, just to show that they are just sharing the misery, if I can use this word, with the other to upset, to reduce from time to time by 5,000 barrels per day their production.

They did it in the past, but I still remain confident that that will have no impact on our production forecast, not only for the short term but medium and long term.

Thanks.

It's Neil Perry at Morgan Stanley.

One question on chemicals.

You showed that Arkema was a great success and seems to have been valued more highly outside the company than inside.

It's 13% of capital employed still and a very, very small contributor to net cash flow.

What's your view on chemicals and could more of it be valued more highly outside Total rather than inside?

And then, secondly, on Sanofi, you referred to it today and said that it could be used to -- or the cash could be used to improve things that need to be improved when the time is right.

Can you elaborate a bit more on what needs to be improved and when the time is right, or what your base case is for what you're going to do with that cash from Sanofi, as you progressively sell it?

Well, on -- well, we know and you see it clearly on the slide, we showed this Sanofi investment as not an investment but as cash.

And it's clearly cash.

At the same time, you will agree with me that sending the message that Total is selling its share in Sanofi will have a brilliant success on the share value.

And if we want to sell it at the best price, it's certainly not a message to deliver and we don't intend to deliver this message.

Second, and we have good people at the Board of Director of this company.

We consider that the price of the share today is below what it should be, i.e. it's taking into account a lot of bad news but not of the good news.

But that's tactical, it's not the strategy.

But tactically, we don't think it's good to sell them now.

Now, if we had to do it, in that case there will be nothing like there is a price below which we will never sell.

It's not a core business activity.

If we need to sell this to have access to cash, it will be done at the price, the best of the time, but we will certainly not say it was at 72 or at 80 one day, so we will never sell below that level.

It's a cash tool of Total.

It's not a long-term investment.

But please, please, we don't want to send any message like it's part of our strategy to sell a big part of those shares in the near future.

On chemicals, it's bringing in the upstream.

I've been hearing this many times, and it's clear that each time we are getting better people say "It's probably the right time to sell".

And it's true that if we reach 14% next year, that's not the target but in case there will be even more pressure.

And we have just to be careful not to be following too much those pressure and keep what is, in our view, the best for the Company.

The best for the Company is we still need to do some additional restructuring in the chemicals; it's not over.

We have been very successful with Arkema and the proof is the value of the shares.

It doesn't mean that we will keep what it is today the way it is.

It's probably in the future a mix of additional investment and divestment.

But we consider, for the time being, maybe at the opposite of others, that to have a relatively small part of our capital employed in the chemicals is good for the stability of our profits.

It's true that, with a 35% return on upstream, it gives the feeling that why do you keep 12% when you have 35%.

If you can convince me and I will inverse the order that I will keep the 35% in upstream, I will definitely follow your "advice".

Now, I don't think we will keep 35% because there is no chance.

We continue to think that a part in the chemical activities not being so much related to oil is a good balance.

We have today something like, Robert, 16% of capital employed in the chemicals.

Chemicals, yes, we move from 15%; now we have 15%, yes.

Okay. 15%, it's even less.

Will it be more or less?

It's true that as far as we continue to invest more in the upstream, definitely in relative terms a part of the chemicals will be reducing.

Will it be like this forever?

That's certainly not something I can predict but we don't have today a necessity to sell any of our assets.

As you can see, we can develop our long-term strategy with the cash we have in our portfolio.

And that's what is important for the time being is to commit on what we have promised on the upstream on the refining and on the existing chemicals.

Normally we say ladies first.

[Inaudible].

I refer to your slide 14 and what it's really shown is one of your most important [growths for years].

There have been a lot of recent noises about nationalism and we -- hopefully we think that Hugo Chavez will -- does not want to nationalize, get rid of [great] oil companies.

But -- and they -- probably he doesn't want them to leave the country.

But despite that, you have a big project there called Sincor.

So do you think that you are likely to find an equilibrium?

And is there a timetable for that?

Can I call Mr. Chavez?

Well, it's certainly one of our most sensitive subjects today, with Nigeria.

Nigeria for security reason, Venezuela for those negotiations.

And we have the deep feeling that they are not willing to, if I can use this expression, to kick us out of the country.

When they have been talking of other sectors of the -- not only of the industry but of the -- like agriculture, they have decided to go to 100% nationalization.

Here, never Chavez choose the word nationalization.

He said that the country has to be more present and he used himself with a percentage of 60%, which I consider a little bit tough but that's what he said. 60% is a partial deprivation.

It all depends on what you get in exchange and especially how you can secure not only the remaining part but the long term of your industry of your company in Venezuela.

So our goals in negotiations will be certainly first to receive a clear compensation for any reduction in our participation.

And the second, making sure that with what we have, including what we've spent already, we have a normal and acceptable rate of return.

The third thing is we need to make sure that we have the capacity to control the operation in an acceptable manner, otherwise the problem will not be only losing part of our share but not being able to control the future of those complex activities which are [upgraders].

So we are in the middle of negotiation.

I cannot tell you where we will end.

They will probably try to test where is our limit but definitely we know that they need us, that they don't want us to leave.

We have to find a way where there is room for this nationalistic move, not to call it a revolution.

And I wish all of us, by the way not only Total, to stay in one of the most promising area for growth in the heavy oil in the world.

So I will tell you and give you the answer probably in a few months' time, because the timing is probably short term.

The risk is to lose what was considered as more profit than expected.

But definitely we will not accept to continue on a non-profitable basis.

Thank you.

It's Hugh Williams from Cazenove.

Just two questions, firstly on LNG.

Clearly this is an area of increasing importance for you going forward.

I just wondered whether you could give us a view as to where you see the risks on delivery for that fairly demanding growth rate, or do you think the risks are related more to the production side or to gaining market access for the gas going forward?

Second question was on Russia.

Clearly this is an area where you did try to gain quite a significant stake in terms of the upstream a few years back.

You may now be not quite so unhappy, given recent events.

But I wondered if you could just give an update on your views and attitude towards Russian investment in the upstream as you see it now, please.

Well, I will start with Russia.

Russia, when we have been discussing with many of you in the past, it was always the same.

Well, you're not good, you are unsuccessful and the others are far better than you.

Today the nasty persons are saying nothing and the others are saying well, finally, maybe by chance, and I agree it is by chance, we have not been successful so we are not losing money.

Now, I cannot say it is a result of strategy because the strategy was to be successful.

Now, sometimes it's important to be lucky and we have been lucky in not being successful.

Now, for the future, I will certainly not say we are not interested to continue to find ways to be present in Russia for one simple reason.

It's close to our markets.

It's a lot of -- especially gas reserves, they will need the technology.

They will need the capacity of project management.

And one day we'll be certainly asked to be present.

Now, we will certainly not accept to do this as "at cost plus fee" basis.

So, if they want to have our technology, management skills plus some other things for just almost free, no chance we will accept.

There is no reason that Total, with its size and its successful story outside of Russia, should just lose money to be pleasing I don't know who, and certainly not anymore the financial community.

So it doesn't mean we're not interested but there is a price on both sides to make sure that we have a chance to continue to work.

But we're doing everything for this.

We are extremely present.

We are developing a lot of what we call sustainable activities, which are finally not so costly but are making Total visible in this country, especially on the training side.

On LNG, well, I don't think the market is a concern.

You have definitely today more and more two markets.

And it's strange to see that we are back to the old East of Suez, West of Suez definition we had for oil, which doesn't exist any more for oil but exists for LNG.

We see that the East of Suez is whatever has been said back to oil related and that's what we see in Japan.

And one day in China, even China today is trying to get better price.

And you have a more and more deregulated market on the Atlantic Basin, especially in the United States and Europe.

So the market today is far off being satisfied.

I know there is some question about the U.K. but that's not the entire world, even if it's important.

And we do believe that our strategy, which is built on this 13% growth, is not an optimistic one; it's realistic.

We have the asset on the upstream side and what is needed in terms of re-gas capacity.

To answer definitely to your point, if I had one reserve and concern, it will be for -- not for Total, but for the energy market balance, it will be access to gas.

Because when you look at what's happening in Russia, the instability in Nigeria, the concern about environment in Australia, and still some other unstable areas, without talking about the risk of delaying energy project in Iran, well, I would be -- I'll be in charge of the world, thanks God it's not the case, I would be a little bit worried on the risk of being short of LNG in the years to come.

It's Jason Kenney from ING.

Now, I understand you have a very dynamic portfolio, particularly in the upstream.

And I'm going to go back to your prediction forecast because it has been quite a dynamic oil/gas ratio over the past few years as well, and to the point where a higher gas/oil ratio in 2005 probably depressed your volumes.

Similarly, a subsequently lower gas/oil ratio in 2006, by the looks of it, may have actually increased your volumes slightly.

We are playing on the periphery here, but the question is how sensitive is the forward-looking volume target to a gas/oil ratio?

And what should we be assuming today's level, or a slightly higher level because of the change in gas mix?

Or just give us some guidance on that particular because it can make a difference as to whether you make or break your targets.

There was a time where it was questionable to say that we want to be more and more gas and oil is not attractive.

And it was like a French story which is called [spoken in French].

And you know the story.

For those who don't know, Jerome will handle the translation.

Which means that when you cannot have access to something which was oil, you say that's not attractive any more.

And Total has been successful to continue to bring more and more oil in its portfolio, and we've increased both in still almost a relative percentage in terms of production, one-third, two-thirds.

And definitely our bottom line, Robert agrees with this, has been certainly pleased with it.

Now, for the future, it frankly will be what it is, i.e. the period of "My God we have found gas again" is over.

At the same time, we have no interest in principle to define a percentage between gas and oil.

It doesn't make any sense.

There are places where you can have good return for gas and some where you cannot.

Then you have to be careful in being at very low cost per barrel equivalent, like in Argentina, where we have successful profits even if the margins are small.

But globally, to tell you that it's important to "I refuse".

Now, being in the gas means even more capital-intensive activities, so it means to be prepared.

That's why we developed ourselves in the LNG business and we are confident to continue the success story.

But at the same time, if we continue to find good oil, like in Angola, I will certainly not let it to say "Let's go to gas".

So be careful with people who tell you that they like oil and gas, because it's usually linked with the fact that they predict that they will have access to more oil than gas and vice versa.

What is for sure, that in the Middle East there have been more [chance] with access to gas than to oil, and that's why companies have been running for gas in that area.

Now, Middle East has also important oil reserves and let's hope that one day, that's why we remain extremely active in that area, that they will have to reopen their oil assets to international oil and gas companies, starting via Iraq of course but why not the others one day.

Of course don't say this to Mr. Naimi; he won't like it.

So I haven't said anything about Saudi Arabia, except refining.

Maybe just a technical follow up.

It's actually the gas/oil ratio, to calculate your barrel of oil equivalent. [Inaudible].

That will be very -- sorry, I didn't get this point.

That will not change the, I would say, equivalent calculation.

[Inaudible question - microphone inaccessible].