TotalEnergies SE (TTE) 2007 Q4 法說會逐字稿

Good afternoon.

Thank you for being present and thank you especially, John, to have the courage to be once more here, but you had no choice, because at the same time you organized our trip, so.

But still, if you're ready, after the meeting.

Just to tell you that the strategy of Total is consistent including vis-a-vis John.

First, I hate to say that we are the best, but when it's true it's good to say it.

And definitely 2007 has been a good result, and good result not only because it's 2007, because it is a result of a long-term strategy which proved to be successful.

And I hope to convince you still we'll be fruitful and profitable in the future.

First item, and that has been one of our challenges in the past, we are back to growth in our production.

We had only 1 in 2007, 1.5%, but much more than the 1.5% what's important is what is the real growth of 4.5%.

You should not forget but you don't get into account what is linked with the price of oil, what is linked with sales of assets and, at the end, the Nigerian problem.

This 4.5%, and you will see it later, are not only real in terms of percentage.

They are extremely important because those 4.5% are really bringing additional cash, additional profit in our bottom line.

The adjusted net income, plus 6%, almost $17b.

That is the best result for Total.

Of course that's part of the strategy, high profits, but also high investment.

This is why we consider our strategy to be successful, consistency in developing our projects, being absolutely adamant to be consistent in the criteria we are using and also managing our project in a way which helps to deliver on time and within budget.

Net cash flow.

We are spending a lot of money for the good and for the additional value to the Company and our shareholders.

But still the net cash flow in huge increase, 27%, above $10b.

That gives us all the flexibility to continue the development of our successful strategy.

And even if it's not to be highlighted but it was a subject of debate, the sales of Sanofi have started at the end of 2007.

That's not, for me, a major point for the year, but at least when we are committed, we deliver and that's much more the message than the 0.4% we have sold in itself.

And on the top, I will come back to it, this strategy helps to continue to have a competitive, I would say almost aggressive, dividend policy, plus 11% in euros and even more, 23%, in dollars.

We'll come back to this later on.

We have a lot of slides but to go quickly to the Q&A I will not escape slides, but try to get the best to deliver the message I want to deliver.

So, improved performance thanks to growth and that's very important.

That's where you see that when you increase production you effectively get additional profit and it's not only linked to the environment.

The environment is still representing an important part, almost $1b.

Additional costs, but that's still less than what we get in terms of benefits through higher price of energy, almost $500m.

Exploration, which I like to see as a cost, but frankly that is a limit of those presentation, it's not a cost, it's a success.

But it's true that when you invest more, you have this kind of charge to be passed in your books.

But at the same time, when you bring an addition 1b barrels, even if we have a budget which has been increased, at $1.7 or $1.8 per barrel as the exploration cost, is far beyond all expectations and especially compared with external growth.

Growth and productivity, and that's where all the segments of the Group are participating to this real added value.

To start with, of course, Upstream, but also Downstream and Chemicals, 1.2, that is the highest reason or the highest part of the increased profit.

And that's definitely why we will continue to have the strategy based on additional investment, but for more growth, more production and more profits.

On the top, but we will come back to it, we are still, and that was our goal, sensitive to the environment, which means when the price of oil is climbing, which has been the case, Total and all of our activities are taking the benefit of those additional level of the price of Brent and gas, even if the gas, as you know, has not been as successful as the price of oil.

Our policy, which is, again, I insist, a long-term one, we can adapt ourselves.

We have to do it to take into account the new concern about the environment, about global warming, about sustainable development.

But at the same time, it is the result of a strategy which was started in the past.

We are investing more than our competitors, but that's not the reason why we're doing it.

It is a result of the comparison.

But definitely, our capital expenditures program is continuing independently of the environment and that's what we need to continue to do, being extremely conservative and disciplined on the way we are managing not only the decision to launch our investment, but also the way they are managed.

It is extremely important that we keep our project within budget and we start production, I would say, as quickly as possible.

We all know that the industry is facing some delays, but definitely I think that Total is doing better than others.

And profitability, well, it proved that you can be at the same time investing and profitable.

I hope you are not surprised, because that was the intent.

The intent is it's good to buy back your shares, it gives an immediate relative impact on your earnings per share, but it doesn't give additional value to the Company and to your shareholders at the end.

So on that slide, Total is on almost the top of the list, Exxon being above.

But I still prefer, and it's nothing to do in terms of comparison, the way we are doing the profitability of the Group, which is in continuing an investment strategy based on the long term.

So which slide is this?

Eight.

Go to slide number eight.

Cash flow increasing, plus 12%, $24b.

That's how we finance our growth.

As you can see, we have used this cash mainly for investment.

That is the long-term strategy.

We'll come back to it, dividends.

And we have decided not to reduce our buyback program because, as you'll remember, it's not a program in itself.

Buyback for Total is what we are doing when we think that it is the best way to use our cash, i.e.

in the past we had much bigger programs because we had money coming from projects which were done at $20, we received the benefit at $40.

This quote/unquote extra cash, we thought the best way was to give it back to our shareholders.

Now we have much more sustainable growth in our projects and we will keep the buyback program as still a balance to keep our debt/equity ratio at an acceptable level.

So you have the debt-to-enquiry ratio on the right part of the slide.

It's at 27% at the end of the year.

It was a little bit above 30% last year.

Taking into account that end of December is always the peak of this ratio, as you can see, we have reduced our indebtedness and at the same time there is no change in the strategy.

It was between 26% and 30% as our target.

It is in this target.

Dividend policy is the policy we have decided to make sustainable, i.e.

we have decided to increase the dividend to 2 -- that's in euro, so.

Always we still have a small problem between euro and dollars for this.

But we're increasing by 11% with EUR2.07 per share, which gives, in fact, an increase of 23% in dollars, which is the amount to keep in mind, especially when you compare it to others.

Total is, as you can see, except BP this year, the Company having the most important payout of our competitors.

We'll keep this position.

Exxon being below 20%, we are a little above 40%.

And at the top, if you take the dividend per share, Total is the one which is distributing the major part of its profit.

And we consider that it is the best way to give to our shareholder what they deserve to receive as part of our successful strategy.

On Upstream, we go to which slide?

On Upstream, which is the sector in which we had the most -- biggest part of our investment and good success, production plus 1.5%.

I've started with this because it's really one of the main important result of 2007 and will remain.

What you have on this slide, but I will not comment it, it will take too much time, we have the capacity to continue our growth.

And even if we don't give you any figure for 2008, there's been a long-lasting debate, including in this room, I don't want to face any more comment on are you above 2.1 or at 2.05.

We give you all the reasons to find why we know that we will be doing better in 2008, whatever the price is, being at $60 or $80.

We will be above the 2000% increase and at the top, above the increase of demand for oil, which is a little bit below 2%.

Now, no figure, but we have not only expectation.

We are confident in the capacity of the Company to continue growing.

And on that slide, just for you to remember that we have been having quote/unquote only a 1.5% increase, which is the best of the majors.

But the part which has been not presented is having a very small impact on our bottom line, where the additional production, what we call the 4.5%, have really had a positive impact in our, let's say, profits, and that's what you have to keep in mind.

When we lose, for instance, production in the Middle East because of OPEP, if you lose $1 per barrel, when elsewhere you can get $6, $7, $8 or more, what counts at the end is not only the production rate but the result it has on our profits.

Exploration remains the first strategy of the Group.

When you have decided to grow through internal growth, it's always better to start with exploration.

It gives you access to all the [rent] at the different levels of the development.

We have increased the budget thanks to the success of our teams.

Remember, we had a budget of something like $900m.

We have almost doubled it in three years' time, $1.8b for 2008.

The average discovery cost has been increasing but at $1.7 or $1.8, whatever the figure is.

At a price of $90 plus, it's easy to explain that it's better to go through this route, see that we can do it, than having access to new reserves through external acquisition.

So definitely we will keep working hard on having the skill to be maintained in the Company and getting, with 1b barrels, almost the amount of one year of production replacement.

So I come naturally to our growth.

Keep in mind that our growth is coming, roughly, still 50% from exploration and 50% from new projects, what we call the (spoken in French) subtype.

I know that Jerome doesn't like that I use this expression, because it's (spoken in French).

The difference is exploration is what you do through exploration, (spoken in French) is when it has been discovered by somebody else but you are more clever than others to develop it.

So, proved and probable reserves.

We are at 20 years, roughly, life of reserves.

It's what is the future of the Company.

Those projects are quite often underway.

But what is even more important is we're, at the same time, the most diversified company in terms of geography.

And at the same time, we have been capable to be even more present in a few numbers of countries and that is the result of the strategy which has helped us to be successful.

Never forget that, especially in today's environment, when access to new reserves might be a little bit more complex, except for Total, to be present is a real plus.

It's much more difficult to enter as a newcomer than when you are present.

Now, at the same time, it's also good to be big because it helps synergies and to be efficient.

So definitely you have seen the result of this with an additional four countries with more than 500m barrels of 2P reserves.

I always forget the list, but if I remember correctly now by heart, Australia is one, Congo another one, Canada a third one and Yemen the fourth.

Thank you.

That's for Jerome.

But definitely we have to continue on this strategy.

It works and proves that we have to continue bringing additional countries in our portfolio of long-term reserves.

Reserve replacement for 2007, the consistent figure is a replacement rate of 102%.

This is based on a consistent price for oil, the one we used at the end of the year, as this is the rule with the SEC.

It was $59 per barrel at the end of 2006.

We are at almost $94 at the end of 2007.

This has, I would say, an arithmetical impact which brings the 102% to 78%.

And there is a special item in 2007 which will be quickly covered by other booking in the future, which is the forced sale of one part of our percentage in Sincor in Venezuela.

But the important thing is the capacity of the Group to replace its reserves, bringing new projects in.

And as you see on the second part of the slide, we have resources at close to 40 years life.

And as I said, with an impact coming from the price of oil which is limited, which means that even at $80 it will not change more our resources, for, on the top, one reason, today you could think that being at $80 or more it will change the cut-off date of production.

Well, let's say that for the time being we are not being too paying attention of the impact of this.

But definitely there is a conservative part in this assumption, because we didn't take into account what could be the potential for more production at those levels of prices.

We give you here, and I will not spend too much time, the way to find what is the rate of growth of our production for the future.

We keep our commitment with the 4% as an average from 2006 to 2010.

Then, if you look at the slide, you can calculate what is the rate growth or growth rate for the future.

Much more important, we keep giving you the list of all of our projects with the status of development, being at the project stage or development, and we have in hand everything we need to continue to be successful in our growth of production.

And more than this, it's not on the same slide, but most of this additional reserves, additional production, are coming from projects which are operated by us.

So it's true that we consider that being operated by us, thanks to the success we have had in the past, gives us even more chance to secure those additional production in the year to come.

And we have on -- okay, you used it, so you have this.

The focus on LNG, even if LNG and gas is not part of the E&P division, it's part of our Upstream.

The LNG for Total is more and more important in terms of not only of growth in production but also profit.

We want, as we told you, to make out of LNG one of the plus of the Company.

We continue that success story with a growth rate of almost 13% per year.

I'm not on the right slide, by the way, if you could use the other one first.

Okay.

I will come back to that one afterwards.

So we still have this 13% growth rate which was announced last year.

We have all the elements in hands to continue this growth.

You know that the market is growing roughly at the rate of 10%, so we are above a 10% rate, which is already a huge one, and definitely we will continue in this.

LNG has all the benefits - gas, cleaner than oil, long term, and longer term than oil.

And also flexible, getting a chance to go from one part of the world to any other part, which is not always the case by definition when you use gas pipes.

And we see the numbers of projects we have ahead of us.

And to answer in advance about how can we book new reserves, well, you see we have a long list of projects which are not yet booked, by definition, because the FID, final investment date, is not yet there.

But we have projects all over the world, from Australia, keeping on our African policy and Shtokman, which decision to develop will be taken next year.

So that is the scale.

Going back to the potential for creating value, first, what is important is to see, thanks especially to the price of gas which is prevailing in Asia, the net back to the Company is extremely important.

Of course, it's a net back.

Then it is what has been shared with the host countries.

But it's always easier to share big cake than a small one, and that's the message.

On the top, the impact of the price of oil is very important, especially because of those contracts in Asia.

It's not really the case for the time being in the United States and with [the Arab].

But I will not comment on this but, even more, you have the impact on the profitability of Total and definitely you can see that it's above the average of the return we have on our portfolio.

Now, by definition, at the same time, it's an important part of our non-employed capital.

And to give you a figure which might not be in one of our slides, we have 20% at the end of 2007 which -- or which are non-employed or non-productive, sorry, capital expenditures.

And this figure of 20% we raise to 30% in 2010.

That's part of what you need to do when you want to grow.

But at the same time, it's part of what we use to make the profitability of the Group, which means that our profitability is resisting.

And more than this, to this necessary need in increasing non-productive capital expenditures.

Two slides on Downstream, but you have all the documents in hand to see what is needed.

First, definitely, and before talking about growth, what is important in the long-term industrial business is to have the best quality of assets, not only to meet the criteria for demand but also to be sustainable for the future.

So, definitely, we have, through different investments, being in Normandy or in the U.K., in Germany and in Spain, we have the capacity now to process more heavy crude, more acid crude and, at the same time, to produce less fuels and more distillates.

That was our target.

That's what we continue to do.

And at the same time, keeping projects having a chance, like for the Upstream, to get the benefit of a higher price of energy.

And we use this payback criteria, where you can see that in most cases, at $80 you increase the profit, which means you reduce the payback time.

It's true for the DHC of Normandy, Lindsey a little bit less, while Leuna is already so short in terms of payback that you can all see the impact of the $80 versus $60.

But at the level of payback, it's better not to comment any more of what could be the impact of the price of oil.

But definitely we want, just like for the Upstream, to keep our capacity, because we believe, in high price of energy, to keep this capacity to get the benefit of higher price.

The risk otherwise, just to have one word on this, is people in any case they think you are getting a benefit of higher price.

So if you are not getting the benefit and being charged for it, then you know what it means.

It means a real nightmare.

So that's why I always insist, I've been asked why are you insisting on this, well, it's not to please, it's just to say it's working.

On the future of the refining, on the side of keeping our existing portfolio in good shape, even if deciding to be flexible, I have here the manager of our Milford Haven refinery.

Last time I was here, we were discussing about this possibility.

It has been done and congratulations for the job you've been doing.

It's a way to prove that it can be done without making any noise, any concern and, on the top of it, having our staff absolutely not only under control - I hate this word - but happy with the continuity of the way this refinery is run.

So, at the same time, definitely if we want to have new grass root projects, it will not be in Europe, and we are still looking for countries with higher growth like Asia or, and I'm sure you will come back to this, or the project we have in Port Arthur, which is not in what we call an emerging country by far.

But at the opposite, being present in Canada in the heavy oil, being present in Venezuela in the heavy oil, having only one refinery in the United States, there was only two options.

One is to get one of the best refineries, first of the class, or to sell.

We have decided to fundamentally not only upgrade the refinery, making from this refinery one of the best of the class and making sure that it will get the benefit of this additional deep conversion and, on the top, capacity to swallow a lot of heavy oil, acid oil and, maybe for the future, being a way to get a potential linkage association with producing country.

The project of Jubail in Saudi Arabia, you know it.

You know why it's closed now to -- so that's where we have to take the decision.

All the studies have been almost completed.

It's definitely a well-placed refinery where the reserves are, where we can have access to heavy oil, we are close to the markets.

Now we just have to make sure that the economics, thanks to the contractual terms, are there to make it a profitable project for Saudi Aramco and Total.

And I hope next time to be able to give you more information on our decision to proceed.

On Petrochemicals, also two slides.

Even if it's a different business, the strategy is very close to the one of the refining.

First, priority to the existing portfolio.

And when we want to grow, we grow in countries where at the same time we have access to demand and to feedstock at a good price and good yield, which is the case with ethane.

So you see, on the four projects which are on that slide, four are based on ethane.

One is still on naphtha in Korea, but this project has been benefiting of such low cost, first, when we've entered into the deal we could do it at a very, I would say, competitive price.

And the debottleneck and the additional development of the project has been also so competitive that even with high price of naphtha, this project remains one of the best and capable to get additional profit for the Company.

So the CapEx are increasing, but bringing additional profit to the Company.

And you have the same example with the payback, of the impact of higher price on these paybacks.

So all the projects based on ethane, by definition, are getting the benefit of the oil price.

Korea not really, but as you can see, they have been so quote/unquote well negotiated that the payback is already extremely short.

And I wouldn't say it doesn't need to be helped even more by higher price, but it's true that with naphtha it's not possible.

So this slide is just giving the same explanation, with one comment.

In 2005 (sic), we will have more than 50%, or almost 50%, of our Petrochemical results based on ethane.

So it's a little bit complex, and I will leave this to Jerome, Robert, (inaudible) and all the others to give you the explanation of why we don't see the impact on the CapEx, where you see still a lot of CapEx in Europe and all the development out of Europe.

But it's just for technical reasons, i.e.

we are using a leverage system, like in Algeria or in Qatar, when we don't have this in Europe.

At the same time, in terms of real investment, it's not at all like this.

It's much more investment in Middle East and in Algeria than in Europe.

Outlook.

Well, you know this slide almost by heart.

Each time we are bringing new projects.

Those are the projects which will be launched through 2010.

You have had the list before.

As you can see, it's not only in E&P.

It's mostly in E&P but also in Refining and Petrochemicals.

And to give you just a small highlight of what it represents in terms of category of project, you have the resources for the Upstream, which is a good mix of different categories of resources.

And again, I think that's one of the good things with Total.

We are not only in one specific sector of the liquids.

We are good in almost all sectors and with these 40 years of life of resources.

This should give us the possibility and will give us a possibility to put into development an additional 5b barrels equivalent by the year 2010.

Growth means investment and you have on this slide all the projects which will be, if I can use this word, fueling the program of 2008.

Those are spending between $1b and $300m per project.

It's all underway.

It's the result of decisions which have been taken in the past, but which we are still carefully following now.

It explains how we go from the $16b of investment in 2007 to $19b.

Remember that we committed ourselves on $16b to $17b for 2007.

We are within this bracket, at the lower end.

But part of it is due to certain delays in our investment, so that's normal.

But more important is, out of this investment program increase, 25% is coming from ForEx, and that's mainly due to the euro versus dollar, euro increase versus dollar.

And not only euro, kroner, sterling to a lesser extent.

This impact is what it is.

We cannot do anything about it.

But it can become a plus and not a minus in the future.

And out of the 75% remaining, which is not remaining, which is a real part of our investment, keep in mind that roughly half of it is coming from the increased cost coming from these two environments, higher price of oil, higher cost.

But still the higher price of oil and gas has been having a far better impact on our result than the increase in cost.

Growth creating value.

We already talked about this non-producing versus producing capital employed.

As you can see, the slide 36, you have roughly 20% of non-producing capital employed in 2007, 2008, and it will rise or raise, sorry, to 30% in 2010.

That's part of what we need to do to contribute to fuel our growth.

It's, at the same time, linked with the increased profitability of our operation.

And you have an interesting slide explanation on the left part, where you'll see, at the same time, what are our projects when it is at $60 versus $80 by quote/unquote category of investment.

And you have on one side the rate of return, IRR, and the other side the enrichment.

It's always a mix of the two.

You have long-term projects with larger enrichment and, of course, less return in terms of profitability.

But, in any case, all of our projects are first above what we consider as being the minimum profitability requested and, second, all of them being from Upstream, Downstream or Petrochemical, are getting the benefit of increased oil prices.

That is and was our strategy and it proves to work, I would say, beautifully well.

Last slide.

I've been much longer than expected, as usual.

I will not go through this slide, which is even probably one of the most interesting ones.

The message is, to be successful in this business, which is not always the most appealing one in terms of what it represents, i.e.

we are faced with concern about C02 emissions, environment, price of oil, super profit, everything that, some I like, some I don't like.

I still insist we like super profits because they are not super profits, they are necessary profits to continue our growth, our strategy of being, at the same time, bringing added value to the Company and our shareholders, and paying dividends on a regular basis and a competitive one.

But keep in mind, first, that this strategy will be continued.

But we have, by definition, to take into account the environment, which is we are asked, and that's normal, to be more involved in the concern of the global warming.

And we will do this, not as being considered as a burden but as a way to be even better.

And just don't exist only as words.

It's not words, it's real.

First, you can be more efficient, which means less C02 emission, and by definition being more efficient, more profitable.

Second, we are part of this world and we need to be understood.

We need to take part of the decision-making process.

And if we are not accepted to be part, then we will suffer of things in which we will have no possibility to have a chance to discuss.

That is the case for what will be the post-Kyoto in 2013.

So, definitely, instead of trying to have a kind of war between those being quote/unquote green and the oil and gas companies being not green, we will just try to make it as it's important to make sure that both can work because that is the only way to get, at the same time, what we want to do in terms of environment, and also to get access to energy, because without energy there will be nothing.

And then, in that case, the problem of global warming would not be any more a subject.

And the last thing in this new, not world but new environment, Total will be even more than ever willing to find ways, through research and development, on how to bring onto the market products which will bring a way to reduce consumption.

We started with the Excellium.

We have to work on other ways to reduce the consumption, i.e.

you can drive longer with the same tank.

But it seems to be strange to have a person in charge of the Company to say let's try to reduce the demand.

First, it's not the message.

We can be better in efficiency and increase our share of the market and, at the top of it, using this to increase our share.

And in any case, now that we know that we will be short of, I would say, classical source of energies like fossil energies, well, in just reducing this gap we are helping to reach a solution which, in any case, will come back to our responsibility.

You all know that if there is not sufficient energy, the -- definitely the request on what to do will be charged to us.

So it's better to move before we are requested to make a move and prove that it can be done in a proper manner, profitable and environmentally friendly.

That's what we call acceptability.

Acceptability is not in a position with profitability is, at the opposite, the only way to continue to develop this Company successfully, sustainably for the long term.

And I hope with having the chance to come back next time with even better results, which is a challenge, but doable and our target.

I'll leave you the floor, except John.

Thank you.

It's Theepan from Morgan Stanley.

Just three quick questions on your LNG business, actually.

Firstly, how confident are you, in particular, on delivering on the near-term growth on Yemen and Qatar, if you could give us a progress update there?

Secondly, yourself and a number of other of your peers have indicated that it's a very tight market in LNG at the moment.

I was just wondering how flexible is your own LNG business?

And then, lastly, I was just wondering it's becoming a very important part of your earnings stream, over 20%.

Have you considered actually reporting that business as a standalone business?

Thank you.

Sorry, for the third one?

The third question.

Yes.

Just on whether you've actually considered reporting the LNG business as a standalone earnings stream within your accounts?

Okay.

Robert, do you want to answer the last one?

I think the idea is to have a reporting which is adapted to the way the Company is managed.

The issue is that LNG, in fact, is a segment that is essentially managed by E&P for the industrial aspect and for the commercial aspect by Gas and New Energy division.

So I think it's -- at the end of the day, it's very -- it's so integrated into E&P, so we do not envisage to report separately for this business.

It's too much integrated in E&P.

It's very important that we have this reporting.

At the same time, we will keep on purpose two different divisions, one for Gas and one for E&P.

Because for all which is linked with construction, with management of projects, there is no reason to make a split.

But as far you talk about marketing, trading, it's definitely another business and that needs to be outside of E&P.

And that's why, for instance, the trading activities on Gas, which are, by the way, located here in London, are out of the E&P division.

So, at the same time, we don't want to split the result of the activity, but definitely we want to split the responsibilities because it's a different business to build and manage a huge project like those projects, at the same time to, let's say, market and trade the LNG itself.

On Yemen, yes, we are confident.

Things are underway.

There is no real delay.

Costs are under control after a period where we had to take into account the new environment, but that has been really disclosed to you.

What still remains to be done in the future is probably -- but it's not the right time to do it, is, at the appropriate time, is to reopen negotiation of our sales contract with Korea and to take the benefit of what has been recently renegotiated by Indonesia.

We have a [reopen] clause in our contract and we will certainly exercise it to get the, let's say, benefit of a higher price of gas, especially in this part of the world.

Your second point was --

Just on how much flexibility do you have in your (inaudible) business between spot and contract prices.

Okay.

Well, for the time being, we definitely give priority to the Upstream.

And what is important to us is, because that is where we think the real long-term benefit will be, is not only to get profit out of trading activity, but really to get profit from the project itself.

And when you see our result, that is the only part coming from the Upstream.

If we have trading profits, it will come on the top of it and that's definitely something we are working on.

We are having a lot of purchase of gas to trade.

But at the same time, I consider this as something on the top, but it does not -- it's not part, let's say, of a long-term strategy like some others of our competitors.

We always consider that it's better to get the revenues out of the Upstream.

It's a way to secure our benefits much more than through a trading activity which might be beautiful one year and not good the next, because you will have different ways of finding where the additional profit is.

But it doesn't mean that we're not interested to get the benefit of, let's say, playing with the markets.

Next time we will make a presentation with our [pie] -- I mean long-term purchase of gas and what we are doing with it.

Yes, good afternoon.

Two questions.

Brazil, it's been a very exciting area in the deep offshore and that seems to fit your skill-set.

Can you talk about any thoughts that you have in terms of getting exposure to some of the acreage or exciting discoveries that we've had out in Brazil?

And then the second question, the energy costs are rising, the euro has appreciated and at some point we may also have C02 costs.

You've talked about strengthening some of your key assets in the Downstream and Chemicals, but would you be more aggressive in terms of reducing exposure through disposals?

Thank you.

Well, I'm sure you raise the question about Brazil because you know we are not present.

We tried many times to develop our activities in Brazil and I must say that the results have been, like for most of our competitors, not as high as what we expected.

We have made a discovery, which we have with Petrobras.

We don't know yet what will be the future of this discovery, when it will be developed, but at least we have a presence there.

There have been announcements about discoveries recently, oil and gas.

I hope it's true.

And I don't like to say something nasty because we are not in, but at least what is true, that in the past there have been a lot of big announcements and still there were good results but not as high as what has been announced.

So, for this, I will just wait and see to see what it is.

If we can find new opportunities with Petrobras, we will do it.

But it's true that, in the past, we tried at the opposite of what we're doing elsewhere to do things by ourselves, just like what we have been doing in Russia.

I think it's better to do it with Petrobras, because they know not only where it is, because we know where it is too, but they have a certain kind of priority in those zones.

And those who have been doing discoveries recently is because they were with Petrobras.

So it's not by their capacity of finding oil and gas themselves.

But again, we will see what it is.

And we are having, as you probably know, strong relationship with Petrobras on research and development, on LNG.

We hope it will bring us one day in being closer to them for participating to this success in their recent exploration works.

On your second question, I don't think there is any difference between the first thing, that when you have something it needs to be adapted to the market.

It needs to be not only adapted.

It needs to be, let's say, acceptable, i.e.

we have to be committed with assets which are secured, which are respecting not only the safety, but which are first-class in terms of safety and environment.

They also need to be adapted to the market, when you know that we need to reduce still the sulfur content.

That's why we are doing those HgS investments.

At the same time, we see still potential for higher profit.

But definitely, if we want to grow in other parts of the world where we are closer to the markets, definitely we will have, at a reasonable period of time, to consider reducing our size in Europe where the demand is declining.

So Milford Haven has not been used, as an example.

Milford Haven was the result of if we want to have a long-term view on our investment, we have to choose the refineries where we think there is a need for Total to invest on additional, let's say, for instance, upgraders, cokers or whatever.

Something can be good for [Amoco], that's what we've discussed yesterday, and not interesting for Total.

Why?

Because we have already our own portfolio, which is different than the one of Amoco.

So one investment can be good for a Company and not interesting for another one.

But definitely, if we want to be more aggressive like we are doing today in Port Arthur or in Jubail and maybe one day in China, we will certainly have to reduce our size in parts of the world where the, let's say, demand is not at all at that level, at the opposite, might certainly be decreasing.

Hi.

It's Lydia from Lehman Brothers.

Firstly, just on the Jubail refinery, you mentioned a listing on the Ryad exchange.

I was just wondering why you were considering that and how much of the project you would list.

And then, secondly, if I go back to the production list for 2006 to 2010, some of those seem to have changed from a year ago in terms of Dolphin and Nigeria LNG contribution being higher, and yet some things like Tempa Rossa have been delayed into 2011.

I'm just wondering why those changes happened and does that make you more confident about the 2006 to 2010 target because you've got those projects on stream now, or have you removed a cushion of comfort from the production guidance in the past?

Well, on production, that's exactly the situation.

Sometimes you have projects which are proving to be better than expected and some which are still good but delayed.

Well, Tempa Rossa, don't ask me why.

I'm still upset to see this project being delayed in a country which has no oil but -- okay, that's life but I'm still confident.

But if there is one reason why I don't give any more precise figure, is example of Tempa Rossa.

A good project, which finally might be much more attractive than what it was at the time because starting producing at the time when the oil prices were higher than what it was four years ago.

At the same time, it's still depending on a few things which are always delayed.

And that's, I would say, just a little bit like the weather.

You can say what it will be tomorrow maybe, but certainly not the day after tomorrow.

But Tempa Rossa will start but being delayed.

And we have some other projects which are better than expected, bringing more oil, more production.

And that's the good thing with the portfolio.

Remember, when we're using 2P, the 2P is the possibility to be less or more.

And when you have more than one project in 2P, normally on the size you should have better, let's say, good surprise than the opposite.

And that is the case of Total.

So really, for the year 2010, we feel comfortable, even if we know there will be problems like the one we faced recently.

My friend here of the E&P of the U.K., I mean [Olof Kristo], can tell you what happened on Elgin Franklin.

The good thing Elgin Franklin is far better than expected.

Reserves are higher, the plateau is higher and it's all good news.

Now we have had a small technical problem, which will be solved quickly.

But in between, being on -- having an important percentage in this project, it will have an impact on our production.

But I cannot say.

It's bad news.

Yes, it is bad news.

But it will not change the, let's say, future of the Company.

So we feel, really, Total and myself, confident in taking, even without figure, the commitment of increasing our production more than our competitors, more than what has been done in 2007 and more than the global asked-for additional demand in the world.

Now what will be at the end exactly, it depends on Nigeria, it depends on a lot of other factors.

But these projects are now well in place and will deliver their production sooner or later.

The -- your first point was?

Just on the Ryad refinery, just you mentioned a listing on the Ryad Exchange and I was just wondering why -- sorry, just in terms of why you were considering a listing on the Ryad Exchange for the Dubai refinery, I think you mentioned?

I was (inaudible), because at first you said Ryad refinery and that's one of our projects but in the year [2080].

We're still in Jubail, close to the shore, and we prefer this refinery than the one which is on the other side of the country and certainly not in the middle.

So, for the time being, it's clearly a project which is 50/50 during the studies time between Saudi Aramco and Total.

As soon as we start the development, Total will keep its share.

And as far as it is intending to have an IPO, that will be covered by Saudi Aramco until the time this is open for the public.

We think this IPO is a good idea, not only in terms of acceptability.

And even if it was not our first target, it's not to reduce our exposure.

But sometimes, to be sharing risk with locals, and especially in countries where they don't like to lose money in the Stock Exchange, nobody does like, by the way, but in those countries you don't -- it's just like the dividend of Total.

It can always increase.

It's a little bit the same in those Stock Exchanges.

So I think it's good news and especially, as far as they remain below the minority which is having a voice, we still keep the control with Saudi Aramco on how this refinery will be run.

The subject today is we have been faced with higher costs than expected.

And we have to make sure that this project, just like all the others we have been developed, is giving the normal return which is acceptable by Total and, at the end, by all those new potential shareholders.

Patrick, when is -- is there any date on --?

Either (inaudible) or after one year from the signing.

Okay.

The funny thing is, I don't know about you but I hear better when you talk outside and without the micro.

I'm sorry, it's not your fault.

The listing is scheduled either at completion of the project or one year after FID.

But we only spend our share.

Yes, we only have 5%.

More or less.

It's Irene Himona at Exane BNP Paribas.

I had a couple of questions, please.

Firstly, you show a very interesting slide, slide 34, on falling inflation in 2007 by different types of equipment and you talk about controlling your development costs, yet quite a big percentage of your capital expenditure increase was due to cost inflation.

And I was wondering if you can share with us your views as to what is going to happen in '08, '09 to that inflation problem.

My second question, you highlight the fact that 20% of your capital is not producing.

That's, I think, quite normal in an industry with a long time lag.

So are you highlighting it because it's well above normal, or are you highlighting it because you expect it to go up even more, which would obviously have implications for your returns?

Thank you.

This time I will start with your first question, because otherwise I'll forget what it is.

You will see, we will start dropping the word inflation on cost because, first, when you talk about 15% or 17% per year, that's not inflation.

Inflation is 2% or 3%.

So here we're talking about a new environment.

And just like we have a new environment with oil price and gas price, we have a new environment in construction costs.

And I prefer to say that we are integrating those new costs, this new environment, in our decision-making process and by definition in our budgets, not only for 2008 but the years to come.

So definitely what is important for us is when we decide to launch a project, and we know the cost because most of the contracts have been signed before we start, then in that case we want this project to remain under budget.

And then, if we do it and if we start on time, we will get not only the benefit of investment the way it has been decided, but also thinking that the price of oil will still be that little bit higher than expected, we will get this quote/unquote additional upside.

And what is important again is can I -- or can't I decide to launch a project if these additional costs, new costs, not inflation, are above our, let's say, capacity to decide to launch a project, then we will not launch it.

And then everybody will have to sit and discuss whether or not is it stupid to not do something because of costs being too high.

But that's not inflation any more and I really prefer that we say that are the costs, you like it or you don't like it, let's do the best on our side to reduce them if we can, or to reduce the growth.

I don't think we will be able to cut them, but if we can at least decrease the rate of growth it will be already a success.

We are working with the contractors on this, on how to find ways to avoid that we lose money which will be loss/loss, i.e.

we spend too much and they don't get the benefit in their profit.

At the same time, we prefer to have solid contractors, keeping their skills, than as we've done in the past having very, very shaky contractors and then they collapse before the end.

And that is extremely difficult to replace them during a development project.

So, once more, if we cannot launch a project because it is too expensive, then we will say it, but for the time being it's not yet happened.

At the same time, it's part of the reason why we see price remaining at a high level on the side of offer and demand plus the protection of OPEP.

Now we know that a lot of projects cannot leave, i.e.

cannot start, without having a high price of oil and gas.

And in that case, a cost problem is one element of the decision-making process.

So I will not use any more inflation, because, again, this word doesn't fit with what it is.

But it's true that we have to find ways to keep those costs under control, because we know that on the top of what has been the impact of higher technology, more complex fields, we are now faced with - I don't know who said this before but - with the cost of environment, eventually the cost of CO2.

And that has to be taken into account at the time you decide to launch a project.

And that is all of this which will make it, can I go or not go.

So I think it's important, even if we can still launch projects, to find ways to keep those costs below of their today's level and that's discussions going on with certain of our main contractors.

The second?

Oh, yes.

Well, it's -- I will not take it the way you say, i.e.

20, 30, 40, 50, 60 and if we go to 100 then we stop.

It's much more the opposite is to say that, that is first our way of presenting things.

We are transparent and we say, okay, when you want to grow you need to invest, and when you invest and invest more, that has an impact on your non-productive capital expenditures.

At the same time, as far as it is part of our CapEx and our capital employed, when we calculate the ROACE, when we calculate the rate of return, it's part of the Company's model.

So the message here is the opposite.

Even if we know there will be, by definition, an initial percentage of non-productive assets, it's part of what we consider as needed but also to be accepted in what is the return and the profitability of the Company.

So it's not a message of, be careful, it's going to get worse.

It's we know what it is, it's under control and it's part of what is the profit of the Company, including this part which is necessary when you want to grow.

If you remember, in the old days Total had much higher percentage of non-productive capital employed.

Thanks God, we have a better split between the two, but at the same time, again, you cannot have the cake and eat it.

What is important is we prove the way we are absolutely certain on our side that the projects we are launching will bring additional value, and not only as I showed you with the 2007 profit or extra profit, it's not coming only from the environment.

At the opposite, the majority of the increase has been coming from the growth of Total, i.e.

the Company is taking the benefit of its growth and not just getting the benefit of environment in which we can do nothing.

David Cline from ABN.

Two questions, firstly on CapEx.

I know that CapEx beyond 2008 is difficult, but if you put aside FX and you put aside industry cost inflation and just focus on the activity aspect of the equation, how do things look going beyond 2008?

Or to put it another way, does 2008 look unusual in the medium term on an activity basis?

The second thing is I guess there's a school of thought which might say that you've made a tactical error in Venezuela that you will pay for in due course elsewhere in the world.

I wonder what your thoughts are on that.

Don't say that I pay you for the last question.

I will start on that one, because that's really the strategy of Total and that's really, I think, the success of the strategy of Total.

Is to be consistent, to be inflexible when we talk about return, about decision-making process, but at the same time we see the world moving, we move when the world moves.

And sticking on something which does not exist any more has a name, it's called stubborn.

I'm not saying this for anybody else, but using your answer as being, don't you think you've been doing a mistake?

I say no.

I think we have been doing the right thing.

We would have preferred to keep our existing percentage.

The choice was between, as we did for [Josepine].

If you remember Josepine last year, we decided, and we were the only company, to quit.

Because the percentage we were left with, the condition of the contract which we were left with, were not to respect our criteria, fulfilling what we need to continue to develop our activities.

And it has been a shock to see Total quitting when Chevron was staying, when Repsol was applauding to say that's beautiful.

I'm not saying, by the way, that it's beautiful to be reduced to 30%.

And I have heard some of our competitors with those first service contracts to say it's not only normal, it's good, we like it.

That's a little bit too much.

We don't like this and I would have preferred, as we tried, to discuss with PDVSA a way where we could keep our percentage in renegotiating the terms, and especially the fiscal terms.

In all countries of the world, the tax authorities have the right to change the taxes.

We don't like it, but they have the right, in the U.K., in the States.

Why couldn't they do it Venezuela?

Because it's Venezuela and those countries have no right to change their taxes?

I cannot accept this kind of statement.

But again, I would have preferred to find a solution without having to reduce our share.

We couldn't do it because of the stupidity of certain of our partners the year before, when they have accepted everything with the service contract, where we decided to quit because we knew it will have an impact on Sincor.

And because we knew it would have an impact on Sincor, there is somebody behind you who can tell you I had a lot of pressure inside the Company to stay in Josepine.

Because that is traditional in companies, they don't like to quit.

I said, too much is too much, we quit.

Here, it's different.

Yes, we're not happy with being forced to reduce our share, but the terms we have for the remaining 30%, and 30% is not remaining, it's still a large portion of a huge investment, on the top with the new terms we have for the future, we consider it's a good investment.

On the top of it, even if we have lost maybe potential value with the 17% we have been forced to sell, we have received compensation which is above what is in our books, so which will create some capital gain.

Two choices in that case.

One is to say, we are strict on and strict and stay in our shoes and we die, or we consider because the terms are acceptable that we can continue, but only because the terms are acceptable.

And I can tell you the impact will be much more difficult for those who are giving lessons than for those who are trying to find solutions.

But you can find solution in being extremely strict on return, on investment and the way you do your business.

And if to be pragmatic is dangerous, I think that's when you're not pragmatic that you are taking your risk.

And especially when you test national oil companies, i.e.

states, just always be careful; states are states wherever they are, in all countries including in Venezuela.

Remember what happened to a company in Qatar, ask Shell, they will tell you.

When they [sued] the ruler of Qatar, they have been out of the country for more than 20 years.

That's not what we want to see now.

To be very clear, we would have not received an acceptable compensation for the 17% and terms which are acceptable for the 30% we will have left the project, because that will have not been considered as following our criteria.

But frankly to say that it might have a negative impact on the Group outside?

No, the opposite.

No, John has a right to say something because he wanted to.

I don't want to give the feeling it was serious.

I say this with trepidation.

Can we just talk a little bit, or get you to talk about Nigeria for a couple of minutes?

Just, I guess there's three issues - one, just some of your insight into where we stand on the onshore concessions and the problems around that, second is any of the issues around the two LNG schemes that are queued up in LNG7 and Brass, and thirdly, if you can give us any insights into, well, I guess Usan but also issues around local content, approval, etc., on the deepwater projects as well.

So those are the three areas in Nigeria.

Thanks.

Your first point was on?

The onshore concessions.

In Nigeria?

In Nigeria, yes.

Well, the easiest, Usan.

Usan is next to start and, as I said, we had it in the presentation and unfortunately we had to take it out, because we thought it would have been approved before and then for one single contract it's not approved yet.

So we have to solve negotiation with one contractor to get the final approval of the Nigerian authorities.

But frankly, I think it's only a question of weeks, I hope days, but there is nothing serious behind it.

For globally being onshore or offshore or new terms or whatever, well, it's true that the first concern we have in Nigeria is the insecurity, the instability of the region.

And that is the number one concern.

It has been the reason for having ups and downs in our production forecast.

That's why we have taken this out of what we call the production on which we have a certain form of responsibility.

But today it's not the insecurity which is the major concern, it's just to make sure that NNPC and the State respect its commitment to finance their share of the development.

And that's effectively the case for onshore concession, because they are part of the concession and they have to finance their share.

When offshore, they have production-sharing contracts, not all but mainly.

And in that case they don't have to pay anything, they are carried by the other partners.

So we have discussions going on, on having them to clarify their position in all of those aspects, i.e.

funding their share, in particular the part which they have not yet paid.

And then we will see if there is a need to reopen the discussion on past production-sharing contracts.

But definitely I think they are using this second part to put pressure on the first.

It's typical in negotiation.

But on our side, to prove that we can be also strong when it's necessary, we'll certainly not accept to open discussion on PSCs until we have solved the problem of the past.

And that's where we are.

So, Usan almost done.

The other new projects, I hope that we will be able to solve quickly our negotiation with NNPC and the State, so that we can continue this necessary program of investment for the long term of Nigeria.

That covers your point, John?

There's Brass.

Well, what we have heard is apparently OK Petroleum is having some, let's say, delays, which is to a certain extent good for the others.

And there is effectively a new sign of a wish on their side to develop Brass.

But for the same reason, we have to clarify how they will fund their share, so it's a little bit like the other concern about Nigeria.

And LNG7, that's in my view the most attractive project because they have the finance already to cover their share of the funding and we certainly would like to have this project to become a priority.

A good thing is it's back in their program for the next development.

But for this one, there is no concern about funding their share.

At the opposite, without entering into too much details, we wanted to try to use NLNG as being able to raise money which could fund some other project, but it would be too early to talk about it.

One final word, just not to be misunderstood on the strategy, because what you've raised about the position we have taken in Venezuela is very important in today's environment, i.e.

at the same time we are enjoying good price of oil, still good price of gas, even if they have not been as good in 2007 than oil, we are quote/unquote suffering on, not inflation but higher cost, but it's still less than the benefit we get.

And what is important then is the relationship between consuming countries and producing countries.

And we know what it is with consuming countries, it's called acceptability.

And acceptability means to make all of our efforts to be more environmentally friendly, to take into account this global warming problem, to be more talkative and vocal on how to explain why we need those profits, why they are not super profits but profits needed to be those being able to continue to bring energy to our clients, to the consumers, and in a cleaner way.

That's doable, even if it's not always easy.

We have the same problem of acceptability with host countries.

And host countries today, they have the tendency to close their doors because they consider that with what they have already in hand, what they are already producing, and they've discovered that in producing less it has a direct impact on increasing price.

They've finally no need to really do more for, let's say, opening their doors.

Total first gets the benefit of a long-term strategy and you know this.

At the same time we still need, like others, to bring new projects onboard for the long term.

And I see that the Venezuelan case is a very good example of just be careful not to be arrogant, aggressive and then bring exactly the opposite result, i.e.

you see those guys, they are so difficult, why should we work with them.

It's a mistake they're doing.

But even it's a mistake, if they're doing it, you are doing a mistake if you don't listen.

And we have to listen, it's called acceptability.

And at the opposite really, and then it's not controversial what you say, what will be the result is sending the message in other countries that those companies, I'm talking not of anybody else than Total, those companies, if they behave this way, it means we will not work with them any more.

And just be careful not to give lessons.

That's something I've learned a long time ago, even if I'm still doing it from time to time, but less and less.

No lessons, be pragmatic.

If you don't like it, if you don't want it, you go out.

That's what we have been doing in Saudi Arabia, when we decided not to stay in SRAK when some others had decided to stay.

It's because we told them we don't see any more reason to stay because there is nothing we are viewing with our geologist.

And it's better to tell your partner that when you don't see something you quit.

I don't want to spend an additional $300m or $400m on exploration which I can use somewhere else, and that is pragmatism.

And you can still keep a good relationship with the country.

It can be done as far you talk, you prepare it in a nice way.

It's legal, we can quit, we're not going to spend money for nothing.

That's the way we try to develop our strategy for the future of Total and I deeply think that it is the way, especially in today's environment.

Doesn't mean about being naive, nothing in terms of dropping anything serious, but just being consistent, long term, wise and you cannot say at the same time, the world is changing but you don't change.

Thank you very much for your attention.