TotalEnergies SE (TTE) 2009 Q4 法說會逐字稿

Thank you, everyone, for coming.

Christophe has trouble with his flight.

His flight was diverted to (inaudible), so it will take him, let's say, half an hour more to be there.

And I will make a short presentation (inaudible) basically, and Christophe hopefully will be there for the Q&A.

Maybe we start for slide number one.

Basically, on this slide, we mention to you that we started this year five major projects.

You will see that later on on another slide.

We add significant positions in our North American portfolio.

We progressively -- and believe us, we progressively transform our downstream and chemicals portfolio.

And we have sustainable development strategy going on, for instance CO2 sequestration.

Our adjusted net income was $10.9 billion, negative 47%, which is quite a good performance in comparison to our peers.

The return on average capital employed is about 13%, which gives a return on equity of above 16%.

We strongly believe that our financial strengths and the cost reduction allow us to continue and develop our strategy.

Despite new discoveries made in Brazil, a new contract signed in Iraq, we believe that by mid of the decade, it will be difficult to continue and increase the production capacity of the world, which we see capped at something like 95 million barrels a day.

You see on the left side of the slide that the demand is moving from OECD countries, where the demand is going down -- down in the US, down in Europe -- and moving up into the East -- Middle East and Asia.

This trend by which emerging markets are going up and strongly support by the oil price by their demand.

The growth will come from Asia, China of course being one of the main countries where the growth of the demand will be seen.

For gas, this is another picture.

Currently, we are facing some kind of gas bubble, and it will take some years for this oversupplying market to become more stable.

We believe that LNG, thanks to its cost -- I remind you that projects like, for instance, Yemen LNG or Qatargas 2, enjoy construction costs much lower than the ones we are facing today.

So thanks to these construction costs made at that time, LNG projects a low breakeven, and that LNG is quite competitive, including in the US, against domestic gas and pipe gas.

And we believe that LNG gas will push -- displace some coal consumption and maybe some higher-cost pipeline gas production.

But being honest with you, this gas bubble will take another two, three years to be sold, and this will -- we do not anticipate high gas price on spot market in the US or in Europe in the forthcoming years.

Just one slide on the financial.

We are definitely convinced that the strength of our balance sheet allows us to continue and maintain our investment program at about $18 billion a year, and the same for the dividend policy.

The last two bars on the right show the balance of cash in 2009.

So we [stand] growth investment in green to both $18.6 billion.

The dividend expressed in dollars is about $7.6 billion.

The cash flow from operations was above $17 billion.

We divested assets, mainly Sanofi shares, for $3.5 billion, but in aggregate, we divest for $4.3 billion.

And then we increased our net debt by $4.7 billion, maintaining the gearing in the range of 25%, 30% and namely at 26.6% at year-end.

And this is the strength of this balance sheet which give us confidence that we will continue both to invest in our development and in the growth of the Company and to maintain the dividend policy.

I remind you -- prior we move to that slide, I remind you that we still own 7% of Sanofi.

This gives us some financial flexibility, obviously.

We are continuing to sell -- in selling Sanofi shares.

The portfolio worth about EUR5 billion, and we are divesting about EUR2.5 billion a year, so there is about two years of cash coming from this divestment, plus maybe a little bit more by 2012.

So moving to the upstream, actually we did a lot of small, medium-size transactions.

But in aggregate we added something like 1 billion barrels of 2P reserves.

I remind you further that we have launched five big projects.

We will launch five new projects in 2010.

We have decided the FID for Surmont Phase 2 in Canada.

We signed an agreement with Cobalt for exploration in the Gulf of Mexico.

We recently signed an agreement with Chesapeake, which gives us access to shale gas assets and which will for our share produce something about 30,000 barrels a day starting now.

We signed an agreement with (inaudible) for the (inaudible) Field.

We signed a contract in Azerbaijan at (inaudible).

We've launched FID for other projects.

And in aggregate, this is adding 1 billion barrels of oil equivalent in 2P reserve.

We have more than 12 years of 1P reserve and more than 20 years of 2P reserve, and resources (inaudible) [both] 40 years.

There will be obviously some growth in our production by 2010 and we will see that later on.

This is a rather difficult slide to be described.

On the top left side on the production, of course we are not really happy with minus 2.6% decrease in our production this year.

But minus 3% was due to OPEC and the effect on low gas demand, and minus 1.5% was due to portfolio changes and security effect in Nigeria.

The underlying growth, the growth coming from our own new projects, was about 2%.

And what is important to note is what is mentioned at the bottom left side of the slide, is that when we increased our volume by 2%, we increased the net income by 4%.

And basically, our new production is accretive to our net income.

As I mentioned to you -- this is the right side of the slide -- we showed very good resilience this year.

Only BP is ahead of us.

And our net income per barrel, about $10.7 per barrel, is quite close to Exxon, even if Exxon is a little bit higher than us.

But it decreased less than Exxon and Chevron.

Our replacement rate was 103%.

This is including some acquisition organically.

The replacement rate excluding acquisition is at 93%.

We have more than 12 years of 1P reserve.

By region, on the right side of this slide, you see that Americas grow substantially, Africa remains stable and Asia is stable also.

By type of assets, you can see a small line mentioning the unconventional gas.

This is a Chesapeake transaction.

LNG resource base is much larger in 2009 than it was in 2004.

And obviously, there is a big change in heavy oil.

Something you have to think and to remember is that we increased our portfolio in North America; basically willing to increase our share in OECD countries.

This is the usual slide we show because we are quite proud of it.

Total has the lowest technical cost of the industry at $15.4 per barrel.

We don't know what will be the technical cost of our competitors for 2009, but we are confident to be still the best one.

Along this $15.4 per barrel is OPEC's $5.8, which is down by $0.5 per barrel, $8.2 for DD&A, up by $0.7 per barrel, and $1.4 for exploration.

We try to understand where the other (inaudible) cost, and we try to establish cost reduction and the operating expense reduction on assets where we are [partners] (inaudible) and not operator, and compare it to assets where we are the operator.

When we are the operator, we establish our operating expenses went down by 13%.

Where -- on asset where we are not the operator, we only can find minus 3%.

So I don't know where the others are reducing their cost, but not in the field where we are partners.

We actually reduced our overall cost by $2.2 billion, and obviously ForEx has a great impact on it.

It is about 60% coming from ForEx among this $2.2 billion.

So we launch -- we are launching five major projects in 2010.

Surmont Phase 2 is already decided.

FID was taken in January 2010.

CLOV, which is the fourth (inaudible) of development in Angola Block 17.

Laggan/Tormore in the North Sea.

And then Ofon II and Egina in Nigeria.

The upstream CapEx will be next year slightly above $14 billion, including some CapEx for gas and power branch.

This $14 billion is excluding Chesapeake.

So if you add Chesapeake, Chesapeake will already pay $800 million, so Chesapeake will cost more than $1 billion this year.

Last year, as a reminder, we were, last year in 2009, we were at the level of $13.2 billion.

You see on the right side of the slide the CapEx per barrel on Surmont Phase 2 went down by 25% which allows us to decide the FID, basically.

This is a cost reduction effect which helps us to decide to launch a project.

And you see the same type of effect for CLOV, which is not yet launched at the FID.

We see subsea equipment down by 15%, the FPSO cost also down by 15%, and some riser and flexible asset CapEx down by 20%.

We are maintaining the investment to sustain the growth.

The CapEx budget is at $14 billion, excluding acquisitions, as I mentioned to you.

Something which it is worth mentioning also is the number of projects which we started during the periods 2010/2014.

The Chesapeake is starting producing for us now at the Barnett Shale joint venture at about 30,000 barrels a day.

Pazflor will start by beginning 2011.

Then you have Usan, Bongkot in Thailand, Angola LNG, Halfaya in Iraq, Kashagan Phase 1, OML 58 in Nigeria, Ofon II, CLOV, Laggan/Tormore and Tempa Rossa.

All those projects in aggregate will contribute by 2014 at about 800,000 barrels per day.

Something important is that we have been able to sign a new partnership, namely the Barnett Shale JV, with Chesapeake; Ahnet in Algeria with Sonatrach, where we own 47%; the Termokarstovoye project I mentioned to you with Novatek; and the Halfaya project in Iraq.

It is of use that we have not been selected for the Majnoon Field, which was one of our targets, but if we didn't do it, it is because of the condition at which our competitor agrees to do it does not allow us to make enough profit taking such a risk.

So we have and we will continue to demonstrate our ability to establish relationships to access new resources.

We are building new positions for the long-term.

Obviously, the deep offshore is one of our strengths, and you have it on the left side, with new projects coming, like Egina Block 32 in Angola, Egina being in Nigeria.

For the heavy oil, we (inaudible) on in quickly, thanks to our cooperation with ConocoPhillips in Surmont.

We are the operator on the Joslyn mine with an ownership of 75%.

I remind you something that you have maybe forgotten is (inaudible) assets we own in Madagascar, which is heavy oil also.

This is obviously for the long-term, but this will add value to our portfolio.

The unconventional gas, we started our cooperation with Chesapeake.

We also signed the Ahnet gas transaction with 47 percentage of ownership in Nigeria.

And we apply for new permit for unconventional gas in Europe and in Argentina.

Obviously, you know that LNG is one of our strengths.

We started two projects this year.

We will continue.

We have other projects in our pocket, namely Ichthys in Australia and Shtokman in Russia.

All those new positions represent about 50% of our Total resource base, about 10% for the deep offshore, about 20% for the heavy oil, about 10% for the unconventional gas and [above] 10% for the LNG.

So this year, we started two big projects, Qatargas 2 and thereafter the first train of LNG in Yemen.

You know that there will be a second train to be launched by first half this year in Yemen LNG.

The breakeven price of Yemen LNG, just to give you a flavor, is about $2.5 per million BTU after (inaudible) in the US.

So this gas is extremely competitive everywhere.

On Qatargas 2, the liquid component of the gas is so rich that we are still making money on this project, even if we give the LNG to the buyer.

We will not give it, but the breakeven is extremely low thanks to the liquids component we are selling on the market.

We have a large portfolio of LNG assets.

Our sales increased by 60%.

And we are basically number two behind (inaudible).

I don't care so much to be number two, but both projects will contribute substantially to the net income of the Group next year.

(Inaudible) already, but there will be a plateau next year.

In the meantime, we are still willing to propose a complementary development in low CO2 energies.

This is basically solar, where you know we want two medium-sized, small-sized companies, one being Photovoltec, making solar cells, and Tenesol, making solar panels.

We have a project of a solar farm in Abu Dhabi.

And we will continue our R&D effort in that sense.

Biomass, also, we have a large R&D project.

The share of total -- sorry -- of the whole amount of this research is about EUR110 million.

Our share in this program is about 25%.

And on nuclear, despite the disappointment we had in Abu Dhabi, we are acquiring some expertise with our 8% interest in the Penly project in France.

And we are still thinking that we will continue and try to increase our exposure to the nuclear industry.

Downstream, obviously, if you remember where -- the first quarter of 2009 was a good quarter; the refining margins were good at that time.

And then the market collapsed.

And by last quarter 2009, the margin was as low as $10 to$12 per ton.

There is obviously large overcapacity in the world and in Europe where we are.

We believe that additional closure are needed in the OECD countries.

On the opposite, we firmly believe that our (inaudible) refinery project in Saudi Arabia will be extremely profitable because it will be dedicated to the growing market.

Currently the overcapacity is too big.

This overcapacity has to be reduced, and we will try and reduce our exposure to these markets.

This is why -- sorry -- I don't know where is my slide -- this is why we will continue and restructure our refining and downstream business.

Our commitment to the financial community is to reduce our capacity by 500,000 barrels a day.

This is about 20% of our current capacity.

We will do it.

We cannot not be too loud about that.

And basically, just be confident that we will do it.

I remind you that in 2007, we already sold the Milford Haven refinery.

We already announced a reduction in our Normandy capacity.

Normandy refinery, the capacity was down by 80,000 barrels per day.

We have signed a new JV in Italy with Erg, and this will be helpful also for us to match this objective.

So this is a slide on marketing.

Marketing is very important.

You know that basically the refining was losing about another EUR1 million a month in the second half of 2009.

Now, the margins are a little better because it is cold weather.

But this is (inaudible) to the marketing that we balance our net income of the downstream business.

You see that the return on capital employed in marketing is quite good.

It is something above 20%.

And we need this marketing.

We are proud of it.

We are not willing to reduce our exposure like this just to avoid this business.

I remind you that we are number one in Africa.

And we will maintain this exposure in Africa.

We are obviously number one in France.

The market conditions are correct.

And the same namely in Germany and in Spain and in Italy.

Maybe not exactly the same in the UK, where the market is difficult.

Maybe you can come to the previous one.

Just a reminder that the petrochemical sector was extremely difficult in 2009, despite the Chinese demand growth.

The margins were extremely low.

Basically, if you compare this year in Europe, the margin was about EUR350 per tonne, where in the past it was in the range of EUR400 to EUR500 per tonne.

The competition in the OECD countries were extremely strong, and the growth was coming from Asia.

We enjoyed this growth in our joint venture in Korea and with our assets in Qatar.

The next one, so the market is difficult.

We started five years ago a restructuring program for our petrochemical sector.

We completed -- in 2009 we completed the plan launched in 2006 in Europe.

We will concentrate our assets on three world-class platforms, namely, the one in the Gulf of Mexico, the one in Belgium and Normandy in France.

We, without saying it, will reduce our workforce by 20% for the period 2006/2012.

Maybe we can say a word on the specialties, because this is thanks to the specialties that the chemical sector of Total was making some positive results.

[Both] specialties made and put in place very heavy restructuring, and have been able to maintain a return on capital employed close to 10% on average, which is a great achievement.

And the average EBITDA of those assets, namely Atotech, Bostik, Cray Valley and Hutchinson, is above $1 billion a year for the period 2007/2009.

It is worth saying it, but sustainable development is part of our projects.

For those who were with us in the field trip in Yemen, you may remember how efficient was our team in helping the local communities along the pipeline and around the project itself.

On top of that, we transplanted coral reef for (inaudible) Terminal.

This is something which has never been done in the past.

And 95% of those coral reefs were surviving after a year.

Pazflor-Angola is a great experience to be able to work with the local communities.

The CCS pilot in Lacq is one of the few projects which we showed the efficiency of the sequestration of CO2.

And our project in Abu Dhabi shows how much dedicated we are to offer other produced energy than oil and petrol.

We are giving you there the figures for 2009 and 2010 of our CapEx.

The 2010 figures of $18 billion is excluding acquisitions, because we didn't know them at that time.

So this one is excluding Chesapeake.

Upstream is about $14 billion, downstream is about $3 billion, and Chemical about $1 billion.

This is the same level than in 2009.

It will be a year including acquisition obviously.

We have several projects which are described on the right side of the slide, the biggest one being Kashagan, where we will dedicate more than $1.5 billion this year.

Pazflor, we will dedicate about $1 billion.

Ekofisk, about $800 million, also.

So this gives you the magnitude and the size of the several projects which are going on in the Company now.

And both costs show us that we need to maintain our discipline and our expertise to develop big projects if we want to be one of the leaders of the industry.

You see on the left side the gearing, which is moving anywhere.

It is -- currently the gearing is at 26.6%.

It has been in the past as high as 35% and as low as 15% in 2008.

We show you the sensitivity -- $1.00 per barrel gives cash flows of about $180 million a year; $1.00 per tonne gives us $70 million a year, and $0.1 per euro gives us a sensitivity of $360 million.

We are quite happy to see the dollar strengthening currently, moving below the 1.40.

We maintain a proposed dividend at EUR2.28 per share.

This is plus 9% in dollars, which compares favorably to our peers.

And we will continue the investment program, as I mentioned to you, at $18 billion a year, excluding acquisitions.

And we already have done one acquisition, being Chesapeake.

And this is the last slide, and I am sorry, but Christophe will be here soon, hopefully.

We are quite good in giving social content to our investments, and this is definitely part of our strategy and we strongly believe that we need it to be successful.

We show you how able we are to establish and form partnerships in Nigeria, in the US, in Russia, in order to give access for us to new resources.

I think what is important to give access to new resources is to be recognized as a good operator and a good project manager.

And I think that is the case today for us.

We still maintain the objective to be an integrated company, despite the fact that we want to reduce our exposure to downstream, as it was mentioned to you.

But we still believe it is important that we maintain both downstream, chemical and upstream business in our portfolio.

The objective is obviously to improve the return on capital employed in downstream and chemical, and we are working hard for that.

And I think we can move to questions now.

I had two questions, please.

First, in the fourth quarter, in the downstream depreciation you had a special charge, [$295] million.

Can you say if any of that was an asset impairment, please?

And my second question, on cost reductions, I think excluding FX, you achieved your original target last year.

Is there an explicit plan for 2010 for the internal cost reduction?

Then in terms of external suppliers and cost environment, with oil at 70 and pretty stable, are you still looking for cost reductions externally?

Thank you.

On cost reduction, I mentioned to you a cost reduction of $2.2 billion last year.

We see unfortunately a trend where cost has a tendency to go up again.

So unfortunately, we are not expecting big cost reductions in 2010, to be frank with you.

We are still maintain our program on cost reduction, but we have to face a market where some costs are starting to go up again.

This is as the market is today.

On the impairment, yes, there was an impairment on refining assets in Europe.

Basically prior tax, it was about EUR350 million.

[Colin Smith, ICAP].

Just on the downstream reduction there, just doing the math, it looks like you've got another 350,000 barrels a day of capacity that you need to close from here in the timeframe that you've given us.

You compute well.

And I think you mentioned that some of that might come from Total [Arab].

On the terms of the deal before that deal, you had about 60 odd thousand barrels a day net, and I think after it, you have about 55,000 barrels a day net.

That is maybe one thing to be thinking about.

But beyond that, there is still quite a lot to go, even if the (inaudible) refinery is at risk, and I know you won't comment directly on that.

Is it your intention to sell or to shut down that capacity?

As you know, I can't talk too much because we have signed some confidentiality agreements with potential buyers.

And we have received some interest from some buyers, not 10 of them, but some buyers for some assets we have.

And obviously, I won't tell you which refineries are involved in this process.

We are making it not noisy.

We make it smoothly.

And we will make and work out to try and achieve it.

Of course, it is better for us to be able to sell than to close, and this is currently the objective.

I had a second question as well, and that was in previous presentations, you've shown plans to be involved in a cracker in Algeria.

And that seems to be off the slides now.

Can you just confirm that is not part of your future investment plans anymore?

This project is going down and up like this.

It is currently up.

(Inaudible) this question at the top level in Nigeria give a new start to this project.

Hopefully, we will do it.

The timeframe is quite short now to decide or not to launch this project, and this will be done this year in one sense or the other, I think.

Iain Reid, Macquarie.

Could I ask a couple of questions about the Iraq volumes?

Can you describe the mechanism which you are going to use to book the reserves and production?

Okay.

I'll answer your question first and then you ask the second question, if you don't mind, so that I don't forget the first one.

Actually, due to the framework, the legal framework of both contracts, you only book volumes related to the margin you (inaudible).

So this is a very limited volume that you book, actually.

Because you only book (inaudible) $150 or $160 or $170 per barrel that you enjoy with your margins.

So even if your project is producing 800,000 barrels a day and shows 2, 3, 4 billion barrels of technical reserve, your booking is extremely limited.

My second question was going to be about net income impact.

So do we assume pretax is going to make the $1.6, $1.7 on this limited volume?

As I mentioned to you, we have not been awarded the Majnoon Field.

This is due to the fact that there is a current condition of you can hardly make big money on this project, and that we decided it was important to have an exposure in Iraq, to be there, because we believe that things are going to move and to change.

But it was not our objective to get a large exposure where projects' return on capital employed was maybe reasonable, but taking into account a big risk, you are taking -- the reward, the risk balance was not so vulnerable.

Hi, Patrick.

(Inaudible), Morgan Stanley.

Just a couple of questions, firstly on chemicals and then the dividend.

Could you just clarify -- I think you talked about 20% reduction in headcount by 2012.

Could you just give us a flavor of how much of that has been done?

And then you've announced today a disposal.

I was wondering how much more aggressive could you be in the chemicals business and where do you see capital employed?

We disposed Mapa Spontex, which is gloves and sponges, which is definitely not our core business.

So we received an offer for $500 million for this asset, and we are positive on our ability to close this transaction prior, let's say, mid-second-quarter of this year.

We run our Specialties business in such a way that both companies are independent.

They are making good profit, and they are extremely currently useful to balance the net income of our Petrochemical sector, which is negative to this year and -- close to zero this year.

So even if they are important, they are managed independently.

I am not saying they are on sale, but if we need it, why not?

But they are not on sale today.

We can also divest some of, let's say, small assets, if needed, in (inaudible) sector.

This is not in the framework of what we have in mind today, but let's take the situation where we have an opportunity to make an acquisition.

If needed, we can divest and we have already identified some assets we can divest, if necessary, to maintain the strength of the balance sheet.

So to both make the acquisition and then divest other, more major assets.

The 20,000 number reduction you mentioned is done without saying it, basically, because we cannot say it.

So we do it on a regular basis.

This is a process by which we increase our profitability by trying to reduce our costs step-by-step without (inaudible).

And then just the question on the dividend.

You've left that unchanged.

I was just wondering, could you talk a little about the framework on the dividend?

Did you consider an increase?

You haven't -- is that because you are taking a more pessimistic view on the macro environment?

There is a big uncertainty today on the oil price.

You have two forces opposite.

One -- on one side, you have the financial pushing the price up.

Then you have the physical market, which is oversupplied, pushing the price down.

So there is some uncertainty of what would be the real price.

We believe it will be in the range of $60 to $100 -- sorry, it is a large range, but I can't give you more precise figures.

But there is some uncertainty in that range.

Maintaining our dividend in euro, to comment on that for this year, this gives a payout of 66%.

And this is plus 9%, if you compute it in dollars.

And this compares favorably to our competitors.

It would not have been reasonable, in my view, to increase the dividend this year.

Nevertheless, I'd like to mention to you that we still own 7% of Sanofi, which gives us EUR2.5 billion a year of financial flexibility.

So for the forthcoming two years, maybe 2.5 years, the share price of Sanofi went up.

We have sufficient resources of cash to both continue and maintain our CapEx program and to maintain the dividend policy.

A reminder that the dividend policy is namely in a stable environment, which never happens, but that is the objective.

In a stable environment, to have a payout issue of around 50%.

So when the oil price and the refining margins are low, we increase the payout, namely 66% this year.

And if the oil price goes up again, above $100, we may reduce this payout ratio down to 40%, for instance.

Jon Rigby, UBS.

A question on the downstream and then come back to the comments you just made about the dividend and Sanofi.

On the downstream, I was reading on the wire this morning and it seemed to capture the paradox completely, with Christophe on one hand said Europe and the OECD had to shut refining capacity together, refining sector back into balance.

You're the largest refinery in Europe, yet your chosen route is to sell.

So how are you curing the problem?

If you don't exit completely, all you do is give someone a lower cost base to operate against you.

Something what was not said this morning, but was said in the past is that the Dunkirk refinery will not any more refine crude oil.

You can understand it, I think.

Right, okay.

Second question on the downstream, then I'll move on to the (multiple speakers).

Just to clarify, you highlighted the marketing earnings that you make.

Any exit from refining capacity, is that going to compromise in any way the marketing business that you have, just simply because the contract nature of supply to competitors or the links between your marketing and refining business?

Something which I was not aware, let's say, two years ago is that there are people able to be a marketer without being refiners.

And we have example of (inaudible), one that I can't remember the name of this company from Israel, being a marketing asset in Europe.

And they do -- their job is to market, not to refine.

So there is a way to continue and maintain marketing assets, even if you don't have a refinery --.

So you think the marketing earnings can stay intact post a reduction in refining capacity?

It might be that a buyer is willing to buy the marketing with the refining assets also to be integrated, and then we are open-minded in that respect.

Then just going back to the Sanofi stake and dividend etc., would you envisage that your exit gearing in 2011 or 2012, whenever, if you have sold down Sanofi, will be lower than the 25% to 30% target that you currently have, especially given the fact that your downstream footprint will have also reduced by that stage as well?

I need to refer to our so-called long-term plan to give you some data.

If we use $70 per barrel scenario, without any more Sanofi shares by 2012, the gearing is still maintained is a 25%, 30% range after 2012, 2013.

According the CapEx program we have at that date, which includes some provision for acquisition.

Dave Thomas, Citigroup.

Returning back to Irene's question on the cost side, could you just differentiate a bit between OpEx and CapEx, where you are seeing cost trends?

Because if it's on the CapEx side, I would suggest it should incentivize you to be moving forward with project sanctions faster.

Yes, I can't give you a general figure for all of our CapEx.

But I gave you the example of the Surmont Project, where we've reduced the CapEx by 25%, which allows us to launch a project.

So there are some (inaudible) in the world where we have been able -- another example is the Dubai refinery, where we drastically reduced the CapEx as it was initially quoted by the contractors.

And the magnitude of the cost reduction in the CapEx was about 20% to 25%.

But as I mentioned to Iran also, we see some trend today where the costs are -- slightly, but are moving up today.

Is that in any way because of things like commodity prices or is it actually contracted prices?

Honestly, I don't know.

There is an obvious link between the commodity price and the contractor quotation.

It is of use.

How works the elasticity between those two parameters, I don't know.

Can I move on to a question then on technical costs?

I think you said that DD&A in your technical cost was around $8.20 or so per barrel.

Could you give us an indication of how you expect that to go moving forward?

It will go up, obviously, because new projects are going onstream with higher CapEx than in the past.

So it will continue to go up.

It goes up this year at about $0.8 per barrel, I think.

And it will continue to grow [that].

Thanks very much.

And finally, a question on return on capital employed.

If we stripped out your nonproductive capital, could you say what your [ROCE] would have been in 2009?

Could you repeat the question, because I was diverted by Christophe making some noise in the room.

The question was, if you strip out nonproductive capital from your capital employed base, what would the capital ROCE have been?

On the top of my mind, it would be ROCE something like 20%.

Because basically, one third off our capital employed is nonproductive.

Please come to answer some questions because they are waiting for us -- for you (inaudible) have been there.

[Alexander Nicholas] Bank of America Merrill Lynch.

Just one question.

You described the gas market as a bubble, and we're not going to see spot prices recovering anytime soon.

But when you look at your new projects coming into investment, most of -- 50% of those are basically gas projects going to spot markets.

So is it you're taking a complete different view on the commodity prices there?

Could you repeat your question, please?

Yes, the question was that you described the gas market as a bubble over the next few years.

But if we look at your project coming to FID on some of the partnerships that you signed, most of -- half of those are basically gas projects.

So is it that you're taking a completely different view in terms of the dynamics of the market medium-term there?

First, sorry for what happened, and it is all the fault of (inaudible).

And it is not a French technology, because the plane we had is a Lear Jet and it is not French.

I don't know where it is, by the way, but it doesn't work.

There has been all the debate recently on our projects.

And especially in the press, you probably heard about Shtokman, which is a good example, that some people use the fact that we were scared or worried about the price, and that was the reason why we were delaying the startup of the project.

No.

The reason is we had to go through more detailed engineering before we can launch a very complex project and make sure that being well-defined, it will be well-developed and then producing even better.

Now, we are today in 2010.

When we talk about Shtokman, we talk FID 2011, which means the project started producing in 2016, 2017.

The bubble, the one we know today, at least, will be over.

So it is the right time to decide those projects, not the time where the prices are high.

It is an old subject we had an oil and gas.

When do you start?

Frankly, to tell you the truth, we have to do it whenever it comes.

If you have a (inaudible), especially for project, with 20, 25 years plateau, with two, three -- or one, two, three phases like Shtokman, which means probably more than 40 years, don't think that you have to decide on the date depending on the price of gas.

Either you believe the price of gas will be higher and you go through, or you forget this.

But never seeing that you will have to make your decision based on the price of gas.

The reason are delays because of cost, because of non-approval, because of environment, because of whatever, political, geopolitical, but not because of price of gas.

So today, it is very important, and especially for those years that we are now, I would say pushing ourselves to develop those projects.

And the price of gas, I don't know what it will be in 2017, but whatever, it is it project which will be profitable if we launched it at prices which are our long-term view.

And that is sometimes the reason of why people are thinking about the price, because they are now told that, oh, they are delaying because of the gas price.

Honestly, it is usually face-saving.

So on the long-term, just do and develop your project as quickly as you can.

It will not be [any hurt], especially if what you see today is more and more projects being delayed, more and more projects in Africa being maybe suspended, maybe just totally stopped.

Remember about [okay], it is dead.

[Brass] we still hope is alive, but I'm not even sure.

And at the end of the day, I still believe that we will be short of LNG in the years to come.

Now there is this big concern in the good science about shale gas and those unconventional reserves, but I don't know what it is.

We don't know what it is.

And if you talk about the United States, in any case, until there is an LNG plant in the United States, which will be developed by maybe the same person who said that there will be gas for more than 100 years from shale gas, no name, it will stay there.

And for the time being in Europe, in Asia, where we are looking for shale gas, which is certainly there, because there is shale gas everywhere, but is it profitable?

Is it doable for environmental reasons?

All of this still needs to be discussed and developed.

And in any case, will not come as a sudden additional capacity of gas.

So in the States, question mark.

Rest of the world, definitely more than a question mark.

So as far as you can, as quickly as you can, do the (inaudible) gas projects, and especially in the UK when you get some tax incentives.

Okay, thank you.

That was not the question, but it is my answer -- on taxes.

Talking about Shtokman, you had said previously that you were going to be able to book the reserves.

Now that we have new SEC guidelines, could you talk a little bit more about that?

Are you actually going to book them as reserves 100%, or are they going to go to somewhere else?

I mean, how are you going to book them?

And can you book them?

I don't see what in the new SEC guidelines could change our position, I would say, as the opposite -- the new SEC guidelines are not, I would say, softer; they are just more pragmatic.

And the contract we have with Gazprom is a very classical copy of what could be production-sharing contract.

So we definitely can book our reserves on Shtokman, when the FID will be taken, which remains the way we are doing it, i.e.

no FID, no booking.

And today, the FID is not taken otherwise.

No reasons not to take our share of the gas, which is the share of gas which belongs indirectly to Total, just like through any production-sharing contract.

So even though you don't have ownership of the reserves, it doesn't affect (multiple speakers)?

But on production sharing, you don't have the ownership of reserves.

Thank you.

And my answer is not to say we shouldn't book the rest of our reserves, so just to take care of this.

But you know, it is an old subject.

What is important in booking reserves is just to be sure that you [have an impact] what you are doing and your reserves are depending on the price of what it is, gas or oil.

That is exactly the case in Shtokman, and we have Gazprom in front of us, the same way we could have the state of Qatar.

(Inaudible), Evolution.

I just want to come back to the issue of CapEx and service costs.

Because if I look at your presentation correctly -- and I apologize if I missed this -- you've got CapEx guidance for one year, 2010.

And I look at your slate of diverse (inaudible) portfolio of major projects, and an awful lot of the very big projects are basically parked in feed or pre-study.

You talk about service costs going up.

One of your major competitors back in the autumn was talking about wanting to book capacity in the service sector ahead of what they thought would be a lot of FID's later this year.

So where do you see your CapEx going in '11, '12, '13?

Would you really -- coming back to David's question, are you going to push harder on the FID to make sure you have that capacity?

Because otherwise, a lot of your big projects might be walking into a lot of inflation.

Good point.

And again, I wish we could say that our vision on our old projects will be the (inaudible) the cost of whatever it is, I mean, the cost of developing projects like the one we have in our portfolio.

We had a debate in this room last time on what do we think about the capabilities of companies to reduce their costs through pushing the service companies in reducing their cost.

And I was challenged by people telling me don't you think it is the right time to -- just don't take the risk of waiting, and if you think it's doable, do it.

And I deeply see this where we are, i.e.

when you look at the (inaudible) figures you see already that they have been stopping their decline, taking any individual items and restart growing, talking about inflation.

And effectively, when you see the list of projects, not only Total, but others, it is definitely going to put pressure on those service companies.

And they are not more than what they were two years ago.

So definitely there will be a real risk of additional inflation of projects.

So what can I say on this?

Do you believe that one company like Total can, in stopping its own projects, being doing something which we have an impact on inflation?

Maybe yes, but just for the benefit of others.

So just like for when you discover oil, produce it.

When you have a good project, even if it will be part of risk to increase inflation, do it.

If you think that when it is decided, you go to FID, you have all the contracts signed and you can keep those contracts under control, being sure that it is economical, do it.

And don't wait.

Otherwise, the risk is the others will take the opportunity and will not wait for you.

So except if you think that it is possible to have a big, real good OPEC meeting with Big Oil to decide when the (inaudible) project to do it, the best way to control the cost, which is first undoable and illegal, forget it.

Now, I said this this morning.

It is not the reason not to be better than what we've been doing in the past and letting the costs, I would say, scaring up, reaching the whatever.

And actually, we (inaudible) about the crisis, I see that our partners -- because I've changed my words also, talking about contractors -- they are our partners, and they understand this.

And frankly, I can tell you I have been having discussions with most of the big ones, and we have decided to change "the rules," which means, yes, everybody has to take a share of the cake.

But what happened, it in 2006 or 2008 has been extremely dangerous.

And it was definitely linked with the price of oil skying up to 147.

But otherwise, it would have been dreadful and killing for all of us.

So I think things have changed.

I think that those companies have understood that they have also to be careful about the way they control their costs, by the way they control their subcontractors.

And maybe I am a little bit too optimistic, but I don't think so.

We are not going to revive the same huge inflation we've seen in 2006 for the same reason I don't see either the price of oil going quickly to 147.

Now if we can and when we can develop and start our project, don't wait.

If it is doable, launch it and don't wait for BP, Shell or some now newcomers to take your role and develop their own projects.

But definitely no more reduction in costs in the sense of market price, at least for high-tech projects.

Neill Morton, MF Global.

Neill Morton, MF Global.

I just wanted to clarify.

A couple of the slides in the presentation show longer-term production levels that are suitably big, which I guess is appropriate given the current uncertain environment.

But do those numbers or those bars include, firstly, Iraq?

And second, do they include the Chesapeake joint venture?

And the second question is that in a couple of -- the last couple of presentations, Bolivia has disappeared.

There used to be a project called [Itto], which I believe was starting up middle of this year.

What has happened to that?

Itau?

Yes.

In Bolivia.

Bolivia is -- do you want to talk about Itau?

Why?

It disappeared from you list of projects.

Is it simply too small that it's not material, or --?

It is not a big one, as such.

What is important is our strategy on Bolivia.

Itau is the first discovery we've made in Bolivia.

That was in the -- early 2000.

And we were extremely proud of the discovery.

The problem has been how to work with our neighbors, San Alberto and Petrobras, and, at that time, Repsol.

And then you know what happened with the change of regime, to say the least, and the renegotiations which took place.

Itau now in our portfolio is a way to join our efforts with Braspetro to make a common development, and doing it in a way where we can sell the gas through the Bolivia-Brazil pipeline.

Now what is more important is our strategy in Bolivia, and especially the new discovery we've made and the one we want to develop to sell gas to Argentina.

So the message through Itau is we do believe now, even if it is difficult to say that Bolivia is the most attractive country for its contractual terms, but the one we have negotiated and especially their wish now to get the benefit of their gas and to sell it to Argentina is becoming a pressure on us.

Which means good news, because we can now negotiate terms to make it profitable.

In fact, what is important is to develop Ipati, and not only Itau, which is another discovery we have made with an Argentinian company.

And the idea is to sell gas to Argentina in the years 2015 plus.

So Itau is just the first sign of, yes, we can invest in Bolivia with acceptable terms.

But this one is a still a small project compared to what we can do with huge --.

Bolivia is [still] the country with huge reserve of gas and you have next door Argentina, so it is a big change with what I was telling you 10 years ago, which was it is all for Brazil.

With the new discoveries in Brazil, it's definitely becoming Argentina the new market.

There are already some sales, like I think it's 5 million cubic meters of gas, which is very little.

But I mean the capacity in Argentina is immense.

But (inaudible) the price of gas.

And your production assumptions, did they include Iraq and Chesapeake?

No.

Again, I said that first, Iraq, it is a question of (inaudible) on when and how.

I don't know what has been said about this.

We do appreciate the opening of Iraq.

But we definitely don't consider that the target of having all those projects be developed at the same time, all starting middle of 2010, all being at the plateau in 2016 is doable.

I hope that if there is only one, it is Halfaya, (inaudible) between Total and Petrobras.

But at the same time, we didn't take neither Chesapeake nor this in our targets.

Chesapeake today is 31,000 barrels per day, and the plateau, with the view we have, and I'm sure that we can do better in the future, is reaching something which is close to 60,000 barrels in a few years time, for our share.

There are more questions when it's Patrick answering.

It's really (inaudible) because you were late.

(Inaudible) Christophe, I've got another question.

Nigeria, I noticed that two of your projects for FID this year are in Nigeria.

A number of the partners or other companies that do operate in Nigeria have been saying quite bearish things about the ability to get projects off the design board and get them under way, with the uncertainties over the petroleum law, security, etc.

etc.

How comfortable are you that those two projects will actually get away this year?

To be honest, I am more comfortable with one than with the other.

Which one is that?

Yes.

The deeper water one?

Egina.

We have Egina and Ofon II.

First, Egina is deeper to the deep offshore, so I would say particularly it is safer in terms of security.

But the other reason, it is typical production-sharing contract, or PSA; it is a mix of PSE and PSA, and it is not part of the contracts which are to be reconsidered into the new law.

Even if there are still questions about what could be the new terms of PSEs, but for the time being it is probably [seen], there is no more discussions on terms.

There are much more discussions on who is going to be leading the country, which is probably the first priority.

So Egina, I would consider this, in terms of security and in terms of contractual terms, the [classical] one.

We always are faced to potential reopening of terms in production-sharing contracts.

Ofon II, it is a little bit different, because it is part of our -- what I call the traditional core business of Total (inaudible) in Nigeria.

We have been negotiating what was needed to cover the shares of state.

Now there can still be outstanding problems we don't know, but for the time being, it is all approved.

And as you will remember, the question was much more the cost of the project, and are we typical to get -- (inaudible) from contractors, so we get back to one previous questions -- price for the project, which are acceptable to be decided as the project will [need] to launch.

But those two projects are not, in my opinion, in our opinion, part of the concern that we also have with our partner ENI and Shell in another joint venture.

So we don't consider Nigeria as a place to stop your activities.

It is certainly a concern for what we call the traditional joint ventures.

But at the same time, that is where it is and we have to continue to produce our share of oil, and we need the gas for the liquefaction plant.

So I think, again, that what you hear sometimes about Shell is probably a little bit outspoken, not by Shell, by the system.

Because we are partners and they cannot sell without our approval.

And as far as I know, and I know they respect their agreements and their contracts with their partners, there are no [such] peak sales in front of us.

But that is what I am reading in the press, but I am not aware, except the small sales which took place and which definitely were, I would say, nice to be done.

Dave Thomas, again, at Citigroup.

Just a quick question.

Can you say what your position is with respect to Venezuela heavy oil?

I don't think you're participating in the moment, although there is no news around that in Carabobo.

It took me a long time to remember the name Carabobo.

I don't know how much time it will take to forget it.

You probably heard that the result took place just today.

I received a message through mail (inaudible).

And, Patrick, instead of talking to your neighbor, that was the reason why I was late.

I was just taking the time to answer to those important questions.

I am saying this because Carabobo, you probably know that we decided not to make a real offer with our partner, PetroChina, on the Block 3.

We decided that the terms were not, I would say, aligned with our concept of what is doable.

So we decided to say that we were interested, and we will still be interested, but we have to revisit terms and the data we have to make something which is more, I would say, in accordance with the bid.

I've heard that two groups have been doing bids and successfully, so we should all know the results.

On the first one, it is Repsol, and if I am [honest], I think Repsol, Petronas and three Indian companies.

The second one is Chevron, and Impex and I don't know who.

Good for them if this thing gets doable.

On the first one, the bonus is [$1 billion] plus $1.5 billion carrying.

On the second one, it is $500 million and $1 billion carry.

And we don't consider today that those terms are aligned with our criteria for developing our skills in a good and professional manner.

Again, this is not giving (inaudible).

We just see what people are doing, but definitely we are not in agreement with this.

You have emphasized that if you have a good project, you should go ahead and do it regardless of what is happening in the spot market.

But if we have a depressed gas market for about three years, are there any projects that you would consider delaying for a couple of months?

And second, can you talk a little bit about your solar project in Abu Dhabi?

I love you, because you always are having two questions which are totally opposite.

On the first one, if it's three years, you have the answer; we cannot develop a field in three years' time.

So if I have to decide now, you tell me the bubble is for three years, which is maybe good news, maybe not, definitely it takes, like in Shtokman, five or six years.

So we will be beyond this period.

So I would say for not one single project three years is a concern.

Concern will be if the bubble lasts more than three years.

And that becomes a real subject.

Now, three years?

No.

More than three?

Four?

Still no problem.

Five?

Five, we get close to the problem of -- but I mean, frankly, five years, with the assumptions we have, with the return of the economy to growth -- and I say again I leave the States apart for one simple reason.

It is a very important one -- subject, but I mean, no capacity for (inaudible) gas.

So it is a market by itself.

On the rest of the world, I still deeply believe -- we do deeply believe that there is more than a chance that this bubble will just disappear smoothly and slowly.

But as far as we are cautious persons, for the development of (inaudible), I put pressure on my own teams through (inaudible).

I like to talk to him and about him -- each time we come, he was pushing to say, oh, no, we can't --.

I said no, this project is going to be developed much quicker than five, six, years or seven years' time.

It's nothing to do with Shtokman.

And it is true that if we are maybe wrong on the timing of the end of the bubble, there is no reason why we should take additional risk.

That's why we insisted that we see British government to get some, not incentive, but some discount on the existing tax regime.

So that if we are wrong, we have the cover through reduced taxes.

And that is why we take the decision to develop Laggan/Tormore right now without waiting.

But again, except for this, and if we find the same concern, we will also ask for the same changes in tax regime, to make sure that we are not putting the Company at stake.

But again, there is a strong demand for gas in the world, especially because of environment concerns about CO2 emissions.

And more and more not only Exxon is considering that developing gas is a way to be part of this concern about the global warming.

On (inaudible) in Abu Dhabi, it is manana.

But of course, manana is yesterday.

Even if today we have -- maybe I shouldn't say this, but we have initialed the contract.

So it is really now a question of timing.

But I am very optimistic that the contract will be approved soon.

And it is an important project, first, because it is solid, and also because it is in Abu Dhabi, and especially in Masdar.

So we are very keen to see this project, the way it has been structured, to be launched as soon as possible.

But again, we are in a country where sometimes it takes longer than what we should expect to see.

Thank you very much.

We've got it, Colin.

I'm talking about the tax.

More questions?

A last one?

Thank you.

In the last 20, 25 years, there has been only one occasion when the oil price has averaged above $80.

And I know that in one of your slides, you run your kind of base case economics on $80.

Can you just indicate at this point in time, does all of your portfolio make money at $60, which I think is your low case?

I'm not suggesting that this will be the average price.

I am just saying that we haven't seen $80 except in one year, and therefore, it seems a little bit of an aggressive assumption, perhaps.

In our existing portfolio, producing portfolio, I'm just trying to think of what could be not working at $60, but I don't see it.

They all are, because they were developed with prices which were usually below $60.

And those projects usually were launched at $40 or $50 per barrel.

You remember, we have been always very transparent on the assumptions we were using to launch projects.

And what is important today is to make sure that we get the benefit of higher prices to increase the return we have on projects which were launched at $40 and that we don't lose the additional profit coming from additional prices.

And using the $80, it is true that we've been recently reaching again the $80, much more, I would say, market consideration expecting that the price will remain high, but not because of the results of offer and demand.

I am sure that Patrick covered that point.

Now, we are in a different world.

(Inaudible) projects are different.

Requests for efficiency, requests for security, requests for everything are different.

Costs of projects are higher.

And still the need for hydrocarbons is there.

And hydrocarbons plus coal, i.e.

for sales.

We are now extremely, I would say, knowledgeable on what can be done with solar, what can be done with most of those so-called new energies.

Maybe not yet with nuclear, but at least with biomass.

And we don't see with the five, 10 years, 20 years' time, any change is what is the slide you've been seeing, which says 75% of fossil energies still be needing by the year [2013].

So if you believe in the assumptions of what we will be using again, now reducing the demand in OCD, but expanding it still in emerging countries, you will reach this level very quickly.

And except if somebody tells me how, we don't see our solar and all other new sources of energies, given they are not new, cannot replace, but just complement the traditional energies.

So I strongly believe that $80 is something we can use without taking a risk as the way to decide the launching of new projects.

I would even say that I consider $80 as probably a low case.

What is the concern of companies like us and probably others is not the price of oil; [it is] the margin you will be getting on the price of oil.

That is why we feel far better with $80 than with any other consideration, like $120, $140.

Even if I am not sure, but I strongly believe that we will see those prices again.

And we are saying that we've seen it only once.

But just like for other things, you see it once and then you see it again.

That is life.

And there is no reason, especially on this domain, when you talk about scarce resources, about very strong environment rules, there is no reason to think that you will go back to $20 or $30, except in a world which will be a total disaster.

And I repeat it the same way I said it last year.

That is not our strategy, number one.

We still have to be careful on a crisis, is it possible, and then what will be the impact on everything, including the $80.

But then, it will be not only the $80.

It will be the price of gas, it will be demand, it will be growth, and it will be probably to be re-, I would say, developed in a totally different way.

But that is not our scenario, number one.

It is what we call the worst-case scenario.

Not because of the price of oil' because of the crisis linked with the economy dropping, because of how to get rid of those extra debts in countries and all of those things.

And that is important because we are part of the world.

We are part of the system.

And we have to take care of the environment.

Because if something happens in these areas, we will be hurt by it.

Now without this, margin is the only concern we have -- will we keep the same margin at higher prices, because with the margin you are making your profits on cash flow.

But on price, no problem.

Offer and demand will definitely trigger higher prices.

And we prefer to say this in advance, still not knowing exactly what will be our share.

But with $80, no, I feel confident.

And I don't want to have the same problem that we faced and you were one of those.

And I appreciate this, because we have grown from this (inaudible) because you have always good views on the future, but you are not doing it.

And now, we definitely believe it is the right time when we say something and we believe in something, is to develop it the way we are seeing it.

That is why we have made those three -- let's call them acquisitions at the end of the year, with Nigeria, with Iraq, with Chesapeake.

And probably with the rumors which exist, and they are sometimes not totally wrong, maybe something more.

That is frankly because if we believe in higher prices -- and I don't want you, among others, to tell me -- you say the price will be higher and you didn't (inaudible).

This time -- I'm sorry, Robert -- I promised not to use this word -- to move and just to move, because we think it is the right time.

Just again, if no more questions, I am very sorry to being late, and give an opportunity for Patrick to prove he's (inaudible) a good CFO.

I will see this with the stock value tomorrow morning.

So we have to consider which party is responsible for the result.

But seriously, I frankly feel much more safe the way I am presenting you the Total view this month than last time I was in this same room.

And I think going through all of the elements of the Company, being from upstream to downstream and including chemicals, the way we see the integration of our Company being more and more upstream, but still, if we can achieve a profitable downstream, adapted to the new environment, the same way we are doing it for chemicals and our research for new energies, even if I know we don't yet offer totally to your questions, I really see a very strong potential for our company.

Not only for 2010, which would be, as usual, always short-term.

It's a more complex time, where you have to say is it going to be $80 or $70 or $90 and even more for gas?

But for the medium long term, I think that the decisions we have been taking recently are the one which will help us in a world which is in a total move and change, at least to put the Company in the position to not only grow, but to adapt itself in a more easy way than some others.

thinking about new technologies, thinking of how to be more acceptable, thinking on finding ways to reduce CO2 emissions by ourselves or through sequestration of those CO2 emissions, i.e., prepare the Company for the future.

But now, if you ask me, do I know what will be the position of energy in 2020 and 2030, I can only answer one thing.

Without energy, there is no growth.

If there is no growth, it is true that we have a question mark.

But Total will not be the first hurt.

But energy is a source of life, and being present in all the segments in a profitable way today, being adapted and being ready to adapt yourself and with a strong financial position the way we are keeping it, it leaves us in the best way to prepare ourselves for the future.

And that is a strong message, which I feel far easy to deliver this year with new production than it was last year with still this debate on when and how.

Now it is when more.

And are we now?

Thank you very much.