Annual Reports

  • 20-F (Mar 17, 2017)
  • 20-F (Mar 16, 2016)
  • 20-F (Mar 27, 2015)
  • 20-F (Mar 26, 2015)
  • 20-F (Mar 27, 2014)
  • 20-F (Mar 28, 2013)

 
Other

Total S.A. 20-F 2008
ANNUAL REPORT ON FORM 20-F
Table of Contents

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

Form 20-F

 

 

(Mark One)

 

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2007

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                 

OR

¨ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

Commission file number: 1-10888

 

 

TOTAL S.A.

(Exact Name of Registrant as Specified in Its Charter)

Republic of France

(Jurisdiction of Incorporation or Organization)

2, place de la Coupole

La Défense 6

92400 Courbevoie

France

(Address of Principal Executive Offices)

Robert Castaigne

Chief Financial Officer

TOTAL S.A.

2, place de la Coupole

La Défense 6

92400 Courbevoie

France

Tel: +33 (0)147 444546

Fax: +33 (0)147 444944

(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)

 

 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

 

 

Title of each class

 

Name of each exchange on which registered

Shares

American Depositary Shares

 

New York Stock Exchange*

New York Stock Exchange

 

* Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

2,395,532,097 Shares, par value 2.50 each, as of December 31, 2007

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x     No  ¨

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  x

   Accelerated filer  ¨    Non-accelerated filer  ¨

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP  ¨

 

International Financial Reporting Standards as issued by the International

Accounting Standards Board  x

  Other  ¨

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.    Item 17  ¨    Item 18  ¨

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

 

 


Table of Contents

TABLE OF CONTENTS

 

          Page

CERTAIN TERMS

   iii

ABBREVIATIONS

   iv

CONVERSION TABLE

   iv

Item 1.

   Identity of Directors, Senior Management and Advisers    1

Item 2.

   Offer Statistics and Expected Timetable    1

Item 3.

   Key Information    1
   Selected Financial Data    1
   Exchange Rate Information    3
   Risk Factors    4

Item 4.

   Information on the Company    7
   History and Development    7
   Business Overview    8
   Other Matters    41

Item 4A.

   Unresolved Staff Comments    49

Item 5.

   Operating and Financial Review and Prospects    49

Item 6.

   Directors, Senior Management and Employees    63
   Directors and Senior Management    63
   Compensation    69
   Corporate Governance    72
   Employees, Share Ownership, Stock Options and Restricted Share Grants    78

Item 7.

   Major Shareholders and Related Party Transactions    93

Item 8.

   Financial Information    93

Item 9.

   The Offer and Listing    97

Item 10.

   Additional Information    99

Item 11.

   Quantitative and Qualitative Disclosures About Market Risk    113

Item 12.

   Description of Securities Other than Equity Securities    114

Item 13.

   Defaults, Dividend Arrearages and Delinquencies    114

Item 14.

   Material Modifications to the Rights of Security Holders and Use of Proceeds    114

Item 15.

   Controls and Procedures    114

Item 16A.

   Audit Committee Financial Expert    115

Item 16B.

   Code of Ethics    115

Item 16C.

   Principal Accountant Fees and Services    115

Item 16D.

   Exemptions from the Listing Standards for Audit Committees    115

Item 16E.

   Purchases of Equity Securities by the Issuer and Affiliated Purchasers    116

Item 17.

   Financial Statements    117

Item 18.

   Financial Statements    117

Item 19.

   Exhibits    118

 

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Basis of Presentation

In general, financial information included in this Annual Report is presented according to International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and IFRS as adopted by the European Union (EU) as of December 31, 2007.

Statements Regarding Competitive Position

Statements made in “Item 4. Information on the Company” referring to TOTAL’s competitive position are based on the Company’s estimates, and in some cases rely on a range of sources, including investment analysts’ reports, independent market studies and TOTAL’s internal assessments of market share based on publicly available information about the financial results and performance of market participants.

Additional Information

This Annual Report on Form 20-F reports information primarily regarding TOTAL’s business and operations and financial information relating to the fiscal year ended December 31, 2007. For more recent updates regarding TOTAL, you may read and copy any reports, statements or other information TOTAL files with the Securities and Exchange Commission. All of TOTAL’s Securities and Exchange Commission filings made after December 31, 2001 are available to the public at the Securities and Exchange Commission web site at http://www.sec.gov and from certain commercial document retrieval services. See also “Item 10. Additional Information — Documents on Display”.

 

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CERTAIN TERMS

Unless the context indicates otherwise, the following terms have the meanings shown below:

 

“acreage”

The total area, expressed in acres, over which TOTAL has interests in exploration or production.

 

“ADRs”

American Depositary Receipts evidencing ADSs.

 

“ADSs”

American Depositary Shares representing the shares of TOTAL S.A.

 

“barrels”

Barrels of crude oil, including condensate and natural gas liquids.

 

“Company”

TOTAL S.A.

 

“condensate”

Light hydrocarbon substances produced with natural gas which condense into liquid at normal temperatures and pressures associated with surface production equipment.

 

“crude oil”

Crude oil, including condensate and natural gas liquids.

 

“Group”

TOTAL S.A. and its subsidiaries and affiliates. The terms TOTAL and Group are used interchangeably.

 

“hydrocracker”

A refinery unit which uses a catalyst and extraordinarily high pressure, in the presence of surplus hydrogen, to shorten molecules.

 

“LNG”

Liquefied natural gas.

 

“LPG”

Liquefied petroleum gas.

 

“proved reserves”

Proved oil and gas reserves are the estimated quantities of crude oil, natural gas and natural gas liquids that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, i.e., prices and costs as of the date the estimate is made. Prices include consideration of changes in existing prices provided only by contractual arrangements, but not of escalations based upon future conditions. The full definition of “proved reserves” which we are required to follow in presenting such information in our financial results and elsewhere in reports we file with the Securities and Exchange Commission is found in Rule 4-10 of Regulation S-X under the U.S. Securities Act of 1933, as amended.

 

“proved developed reserves”

Proved developed oil and gas reserves are reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Additional oil and gas expected to be obtained through the application of fluid injection or other improved recovery techniques for supplementing natural forces and mechanisms of primary recovery are included as “proved developed reserves” only after testing by a pilot project or after the operation of an installed program has confirmed through production response that increased recovery will be achieved. The full definition of “proved developed reserves” which we are required to follow in presenting such information in our financial results and elsewhere in reports we file with the Securities and Exchange Commission is found in Rule 4-10 of Regulation S-X under the U.S. Securities Act of 1933, as amended.

 

“proved undeveloped reserves”

Proved undeveloped oil and gas reserves are reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion,

 

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but does not include reserves attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual tests in the area and in the same reservoir. Reserves on undrilled acreage are limited to those drilling units offsetting productive units that are reasonably certain of production when drilled. Proved reserves for other undrilled units can be claimed only where it can be demonstrated with certainty that there is continuity of production from the existing productive formation. The full definition of “proved undeveloped reserves” which we are required to follow in presenting such information in our financial results and elsewhere in reports we file with the Securities and Exchange Commission is found in Rule 4-10 of Regulation S-X under the U.S. Securities Act of 1933, as amended.

 

“steam cracker”

A petrochemical plant that turns naphtha and light hydrocarbons into ethylene, propylene, and other chemical raw materials.

 

“TOTAL”

TOTAL S.A. and its subsidiaries and affiliates. We use such term interchangeably with the term Group. When we refer to the parent holding company alone, we use the term TOTAL S.A. or the Company.

 

“trains”

Facilities for converting, liquefying, storing and off-loading natural gas.

 

“TRCV”

An aggregate margin for topping, reforming, cracking, visbreaking in Western Europe developed and used internally by TOTAL’s management as an indicator of refining margins.

 

“turnarounds

Temporary shutdowns of facilities for maintenance, overhaul and upgrading.

ABBREVIATIONS

 

b

   barrel    k    thousand

cf

   cubic feet    M    million

boe

   barrel of oil equivalent    B    billion

t

   metric ton    W    watt

m3

   cubic meter    GWh    gigawatt-hour

/y

   per year    TWh    terawatt-hour
      Wp    watt peak

CONVERSION TABLE

 

1 acre

   = 0.405 hectares   

1 b

   = 42 U.S. gallons   

1 boe

   = 1 b of crude oil   

= 5,508 cf of gas in 2007(a)

      = 5,494 cf of gas in 2006
      = 5,483 cf of gas in 2005

1 b/d of crude oil

   = approximately 50 t/y of crude oil   

1 Bm3/y

   = approximately 0.1 Bcf/d   

1 m3

   = 35.3147 cf   

1 kilometer

   = approximately 0.62 miles   

1 ton

   = 1 t    = 1,000 kilograms (approximately 2,205 pounds)

1 ton of oil

   = 1 t of oil   

= approximately 7.5b of oil (assuming a specific gravity of 37° API)

1 t of LNG

   = approximately 8.9 boe    = approximately 48 Mcf of gas

1 Mt/y LNG

      = approximately 133 Mcf/d

 

(a) Natural gas is converted to barrels of oil equivalent using a ratio of cubic feet of natural gas per one barrel. This ratio is based on the actual average equivalent energy content of the TOTAL’s natural gas reserves during the applicable periods, and is subject to change. The tabular conversion rate is applicable to TOTAL’s natural gas reserves on a group-wide basis.

 

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Cautionary Statement Concerning Forward-Looking Statements

TOTAL has made certain forward-looking statements in this document and in the documents referred to in, or incorporated by reference into, this Annual Report. Such statements are subject to risks and uncertainties. These statements are based on the beliefs and assumptions of the management of TOTAL and on the information currently available to such management. Forward-looking statements include information concerning forecasts, projections, anticipated synergies, and other information concerning possible or assumed future results of TOTAL, and may be preceded by, followed by, or otherwise include the words “believes”, “expects”, “anticipates”, “intends”, “plans”, “targets”, “estimates” or similar expressions.

Forward-looking statements are not assurances of results or values. They involve risks, uncertainties and assumptions. TOTAL’s future results and share value may differ materially from those expressed in these forward-looking statements. Many of the factors that will determine these results and values are beyond TOTAL’s ability to control or predict. Except for its ongoing obligations to disclose material information as required by applicable securities laws, TOTAL does not have any intention or obligation to update forward-looking statements after the distribution of this document, even if new information, future events or other circumstances have made them incorrect or misleading.

You should understand that various factors, certain of which are discussed elsewhere in this document and in the documents referred to in, or incorporated by reference into, this document, could affect the future results of TOTAL and could cause results to differ materially from those expressed in such forward-looking statements, including:

 

   

material adverse changes in general economic conditions or in the markets served by TOTAL, including changes in the prices of oil, natural gas, refined products, petrochemical products and other chemicals,

   

changes in currency exchange rates and currency devaluations,

   

the success and the economic efficiency of oil and natural gas exploration, development and production programs, including without limitation, those that are not controlled and/or operated by TOTAL,

   

uncertainties about estimates of changes in proven and potential reserves and the capabilities of production facilities,

   

uncertainties about the ability to control unit costs in exploration, production, refining and marketing (including refining margins) and chemicals,

   

changes in the current capital expenditure plans of TOTAL,

   

the ability of TOTAL to realize anticipated cost savings, synergies and operating efficiencies,

   

the financial resources of competitors,

   

changes in laws and regulations, including tax and environmental laws and industrial safety regulations,

   

the quality of future opportunities that may be presented to or pursued by TOTAL,

   

the ability to generate cash flows or obtain financing to fund growth and the cost of such financing,

   

the ability to obtain governmental or regulatory approvals,

   

the ability to respond to challenges in international markets, including political or economic conditions, including international armed conflict, and trade and regulatory matters,

   

the ability to complete and integrate appropriate acquisitions, strategic alliances and joint ventures,

   

changes in the political environment that adversely affect exploration, production licenses and contractual rights or impose minimum drilling obligations, price controls, nationalization or expropriation, and regulation of refining and marketing, chemicals and power generating activities,

   

the possibility that other unpredictable events such as labor disputes or industrial accidents will adversely affect the business of TOTAL, and

   

the risk that TOTAL will inadequately hedge the price of crude oil or finished products.

For additional factors, you should read the information set forth under “Item 3. Risk Factors”, “Item 4. Information on the Company — Other Matters”, “Item 5. Operating and Financial Review and Prospects” and “Item 11. Quantitative and Qualitative Disclosures about Market Risk”.

 

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ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable

ITEM 3. KEY INFORMATION

SELECTED FINANCIAL DATA

 

 

 

The following table presents selected consolidated financial data for TOTAL on the basis of International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and IFRS as adopted by the European Union for the years ended December 31, 2007, 2006, 2005 and 2004. The historical consolidated financial statements of TOTAL for these periods, from which the financial data presented below for such periods are derived, have been audited by Ernst & Young Audit and KPMG S.A., independent registered public accounting firms and the Company’s auditors. All such data should be read in conjunction with the Consolidated Financial Statements and the

Notes thereto included elsewhere herein. IFRS accounts have not been published for the year ended December 31, 2003.

The presentation of financial information is made on the following basis: Pursuant to IFRS 1, “First-time adoption of International Financial Reporting Standards”, the Group has chosen to apply the exemption not to restate business combinations that occurred before January 1, 2004. Consequently, the 1999 Total/PetroFina and the 2000 TotalFina/Elf Aquitaine combinations have been treated as pooling-of-interests under IFRS.


 

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SELECTED CONSOLIDATED FINANCIAL DATA

 

(M, except per share data)    2007     2006    2005    2004    2003(f)

INCOME STATEMENT DATA

             

Revenues from sales

   136,824     132,689    117,057    95,325   

Net income, Group share

     13,181       11,768      12,273      10,868   

Earnings per share(a)

     5.84       5.13      5.23      4.50   

Fully diluted earnings per share(a)

     5.80       5.09      5.20      4.48   

CASH FLOW STATEMENT DATA(b)(c)

             

Cash flow from operating activities

   17,686     16,061    14,669    14,662   

Total expenditures

     11,722       11,852      11,195      8,904   

BALANCE SHEET DATA(c)

             

Total assets

   113,541     105,223    106,144    86,767   

Non-current financial debt

     14,876       14,174      13,793      11,289   

Minority interests

     842       827      838      810   

Shareholders’ equity — Group share

     44,858       40,321      40,645      31,608   

DIVIDENDS

             

Dividend per share (euros)(a)

   2.07 (d)   1.87    1.62    1.35    1.18

Dividend per share (dollars)(a)

   $ 3.02 (d)(e)   $ 2.46    $ 1.99    $ 1.74    $ 1.41

 

(a) Historical figures regarding per share information for 2005, 2004 and 2003 have been recalculated to reflect the four-for-one stock split on May 18, 2006.
(b) See Consolidated Statement of Cash Flows included in the Consolidated Financial Statements included elsewhere herein.
(c) Comparative balance sheets and cash flow information include Arkema which was spun off on May 12, 2006.
(d) Subject to approval by the shareholders’ meeting on May 16, 2008.
(e) Including an interim dividend of $1.46 paid in November 2007 and the proposed final dividend of 1.07, converted at a rate of $1.45/.
(f) TOTAL did not publish financial data in accordance with IFRS in 2003 because, at the time, our financial statements were required to be presented in conformity with French Generally Accepted Accounting Principles. For this reason, we have not provided selected financial data for 2003.

 

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EXCHANGE RATE INFORMATION

 

 

 

For information regarding the effects of currency fluctuations on TOTAL’s results, see “Item 5. Operating and Financial Review and Prospects”.

Most currency amounts in this Annual Report on Form 20-F are expressed in euros (“euros” or “”) or in U.S. dollars (“dollars” or “$”). For the convenience of the reader, this Annual Report on Form 20-F presents certain translations into dollars of certain euro amounts. Unless otherwise stated, the translation of euros to dollars has been made at the noon buying rate in New York City for cable transfers in euros as certified for customs purposes by The Federal Reserve Bank of New York (the “Noon Buying Rate”) for December 31, 2007, of $1.46 per 1.00 (or 0.68 per $1.00).

The following tables set out the average dollar/euro exchange rate for the years indicated, based on the Noon Buying Rate expressed in dollars per 1.00. Such rates are not used by TOTAL in preparation of its Consolidated Financial Statements included elsewhere herein. No representation is made that the euro could have been converted into dollars at the rates shown or at any other rates for such periods or at such dates.

DOLLAR/EURO EXCHANGE RATES

 

Year    Average Rate(a)

2003

   1.13

2004

   1.25

2005

   1.24

2006

   1.26

2007

   1.37

 

(a) The average of the Noon Buying Rate expressed in dollars/euro on the last business day of each full month during the relevant year.

 

The table below shows the high and low dollar/euro exchange rates for the previous six months based on the Noon Buying Rate expressed in dollars per euro.

DOLLAR/EURO EXCHANGE RATES

 

Period    High    Low

October 2007

   1.45    1.41

November 2007

   1.49    1.44

December 2007

   1.48    1.43

January 2008

   1.49    1.46

February 2008

   1.52    1.45

March 2008

   1.58    1.52

The Noon Buying Rate on March 31, 2008 for the dollar against the euro was $1.58/.


 

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RISK FACTORS

 

 

 

The Group and its businesses are subject to various risks relating to changing competitive, economic, political, legal, social, industry, business and financial conditions. These conditions along with TOTAL’s approaches to managing certain of these risks are described below and discussed in greater detail elsewhere in this Annual Report, particularly under the headings “Item 4. Information on the Company — Business Overview — Other Matters”, “Item 5. Operating and Financial Review and Prospects” and “Item 11. Quantitative and Qualitative Disclosures about Market Risk”.

A substantial or extended decline in oil or natural gas prices would have a material adverse effect on our results of operations.

Prices for oil and natural gas historically have fluctuated widely due to many factors over which we have no control. These factors include:

 

 

global and regional economic and political developments in resource-producing regions, particularly in the Middle East, Africa and South America,

 

global and regional supply and demand,

 

the ability of the Organization of Petroleum Exporting Countries (OPEC) and other producing nations to influence global production levels and prices,

 

prices of alternative fuels which affect our realized prices under our long-term gas sales contracts,

 

governmental regulations and actions,

 

global economic conditions,

 

war or other international conflicts,

 

cost and availability of new technology,

 

changes in demographics, including population growth rates and consumer preferences, and

 

adverse weather conditions (such as hurricanes) that can disrupt supplies or interrupt operations of our facilities.

Substantial or extended declines in oil and natural gas prices would adversely affect our results of operations by reducing our profits. For the year 2008, we estimate that a decrease of $1.00 per barrel in the price of Brent crude would have the effect of reducing our annual adjusted net operating income from the Upstream segment by approximately 0.12 B (calculated with a base case exchange rate of $1.50 per 1.00). Lower oil and natural gas prices over prolonged periods may also reduce the economic viability of projects planned or in development, causing us to cancel or postpone capital

expansion projects, and may reduce liquidity, thereby potentially decreasing our ability to finance capital expenditures. If we are unable to follow through with capital expansion projects, our opportunities for future revenue and profitability growth would be reduced, which could materially impact our financial condition.

We face foreign exchange risks that could adversely affect our results of operations.

Our business faces foreign exchange risks because a large percentage of our revenues and cash receipts are denominated in dollars, the international currency of petroleum sales, while a significant portion of our operating expenses and income taxes accrue in euros and other currencies. Movements between the dollar and euro or other currencies may adversely affect our business by negatively impacting our booked revenues and income.

Our long-term profitability depends on cost effective discovery and development of new reserves; if we are unsuccessful, our results of operations and financial condition would be materially and adversely affected.

A significant portion of our revenues and the majority of our operating income are derived from the sale of crude oil and natural gas which we extract from underground reserves discovered and developed as part of our Upstream business. In order for this business to continue to be profitable, we need to replace depleted reserves with new proved reserves. Furthermore, we need to accomplish such replacement in a manner that allows subsequent production to be economically viable. However, our ability to discover or acquire and develop new reserves successfully is uncertain and can be negatively affected by a number of factors, including:

 

 

unexpected drilling conditions, including pressure or irregularities in geological formations,

 

equipment failures or accidents,

 

our inability to develop new technologies that permit access to previously inaccessible fields,

 

adverse weather conditions,

 

compliance with unanticipated governmental requirements,

 

shortages or delays in the availability or delivery of appropriate equipment,

 

industrial action, and

 

problems with legal title.


 

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Any of these factors could lead to cost overruns and impair our ability to make discoveries or complete a development project, or to make production economical. If we fail to discover and develop new reserves cost-effectively on an ongoing basis, our results of operations, including profits, and our financial condition would be materially and adversely affected.

Our crude oil and natural gas reserve data are only estimates, and subsequent downward adjustments are possible. If actual production from such reserves is lower than current estimates indicate, our results of operations and financial condition would be negatively impacted.

Our proved reserves figures are estimates reflecting applicable reporting regulations. Proved reserves are estimated using geological and engineering data to determine with reasonable certainty whether the crude oil or natural gas in known reservoirs is recoverable under existing economic and operating conditions. This process involves making subjective judgments. Consequently, estimates of reserves are not exact measurements and are subject to revision. They may be negatively impacted by a variety of factors which could cause such estimates to be adjusted downward in the future, or cause our actual production to be lower than our currently reported proved reserves indicate. The main factors which may cause our proved reserves estimates to be adjusted downward, or actual production to be lower than the amounts implied by our currently reported proved reserves, include:

 

 

a decline in the price of oil or gas, making reserves no longer economically viable to exploit and therefore not classifiable as proved,

 

an increase in the price of oil or gas, which may reduce the reserves that we are entitled to under production sharing and buyback contracts,

 

changes in tax rules and other government regulations that make reserves no longer economically viable to exploit,

 

the quality and quantity of our geological, technical and economic data, which may prove to be inaccurate,

 

the actual production performance of our reservoirs, and

 

engineering judgments.

Many of the factors, assumptions and variables involved in estimating reserves are beyond our control and may prove to be incorrect over time. Results of drilling, testing and production after the date of the estimates may require substantial downward revisions in our reserve data. Any downward adjustment would indicate lower future production amounts and may adversely affect our results of operations, including profits as well as our financial condition.

 

We have significant production and reserves located in politically, economically and socially unstable areas, where the likelihood of material disruption of our operations is relatively high.

A significant portion of our oil and gas production occurs in unstable regions around the world, most significantly Africa, but also the Middle East, Asia/Far East and South America. Approximately 34%, 16%, 11% and 10%, respectively, of our 2007 production came from these four regions. In recent years, a number of the countries in these regions have experienced varying degrees of one or more of the following: economic instability, political volatility, civil war, violent conflict and social unrest. In Africa, certain of the countries in which we have production have recently suffered from some of these conditions. In particular, shutdowns of production in the Niger Delta due to security concerns led to a 2% decrease in our oil and gas production in 2006. The Middle East in general has recently suffered increased political volatility in connection with violent conflict and social unrest. A number of countries in South America where we have production and other facilities, including Argentina, Bolivia and Venezuela, have suffered from political or economic instability and social unrest and related problems. In the Far East, Indonesia has suffered the majority of these conditions. Any of these conditions alone or in combination could disrupt our operations in any of these regions, causing substantial declines in production. Furthermore, in addition to current production, we are also exploring for and developing new reserves in other regions of the world that are historically characterized by political, social and economic instability, such as the Caspian Sea region where we have a number of large projects currently underway. The occurrence and magnitude of incidents related to economic, social and political instability are unpredictable. It is possible that they could have a material adverse impact on our production and operations in the future.

We are subject to stringent environmental, health and safety laws in numerous jurisdictions around the world and may incur material costs to comply with these laws and regulations.

We incur, and expect to continue to incur, substantial capital and operating expenditures to comply with increasingly complex laws and regulations covering the protection of the natural environment and the promotion of worker health and safety, including:

 

 

costs to prevent, control, eliminate or reduce certain types of air and water emissions, including those costs incurred in connection with government action to address concerns of climate change,


 

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remedial measures related to environmental contamination or accidents at various sites, including those owned by third parties,

 

compensation of persons claiming damages caused by our activities or accidents, and

 

costs in connection with the decommissioning of drilling platforms and other facilities.

If our established financial reserves prove not to be adequate, environmental costs could have a material effect on our results of operations and our financial position. Furthermore, in the countries where we operate or expect to operate in the near future, new laws and regulations, the imposition of tougher license requirements, increasingly strict enforcement or new interpretations of existing laws and regulations or the discovery of previously unknown contamination may also cause us to incur material costs resulting from actions taken to comply with such laws and regulations, including:

 

 

modifying operations,

 

installing pollution control equipment,

 

implementing additional safety measures, and

 

performing site clean-ups.

As a further result of any new laws and regulations or other factors, we may also have to curtail or cease certain operations, which could diminish our productivity and materially and adversely impact our results of operations, including profits.

Our operations throughout the developing world are subject to intervention by various governments, which could have an adverse effect on our results of operations.

We have significant exploration and production, and in some cases refining, marketing or chemicals operations, in developing countries whose governmental and regulatory framework is subject to unexpected change and where the enforcement of contractual rights is uncertain. In addition, our exploration and production activity in such countries is often done in conjunction with state-owned entities, for example as part of a joint venture, where the state has a significant degree of control. In recent years, in various regions globally, we have seen governments and state-owned enterprises exercising greater authority and imposing more stringent conditions on companies pursuing exploration and production activities in their respective countries, increasing the costs and uncertainties of our business operations, which is a trend we expect to continue. Potential increasing intervention by governments in such countries can take a wide variety of forms, including:

 

 

the award or denial of exploration and production interests,

 

the imposition of specific drilling obligations,

 

price and/or production quota controls,

 

nationalization or expropriation of our assets,

 

unilateral cancellation or modification of our license or contract rights,

 

increases in taxes and royalties, including retroactive claims,

 

the establishment of production and export limits,

 

the renegotiation of contracts,

 

payment delays, and

 

currency exchange restrictions or currency devaluation.

Imposition of any of these factors by a host government in a developing country where we have substantial operations, including exploration, could cause us to incur material costs or cause our production to decrease, potentially having a material adverse effect on our results of operations, including profits.

We have activities in certain countries which are subject to U.S. sanctions and our activities in Iran could lead to sanctions under relevant U.S. legislation.

We currently have investments in Iran and, to a lesser extent, Syria, Myanmar, Sudan and Cuba. U.S. legislation and regulations currently impose economic sanctions on these countries.

Under the Iran Sanctions Act of 1996 (as amended, “ISA”), which implements sanctions against Iran with the objective of denying it the ability to support acts of international terrorism and fund the development of weapons of mass destruction, investments of $20 million or more in any 12-month period in the petroleum sector in Iran are prohibited, and may lead to a request for the imposition of sanctions (from a list that includes denial of financing by the U.S. Export-Import Bank and limitations on the amount of loans or credits available from U.S. financial institutions). In May 1998, the U.S. government waived the application of sanctions for TOTAL’s investment in the South Pars gas field in Iran. This waiver, which has not been modified since it was granted, does not address TOTAL’s other activities in Iran, although TOTAL has not been notified of any related sanctions. However, European Union Council Regulation No. 2271/96 prohibits TOTAL from complying with any requirement or prohibition based on or resulting directly or indirectly from certain legislation, including ISA. This regulation also prohibits TOTAL from applying to extend its waiver for South Pars to other activities.

In each of the years since the passage of ISA, TOTAL has made investments in Iran (excluding South Pars) in excess of $20 million. In 2007, TOTAL’s average daily production in Iran amounted to 15 kboe/d, approximately 0.5% of its average daily worldwide


 

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production. TOTAL may invest amounts significantly in excess of $20 million per year in Iran. TOTAL cannot predict interpretations of or the implementation policy of the U.S. government under ISA with respect to its current or future activities in Iran. It is possible that the United States may determine that these or other activities constitute activity prohibited by ISA and will subject TOTAL to sanctions. TOTAL does not believe that enforcement of ISA, including the imposition of the maximum sanctions under current applicable law and regulations, would have a material adverse effect on its results of operations or financial condition.

Furthermore, the United States currently imposes economic sanctions, which are administered by the U.S. Treasury Department’s Office of Foreign Assets Control and which apply to U.S. persons, on Iran, Syria, Myanmar, Sudan and Cuba. TOTAL does not believe that these sanctions are applicable to any of its activities in these countries. In 2007, TOTAL’s average daily production in Syria amounted to 15 kboe/d and that in Myanmar to 17 kboe/d, in each case less than 1% of its average daily worldwide production. TOTAL does not

have active operations in Sudan, but does have a production sharing contract for a block in South Sudan, where it will consider proceeding with exploration and production activities when suitable legal and security conditions have been established. TOTAL has limited marketing activities in Cuba.

In addition, in recent years certain U.S. states, including California, Iowa and Illinois, have passed legislation requiring state pension funds to divest themselves of investments in any company with active business operations in Sudan. On December 31, 2007, the U.S. Congress adopted the Sudan Accountability and

Divestment Act, which supports these state legislative initiatives. If such laws were to apply to TOTAL’s presence in Sudan and were implemented resulting in certain state pension funds holding large interests in TOTAL selling such interests, such sales, if significant, could have an adverse effect on TOTAL’s share price. For more information on TOTAL’s presence in Sudan, see “ Item 4. Information on the Company — Other Matters — Regulations concerning Sudan.”


 

ITEM 4. INFORMATION ON THE COMPANY

History and development

 

 

 

TOTAL S.A., a French société anonyme (limited company) incorporated in France on March 28, 1924, together with its subsidiaries and affiliates, is the fourth largest publicly-traded integrated international oil and gas company in the world(1).

With operations in more than 130 countries, TOTAL engages in all aspects of the petroleum industry, including Upstream operations (oil and gas exploration, development and production, LNG) and Downstream operations (refining, marketing and the trading and shipping of crude oil and petroleum products).

TOTAL also produces base chemicals (petrochemicals and fertilizers) and specialty chemicals for the industrial and consumer markets. In addition, TOTAL has interests in the coal mining and power generation sectors, as well as a financial interest in Sanofi-Aventis.

TOTAL began its Upstream operations in the Middle East in 1924. Since that time, the Company has grown

and expanded its operations worldwide. Early in 1999 the Company acquired control of PetroFina S.A. and in early 2000, the Company acquired control of Elf Aquitaine S.A. (hereafter referred to as “Elf Aquitaine” or “Elf”). The Company currently owns 99.5% of Elf Aquitaine shares and, since early 2002, 100% of PetroFina shares.

The Company, which operated under the name TotalFina from June 1999 to March 2000, and then under the name TotalFinaElf, has been operating under the name TOTAL since the shareholders’ meeting of May 6, 2003.

The Company’s principal office is 2, place de la Coupole, La Défense 6, 92400 Courbevoie, France. Its telephone number is +33 (0)1 47 44 45 46.

TOTAL S.A. is registered in France with the Nanterre Trade Register under the registration number 542 051 180.


 

 

(1) Based on market capitalization (in dollars) as of December 31, 2007.

 

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Business Overview

 

 

 

TOTAL’s worldwide operations are conducted through three business segments: Upstream, Downstream, and Chemicals. The table below gives information on the

geographic breakdown of TOTAL’s activities and is taken from Note 5 to the Consolidated Financial Statements included in this Annual Report.


 

(M)    France    Rest of
Europe
   North
America
   Africa    Far East and
rest of the
world
   Total

2007

                 

Non-Group sales(a)

   37,949    73,757    12,404    10,401    24,241    158,752

Property, plant and equipment, intangible assets, net

   6,437    14,554    4,444    11,872    8,810    46,117

Capital expenditures

   1,627    2,538    740    3,745    3,072    11,722

2006

                 

Non-Group sales(a)

   36,890    70,992    13,031    10,086    22,803    153,802

Property, plant and equipment, intangible assets, net

   5,860    14,066    4,318    10,595    10,442    45,281

Capital expenditures

   1,919    2,355    881    3,326    3,371    11,852

2005

                 

Non-Group sales(a)

   34,362    53,727    17,663    8,304    23,551    137,607

Property, plant and equipment, intangible assets, net

   6,300    14,148    4,748    9,546    10,210    44,952

Capital expenditures

   1,967    2,178    1,691    2,858    2,501    11,195

 

(a) Non-Group sales from continuing operations.

Upstream

 

 

 

TOTAL’s Upstream segment includes Exploration & Production and Gas & Power activities. The Group has exploration and production activities in more than 40 countries and produces oil or gas in 30 countries. The Group’s Gas & Power division conducts activities

downstream from production related to natural gas, liquefied natural gas (LNG) and liquefied petroleum gas (LPG), as well as power generation and trading, and other activities.


 

Exploration & Production

 

 

 

Exploration and development

TOTAL’s Upstream segment aims at continuing to combine long-term growth and profitability at the levels of the best in the industry.

TOTAL evaluates exploration opportunities based on a variety of geological, technical, political and economic factors (including taxes and licence terms), and on projected oil and gas prices. Discoveries and extensions of existing discoveries accounted for approximately 60% of the 2,445 Mboe added to the Upstream segment’s proved reserves during the three-year period ended December 31, 2007 (before deducting production and sales of reserves in place and adding any acquisitions of reserves in place during this period). The remaining 40% comes from revisions.

 

TOTAL continued to follow an active exploration program in 2007, with exploration investments of consolidated subsidiaries amounting to 1,233 M (including unproved property acquisition costs). The main exploration investments were made in Nigeria, Angola, the UK, Norway, Libya, Congo, Australia, Venezuela, China, Indonesia, Canada, Brunei, Algeria, the United States, Mauritania, Yemen, Kazakhstan, Brasil, Azerbaijan and Thailand. In 2006, TOTAL’s exploration investments amounted to 1,214 M (including unproved property acquisition costs, excluding the acquisition of an interest in the Ichthys LNG project in Australia), mostly in Nigeria, the UK, Angola, the United States, Libya, Venezuela, Norway, Algeria, Congo, Kazakhstan, Canada, Indonesia, Australia, Argentina, Cameroon, Mauritania, Gabon, China, Azerbaijan and Thailand. In 2005, TOTAL’s exploration investments amounted to 644 M,


 

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essentially in Nigeria, Angola, the UK, Norway, Congo, the United States, Libya, Algeria, Argentina, Kazakhstan, Colombia, Indonesia and the Netherlands.

The Group’s consolidated Exploration & Production subsidiaries’ development expenditures amounted to 7 B in 2007, primarily in Angola, Norway, Nigeria, Kazakhstan, Congo, the UK, Indonesia, Gabon, Canada, Qatar, Venezuela and the United States. In 2006, development expenditures amounted to 6 B (including shares in the Ichthys LNG project in Australia), predominantly in Norway, Angola, Nigeria, Kazakhstan, Indonesia, Congo, Yemen, Qatar, the UK, Canada, Australia, the United States, Venezuela, Azerbaijan and Gabon. Development expenditures for 2005 amounted to approximately 5 B and were carried out principally in Norway, Angola, Nigeria, Kazakhstan, Indonesia, the UK, Qatar, Congo, Azerbaijan, Gabon, Canada and Yemen.

Reserves

The definitions used for proved, proved developed and proved undeveloped oil and gas reserves are in accordance with the applicable U.S. Securities & Exchange Commission (SEC) regulation, Rule 4-10 of Regulation S-X. Proved reserves are estimated using geological and engineering data to determine with reasonable certainty whether the crude oil or natural gas in known reservoirs is recoverable under existing economic and operating conditions.

This process involves making subjective judgments. Consequently, estimates of reserves are not exact measurements and are subject to revision.

The estimation of proved reserves is controlled by the Group through established validation guidelines. Reserves evaluations are established annually by senior level geoscience and engineering professionals (assisted by a central reserves group with significant technical experience) including reviews with and validation by senior management.

The reserves estimation process demands:

 

 

internal peer reviews of technical evaluations to ensure that the SEC definitions and guidance are followed, and

 

 

a requirement that management makes significant funding commitments towards the development of the reserves prior to booking.

TOTAL’s oil and gas reserves are assessed annually, considering, in particular, levels of production, field reassessment, additional reserves from discoveries and acquisitions, disposal of reserves and other economic

factors. Unless otherwise indicated, any reference to TOTAL’s proved reserves, proved developed reserves, proved undeveloped reserves and production reflect the Group’s entire share of such reserves or such production. TOTAL’s worldwide proved reserves include the proved reserves of its consolidated subsidiaries as well as its proportionate share of the proved reserves of equity affiliates and of two companies accounted for by the cost method. For further information concerning changes in TOTAL’s proved reserves as of December 31, 2007, 2006 and 2005, see “Supplemental Oil and Gas Information (Unaudited)”.

Rule 4-10 of Regulation S-X requires that the appraisal of reserves be based on the economic environment and operating conditions existing at year end. Reserves at year-end 2007 have been determined based on the Brent price on December 31, 2007 ($93.72/b).

As of December 31, 2007, TOTAL’s combined proved reserves of crude oil and natural gas were 10,449 Mboe (52% of which were proved developed reserves). Liquids represented approximately 55% of these reserves and natural gas the remaining 45%. These reserves are located primarily in Europe (Norway, the UK, the Netherlands, Italy and France), Africa (Nigeria, Angola, Congo, Gabon, Libya, Algeria and Cameroon), Asia/Far East (Indonesia, Myanmar, Thailand and Brunei), North America (Canada and the United States), the Middle East (Qatar, United Arab Emirates, Yemen, Oman, Iran and Syria), South America (Venezuela, Argentina, Bolivia, Trinidad & Tobago and Colombia), and the Commonwealth of Independent States (CIS) (Kazakhstan, Azerbaijan and Russia).

As of December 31, 2006, TOTAL’s combined proved reserves of crude oil and natural gas were 11,120 Mboe (50% of which were proved developed reserves). Liquids represented approximately 58% of these reserves and natural gas the remaining 42%. These reserves were located for the most part in Europe (Norway, the UK, the Netherlands, Italy and France), Africa (Nigeria, Angola, Congo, Gabon, Libya, Algeria and Cameroon), Asia/Far East (Indonesia, Myanmar, Thailand and Brunei), North America (Canada and the United States), the Middle East (Qatar, United Arab Emirates, Yemen, Oman, Iran and Syria), South America (Venezuela, Argentina, Bolivia, Trinidad & Tobago and Colombia), and the Commonwealth of Independent States (CIS) (Kazakhstan, Azerbaijan and Russia).

As of December 31, 2005, TOTAL’s combined proved reserves of crude oil and natural gas were 11,106 Mboe (50% of which were proved developed reserves). Liquids represented approximately 59% of these reserves and natural gas the remaining 41%. These reserves were located primarily in Europe (Norway, the UK, the Netherlands, Italy and France), Africa (Nigeria, Angola,


 

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Congo, Gabon, Libya, Algeria and Cameroon), Asia/Far East (Indonesia, Myanmar, Thailand and Brunei), North America (Canada and the United States), the Middle East (United Arab Emirates, Qatar, Yemen, Oman, Iran and Syria), South America (Venezuela, Argentina, Bolivia, Trinidad & Tobago and Colombia), and the CIS (Kazakhstan, Azerbaijan and Russia).

Proved reserves represent the estimated quantities of TOTAL’s entitlement under concession contracts, production sharing contracts or buyback agreements. These estimated quantities may vary depending on oil and gas prices.

Sensitivity to oil and gas prices

An increase in the year-end price results in a non-proportionate decrease of proved reserves associated

with production sharing and buyback agreements (which represent approximately 30% of TOTAL’s reserves as of December 31, 2007). In accordance with such contracts, TOTAL is entitled to a portion of the production, the sale of which should cover expenses incurred by the Group. The higher the prices, the lower the number of barrels necessary to cover the same amount of expenses. Moreover, the number of barrels retrievable under these contracts may vary according to criteria such as combined-production, the investment-return rate or the return on combined-expenses ratio. This decrease is partly offset by an extension of the duration over which fields can be produced economically. However, the increase in reserves due to extensions is smaller than the decrease in reserves under production sharing or buyback agreements. For such reason, a higher year-end price generally imparts a decrease in TOTAL’s reserves.


 

The table below sets forth the amount of TOTAL’s worldwide proved reserves (including both developed and undeveloped) as of the dates indicated.

 

TOTAL’s proved reserves(a)(b)   Liquids (Mb)   Natural Gas (Bcf)   Total (Mboe)

December 31, 2005

  6,592   24,750   11,106

Change from December 31, 2004

  (5.9%)   8.6%   (0.4%)

December 31, 2006

  6,471   25,539   11,120

Change from December 31, 2005

  (1.8%)   3.2%   0.1%

December 31, 2007

  5,778   25,730   10,449

Change from December 31, 2006

  (10.7%)   0.7%   (6.0%)

 

(a) Includes TOTAL’s proportionate share of the proved reserves of equity affiliates and of two companies accounted for by the cost method. See “Supplemental Oil and Gas Information (Unaudited)”.
(b) Proved reserves as of December 31, 2007 are calculated based on a Brent crude price of $93.72./b, proved reserves as of December 31, 2006 are calculated based on a Brent crude price of $58.93/b and proved reserves as of December 31, 2005 are calculated based on a Brent crude price of $58.21/b, pursuant to Rule 4-10 of Regulation S-X.

 

Production

For the full year 2007, oil and gas average daily production was 2,391 kboe/d compared to 2,356 kboe/d in 2006, a 1.5% increase due to the following elements:

 

 

+5% net production growth mainly due to start-ups of new TOTAL–operated projects such as Dalia, Rosa and Dolphin;

 

-2% due to the price effect, shutdowns due to security concerns in the Niger Delta and OPEC quota reductions;

 

-1% due to changes in the portfolio; and

 

-0.5% as a consequence of the May 2007 accident on the N’kossa field in Congo.

In 2005, average production amounted to 2,489 kboe/d. Liquids accounted for approximately 63% and natural gas

accounted for approximately 37% of TOTAL’s combined liquids and natural gas production in 2007 on an oil equivalent basis.

The table on the next page sets forth by geographic area TOTAL’s average daily production of crude oil and natural gas for each of the last three years.

Consistent with industry practice, TOTAL often holds a percentage interest in its acreage rather than a 100% interest, with the balance being held by joint venture partners (which may include other international oil companies, state-owned oil companies or government entities). TOTAL frequently acts as operator (the party responsible for technical production) on acreage in which it holds an interest. See “Presentation of Production Activities by Geographic Area” for a description of TOTAL’s principal producing fields in the upstream sector.


 

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As in 2006 and 2005, substantially all of the crude oil production from TOTAL’s Exploration & Production activities in 2007 was marketed by the Trading & Shipping activities of its Downstream segment. See “Downstream — Trading & Shipping”.

The majority of TOTAL’s natural gas production is sold under long-term contracts. However, its North American production is sold on a spot basis as is part of its production from the UK, Norway and Argentina. The long-term contracts under which TOTAL sells its natural gas and LNG production usually

provide for a price related to, among other factors, average crude oil and other petroleum product prices as well as, in some cases, a cost of living index. Though the price of natural gas and LNG tends to fluctuate in line with crude oil prices, a slight delay may occur before changes in crude oil prices are reflected in long-term natural gas prices. Due to the interaction between the contract price of natural gas and crude oil prices, contract prices are not usually affected by short-term market fluctuations in the spot price of natural gas. See “Supplemental Oil and Gas Information (Unaudited)”.


 

11


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Production by geographic area

 

     2007   2006   2005
Consolidated subsidiaries   Liquids
(kb/d)
  Natural
Gas
(Mcf/d)
  Total
(kboe/d)
       Liquids
(kb/d)
  Natural
Gas
(Mcf/d)
  Total
(kboe/d)
       Liquids
(kb/d)
  Natural
Gas
(Mcf/d)
  Total
(kboe/d)

Africa

  658   636   783     603   479   694     672   418   751

Algeria

  32   136   58     35   129   59     38   141   64

Angola

  198   29   203     108   24   112     144   23   148

Cameroon

  13   2   14     13   2   13     12   2   12

Congo

  74   17   77     93   22   97     91   20   95

Gabon

  78   29   83     82   27   87     94   26   98

Libya

  87   —     87     84   —     84     84   —     84

Nigeria

  176   423   261     188   275   242     209   206   250

North America

  14   34   20     7   47   16     9   174   41

Canada

  2   —     2     1   —     1     < 1   —     < 1

United States

  12   34   18     6   47   15     9   174   41

South America

  118   618   230     119   598   226     143   586   247

Argentina

  14   365   80     11   375   78     11   351   74

Bolivia

  3   131   28     3   97   21     3   97   21

Colombia

  10   46   19     13   43   22     19   38   26

Trinidad & Tobago

  9   2   9     9   2   9     12   2   13

Venezuela

  82   74   94     83   81   96     98   98   113

Asia/Far East

  28   1,287   252     29   1,282   253     29   1,254   248

Brunei

  2   60   14     3   65   15     3   54   13

Indonesia

  20   882   180     20   891   182     20   890   182

Myanmar

  —     136   17     —     121   15     —     109   13

Thailand

  6   209   41     6   205   41     6   201   40

CIS

  10   46   19     7   2   8     8   2   9

Azerbaijan

  3   44   11     < 1   < 1   < 1     —     —     —  

Russia

  7   2   8     7   2   8     8   2   9

Europe

  335   1,846   674     365   1,970   728     390   2,063   770

France

  6   115   27     6   124   30     7   117   29

The Netherlands

  1   252   45     1   247   44     1   283   51

Norway

  211   685   338     237   726   372     247   734   383

United Kingdom

  117   794   264     121   873   282     135   929   307

Middle East

  83   91   99     88   11   90     98   28   103

U.A.E.

  11   10   13     14   6   15     14   7   16

Iran

  15   —     15     20   —     20     23   —     23

Qatar

  33   79   47     29   3   29     31   3   31

Syria

  15   2   15     16   2   17     22   18   25

Yemen

  9   —     9     9   —     9     8   —     8

Total consolidated production

  1,246   4,558   2,077     1,218   4,389   2,015     1,349   4,525   2,169

Equity and non-consolidated affiliates

                     

Africa(a)

  23   4   23     25   4   25     24   4   25

Middle East(b)

  240   277   291     263   281   316     248   251   295

Total equity and
non-consolidated affiliates

  263   281   314     288   285   341     272   255   320

Worldwide production

  1,509   4,839   2,391       1,506   4,674   2,356       1,621   4,780   2,489

 

(a) Primarily attributable to TOTAL’s share of CEPSA’s production in Algeria.
(b) Primarily attributable to TOTAL’s share of production from concessions in the U.A.E.

 

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Presentation of production activities by geographic area

The table below sets forth, by geographic area, TOTAL’s principal producing fields, the year in which TOTAL’s activities commenced, the principal type of production, the Group’s interest in each field and whether TOTAL is operator of the field.

 

Main producing fields as of December 31, 2007(a)
      Year of
entry into
the country
  

Main Group-operated

producing fields

(Group share %)

  

Main non-Group-operated

producing fields

(Group share %)

   Liquids (L)
or Gas (G)
Africa                    

Algeria

   1952       Hamra (100.00%)    L
         Ourhoud (19.41%)(b)    L
         RKF (48.83%)(b)    L
               Tin Fouye Tabankort (35.00%)    L, G

Angola

   1953    Girassol, Jasmim,      
      Dalia, Rosa (Block 17) (40.00%)       L
      Blocks 3-85, 3-91 (50.00%)       L
         Cabinda (Block 0) (10.00%)    L
               Kuito, BBLT (Block 14) (20.00%)    L

Cameroon

   1951    Bavo-Asoma (25.50%)       L
      Boa Bakassi (25.50%)       L
      Ekundu Marine (25.50%)       L
      Kita Edem (25.50%)       L
      Kole Marine (25.50%)       L
      Bakingili (25.50%)       L
         Mokoko - Abana (10.00%)    L
               Mondoni (25.00%)    L

Congo

   1928    Nkossa (53.50%)       L
      Sendji (55.25%)       L
      Nsoko (53.50%)       L
      Tchendo (65.00%)       L
      Tchibeli-Litanzi-Loussima (65.00%)       L
      Tchibouela (65.00%)       L
      Yanga (55.25%)       L
         Loango (50.00%)    L
               Zatchi (35.00%)    L

Gabon

   1928    Atora (40.00%)       L
      Baudroie Nord (50.00%)       L
      Gonelle (100.00%)       L
      Avocette (57.50%)       L
      Anguille (100.00%)       L
      Torpille (100.00%)       L
               Rabi Kounga (47.50%)    L

Libya

   1959    Al Jurf (37.50%)       L
      Mabruk (75.00%)       L
         El Sharara (7.50%)    L
               NC 186 (9.60%)    L

Nigeria

   1962    OML 58 (40.00%)       L, G
      OML 99 Amenam-Kpono (30.40%)       L, G
      OML 100 (40.00%)       L
      OML 102 (40.00%)    OML102 - Ekanga (40.00%)    L
         Shell Petroleum Development   
         Company fields (SPDC 10.00%)    L, G
               Bonga (12.50%)    L, G

 

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      Year of
entry into
the country
  

Main Group-operated
producing fields

(Group share %)

  

Main non-Group-operated
producing fields

(Group share %)

   Liquids (L)
or Gas (G)
North America         

Canada

   1999    Joslyn (74.00%)(c)       L
               Surmont (50.00%)    L

United States

   1957    Matterhorn (100.00%)       L, G
          Virgo (64.00%)         G
South America               

Argentina

   1978    Aguada Pichana (27.27%)       L, G
      Cañadon Alfa Complex (37.50%)       L, G
      Aries (37.50%)       L, G
      Carina (37.50%)       L, G
      Hidra (37.50%)       L
          San Roque (24.71%)         L, G

Bolivia

   1995       San Alberto (15.00%)    L, G
               San Antonio (15.00%)    L, G

Colombia

   1973       Cupiagua (19.00%)    L, G
               Cusiana (19.00%)    L, G

Trinidad & Tobago

   1996         Angostura (30.00%)    L

Venezuela

   1980       Zuata (Sincor) (47.00%)(d)    L
               Yucal Placer (69.50%)    G
Asia/Far East               

Brunei

   1986    Maharaja Lela      
          Jamalulalam (37.50%)         L, G

Indonesia

   1968    Bekapai (50.00%)       L, G
      Handil (50.00%)       L, G
      Peciko (50.00%)       L, G
      Tambora-Tunu (50.00%)       L, G
      Sisi-Nubi (47.90%)       L, G
         Badak (1.05%)    L, G
         Nilam (9.29%)    G
               Nilam (10.58%)    L

Myanmar

   1992    Yadana (31.24%)         G

Thailand

   1990         Bongkot (33.33%)    L, G
CIS                    

Azerbaijan

   1996         Shah Deniz (10.00%)    L, G

Russia

   1989    Kharyaga (50.00%)         L
Europe                    

France

   1939    Lacq (100.00%)         L, G
Norway    1965    Skirne (40.00%)       G
         Aasgard (7.68%)    L, G
         Ekofisk (39.90%)    L, G
         Eldfisk (39.90%)    L, G
         Embla (39.90%)    L, G
         Gimle (4.85%)    L
         Glitne (21.80%)    L
         Heimdal (26.33%)    G
         Hod (25.00%)    L
         Huldra (24.33%)    L, G
         Kristin (6.00%)    L, G

 

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Table of Contents
      Year of
entry into
the country
  

Main Group-operated

producing fields

(Group share %)

  

Main non-Group-operated
producing fields

(Group share %)

   Liquids (L)
or Gas (G)
         Kvitebjørn (5.00%)    L, G
         Mikkel (7.65%)    L, G
         Oseberg (10.00%)    L, G
         Sleipner East (10.00%)    L, G
         Sleipner West/Alpha North (9.41%)    L, G
         Snøhvit (18.40%)    G
         Snorre (6.18%)    L
         Statfjord East (2.80%)    L
         Sygna (2.52%)    L
         Tor (48.20%)    L, G
         Tordis (5.60%)    L
         Troll (3.69%)    L, G
         Tune (10.00%)    L
         Vale (24.24%)    L, G
         Valhall (15.72%)    L
         Vigdis (5.60%)    L
               Visund (7.70%)    L, G
The Netherlands    1964    F15a (32.47%)       G
      J3c Unit (29.05%)       G
      K1a Unit (42.37%)       G
      K4a (50.00%)       G
      K4b/K5a (26.06%)       G
      K5b (25.00%)       G
      K6/L7 (56.16%)       G
      L4a (55.66%)       G
               Markham unitized fields (14.75%)    G
United Kingdom    1962    Alwyn North, Dunbar, Ellon, Grant,       L, G
      Nuggets (100.00%)       G
      Elgin-Franklin (EFOG 46.17%)(e)       L, G
      Forvie Nord (100.00%)       L, G
      Glenelg (49.47%)       L, G
      Otter (54.30%)       L
      West Franklin (EFOG 46.17%)(e)       L, G
         Alba (12.65%)    L
         Armada (12.53%)    G
         Bruce (43.25%)    L, G
         Caledonia (12.65%)    L
         Markham unitized fields (7.35%)    G
         ETAP (Mungo, Monan) (12.43%)    L, G
         Keith (25.00%)    L, G
         Nelson (11.53%)    L
         SW Seymour (25.00%)    L
Middle East         

U.A.E.

   1939    Abu Dhabi - Abu Al Bu Khoosh       L
      (75.00%)      
         Abu Dhabi offshore (13.33%)(f)    L
               Abu Dhabi onshore (9.50%)(g)    L
Iran    1954    Dorood (55.00%)(h)       L
               South Pars 2 & 3 (40.00%)(i)    L, G

 

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Table of Contents
      Year of
entry into
the country
  

Main Group-operated

producing fields

(Group share %)

  

Main non-Group-operated
producing fields

(Group share %)

   Liquids (L)
or Gas (G)
Middle East         

Oman

   1937       Various fields onshore (Block 6) (4.00%)(j)    L
               Mukhaizna field (Block 53) (2.00%)(k)    L

Qatar

   1936    Al Khalij (100.00%)       L
         Dolphin (24.50%)    G
               North Field - NFB (20.00%)    L, G

Syria

   1988    Jafra/Qahar (100.00%)(l)         L

Yemen

   1987    Kharir/Atuf (bloc 10) (28.57%)       L
               Al Nasr (Block 5) (15.00%)    L

 

(a) The Group’s interest in the local entity is approximately 100% in all cases except Total Gabon (57.96%), Total E&P Cameroon (75.80%), and certain entities in the UK, Algeria, Abu Dhabi and Oman (see notes b through l below).
(b) In Algeria, TOTAL has an indirect 19.38% interest in the Ourhoud field and a 48.83% indirect interest in the RKF field via its participation in CEPSA (equity affiliate).
(c) After sale of 10% to Inpex.
(d) Process of the transformation into a mixed company PetroCedeño (30.32%) started in 2007 and achieved in February 2008.
(e) TOTAL has a 35.8% indirect interest in Elgin Franklin via its participation in EFOG.
(f) Via ADMA (equity affiliate), TOTAL has a 13.33% interest and participates in the operating company, Abu Dhabi Marine Operating Company.
(g) Via ADPC (equity affiliate), TOTAL has a 9.50% interest and participates in the operating company, Abu Dhabi Company for Onshore Oil Operation.
(h) TOTAL is the operator of the development of Dorood field with a 55.00% interest in the foreign consortium.
(i) TOTAL has transferred operatorship to the National Iranian Oil Company (NIOC) for phases 2 & 3 of the South Pars field. The Group has a 40.00% interest in the foreign consortium.
(j) TOTAL has a direct participation of 4.00% in Petroleum Development Oman LLC, operator of Block 6, in which TOTAL has an indirect participation of 4.00% via Pohol (equity affiliate). TOTAL also has a 5.54% interest in the Oman LNG facility (trains 1 and 2), and an indirect participation of 2.04% via OLNG in QalhatLNG (train 3).
(k) TOTAL has a direct participation of 2.00% in Block 53.
(l) Operated by DEZPC which is 50.00% owned by TOTAL and 50.00% owned by SPC.

 

Africa

TOTAL has been present in Africa since 1928. The African continent is one of the Group’s fastest growing production zones. Its exploration and production operations are primarily located in countries bordering the Gulf of Guinea, particularly Angola and Nigeria, as well as in North Africa.

The Group’s production in Africa amounted to 806 kboe/d in 2007 against 720 kboe/d in 2006 and 776 kboe/d in 2005 (including its share in the production of equity affiliates), amounting to nearly 34% of the Group’s overall production and making TOTAL one of the leading international oil companies in the region, based on production.

Since the end of 2006, TOTAL has started production on the Rosa and Dalia fields and has launched the development of Pazflor in Angola. Moreover, the developments of Ofon II and Usan have started in Nigeria.

In Angola the Group’s production amounted to 205 kboe/d in 2007, up from 117 kboe/d in 2006 and 152 kboe/d in 2005. Production comes essentially from Blocks 17, 0 and 14. In 2005, 2006 and 2007, several discoveries were made, mainly on Blocks 14, 31 and 32.

 

 

Deep-offshore Block 17 (40%, operator) is TOTAL’s principal producing asset. It is composed

 

of four major zones: Girassol, Dalia, Pazflor and CLOV (based on the Cravo, Lirio, Orquidea, and Violeta discoveries).

On the Girassol production zone, production from the Girassol, Jasmim and Rosa fields averaged 264 kb/d (in 100%) in 2007. The Rosa field, which began production in 2007, is expected to allow the extension of Girassol’s FPSO (Floating Production, Storage and Offloading facility) production plateau until the beginning of the next decade.

On the second production zone, the Dalia field, which began production in December 2006, reached its production plateau of 240 kb/d, with average production of 209 kb/d in 2007. This development, launched in 2003, is based on a system of sub-sea wells connected to a new FPSO.

Development of the third production zone, Pazflor, made up of the Perpetua, Zinia, Hortensia, and Acacia fields, was approved late in 2007. The development plan calls for an FPSO with production capacity of 200 kb/d. First production is scheduled for 2011.

The successful appraisal of the Orquidea-2 well confirmed the Group’s interest in developing the Cravo, Lirio, Orquidea and Violeta fields through a fourth FPSO (CLOV). Pre-development studies for the development of this production zone continued in 2007 and engineering work was launched early in 2008.


 

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Table of Contents
 

On Block 14 (20%), the development of the Benguela-Belize-Lobito-Tomboco (BBLT) project continued after the platform came onstream in January 2006. In 2007, production increased significantly with the ramp-up of BBLT. This growth should continue with the expected start-up of Tombua Landana in 2009 where development is ongoing.

 

 

On Block 32 (30%, operator) located in the ultra-deep offshore, after eight discoveries between 2003 and 2006, the successful drilling of the Louro, Cominhos, Colorau and Alho wells in 2007 further confirmed the oil potential of the block. Conceptual development studies continued to determine the feasibility of a first development zone in the eastern portion of the block.

From 2005 to 2007, TOTAL also acquired and disposed of acreage. In 2007, TOTAL purchased interests in Blocks 17/06 (30%, operator) and 15/06 (15%) and sold its 27.5% interest in Block 2/85 and its 55.6% share in Fina Petroleos de Angola.

Regarding the Group’s activities in liquefied natural gas (LNG), the Angola LNG project (13.6%), designed to bring the country’s natural gas reserves to market, was approved by the government of Angola and the Group’s partners in December 2007. The project calls for the construction of a liquefaction plant near Soyo, with production expected to start in 2012.

In Congo, the Group’s share of production was 77 kb/d in 2007, down from 97 kb/d in 2006 and 95 kb/d in 2005. TOTAL is the largest operator of production in the country.

 

 

The Moho Bilondo (53.5%, operator) project is under development, with production expected to begin in the second quarter 2008. The production plateau is expected to reach 90 kb/d. On this permit, discoveries were made in 2007 on the Moho Marine North 1 and 2 wells. An appraisal well is expected to be drilled in 2008.

 

 

Several exploration successes were achieved in 2007. On the MTPS permit (40%, operator), two new discoveries, Cassiopeia East Marine 1 and Perseus North East Marine 1, followed the three discoveries made between 2000 and 2006 and may form the basis of a future development project.

 

 

An accident on a cargo hose on the Nkossa field on May 10, 2007 resulted in the death of two

 

individuals working for a drilling company. After a complete shutdown of the field, production resumed on August 1, 2007 at an average rate of 22 kb/d. As of November 15, 2007, after the installation of a new cargo hose, resumed production had reached 45 kb/d. Production is expected to return to its full capacity of nearly 60 kb/d after the installation of another cargo hose, expected in the third quarter 2008.

Total Gabon(1) is one of the Group’s oldest subsidiaries in sub-Saharan Africa. In Gabon, the Group’s share of production fell from 98 kboe/d in 2005 and 87 kboe/d in 2006 to 83 kboe/d in 2007, due to the natural decline of mature fields.

 

 

In 2007, the Convention d’Etablissement between Total Gabon and the government of Gabon was renewed for a 25-year period. This contractual scheme favors exploration activities and development projects.

 

 

Total Gabon also launched the first phase of redevelopment of the Anguille field in 2007, which has been in production since 1966.

In Libya , the Group’s share of production in 2007 rose to 87 kboe/d, slightly up from the levels recorded in 2006 and 2005.

 

 

New production facilities in the Mabruck field (75%, operator) were commissioned in June 2007. In addition, drilling operations continued to assess the deeper Dahra and Garian zones and prepare for their development.

 

 

On Block C 137 (75%(2), operator), drilling continued on the Al Jurf field to maintain the production plateau at 40 kboe/d.

 

 

On Block NC 186, following the I, J and K discoveries made in 2005 and 2006, development continued, in particular on structure I, whose development was approved in August 2007. Production on structures B and H started late in 2006.

 

 

On Block NC 115 (30%(2)), development work continued on the El Sharara field. Following an agreement in August 2007, structure R, an extension of structure I from Block NC 186, is expected to be developed together with structure I.

 

 

In the Murzuk Basin, the permit covering a portion of Block NC 191 (100%, operator) was extended for two years to assess the discovery made in 2006.


 

 

(1) Total Gabon is a Gabonese company whose shares are listed on Euronext Paris. TOTAL holds 58%, the Republic of Gabon 25% and the public float is 17%.
(2) Participation in the foreign consortium.

 

17


Table of Contents

In Nigeria, the Group’s share of production reached 261 kboe/d in 2007, compared to 242 kboe/d in 2006, and 250 kboe/d in 2005. TOTAL has been present in Nigeria since 1962. It operates seven production permits (OML) out of the 47 in which it holds an interest, and two exploration permits (OPL) out of five.

 

 

TOTAL holds a 15% interest in the NLNG gas liquefaction facility located on Bonny Island. The sixth train started production in December 2007, while studies launched in July 2005 for a seventh train with a capacity of 8.5 Mt/y continued in 2007.

 

 

In 2007, the Group continued to develop its gas supply scheme for the Brass LNG project (17%), which calls for the construction of two 5 Mt/y trains. Engineering studies (FEED) for this plant are currently being completed.

 

 

TOTAL acquired an interest in the OML 136 permit (40%) in 2007 as part of its strategy to supply gas to the LNG plants in which it has interests and, more generally, to develop its presence along the gas chain. The Toju discovery was made on this permit, and the Group is planning both to complete the appraisal of Toju and begin the appraisal of the Akarino discovery in 2008. TOTAL also continued development studies on the Ima gas field located on OML 112/117 (40%) in 2007.

 

 

As part of its joint venture with the Nigerian National Petroleum Corporation (NNPC), in 2007 the Group announced the launch of the Ofon II project on the OML 102 permit. Production from this project, which is expected to contribute an additional 70 kboe/d (in 100%), is expected to begin in 2010.

 

 

TOTAL is actively pursuing development work on its deep-offshore discoveries, notably the development of the Akpo field on OML 130 (24%, operator). The main engineering and construction contracts for the development of Akpo, which were signed in 2005 with the objective of reaching a production plateau of 225 kboe/d (in 100%), are being carried out. Production on the Akpo project is expected to start in the 2008-2009 winter. TOTAL also launched the Usan project (OML 138, 20%, operator) in February 2008.

 

 

In 2007, the successful appraisal of the Egina field (OML 130, 24%), located in the deep offshore may become the basis of a stand-alone development.

 

 

As part of its regional strategy, in 2007 TOTAL closed the acquisition of interests in the OPL 247 permit (36%) and, early in 2008, the OPL 257 permit (40%). These permits are adjacent to the “Triangular Bulge” zone permits (OPLs 221 and 223 and OMLs 138 and 139). A seismic survey was performed and the results are being assessed.

 

Security concerns in the Niger Delta region led the Shell Petroleum Development Company (SPDC, of which TOTAL owns 10%) to progressively stop production at certain facilities, which were targeted in attacks, starting in the first quarter 2006. Beginning in August 2007 and expected to continue in 2008, these facilities are being progressively brought back on line.

The Group is present in Algeria with production of 79 kboe/d in 2007, down from the volumes recorded in previous years (80 kboe/d in 2006 and 85 kboe/d in 2005).

In Cameroon, TOTAL has been present since 1951 and operates production of 60 kb/d, or nearly 70% of the country’s overall production. In 2007, the Group’s share of production was 14 kb/d compared to 13 kb/d in 2006 and 12 kb/d in 2005 due to the start-up of new discoveries which offset the natural decline of mature fields.

The Group is also conducting exploration activities in Mauritania and recently had its rights to an exploration permit in the Southern Sudan region upheld, although no activity is currently underway in this country.

North America

The Group has been present in North America since 1957, with production of 20 kboe/d in 2007, compared to 16 kboe/d in 2006 and 41 kboe/d in 2005. The strong decrease in production in 2005 and 2006 was principally due to shutdowns related to hurricane damage in the Gulf of Mexico and the sale of mature assets in 2006. In this zone, the strategy of the Group is to strengthen its position in deep-offshore permits in the Gulf of Mexico and in Canadian oil sands.

In Canada, the Group is participating in oil sands projects in Athabasca, Alberta, through its share in Surmont (50%) and Joslyn (74%, operator, after selling a 10% interest to INPEX in 2007). These permits are its principal assets. In 2005, TOTAL acquired 83% of Deer Creek Energy Ltd, a company which held 84% of Joslyn. The remaining 17% was acquired through a squeeze-out procedure. Production in Canada in 2007 amounted to 2 kboe/d.

 

 

On the Surmont permit, TOTAL has been participating in a pilot project to extract bitumen using Steam Assisted Gravity Drainage (SAGD) since 1999. Engineering and construction activities were completed in June 2007, allowing the steam injection to gradually start up on the first 20 pairs of wells. The SAGD production for the first pair of wells was completed on October 15, 2007 and commercial production started in November 2007. In addition, in 2005 the Group acquired 50% of the OSL 001 and OSL 006 permits, adjacent to Surmont and now included in the project. Over the 2005-2007 period, the Group acquired several permits adjacent to Surmont.


 

18


Table of Contents
 

The Joslyn permit, located approximately 140 km north of Surmont, is expected to be developed principally (nearly 90%) through mining techniques. The first phase using SAGD began production in November 2006 and the additional phases, the Joslyn North Mine and the Joslyn South Mine, are expected to be approved in 2009 and 2014, respectively.

 

 

In 2006, TOTAL conducted studies leading to the decision to locate a delayed coker technology upgrader with a capacity of approximately 245 kb/d in Edmonton. This upgrader is expected to be built in two phases to correspond to the increase in mining production on the Joslyn permit. The pre-project study phase started in April 2007, the public announcement made on May 7, 2007 and the Energy Resources Conservation Board filing was made on December 14, 2007. The final decision to launch this project will be made after basic engineering studies are completed in 2009.

In the United States, from 2005 to 2007 the Group’s activity mainly consisted of reorganizing its portfolio, selling mature fields and acquiring acreage, notably offshore in the Gulf of Mexico. In 2007, the Group’s production rose to 18 kboe/d, up from 15 kboe/d in 2006 and down from 41 kboe/d in 2005.

 

 

In 2005, TOTAL acquired a 17% share in the deep-offshore Tahiti field located in the Gulf of Mexico (where production is scheduled to begin in 2009) through an agreement to exchange four onshore fields in southern Texas.

 

 

In August 2006, TOTAL increased its share in the offshore Chinook project from 15% to 33.33%. In September 2007, the Group committed to develop the first phase with a production test scheduled for 2010.

 

 

In April 2007, TOTAL was awarded 32 exploration blocks in Alaska and 12 deep-offshore exploration blocks in the Gulf of Mexico.

 

 

In March 2008, TOTAL acquired a 30% interest in several onshore exploration blocks in Alaska, referred to as White Hills. These blocks are located 45 km southwest of Prudhoe Bay.

 

 

Over the 2005-2007 period, the Group sold its interests in several assets, including two mature fields, Bethany and Maben, located, respectively, in eastern Texas and in Mississippi, the Camden Hills and Aconcagua fields, and the Canyon Express pipeline in the Gulf of Mexico.

In Mexico, TOTAL is conducting various studies in cooperation with the state-owned PEMEX under a technical cooperation agreement signed in December 2003.

 

South America

The Group’s production in South America reached 230 kboe/d in 2007 compared to 226 kboe/d in 2006 and 247 kboe/d in 2005, totalling nearly 10% of its overall production for the year. In Venezuela, the conversion of Sincor into a mixed company, PetroCedeño, in which TOTAL now holds a 30.323% interest, was finalized in 2008. In Bolivia, the Group was required to renegotiate the contracts for the fields in which it had interests pursuant to the May 1, 2006 decree regarding the nationalization of hydrocarbons. These new exploration and production contracts with the Bolivian government became effective on May 2, 2007. In another development the Group increased its interest in Block XX West (operator) to 75% in 2006. In Chile, the Group was awarded the Otway Block late in 2007.

TOTAL has been present in Argentina since 1978 and operates approximately 25% of the country’s gas production. Production averaged 80 kboe/d in 2007, compared to 78 kboe/d in 2006 and 74 kboe/d in 2005.

 

 

In the Neuquen Basin, the start-up of compression projects is expected to extend the production plateau of the San Roque (24.7%, operator) and of the Aguada Pichana (27.3%, operator) fields.

On the San Roque field, a medium-pressure compression project launched in 2003 was commissioned in August 2006. The development of the Rincon Chico North discovery and a low-pressure compression project, launched in January 2006, is underway, with production scheduled to begin in the second quarter 2008.

On the Aguada Pichana field, a low-pressure compression project, launched in 2005, was commissioned in August 2007. Development of the first phase of the Aguada Pichana North discovery, launched in September 2006, began production late in 2007. It was followed by a second development phase, launched in 2007, with start-up of production expected late in 2009.

 

 

In Tierra del Fuego, production form the offshore Carina and Aries fields (37.5%, operator) began in June 2005 and January 2006, respectively. A fourth medium-pressure compressor was installed in July 2007 to debottleneck the facilities and increase the Tierra del Fuego gas production capacity from 12 Mm3/d to 15 Mm3/d.

In Bolivia, the Group’s production averaged 28 kboe/d, compared to 21 kboe/d in 2006 and 2005. TOTAL has interests in six permits: two producing permits, San Alberto and San Antonio (15%); and four permits in the exploration or appraisal phase, Blocks XX West (75%, of which 34% were acquired in 2006, operator), Aquio and Ipati (80%, operator) and Rio Hondo (50%).


 

19


Table of Contents

The Group was required to renegotiate the contracts for the fields in which it had interests pursuant to the May 1, 2006 decree regarding the nationalization of hydrocarbons. These new exploration and production contracts with the Bolivian government became effective on May 2, 2007, after approval and notarization by the Bolivian legislature.

TOTAL has been present in Venezuela since 1980 and is one of the main partners of the state-owned PDVSA (Petróleos de Venezuela S.A.) The Group’s share of production averaged 94 kboe/d in 2007, compared to 96 kboe/d in 2006, and 113 kboe/d in 2005.

 

 

On March 31, 2006, the Venezuelan authorities terminated all operating contracts signed in the 1990s and decided to transfer the management of the fields concerned to new mixed companies to be created with the national company PDVSA as the majority owner.

The Venezuelan authorities had modified the initial agreement for the Sincor project several times. In May 2006, the organic law on hydrocarbons was amended with immediate effect to establish a new extraction tax, calculated on the same basis as for royalties and bringing the overall tax rate to 33.33%. In September, 2006, the corporate income tax was modified to increase the rate on oil activities (excluding natural gas) to 50%. This new tax rate came into effect in 2007.

On June 26, 2007, TOTAL signed heads of agreement with PDVSA, with the approval of the Ministry for Energy and Oil, providing for the transformation of the Sincor association into a mixed company and the transfer of operations to the mixed company. Under this agreement, TOTAL’s interest in the project decreased from 47% to 30.323% and PDVSA’s interest increased to 60%. The conversion was finalized in February 2008. PDVSA agreed to compensate TOTAL for the reduction of its interest in Sincor by assuming $326 million of debt and by paying, mostly in oil, $834 million.

 

 

Early in 2008, TOTAL signed two agreements for joint studies with PDVSA for the Junin 10 block, in the Orinoco region.

TOTAL produces hydrocarbons in Colombia and in Trinidad & Tobago. In 2007, the Group’s production reached 19 kboe/d and 9 kboe/d, respectively. TOTAL is also active in exploration in these countries.

The Group is also present in Brazil, and was awarded the Otway (100%) exploration permit in Chile in 2007, located west of Punta Arena and approximately 160 km west of Total Austral’s onshore facilities in Tierra del Fuego (Argentina).

 

Asia/Far East

In 2007, TOTAL’s production in the Asia/Far East zone, essentially from Indonesia, was 252 kboe/d, compared to 253 kboe/d in 2006 and 248 kboe/d in 2005, corresponding to 11% of the Group’s overall production in 2007.

Highlights of the 2005-2007 period included the acquisition of interests in several exploration permits in Vietnam, Australia, Indonesia and Bangladesh and the acquisition of a 24% interest in the Ichthys LNG project in Australia.

TOTAL began Exploration & Production activities in China, with the appraisal and development of the South Sulige block. During this period new discoveries were also made on the Mahakam permit in Indonesia and in Thailand.

In 2007, TOTAL increased its presence in Australia, where it holds interests in 15 permits offshore the northwest coast of Australia, three of which are operated by the Group.

 

 

In the Browse Basin, the appraisal is underway for the Ichthys gas and condensates field, located on the WA-285P permit in which TOTAL has held a 24% interest since August 2006. The base-case development concept under study for this LNG project provides for the production of 8.4 Mt/y LNG, condensates and liquefied petroleum gas (LPG) through sub-sea development. Production is expected to be transported through gas pipelines to the Maret Islands where the treatment and liquefaction plants are to be installed. An alternative solution with the processing and LNG plants built in the Darwin area is also under study. An additional appraisal well is scheduled to be drilled in 2008 and production is expected to begin in the middle of the next decade.

In 2006 and 2007, TOTAL acquired interests in various permits near Ichthys. The Group also acquired an 80% interest, as the operator, in the lower levels of Block AC/P-37.

 

 

In the Carnarvon Basin, in 2005 and 2006 the Group acquired interests in various permits, including WA-370P (30%) next to WA-269P (30%). The Ixion-1 well was drilled on the WA-370P permit in 2007. This well is expected to lead to an increase of the Group’s share in the WA-269P permit, bringing its interest to 40%.

 

 

In the Bonaparte Basin, TOTAL was awarded two permits, WA-402P and WA-403P (100%) in July 2007. A 3D seismic acquisition is planned for 2008.


 

20


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TOTAL has been present in Indonesia since 1968. Indonesia represented 8% of the Group’s production in 2007, amounting to 180 kboe/d, similar to 2006 and 2005.

TOTAL’s operations in Indonesia are primarily concentrated on the Mahakam permit (50%, operator), which covers several fields including Peciko and Tunu, the largest gas fields in the East Kalimantan zone. TOTAL delivers most of its natural gas production to the Bontang LNG plant, operated by the Indonesian company PT Badak. The overall capacity of the eight liquefaction trains of the Bontang plant is 22 Mt/y.

In 2007, the TOTAL-operated production on the Mahakam permit amounted to 2,591 Mcf/d and the gas delivered by TOTAL to Bontang LNG accounted for 80% of the plant’s supply.

 

 

On the Mahakam permit, the development of the Peciko field continued in 2007 with the drilling of additional wells. These wells are part of the fifth development phase, approved in 2006, which also includes the installation of a new platform. New compression capacities (phase 6) are currently being developed and are scheduled to be commissioned in 2009.

On the neighbouring Tunu field, the eleventh development phase for the installation of new onshore compression units, launched in 2005, is continuing.

In 2007, TOTAL made two new gas discoveries in the southern portion of the Mahakam permit (50%, operator), offshore the East Kalimantan zone.

The project to extend the Tambora field, launched in 2004, continued with drilling in 2007 of additional wells from the three new platforms commissioned mid-2006. The Tambora field is expected to reach its production plateau of 170 Mcf/d in 2008.

 

 

In 2007, TOTAL farmed out 22% of its share in the East Sepanjang offshore block, located northeast of the island of Java, to INPEX. The Group now holds a 27% interest in this permit where a seismic acquisition campaign was conducted. Early in 2007, TOTAL was awarded the South East Mahakam exploration block (50%, operator), located in the Mahakam delta.

Late in 2007, TOTAL signed heads of agreement with the Indonesian authorities, granting access to data from TOTAL’s pilot program to capture, inject and store carbon dioxide in the Lacq area in France.

In Thailand, the Group’s production reached 41 kboe/d in 2007, similar to 2006 and 2005.

 

Late in 2007, the Thai authorities agreed to extend the production period of the Bongkot field, in which the Group holds a 33% interest, by ten years (from 2013 to 2023).

Production on this field from the new phase 3E began in February 2007. Production from another new development phase, 3F, is expected to start in

May 2008. After gas was discovered early in 2007 on Blocks 15 and 16, an additional new development phase, 3G, was launched in April 2007. Production from this development phase is expected to start early in 2009.

Appraisal work continued in 2007 with the drilling of five wells in the southern portion of the field and two wells in the northern portion. The development plan for the southern portion is currently being finalized and production is expected to start in 2011 (development phase 4A).

TOTAL also produces hydrocarbons in Brunei and Myanmar. Production amounted to 14 kboe/d and 17 kboe/d in 2007, respectively.

In China, the Group is active on the South Sulige block, located in the Ordos Basin, in the Inner Mongolia province. Appraisal work, started in September 2006, continued in 2007 with seismic acquisition, the drilling of two new wells and tests on existing wells.

In Vietnam, early in October 2007 TOTAL and PetroVietnam signed an agreement granting TOTAL a 35% interest in the production sharing contract for the offshore exploration block 15-1/05.

TOTAL also acquired two exploration blocks in Bangladesh in 2007. The Group is also involved in exploration in Malaysia.

Commonwealth of Independent States (CIS)

In 2007, TOTAL’s production in this zone reached 19 kboe/d, representing 1% of the Group’s overall production, compared to 8 kboe/d in 2006 and 9 kboe/d in 2005. TOTAL and Gazprom signed a cooperation agreement in 2007 for the first phase of development on the Shtokman field. The Shah Deniz project in Azerbaijan began production in December 2006.

In Azerbaijan, where TOTAL has been present since 1996, production averaged 11 kboe/d in 2007. TOTAL’s activities in Azerbaijan are focused on the Shah Deniz field (10%), where production began in December 2006. The South Caucasus Pipeline Company (SCPC), in which TOTAL holds a 10% interest, is the owner of the gas pipeline which transports gas from Shah Deniz to the Turkish and Georgian markets.


 

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Construction of the BTC (Baku-Tbilissi-Ceyhan) pipeline began in August 2002 and was completed in 2006. This pipeline, owned by BTC Co. in which TOTAL holds a 5% interest, links Baku to the Mediterranean Sea. In 2007, it was used to drain off the condensates produced at Shah Deniz.

In July 2007, the initial deliveries of gas produced at the Shah Deniz field were made to Turkey. The first gas sales to Azerbaijan were made late in 2006.

In November 2007, positive results were received from an appraisal well on the Shah Deniz field, which could lead to the launch of a second development phase for this field.

TOTAL has been present in Kazakhstan since 1992 through the interest it holds in the North Caspian Sea permit, which includes the Kashagan field. The size of this field may eventually allow production to reach nearly 1,500 kboe/d (in 100%).

In February 2004, the Kazakh authorities approved the development plan for this field, allowing work to begin on the first of several successive phases of development.

Drilling of development wells, which began in 2004, continued in 2007 and production is expected to begin late in 2011.

On January 14, 2008, members of NCSPSA (North Caspian Sea Production Sharing Agreement) and the Kazakh authorities signed a Memorandum of Understanding to end the dispute among them that began at the end of August 2007. The implementation of this Memorandum of Understanding will decrease TOTAL’s share in this permit from 18.52% to 16.81%.

TOTAL has been present in Russia since 1989. In 2007, production from the Kharyaga field (50%, operator) averaged 8 kboe/d, compared to 8 kboe/d in 2006 and 9 kboe/d in 2005.

 

 

In July 2007, TOTAL and Gazprom signed a cooperation agreement for the first phase of development on the Shtokman gas and condensates field, covering the design, construction financing and operation of future facilities. This first phase of development is expected to lead to the production of 23.7 Bm3/y of natural gas, approximately 50% of which will be used to supply a LNG plant with a capacity of 7.5 Mt/y.

 

 

On the Kharyaga field, the development plan for phase 3 was approved in December 2007. This phase has an expected production plateau of 30 kboe/d (in 100%) and is expected to be completed around 2011.

 

Europe

In 2007, TOTAL’s production in Europe was 674 kboe/d, representing 28% of the Group’s overall production. In Norway, highlights of the 2005-2007 period included the start-up of the Snøhvit and Kristin fields, the increase of the Group’s interest in the PL211 permit (Victoria) and new developments on existing fields. Also during this period, the Norwegian Parliament approved the Tyrihans development plan and the redevelopment project for Valhall.

In the UK, production began from satellites of the Alwyn (Forvie North) and Elgin-Franklin (Glenelg) facilities, as well as on the Maria field. TOTAL made several major discoveries in these two countries, including Jura West in the UK, and was awarded new exploration permits.

The Group has operated fields in France since 1939, notably the Lacq (100%) and Meillon (100%) gas fields, located in southwest France. The Group’s production was 27 kboe/d in 2007, down from 30 kboe/d in 2006 and 29 kboe/d in 2005.

The Group’s most significant production activity in France has been on the Lacq field, which began in 1957. On the Lacq platform, a pilot project to capture, inject and store carbon dioxide is proceeding. In connection with this project, a gas burning plant will be modified to operate in an oxy-combustion environment and the carbon dioxide produced will be re-injected in the depleted Rousse field. Start-up is expected late in 2008. As part of the Group’s sustainable development policy, this project will permit the overall evaluation of one of the possibilities to reduce emissions of carbon dioxide into the atmosphere.

In Italy, the Tempa Rossa field (50%, operator), discovered in 1989 and located on the unitized Gorgoglione concession in the southern Apennins (Basilicate region), is TOTAL’s principal asset.

The agreement signed in September 2006 with the Basilicate region allows development of the field to begin. The development plan related to the extension of the Tarente refinery export system is expected to be submitted to the Italian government in the second half 2008. The partners in the Tempa Rossa field will then make the final investment decision regarding the project. Meanwhile, preliminary engineering and site preparation work is expected to be conducted. Production is scheduled to begin in 2011, with a production plateau of 50 kb/d.

In Norway, where the Group has been present since the late 1960s, TOTAL holds interests in 71 production permits on the Norwegian continental shelf, 13 of


 

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which it operates. Norway is the largest contributor to the Group’s production, with 338 kboe/d in 2007, compared to 372 kboe/d in 2006 and 383 kboe/d in 2005.

 

 

In the Norwegian North Sea, the most significant contribution to production, for the most part non-operated, comes from the Ekofisk Area located in the southern region. On this zone, production reached 139 kboe/d in 2007, benefiting from the start-up of the Ekofisk Area Growth project (EAG) in October 2005.

 

 

In the Haltenbanken area in the Norwegian Sea, the Aasgard (7.7%), Mikkel (7.7%) and Kristin (6%) fields contributed nearly 13% of the Group’s Norwegian production. Kristin, a high-pressure/high-temperature field, began production in November 2005. In addition, production on the Tyrihans oil, gas and condensates field (23.2%) is expected to begin in 2009.

In 2006, the Group increased its interest in the PL211 license from 20% to 40%. This license includes the undeveloped Victoria discovery, for which TOTAL is now the operator. Appraisal work is expected to begin in 2008.

 

 

In the Barents Sea, the Snøhvit project (18.4%) includes both the development of the natural gas field and the construction of the associated liquefaction facilities. Production began in August 2007.

 

 

Between 2005 and 2007, exploration and appraisal work occurred on various permits, notably the Onyx SW discovery (PL 255, 20%) made in 2005, on which a successful appraisal well was drilled in 2007. Tornerose (PL 110 B, 18.4%) and Kvitebjørn-Valemon (PL 193, 5%) were also successfully appraised in 2006.

TOTAL has been present in the United Kingdom since 1962. The Group’s production reached 264 kboe/d in 2007, down from the levels recorded in 2006 and 2005, amounting to 282 kboe/d and 307 kboe/d, respectively. The UK accounts for nearly 11% of the Group’s overall production. 85% of this production comes from operated fields located in two zones: the Alwyn zone in the northern North Sea and the Elgin-Franklin zone in the Central Graben. TOTAL has also been continuing exploration and appraisal activities in the West Shetland zone for several years.

 

 

On the Alwyn zone, the start of production from satellites or new reservoir compartments allowed overall production to remain at a level near to the processing and compressing capacities of the platform (530 Mcf/d of gas). The N50 exploration well drilled in 2006 also revealed new reserves northwest of the Alwyn field which were brought into production in 2007.

 

The most significant discovery in this zone was made on the Jura well (100%), completed late in 2006, which encountered a column of more than 300 m of gas and condensates. A second sub-sea well is being completed. Jura is expected to begin producing in the second quarter 2008 and reach a production plateau of 45 kboe/d.

 

 

The development of the Elgin-Franklin zone, in production since 2001, has made a significant contribution to the Group’s activities in the UK. This investment constituted a technical milestone, combining the development of the deepest reservoirs in the North Sea (5,500 m) with temperature and pressure conditions among the highest in the world (1,100 bars and 190°C).

The development of the Elgin and Franklin operated satellites (respectively Glenelg, 49.5% and West Franklin, 46.2%) started in 2005 with the drilling of the Glenelg long-offset well and continued in 2006 with the drilling of West Franklin. The Glenelg well started production in March 2006 and the West Franklin well in September 2007, at the rate of 13 kboe/d. A second well is being drilled on West Franklin and is expected to start production mid-2008.

On the Franklin field, the first infill well was completed in 2007. Drilling of such a well in a high pressure/high temperature depleted field constituted a world first and allowed production to increase by 15 kboe/d.

In 2005, TOTAL acquired the right to obtain a 25% interest in two blocks located near Elgin-Franklin by drilling an appraisal well on the Kessog structure. This well, for which drilling operations were completed in May 2007, discovered an oil and gas column exceeding expectations. In addition, this agreement makes it possible for the Group to bring its interest to 50% on this zone by carrying out a long-duration test on this well. This test is expected to be completed in the second half 2008. If the development of Kessog were decided, TOTAL would be the operator.

 

 

In the West Shetland zone, an exploration well was drilled in 2007 on the Tormore prospect, located 15 km southwest of the Laggan field. The Tormore discovery and the development studies carried out in 2006 and 2007 allow considering a stand-alone development of the combined Laggan-Tormore zone.

TOTAL was also awarded two permits as operator in 2007, thereby strengthening its presence in the zone.

TOTAL is also present in The Netherlands, where its production was 45 kboe/d in 2007.


 

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Middle East

Since 1924, TOTAL has been developing long-term partnerships in the Middle East. The Middle East is one of the major growth zones for the Group in the medium term, with the Yemen LNG and Qatargas II projects expected to start production in the 2008-2009 winter and 2009, respectively. Highlights of 2007 included the start-up of the Dolphin gas project in Qatar.

In 2007, TOTAL’s production in the Middle East (including production of equity affiliates and unconsolidated subsidiaries) was 390 kboe/d, representing 16% of the Group’s overall production, compared to 406 kboe/d in 2006 and 398 kboe/d in 2005.

In the United Arab Emirates, where the Group has been present since 1939, TOTAL’s production was 242 kboe/d in 2007 compared to 267 kboe/d in 2006 and 249 kboe/d in 2005.

In Abu Dhabi, TOTAL holds interests in the Abu Al Bu Khoosh field (75%, operator), in the Abu Dhabi Company for Onshore Oil Operations (ADCO, 9.5%), which operates the five principal onshore fields in Abu Dhabi, and in Abu Dhabi Marine (ADMA, 13.3%), which operates two offshore fields. TOTAL also has interests in Abu Dhabi Gas Industries (GASCO, 15%), which produces LPG and condensates from the associated gas produced by ADCO, and Abu Dhabi Gas Liquefaction Company (ADGAS, 5%), which produces LNG, GPL and condensates.

The Group also holds a 33.3% interest in Ruwais Fertilizer Industries (FERTIL), which produces ammonia and eurea. In 2005, FERTIL’s corporate life was extended for an additional 25 years. In Dubai, pursuant to an agreement signed with government and international partners in 2006, the concession in which TOTAL had participated was terminated.

In Iran, the Group’s 2007 production came from buyback contracts. Production was 15 kb/d in 2007, compared to 20 kb/d in 2006 and 23 kb/d in 2005, principally due to the impact of higher oil prices.

Concerning the Pars LNG liquefied natural gas project, engineering studies for the natural gas liquefaction plant and the development of Block 11 of South Pars are underway.

TOTAL has been present in Qatar since 1936 and holds interests in the Al Khalij field, the North field, the Dolphin project, the Qatargas I liquefaction plant and the second train of Qatargas II. The Group’s production in Qatar (including its share in the production of equity affiliates) averaged 74 kboe/d in 2007, compared to 58 kboe/d in 2006 and 57 kboe/d in 2005. This production is expected to increase significantly with the ramp-up of Dolphin.

 

 

The Dolphin project (24.5%) began production in summer 2007. On the North field, the Group signed

 

a contract with state-owned Qatar Petroleum in December 2001 providing for the sale of 2,000 Mcf/d of gas produced by the Dolphin project (24.5%), for a 25-year period. This gas is carried to the United Arab Emirates through a 360 km pipeline.

 

 

TOTAL signed four contracts to purchase 5.2 Mt/y of LNG in July 2006. In December 2006 it formalized its acquisition of a 16.7% interest in the second train of Qatargas II, pursuant to a memorandum of understanding signed in February 2005. This integrated project includes the development of two new LNG trains, each with a capacity of 7.8 Mt/y. Production is expected to begin in the first half 2009.

TOTAL has been present in Yemen since 1987 and is operator of nearly 10% of the country’s production. The Group has interests in the country’s two oil basins, as the operator on Block 10 (Masila Basin, East Shabwa permit 28.57%) and as a partner on Block 5 (Marib Basin, Jannah permit 15%). TOTAL also holds interests in the Yemen LNG project.

 

 

Yemen LNG, operated by TOTAL with a 39.62% interest, was launched in August 2005. This project calls for the construction of two liquefaction trains with a combined capacity of 6.9 Mt/y, all of which has been sold under long-term contracts. Production is expected to begin in winter 2008-2009.

 

 

In 2007, TOTAL concluded an agreement to acquire a 40% interest in onshore exploration blocks 69 and 71.

In Saudi Arabia , TOTAL had a 30% interest in a joint venture with the state-owned Saudi Aramco for natural gas exploration in a 200,000 km2 area in southern Rub Al-Khali. Following unsatisfactory drilling, the Group decided to withdraw from the joint venture.

In Oman, the Group is present in gas production, notably through the Oman LNG/Qalhat LNG gas liquefaction plant. Production has been stable in this country over the 2005-2007 period, amounting to 34 kboe/d in 2007.

TOTAL is present in Syria on the Deir Ez Zor permit (100%, operated by DEZPC, 50% of which is held by TOTAL) and produced 15 kboe/d in 2007.

In Iraq , TOTAL signed a memorandum of cooperation with the Petroleum Ministry to share the information from studies conducted by TOTAL on the Majnoon and Bin Umr fields. TOTAL is also involved in a significant training program for Iraqi engineers in this country.

The Group is also present in Kuwait.


 

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Interests in pipelines

The table below sets forth TOTAL’s interests in crude oil and natural gas pipelines throughout the world:

 

As of December 31, 2007
Pipeline(s)
  Origin   Destination   %
interest
    TOTAL
operator
  Liquids   Gas
FRANCE                                

TIGF

  Network South West       100.00     x       x
NORWAY                                

Frostpipe (inhibited)

  Lille-Frigg, Froy   Oseberg   36.25         x    

Gassled(a)

          7.995             x

Heimdal to Brae Condensate Line

  Heimdal   Brae   16.76         x    

Kvitebjorn pipeline

  Kvitebjorn   Mongstad   5.00         x    

Norpipe Oil

  Ekofisk Treatment center   Teeside (UK)   34.93         x    

Oseberg Transport System

  Oseberg, Brage and Veslefrikk   Sture   8.65         x    

Sleipner East Condensate Pipe

  Sleipner East   Karsto   10.00         x    

Troll Oil Pipeline I and II

  Troll B and C   Vestprosess (Mongstad refinery)   3.70         x    
THE NETHERLANDS                                

Nogat pipeline

 

F3-FB

  Den Helder   23.19             x

WGT K13-Den Helder

  K13A-K4K5   Den Helder   4.66             x

WGT K13-Extension

  Markham   K13-K4K5   23.00             x
UNITED KINGDOM                                

Bruce Liquid Export Line

  Bruce   Forties (Unity)   43.25         x    

Central Area Transmission

  Cats Riser Platform   Teeside   0.57         x

System (CATS)

                         

Central Graben

  Elgin-Franklin   ETAP   46.17     x   x  

Liquid Export Line (LEP)

                         

Frigg System: UK line

  Frigg UK, Alwyn North, Bruce, and others   St.Fergus (Scotland)   100.00     x       x

Ninian Pipeline System

  Ninian   Sullom Voe   16.00         x    

Shearwater Elgin

  Elgin-Franklin   Bacton   25.73             x

Area Line (SEAL)

  Shearwater                      
GABON                                

Mandji Pipe

  Mandji fields   Cap Lopez Terminal   100.00 (b)   x   x    

Rabi Pipe

  Rabi   Cap Lopez Terminal   100.00 (b)   x   x    

AMERICAS

                               

Argentina

                         

Gas Andes

  Neuquen Basin (Argentina)   Santiago (Chile)   56.50     x       x

TGN

  Network (Northern Argentina)       15.40     x       x

TGM

  TGN   Uruguyana (Brazil)   32.68     x       x

Bolivia

                         

Transierra

  Yacuiba (Bolivia)   Rio Grande (Bolivia)   11.00             x

Brazil

                         

TBG

  Bolivia-Brazil border   Porto Alegre via Sao Paulo   9.67             x

TSB (project)

  TGM (Argentina)   TBG (Porto Alegre)   25.00             x

Colombia

                         

Ocensa

  Cusiana, Cupiagua   Covenas Terminal   15.20         x    

Oleoducto de Alta Magdalena

  Magdalena Media   Vasconia   0.96         x    

Oleoducto de Colombia

  Vasconia   Covenas   9.55         x    
ASIA                                

Yadana

  Yadana (Myanmar)   Ban-I Tong (Thai border)   31.24     x       x
REST OF WORLD                                

BTC

  Baku (Azerbaijan)   Ceyhan ( Turkey)   5.00         x    

SCP

  Baku (Azerbaijan)   Georgia/Turkey Border   10.00             x

Dolphin (International transport and network)

  Ras Laffan (Qatar)   U.A.E.   24.50             x

 

(a) Gassled: unitization of Norwegian gas pipelines through a new joint venture in which TOTAL has an interest of 7.995%. In addition to the direct share in Gassled, TOTAL has a 14.4% interest in the joint-stock company Norsea Gas AS, which holds 2.839% in Gassled.
(b) Interest of Total Gabon. The Group has a financial interest of 57.96% in Total Gabon.

 

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Gas & Power

 

 

 

In 2007, TOTAL modified the organization of its Gas & Power division. The Gas & Power division encompasses the marketing, trading and transport of natural gas and liquefied natural gas (LNG), LNG re-gasification, natural gas storage and the maritime transport and trading of liquefied petroleum gas (LPG). It also includes power generation from gas-fired combined-cycle plants and renewable energies, the trading and marketing of electricity as well as the production and marketing of coal.

The Gas & Power division remains focused on the optimization of gas resources but is also working on developing a new generation of energies to contribute to the Group’s commitment regarding sustainable development, in particular the fight against global warming. The division is using its expertise to optimize traditional research and explore new approaches, both in renewable energies and in other energy sectors. Additional resources are being allocated to the division and its research and development efforts are being increased.

A Research & Development department has been created within the Gas & Power division to support the industrial and commercial activities of the division by decreasing costs and improving the performance of products and processes. It also focuses on contributing to the division’s and the Group’s growth by helping to anticipate technological and market trends while also developing appropriate technical solutions. The new Research & Development department will focus in particular on natural gas, chemical conversion of coal to liquids, carbon dioxide capture, biomass, solar energy and energy storage.

TOTAL is continuing to develop the global presence of its Gas & Power activities, with the objective of becoming a key player in these sectors.

Natural Gas

In 2007, TOTAL pursued its strategy of developing its activities downstream from natural gas production to optimize access for the Group’s present and future gas production and reserves to traditional (organized around long-term contracts between producers and integrated gas companies) as well as newly (or soon to be) deregulated markets.

The majority of TOTAL’s natural gas production is sold under long-term contracts. However, a part of its UK,

Norwegian and Argentine production as well as substantially all of its North American production are sold on a spot basis.

The long-term contracts under which TOTAL sells its natural gas production usually provide for a price related to, among other factors, average crude oil and other petroleum product prices, as well as, in some cases, a cost of living index. Although the price of natural gas tends to fluctuate in line with crude oil prices, there tends to be a delay before changes in crude oil prices are reflected in long-term natural gas prices.

The general trend towards the deregulation of natural gas markets worldwide tends to allow customers to more freely access suppliers, leading to new marketing structures that are more flexible than traditional long-term contracts.

In this context, TOTAL is developing its trading, marketing and logistics activities to offer its natural gas production to new customers, primarily in the industrial and commercial markets, who are looking for more flexible supply arrangements.

Europe

TOTAL has been active in the downstream sector of the gas value chain for more than 60 years. Natural gas transport, marketing and storage activities were initially developed to complement the Group’s domestic production in Lacq (France). The Group has continued to develop these activities, which are now part of its comprehensive downstream gas chain.

Since April 2005, the Group’s transport and storage activities in southwest France have been brought under TIGF, a wholly-owned subsidiary, which operates a regulated transport network of 4,905 km of pipes and two storage units with 85 Bcf (2.4 Bm3) of combined usable capacity, approximately 20% of the overall natural gas storage capacity in France(1).

Highlights of 2007 included the start-up of on-site work on the Guyenne trunk main line, a project to increase the flow of natural gas on the TIGF network.

In 2007, TOTAL sold 245 Bcf of gas (7 Bm3) to French customers through its marketing subsidiary Total Énergie Gaz (TEGAZ), compared to 243 Bcf (6.9 Bm3) in 2006 and 260 Bcf (7.4 Bm3) in 2005.


 

26

 

 

(1) International Gas Union 2006.


Table of Contents

In Spain, TOTAL has marketed gas in the industrial and commercial sectors since 2001 through its participation in Cepsa Gas Comercializadora. This company is held by TOTAL (35%), CEPSA (35%) and the Algerian national oil company, Sonatrach, (30%). Taking into account TOTAL’s 48.83% interest in CEPSA, the Group has a direct and indirect interest of approximately 52% in this company. In 2007, Cepsa Gas Comercializadora sold approximately 155 Bcf (4.4 Bm3) of natural gas, compared to approximately 119 Bcf (3.4 Bm3) in 2006 and 63 Bcf (1.8 Bm3) in 2005. CEPSA also has a 20% interest in the Medgaz pipeline project, and is involved in studies conducted in connection with this project, which is expected to directly connect Algeria to Spain.

In the UK, TOTAL’s subsidiary Total Gas & Power Ltd sells gas and power to the industrial and commercial markets. This subsidiary also conducts global gas, electricity and LNG trading activities. In 2007, Total Gas & Power Ltd sold 124 Bcf (3.5 Bm3) of natural gas to industrial and commercial customers, compared to 135 Bcf (3.8 Bm3) in 2006 and 189 Bcf (5.4 Bm3) in 2005. Electricity sales amounted to 3.6 TWh in 2007, compared to 3.2 TWh in 2006 and 1.7 TWh in 2005. In 2007, TOTAL disposed of its 10% interest in Interconnector UK Ltd, a gas pipeline connecting Bacton in the UK to Zeebrugge in Belgium. This disposal did not affect TOTAL’s rights to transport gas through the pipeline.

The Americas

In the United States, TOTAL marketed approximately 1,606 Bcf (45.5 Bm3) of natural gas in 2007, compared to 925 Bcf (26.2 Bm3) in 2006 and 621 Bcf (17.6 Bm3) in 2005, supplied by its own production and external sources.

In Mexico, Gas del Litoral, a company in which TOTAL holds a 25% interest, sold approximately 95 Bcf (2.7 Bm3) of natural gas in 2007, its first full year in activity, compared to 25.5 Bcf (0.7 Bm3) in 2006.

In South America, TOTAL owns interests in several natural gas transport companies in Argentina, Chile and Brazil, including 15.4% in Transportadora de Gas del Norte (TGN), which operates a gas transport network covering the northern half of Argentina; 56.5% of the companies which own the GasAndes pipeline, connecting the TGN network to the Santiago del Chile region, and 9.7% of Transportadora Gasoducto Bolivia-Brasil (TBG), whose gas pipeline supplies southern Brazil from the Bolivian border. These different assets represent a total integrated network of approximately 9,000 km serving the Argentine, Chilean and Brazilian markets from gas-producing basins in Bolivia and Argentina, where the Group has natural gas reserves.

 

The actions taken by the Argentine government after the 2001 economic crisis and the subsequent energy crisis, marked in 2007 by a severe gas shortage during the Austral winter, put TOTAL’s Argentine subsidiaries in difficult financial and operational situations, even after taking into account the restructuring of TGN’s debt, which was completed in 2006. The sale of the Group’s Argentine power generation assets was completed in 2007, while procedures to protect TOTAL’s investments, initiated in 2002, are ongoing.

Asia

TOTAL markets natural gas transported through pipelines to Indonesia, Thailand, and Myanmar and, in the form of LNG, to Japan, South Korea, Taiwan and India. The Group is also developing new LNG outlets in emerging markets.

In India, Hazira Gas, in which TOTAL holds a 26% interest, sold approximately 78 Bcf (2.2 Bm3) of natural gas during its second full year in operation, compared to 28 Bcf (0.8 Bm3) in 2006.

Liquefied Natural Gas (LNG)

The Gas & Power division conducts LNG activities downstream from liquefaction plants(1): LNG shipping, re-gasification, storage and marketing. TOTAL has entered into agreements to obtain long-term access to LNG re-gasification capacity on the three continents which are the largest consumers of natural gas: North America (United States and Mexico), Europe (France and the UK) and Asia (India). This diversified access to markets allows TOTAL to develop new liquefaction projects, in particular in the Middle East and Africa, while strengthening its own LNG supply portfolio.

Europe

In June 2006, TOTAL acquired a 30.3% interest in the Société du Terminal Méthanier de Fos Cavaou (STMFC) in France. This terminal is expected to have a re-gasification capacity of 8.25 Bm3/y (6.1 Mt/y), of which 2.25 Bm3/y (1.7 Mt/y) have been reserved by TOTAL through its subsidiary Total Gas & Power Ltd. The terminal is scheduled to begin commercial operations in 2009.

In December 2006, in connection with its entry in the Qatargas II project, TOTAL acquired an 8.35% interest in the South Hook LNG re-gasification terminal project in the UK. The terminal is scheduled to come onstream in the second half 2008.

TOTAL also has a 18.4% interest in the Snøvhit project (Norway), where LNG production started in September 2007 with the first deliveries made in October 2007. As


 

 

(1) Natural gas liquefaction activities are conducted by the Exploration & Production division.

 

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part of this project, Total Gas & Power Ltd signed a purchase agreement for 1 Bm3/y of natural gas, primarily destined for North American and European markets. TOTAL, through its subsidiary Total E&P Norge AS, chartered an LNG tanker, the Arctic Lady, to transport this LNG. This tanker has a capacity of 145,000 m3 and was delivered in April 2006.

In October 2007, TOTAL announced the creation of Adria LNG, in which TOTAL holds a 25.58% interest, to study the construction of an LNG re-gasification terminal on KrK Island (Croatia), in the northern Adriatic Sea. This terminal is expected to have an initial natural gas re-gasification capacity of 10 Bm3/y, which could be increased to 15 Bm3/y in the future. The terminal is currently scheduled to come onstream in 2012.

North America

In Mexico, the Altamira re-gasification terminal, in which TOTAL holds a 25% interest, has been onstream since summer 2006. This terminal, located on the east coast of Mexico, has an initial LNG re-gasification capacity of 6.7 Bm3/y. This capacity has been entirely reserved by Gas del Litoral, in which TOTAL has a 25% interest. The terminal received 33 cargos in 2007.

In the United States, TOTAL has reserved re-gasification capacity of 10 Bm3/y (1 Bcf/d) at the Sabine Pass LNG terminal in Louisiana, beginning in April 2009 for a renewable 20-year period. The construction of this terminal, which began in April 2005, is expected to be completed in 2008. The LNG to supply Sabine Pass is expected to come from LNG purchase agreements providing for shipments from various producing projects in which TOTAL holds interests, in particular in the Middle East, Norway and West Africa.

Asia-Pacific

The Hazira re-gasification terminal, located on the west coast of the Gujarat state in India, was inaugurated in April 2005. It has an initial re-gasification capacity of approximately 3.4 Bm3/y. Since May 2005, TOTAL has held a 26% interest in this merchant terminal whose activities include taking delivery of LNG, re-gasification and natural gas marketing. TOTAL has agreed to provide up to 26% of the LNG for the Hazira terminal. Due to market conditions in 2007, the Hazira terminal was essentially operated on the basis of short-term (spot) contracts, both for the sale of gas on the Indian market and the purchase of LNG from international markets. The terminal received 28 cargos in 2007, compared to 12 in 2006 and 3 in 2005.

Middle East

In Qatar, pursuant to heads of agreement signed in February 2005, TOTAL signed purchase agreements in

July 2006 for up to 5.2 Mt/y of LNG from Qatargas II (second train) over a 25-year period. This LNG is expected to be marketed principally in France, the UK and North America. In December 2006, TOTAL also concluded an agreement to acquire a 16.7% interest in the second train of Qatargas II. The Qatargas II project is expected to come onstream in the first half 2009.

In Yemen, TOTAL, through its subsidiary Total Gas & Power Ltd, signed an agreement in July 2005 with Yemen LNG Ltd (in which TOTAL has a 39.62% interest) to purchase 2 Mt/y of LNG over a 20-year period, beginning in 2009, to be delivered to the United States. The Yemen LNG project is expected to come onstream in the 2008-2009 winter.

In Iran, as part of the agreements for the future Pars LNG project (in which TOTAL has an interest), in August 2005 Total Gas & Power Ltd signed a long-term purchase agreement for approximately 3 Mt/y of LNG. This agreement is subject to the final investment decision for the project to construct two liquefaction trains, each with a capacity of 5 Mt/y.

Africa

In Nigeria, TOTAL holds a 15% interest in Nigeria LNG Ltd (NLNG), located on Bonny Island. With train 4 having come onstream in November 2005, followed by train 5 in February 2006, the liquefaction capacity of NLNG has increased to 17.9 Mt/y. A sixth liquefaction train with a capacity of 4Mt/y was approved in 2004 and came onstream in December 2007.

As part of the expansion of the plant on Bonny Island, Total Gas & Power Ltd signed an LNG purchase agreement for an initial 0.23 Mt/y over a 20-year period, to which an additional 0.9 Mt/y was added when train 6 came onstream. The first deliveries under this agreement were received in January 2006.

As part of an additional NLNG expansion project to build a seventh LNG train with a capacity of approximately 8.5 Mt/y, TOTAL signed a purchase agreement in February 2007 for 1.375 Mt/y of LNG over a 20-year period. This agreement is subject to NLNG’s final investment decision on this new train.

In Nigeria, TOTAL also acquired a 17% interest in the Brass LNG project in July 2006. This liquefaction project calls for the construction of two liquefaction trains, each with a capacity of 5 Mt/y, scheduled to come onstream early in the next decade. TOTAL also signed a preliminary agreement with Brass LNG Ltd in July 2006 setting forth the principal terms of an agreement to purchase approximately one-sixth of the plant’s capacity over a 20-year period. This LNG would be delivered principally to North America and Western Europe.


 

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The purchase agreement is subject to final investment decision for the Brass LNG project.

In Angola, TOTAL holds a 13.6% interest in Angola LNG, a project to construct a single-train liquefaction plant with a capacity of 5.2 Mt/y. The construction of this project began in December 2007 and LNG production is expected to start in 2012. As part of this project, TOTAL, through its subsidiary Total Gas & Power North America, signed a regasified natural gas purchase agreement in December 2007 for 13.6% of the volume to be delivered to the Gulf LNG Clean Energy terminal in Mississippi in the United States.

Trading

After a period from 2001 to 2006 when Total Gas & Power Ltd was mainly involved in short-term trading on the LNG cargos market, this subsidiary has now begun to receive cargos under its long-term supply contracts in Nigeria and Norway. In 2007, this resulted in the purchase of five contractual and sixteen spot cargos from Nigeria, Qatar, Egypt and Trinidad & Tobago. This mix of spot and term purchases allows TOTAL to supply its principal clients with gas, for example in France, Spain, Mexico and India, while retaining a certain degree of flexibility to react to market opportunities or unexpected fluctuations in supply and demand.

Liquefied Petroleum Gas (LPG)

In 2007, TOTAL traded and sold 5.2 Mt of LPG (butane and propane) worldwide (compared to 5.8 Mt in 2006 and 5 Mt in 2005), of which approximately 1 Mt was in the Middle East and Asia, approximately 0.8 Mt in Europe on small coastal trading vessels and approximately 3.4 Mt on large vessels in the Atlantic and Mediterranean regions. Approximately 40% of these quantities come from fields or refineries operated by the Group. LPG trading involved the use of seven time-charters and approximately 60 spot charters. In 2007, this activity represented approximately 10% of worldwide seaborne LPG trade.(1)

In 2007, TOTAL continued the construction, launched in November 2003, of a LPG importation and storage unit located in Visakhapatnam, on the east coast of India in the state of Andhra Pradesh. This terminal was commissioned on January 14, 2008 and has a storage capacity of 60,000 tons. TOTAL has a 50% interest in this project, where it is a partner with Hindustan Petroleum Company Ltd in South Asian LPG Limited (SALPG).

 

Electricity and Cogeneration

As a refiner and petrochemicals producer, TOTAL has interests in several cogeneration facilities. Cogeneration is a process whereby the steam produced to turn turbines to generate electricity is then captured and used for industrial purposes. TOTAL also participates in another type of cogeneration, which combines power generation with water desalination and gas-fired electricity generation, as part of its strategy of pursuing opportunities at all levels of the gas value chain.

The Taweelah A1 cogeneration plant in Abu Dhabi, which combines electricity generation and water desalination, has been in operation since May 2003 and is owned and operated by Gulf Total Tractebel Power Cy, in which TOTAL has a 20% interest. Taweelah A1 currently has an overall power generation capacity of 1,430 MW and a water desalination capacity of 385,000 m3 per day. Near the end of 2006, the decision was made to develop an additional 250 MW of capacity, which is expected to enter into operation in 2009.

Also in the United Arab Emirates, TOTAL recently entered a partnership agreement with Suez and Areva to present a proposal for the development of a nuclear power plant project, based on the third generation technology EPR, to the local authorities at the appropriate time. Currently, the authorities have not yet made a decision on this project. This project would allow TOTAL to enter the nuclear energy production sector while benefiting from its historic presence in the Emirates.

In Thailand, TOTAL owns 28% of Eastern Power and Electric Company Ltd (EPEC), which has operated the combined cycle gas power plant of Bang Bo, with a capacity of 350 MW, since March 2003.

In Nigeria, TOTAL and its partner, the state-owned NNPC, are participating in two projects to construct gas-fired electricity generation units. These projects are part of the Nigerian government’s policy to develop electricity generation, stop gas flaring and privatize the electricity generation sector:

 

 

The Afam project, part of the SPDC joint-venture in which TOTAL holds a 10% interest, concerns upgrading the Afam V power plant to increase its capacity to 276 MW and to develop the Afam VI power plant, with a planned capacity of approximately 600 MW; and

 

The OML 58 project, part of the EPNL (Elf Petroleum Nigeria Limited) joint-venture in which TOTAL holds a 40% interest (operator), concerns the development of a new 400 MW combined-cycle power plant near the city of Obite.


 

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(1) Poten & Partners LPG in World Markets 2007.


Table of Contents

Renewable Energy

As part of its sustainable development policy, TOTAL is developing its position in renewable energy, with a particular focus on solar-photovoltaic power, where the Group has been present since 1983. In addition, since 2005 TOTAL has been participating in the development of marine energy, another technology for renewable energy.

Solar-photovoltaic power

In solar power (silicon-crystal technology), TOTAL manufactures photovoltaic cells (Photovoltec), solar panels and designs solar systems (TENESOL). The Group is also involved in projects for rural electrification (Temasol in Morocco, KES in South Africa and Korayé Kurumba in Mali).

TOTAL owns 47.8% of Photovoltec in partnership with Electrabel and IMEC. Photovoltech is a company specialized in manufacturing photovoltaic cells. Photovoltech sales rose to approximately 67 M in 2007, compared to 42 M in 2006 and 25 M in 2005. Due to strong demand for its products, Photovoltech increased its production capacity from 22 MWp/y to 80 MWp/y late in 2007. Photovoltech anticipates it will invest an additional 45 M to increase its overall production to 140 MWp/y by the end of 2009. Photovoltech has also entered into long-term silicon wafer supply agreements with several suppliers.

TOTAL holds a 50% interest in TENESOL, in partnership with EDF, which designs, manufactures, markets and operates solar-photovoltaic power systems. TENESOL’s consolidated sales amounted to 133 M in 2007, compared to 134 M in 2006 and 145 M in 2005, the equivalent of selling production of approximately 40 MWp. Its principal markets are for network connections, both in Europe (Germany, Spain and France) and in the French Overseas Territories, and it is also active in professional applications (telecommunications and telemetry). TENESOL owns two solar panel manufacturing plants: TENESOL Manufacturing in South Africa, with an annual production capacity of 50 MWp, and TENESOL Technologies in the Toulouse region of France, with an annual production capacity of 17 MWp, which is expected to be increased to 45 MWp in the first half 2008.

TOTAL is pursuing decentralized rural electrification activities by responding to calls for tenders from authorities in several countries, including Morocco, South Africa and Mali. In Morocco, Temasol, in which TOTAL holds indirect interests through Total Maroc (32.2%) and TENESOL (35.6%), is pursuing its development. Projects awarded to Temasol pursuant to the bidding processes in 2002, 2004 and 2005 increased

the number of households to be equipped to 58,500 (25,500 were equipped by the end of 2007). In South Africa, KES (Kwazulu Energy Services Company), of which TOTAL owns 35%, launched an initial program in the Kwazulu-Natal province in 2002. At the end of 2007, approximately 8,500 individual systems were equipped with solar power. On July 17, 2007, KES signed an agreement with the South African Department of Energy to implement an extension program in the neighboring Eastern Cape province. This new program is designed to supply over 26,000 rural households with solar power and gas and over 400 schools with power. In Mali, Korayé Kurumba (TOTAL, 30%), a company specialized in decentralized service, operates decentralized power micro-networks and individual solar photovoltaic kits, with 550 customers at the end of 2007. 5,000 additional clients should be equipped by the end of 2009.

Near the end of 2007, TOTAL acquired a 25% interest in the Swiss company, Novacis, specialized in photovoltaic cell research.

Wind power

TOTAL currently operates a wind farm in Mardyck (close to its Flanders refinery in northern France) and is conducting development studies for onshore and offshore projects in France and Spain.

Mardyck, commissioned in November 2003, has a capacity of 12 MW and produced approximately 22.6 GWh of electricity in 2007, compared to 25.2 GWh in 2006 and 26.4 GWh in 2005. It is designed to evaluate different technologies at the same site.

In December 2005, after a call for tenders, TOTAL was selected by the French Department of Industry for an onshore wind power project with a planned capacity of 90 MW to be built in the Aveyron region. Pursuant to the terms of the bid, the project is subject to obtaining a construction permit. The public consultation for this project, which began in January 2007, is ongoing.

TOTAL is also pursuing studies for the development of a wind farm with a 120 MW capacity, offshore Dunkirk, France.

Marine energy

In marine energy, TOTAL acquired a 10% interest in a pilot project located offshore Santona, on the northern coast of Spain, in June 2005. The construction of a first buoy, decided in 2006, is expected to be completed in 2008. Tests on this buoy should allow the project to determine the size and production capacity of future installations. This pilot project is expected to provide information necessary to assess the technical and economic potential of this technology.


 

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At the end of 2007, TOTAL had a 24.9% interest in Scottrenewables Marine Power, located in the Orkney Islands in Scotland. This company is developing tidal current energy converter technology. In January 2008, an agreement was signed with Fred Olsen Limited to increase Scottrenewables’ share capital in two steps between 2008 and 2011. Through these transactions, the Group expects to decrease its share in Scottrenewables to 12.2%.

Coal

For more than 25 years, TOTAL has exported steam coal from its mines located in South Africa, primarily to Europe and Asia. Today, TOTAL owns and operates three mines and is examining several mining projects. The Group also trades and markets steam coal through its subsidiaries Total Coal International (Atlantic zone), Total Energy resources (Pacific zone) and CDF Énergie (France).

TOTAL sold approximately 10 Mt of coal worldwide in 2007 (compared to 9.2 Mt in 2006 and 9.5 Mt in 2005), of which 4.7 Mt was South African steam coal produced by the Group or to which the Group had direct access. Approximately 50% of the Group’s South African coal production was sold to European utility companies and approximately 30% was sold in Asia.

The Group’s South African coal is exported through the port of Richard’s Bay, the world’s largest coal terminal, of which 5.7% is owned by TOTAL. In 2007, the Group and its partner Mmakau Mining acquired an additional 1 Mt/y of harbour handling rights through the interests they hold in the fifth phase of the port’s development. On the South African domestic market, sales amounted to 0.75 Mt in 2007, primarily destined for the industrial and metallurgic sectors.

 

Total Coal South Africa (TCSA) is developing new mines. In 2007, the new Forzando South mine, with a planned final capacity of 1.2 Mt/y, entered into production. TCSA also became the majority shareholder of the Eloff mine, with a 51% interest.

TOTAL is also active in coal trading through its wholly-owned subsidiary Total Energy Resources (TER) in Hong Kong and through a representative office established in Jakarta in September 2004. Approximately 39% of the 10 Mt of coal traded in 2007 was sold in Asia.

DME (Di-Methyl Ether)

Pursuant to the successful tests, completed in 2006, on a pilot unit with 100 tons per day of DME capacity built in Kushiro on Hokkaido Island (Japan) by DME-Development (TOTAL, 3%), the Group decided to take an interest in a plant producing DME in Niigata, Japan (Honshu Island). TOTAL holds a 10% interest in this plant, with 80 kt/y of capacity. Operations are expected to start at this plant by the summer 2008, thus promoting this new generation clean fuel to Japanese consumers.

After further tests were carried out by the IFP (Institut français du pétrole) and completed during the summer 2007, the Group’s Chinese subsidiary in charge of marketing LPG started commercial tests on mixed LPG and DME products.

The ISO standardization process, instigated and conducted by TOTAL and its Japanese partners, was launched in April 2007. It should last for the next two to three years. In addition to Japan, China and South Korea, countries such as the United States, Germany, Sweden, Poland and Turkey are interested in standardization.


 

Downstream

 

 

The Downstream segment conducts TOTAL’s refining, marketing, trading and shipping activities.

Refining & Marketing

 

 

 

As of December 31, 2007, TOTAL’s worldwide refining capacity was 2,598 kb/d. The Group’s refined products sales were 3,863 kb/d worldwide (including trading activities), compared to 3,786 kb/d in 2006 and 3,792 kb/d in 2005.

 

TOTAL is the largest refiner/marketer(1) in Western Europe and, with a market share of 11%, the largest marketer in Africa(2).


 

 

(1) Company data, based on refining capacities.
(2) PFC Energy December 2007.

 

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As of December 31, 2007, TOTAL’s marketing network consisted of 16,497 retail stations worldwide (compared to 16,534 in 2006 and 16,976 in 2005), approximately 50% of which are owned by the Group. TOTAL’s refineries allow the Group to produce a broad range of specialty products, such as lubricants, liquefied petroleum gas (LPG), jet fuel, special fluids, bitumen and petrochemical feedstock.

The Group’s strategy in refining is to continue to improve its position by focusing on three areas: optimizing its portfolio of refineries in Europe, developing deep conversion projects in North America and expanding in the Middle East with the Jubail refinery project.

The Group’s strategy for its marketing activities is to consolidate its positions in Western Europe and in Africa and pursue targeted growth in expanding markets in Asia, Latin America and Eastern Europe.

Refining

As of December 31, 2007, TOTAL held interests in 25 refineries (including 12 that it operates), located in Europe, the United States, the French West Indies, Africa and China.

TOTAL’s refining capacity in Western Europe was 2,273 kb/d in 2007, accounting for more than 85% of the Group’s overall refining capacity and making TOTAL the leading refiner in this region. The Group operates eleven refineries in Western Europe: six are located in France, one in Belgium, one in Germany, one in the UK, one in Italy and one in the Netherlands. TOTAL also holds minority interests in the German refinery of Schwedt, as well as interests in four Spanish refineries through its holdings in CEPSA(1). In the UK, TOTAL sold its 70% interest in the Milford Haven refinery late in 2007 to concentrate its refining activities at the Lindsey site.

In the United States, TOTAL operates the Port Arthur refinery in Texas, with a capacity of 174 kb/d.

In Africa, as of December 31, 2007, TOTAL holds interests in six refineries. In 2007, the Group disposed of its 55.6% interest in the Luanda refinery in Angola, which has a capacity of 52 kb/d.

In China, TOTAL, Sinochem and Petrochina have been partners in the Dalian refinery, which has a treatment

capacity of 219 kb/d, for over ten years. TOTAL holds a 22.41% interest in this refinery. A program to modernize this refinery was launched in 2006 to respond to changes on national and international markets. This program included the start-up of a distillate hydrocracker (DHC) with a capacity of 1.5 Mt/y late in 2007.

Over the period from 2008 to 2012, TOTAL plans to invest, on average, more than 1 B per year in refining, excluding major turnarounds.

 

 

Nearly 30% of this investment is designated for two major projects.

In the United States, TOTAL decided in February 2008 to build a deep conversion unit, or “coker”, at the Port Arthur refinery. This project is designed to process more heavy and high-sulphur crudes and to increase production of lighter products, in particular low-sulphur distillates. Commissioning is expected in 2011.

In Saudi Arabia, TOTAL and Saudi Arabian Oil Company (Saudi Aramco) signed a memorandum of understanding for a project to build and operate a refinery in Jubail with a capacity of 400 kb/d. The heavy conversion process for this is designed for the processing of heavier crudes (Arabian Heavy) to produce lighter products that meet strict specifications, which are mainly intended for export. The Front-End Engineering Design (FEED) study, launched in July 2006, is expected to be completed mid-2008. Commissioning is planned for late in 2012.

 

 

Nearly 30% of this investment is designated for projects to improve performance, in particular for desulphurization and to adapt TOTAL’s European refineries to changes in the oil market: increased demand for diesel fuel in Europe, stricter fuel specifications and an increased portion of supply consisting of high-sulphur crudes.

In June 2007, the Lindsey refinery (UK) started the construction of a desulphurization unit (HDS) and a steam methane reformer (SMR) to process high-sulphur crudes and increase its low-sulphur diesel production. The HDS unit is expected to be commissioned in 2009 and is designed to raise the portion of high-sulphur crude that the plant can process from 10% to up to nearly 70%. The construction of a new desulphurization unit at the Leuna refinery (Germany) was approved in 2007 and is scheduled to be commissioned late in 2009. This unit is designed to supply the German market with low-sulphur heating oil.


 

 

(1) Group’s share in CEPSA: 48.83% as of December 31, 2007.

 

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Nearly 40% of this investment is designated for modernizing refining sites, improving safety and energy efficiency, and reducing environmental impact.

CEPSA has also been pursuing a program to invest in the improvement of its refineries’ conversion capacity to respond to growing demand for medium distillates on the Spanish market. The construction of a 2.1 Mt/y hydrocracker unit, two atmospheric vacuum distillation units and a desulphurization unit is underway at the Huelva refinery, with commissioning scheduled for early 2010.

2007 was marked by a high level of maintenance activity. Ten refineries(1) underwent complete or partial turnarounds, compared to three in 2006 and six in 2005. These major turnarounds were designed mainly to reinforce safety and reliability, modernize facilities, improve performance and reduce environmental impact. In 2008, eight refineries operated by the Group are scheduled for major turnarounds, spread throughout the year.

Crude oil refining capacity

The table below sets forth TOTAL’s share of the daily crude oil refining capacity of its refineries.

 

As of December 31(a) (kb/d)   2007   2006   2005

Refineries operated by the Group

           

Normandy (France)

  331   331   331

Provence (France)

  158   158   158

Flandres (France)

  141   141   159

Donges (France)

  230   230   229

Feyzin (France)

  117   116   118

Grandpuits (France)

  101   99   99

Antwerp (Belgium)

  350   350   350

Leuna (Germany)

  227   227   225

Rome (Italy)(b)

  63   64   64

Immingham (UK)

  221   221   221

Milford Haven (UK)(c)

  —     74   73

Vlissingen (Netherlands)(d)

  81   81   84

Port Arthur, Texas (United States)

  174   174   174

Sub-total

  2,194   2,266   2,285

Other refineries in which the Group has an interest(e)

  404   434   423

Total

  2,598   2,700   2,708

 

(a) For refineries not 100% owned by TOTAL, the indicated capacity represents TOTAL’s share of the overall refining capacity of the refinery.
(b) TOTAL’s interest is 71.9%.
(c) TOTAL’s interest is 70% as of December 31, 2006 and 2005. Interest sold in 2007.
(d) TOTAL’s interest is 55%.
(e) Thirteen refineries in which TOTAL has interests ranging from 16.7% to 50% (six in Africa, four in Spain, one in Germany, one in Martinique and one in China). Disposal of TOTAL’s 55.6% interest in the Luanda refinery in Angola in 2007.

Refined products(a)

The table below sets forth by product category TOTAL’s net share of refined quantities produced at the Group’s refineries.

 

(kb/d)    2007    2006    2005

Gasoline

   501    532    534

Avgas and jet fuel

   186    179    191

Kerosene and diesel fuel

   705    660    639

Fuel oils and heating oils

   536    582    593

Other products

   411    455    406

Total

   2,339    2,408    2,363

Utilization rate(a)

 

      2007     2006     2005  

Crude

   87 %   88 %   88 %

Crude and other feedstock

   89 %   91 %   89 %

 

(a) Including TOTAL’s share in CEPSA.

Marketing

TOTAL is one of the leading marketers in the combined six largest Western European markets (France, Spain, Benelux, the UK, Germany and Italy)(2). The Group is also the largest marketer in Africa, with a market share of 11%(3).

TOTAL markets a wide range of specialty products, which it produces from refined oil at its refineries and other facilities. TOTAL is among the leading companies in the European specialty products market(2), in particular for the bitumen, jet fuel, liquefied petroleum gas (LPG) and lubricants markets. Through its specialty products, TOTAL is present in approximately 160 countries.

TOTAL is pursuing the development of its lubricants activity worldwide. In 2007, the Group strengthened its position in the lubricants market by renewing its worldwide agreement with Citroën. The Group also has partnerships with Peugeot, Renault, Nissan and Honda.

TOTAL sells fuel to nearly 270 airports in over 70 countries, supplying approximately 200 airlines. The


 

33

 

 

(1) Including the Milford Haven refinery, in which the Group sold its entire 70% interest in December 2007.
(2) Company data, based on quantities sold.
(3) PFC Energy December 2007.


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Group has leading positions(1) in Europe, Africa and in the Mediterranean Basin and is pursuing expansion in the Asia-Pacific region.

TOTAL is also among the leading international LPG distributors(1), and is pursuing the expansion of this activity on the global market.

TOTAL is the European leader in bitumen(1), including strong positions in France and Germany.

Sales of refined products(a)

The table below sets forth by geographic area TOTAL’s volumes of refined petroleum products sold for the years indicated.

 

(kb/d)    2007    2006    2005

France

   846    837    852

Rest of Europe(a)

   1,432    1,438    1,444

United States

   251    264    256

Africa

   286    274    260

Rest of world

   167    153    151

Total excluding Trading

   2,982    2,966    2,963

Trading (Balancing and Export Sales)

   881    820    829

Total including Trading

   3,863    3,786    3,792

 

(a) Including TOTAL’s share in CEPSA.

Retail stations

The table below sets forth by geographic area the number of retail stations in TOTAL’s network.

 

As of December 31,    2007    2006    2005

France(a)

   4,992    5,220    5,459

Rest of Europe (excluding France and CEPSA)

   4,762    4,628    4,937

CEPSA(b)

   1,680    1,672    1,677

Africa

   3,549    3,562    3,505

Rest of world

   1,514    1,452    1,398

Total

   16,497    16,534    16,976

 

(a) Retail stations under the TOTAL and Elf brands and approximately 2,000 retail stations under the Élan brand.
(b) Including all the retail stations within the CEPSA network.

 

Europe

In Europe, TOTAL has a network of retail stations in France, Belgium, the Netherlands, Luxembourg, Germany, the UK, Portugal and Italy, as well as, through its 48.83% interest in CEPSA, in Spain and Portugal.

In France, the TOTAL-branded network benefits from a wide number of retail stations, a diverse selection of products (such as the Bonjour convenience stores, as well as car washes) and strong customer loyalty programs. Elf-branded retail stations offer quality fuels at prices that are particularly competitive. As of December 31, 2007, nearly 2,450 TOTAL-branded retail stations and 280 Elf-branded retail stations were operating in France. TOTAL also markets fuels at nearly 2,000 Élan-branded retail stations, generally located in rural areas. Late in 2007, TOTAL launched a program to reduce operating costs and develop non-fuel sales in its French network.

In the UK, the network rationalization program launched in 2003 was completed in 2007. The restructuring of marketing activities in Germany is continuing, including an adaptation plan underway for the lubricants activities.

As of December 31, 2007, TOTAL had a network of approximately 500 AS24-branded retail stations in 20 European countries. This network, which focuses on professional transporters, continued to expand with the opening of approximately 20 new stations in 2007.

TOTAL is among the leaders in Europe for fuel-payment cards, with approximately 3.4 million cards issued in 17 European countries. In 2007, fuel sold via fuel-payment cards increased to 5 Mm3, compared to 4.7 Mm3 in 2006 and 4.5 Mm3 in 2005.

In 2007, TOTAL continued to expand the distribution in Europe of two new high-performance fuels branded TOTAL EXCELLIUM 98 and TOTAL EXCELLIUM diesel marketed in nine countries. These new generation fuels reduce fuel consumption and carbon dioxide emissions. The EXCELLIUM range gives TOTAL a significant presence on the next-generation fuel market in Europe.

TOTAL has distributed an urea-based additive to reduce nitrogen oxide emissions, AdBlue, to professional transporters in Europe since 2005. As of December 31, 2007, 225 TOTAL-branded and AS24-branded retail


 

 

(1) Company data, based on quantities sold.

 

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stations were distributing urea in Europe. By 2009, TOTAL intends to expand its distribution of AdBlue to cover a network of approximately 400 stations in 27 European countries.

In September 2006, TOTAL entered into a joint-venture agreement (TOTAL, 35%) with Veolia to build an oil recycling plant with a capacity of 120 kt/y in France. Construction of the plant is scheduled to begin in 2009 with commissioning expected for 2010.

Africa & the Middle East

As of December 31, 2007, TOTAL is the leading marketer of petroleum products in the African continent, with a market share of 11% and over 3,500 retail stations in more than 40 countries. TOTAL strengthened its positions in the continent, in particular in western and southeast Africa with the acquisition of marketing affiliates in 14 African countries in 2005 and 2006. The Group operates two significant networks, in South Africa and Nigeria.

In specialties, in 2007 TOTAL pursued its growth strategy in the Middle East by signing a joint-venture agreement (TOTAL, 51%) for the production and distribution of lubricants in Saudi Arabia.

Asia-Pacific

As of December 31, 2007, TOTAL was present in nearly 20 countries in the Asia-Pacific region, primarily through its specialty products. The Group is also developing its positions as a distributor in the region, in particular in China, and operates two significant networks, in Pakistan and the Philippines.

In 2007, TOTAL continued to develop its networks in China through its partnership with Sinochem under two joint venture agreements signed in 2005. These joint ventures call for the creation of two networks, in the Beijing and Shanghai areas, with a total of 500 retail stations. As of December 31, 2007, 55 of these stations were operating. These investments represent a major step in TOTAL’s efforts to distribute petroleum products in China.

In the Philippines, TOTAL is continuing to develop its network, with the opening of its 100th station late in 2007.

Early in 2008, TOTAL increased its interest in its subsidiary Total ISU Oil Co. Ltd to 100% by acquiring

the interests of Isu Chemical Co. Ltd and at the same time announced the creation of a joint venture (TOTAL 50%) with a South Korean company, S-Oil. In line with its growth strategy for the Asia-Pacific region, this transaction is expected to make TOTAL a leading marketer of lubricants in South Korea.

Rest of world

In Latin America and the Caribbean, TOTAL is present mainly through its specialty products, which are marketed in nearly 20 countries, and its marketing activities in the Caribbean. In March 2008, TOTAL entered into an agreement to acquire marketing and logistics assets in Puerto Rico, Jamaica and the Virgin Islands. The agreement covers approximately 200 retail stations, aviation product distribution and several terminals. The purchase of these assets is expected to create synergies with TOTAL’s existing Caribbean activities.

In North America, TOTAL distributes lubricants in the United States. Late in 2007, the Group expanded its North American presence by acquiring assets in Canada.

Biofuels and hydrogen

The Group plays an active part in promoting renewable energies and alternative fuels.

TOTAL is active in two biofuel sectors: biodiesel and biogasoline. In 2007, TOTAL consolidated its position as a leading oil and gas company in the European biofuels market(1) by producing and incorporating 710 kt of ETBE(2) at nine refineries(3) (compared to 500 kt in 2006 and 360 kt in 2005) and incorporating 880 kt of VOME(4) at nine European refineries and several storage sites (compared to 420 kt in 2006 and 310 kt in 2005).

In France, TOTAL is actively promoting high-biofuel-content diesel fuels with the launch of Ecolium 30 in 2007. This biodiesel, made of 70% diesel fuel and 30% VOME, is intended for professional fleets and reduces carbon dioxide emissions by up to 20%. In addition, the Group is continuing to equip its retail stations to distribute Superethanol E85. The rate at which Superethanol is adopted by the market will depend both on the creation of appropriate tax incentives and the marketing of suitable vehicles.

TOTAL, in partnership with the leading companies in this area, is developing second generation biofuels derived


 

35

 

 

(1) Company data, based on quantities sold.
(2) ETBE: Ethyl-Tertio-Buthyl-Ether.
(3) Including the Algeciras and Huelva refineries (CEPSA).
(4) VOME: Vegetable-Oil-Methyl-Ester.


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from biomass. The Group is participating in the French and European bioenergy development programs.

In 2007, TOTAL continued its research and testing programs for fuel cell and hydrogen fuels technologies. For several years, TOTAL has been developing cooperation agreements for automotive applications (with BMW in 2006, Renault in 2003 and Delphi in 2001) and stationary applications (Electrabel and Idatech in 2004).

Under its partnership with BVG, the largest public transport company in Germany and a bus operator in

Berlin, TOTAL created a Centre of Excellence for Hydrogen in Berlin. After opening two retail stations selling hydrogen to the public in Germany in 2006 and 2007, TOTAL is planning on opening a third retail station in Belgium in 2008.

TOTAL is also participating in the hydrogen technology platform launched by the European Commission at the end of 2003 and is a founding member of the industrial group created in 2007 to participate in the European Joint Technology Initiative to promote the development of hydrogen technology.


 

Trading & Shipping

 

 

 

The Trading & Shipping sector:

 

 

sells and markets the Group’s crude oil production,

 

provides a supply of crude oil for the Group’s refineries,

 

imports and exports the appropriate petroleum products for the Group’s refineries to be able to adjust their production to the needs of local markets,

 

charters appropriate ships for these activities, and

 

undertakes trading on various derivatives markets.

Although Trading & Shipping’s main focus is serving the Group, its know-how and expertise also allow Trading & Shipping to extend the scope of its activities beyond meeting the strict needs of the Group.


 

Trading

TOTAL is one of the world’s major traders of crude oil and refined products on the basis of volumes traded.

The table below sets forth selected information with respect to TOTAL’s worldwide sales and source of supply of crude oil for each of the last three years.

SUPPLY & SALES OF CRUDE OIL

 

For the year ended December 31 (kb/d, except %)    2007    2006    2005

Supply of crude oil

              

Total supply

   4,194    4,112    4,465

Produced by the Group(a)(b)

   1,502    1,473    1,615

Purchased from external suppliers

   2,692    2,639    2,850

Production by the Group as a percentage of total supply

   36%    36%    36%

Sales of crude oil

              

Total Sales

   4,194    4,112    4,465

Sales to Downstream segment(c)

   2,042    2,074    2,111

Sales to external customers

   2,152    2,038    2,354

Sales to external customers as a percentage of total sales

   51%    50%    53%

 

(a) Including condensates and natural gas liquids.
(b) Including TOTAL’s proportionate share of the production of equity affiliates.
(c) Excluding share of CEPSA.

 

The Trading division operates extensively on physical and derivatives markets, both organized and over the counter. In connection with its trading activities, TOTAL, like most other oil companies, uses derivative energy instruments to adjust its exposure to fluctuations in the price of crude oil and refined products.

 

The Trading division undertakes certain physical transactions on a spot basis, but also enters into term and exchange arrangements and uses derivative instruments such as futures, forwards, swaps and options. These transactions are entered into with various counterparties.


 

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All of TOTAL’s trading activities are subject to strict internal controls and trading limits.

In 2007, the principal market benchmarks stood at historically high levels:

 

              2007           2006           2005       min 2007     max 2007  

Brent ICE Futures — 1st Line(a)

  ($/b)   72.67   66.11   55.25   51.70   (11-Jan )   95.76   (23-Nov )

Gasoil ICE Futures — 1st Line(a)

  ($/t)   637.8   580.4   507.9   463.75   (18-Jan )   855.75   (23-Nov )

VLCC Ras Tanura Chiba — BITR(b)

  ($/t)   13.93   14.52   13.91   8.67   (13-Sep )   56.57   (18-Dec )

 

(a)

1st line: Quotation for first month nearby delivery ICE Futures.

(b) VLCC: Very Large Crude Carrier. Data estimated from BITR market quotations. BITR: Baltic International Tanker Routes.

 

Throughout 2007, the Trading division maintained a level of activity similar to the levels attained in 2005 and 2006, trading physical volumes of crude oil and refined products amounting to an average of approximately 5 Mb/d.

Shipping

The principal activity of the Shipping division is to arrange the transportation of crude oil and refined products necessary for the Group’s activities. The Shipping division provides the wide range of shipping services required by the Group to develop its activities and maintains a rigorous safety policy. Like a certain number of other oil companies and shipowners, the Group uses freight-rate derivative contracts in its shipping activity to adjust its exposure to freight-rate fluctuations.

In 2007, the Shipping division of the Group chartered 3,300 voyages to transport approximately 128 Mt of oil. As of December 31, 2007, the Group employed a fleet of 65 vessels chartered under long-term or medium-term agreements, (including six LPG carriers). The fleet, consisting entirely of double-hulled vessels, is modern, with an average age of approximately five years.

Throughout 2007, and for the fifth consecutive year, world crude tanker tonnage experienced an increase

(+5%(1) in 2007, +5% in 2006, +7.5% in 2005, +4.5% in 2004 and +5% in 2003). The demand for oil increased in 2007 (+1.2 Mb/d(2) for 2007 compared to 2006, +0.6 Mb/d for 2006 compared to 2005), due principally to an increase in the fourth quarter 2007. Although this trend pushed the world oil transport matrix higher, the stronger growth of fleet size reinforced the structural surplus of available tonnage. Despite vessel conversions and even with an accelerated removal of single-hulled vessels, the over-sized tanker orderbook (158 million dead-weight tons, or 40% of the current operating fleet(1)) will probably have a negative impact on tonnage balances.

On the crude transport market, spot rates gradually declined from January to October 2007. Rates fell sharply between June and October, to their lowest level since 2002. However, in November and December 2007 rates on the spot market rebounded principally due to:

 

 

Crude transport demand increased, related to a surge in OPEC production;

 

Approximately a dozen single-hulled VLCCs and several Suezmaxes were removed from the operating fleet to undergo conversion to dry bulk and other services; and

 

Ship owners reduced tonnage available by reducing the cruising speed of their vessels.


 

Chemicals

 

 

 

The Chemicals segment includes Base Chemicals, with petrochemicals and fertilizers, and Specialties, with the Group’s rubber processing, resins, adhesives and electroplating activities.

TOTAL is one of the world’s largest integrated chemical producers(3).

 

On May 12, 2006, TOTAL’s shareholders approved the spin-off of Arkema, which, since October 1, 2004, included vinyl products, industrial intermediates and performance products. Arkema has been listed on Euronext Paris since May 18, 2006.


 

 

(1) Clarkson’s SIN.
(2) Company data.
(3) Source: company data, based on consolidated sales.

 

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Base Chemicals

 

 

 

TOTAL’s Base Chemicals division includes petrochemicals and fertilizers.

Base Chemicals’ sales amounted to 12.56 B in 2007, compared to 12.01 B in 2006 and 10.25 B in 2005. Demand remained strong throughout the year due to a favorable economic environment. Margins remained at

high levels, mainly in Europe, during the first, second and third quarters of 2007, but were affected by the strong increase in the price of naphtha during the last months of the year. Adjusted net operating income from Base Chemicals activities decreased by 11% in 2007 compared to 2006, after a 9% increase in 2006 compared to 2005.


 

Petrochemicals

TOTAL’S PRODUCTION CAPACITIES BY

MAIN PRODUCT GROUPS AND REGIONS

 

      2007    2006    2005
(kt/y)    Europe    North
America
   Asia and
Middle
East(c)
   Worldwide    Worldwide    Worldwide

Olefins(a)

   5,185    1,195    795    7,175    7,035    7,005

Aromatics

   2,650    930    755    4,335    4,255    4,125

Polyethylene

   1,315    440    280    2,035    2,035    2,035

Polypropylene

   1,210    1,070    295    2,575    2,420    2,420

Styrenics(b)

   1,240    1,350    570    3,160    3,105    3,175

 

(a) Ethylene, propylene and butadiene.
(b) Styrene, polystyrene and elastomers (activity discontinued at the end of 2006).
(c) Including minority interests in Qatar and 50% of Samsung-Total Petrochemicals capacities in Daesan (South Korea).

 

Petrochemicals activities have been conducted by Total Petrochemicals since October 1, 2004 and include base petrochemicals (olefins and aromatics) as well as polyethylene, polypropylene and styrenics.

TOTAL’s main petrochemicals sites are located in Belgium (Antwerp, Feluy), France (Gonfreville, Carling, Lavéra, Feyzin), the United States (Port Arthur, La Porte and Bayport in Texas and Carville in Louisiana) as well as in Singapore and China (Foshan). Most of these sites are either adjacent to or connected by pipelines to Group refineries. As a result, most of TOTAL’s petrochemicals activities are closely integrated within the Group’s refining operations.

TOTAL holds a 50% interest in an integrated petrochemicals site located in Daesan, South Korea in partnership with Samsung. TOTAL also holds a 20% interest in a site with a steam cracker and two polyethylene units in Mesaieed, Qatar.

TOTAL’s strategy is to strengthen its position among the leaders in petrochemicals, by focusing on three main orientations:

 

 

In mature markets, TOTAL is improving the competitiveness of its existing large sites. The reorganization plan approved in 2006 for the Carling and Gonfreville sites is part of this strategy. It calls

 

for the closing of a steam cracker and the styrene plant at Carling as well as the construction of a world-class styrene plant in Gonfreville to replace the existing styrene plant on this site. This plan is scheduled to be completed early in 2009. In addition, debottlenecking operations designed to strengthen their competitiveness are planned for 2008 at the Feluy, La Porte and Port Arthur sites.

 

 

In Asia, TOTAL is expanding its activities to respond to growing demand. In 2007, Samsung-Total Petrochemicals completed a major modernization program at its Daesan site which increased the site’s production capacity by nearly one-third by expanding the steam cracking and styrene units and also building a new polypropylene line. The project was completed on time and on budget. The commissioning of a metathesis plant (for the conversion of ethylene and butene into propylene) is expected in 2008.

 

 

The Group is developing sites in countries with favorable access to raw materials.

In Qatar, where the Group has been present since 1974 through its 20% interest in Qapco, TOTAL’s 49% affiliate Qatofin is building an ethane-based steam cracker at Ras Laffan and a new low-density


 

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polyethylene plant in Mesaieed. These two units are scheduled to come onstream early in 2009. In addition, Qapco’s existing steam cracker in Mesaieed was debottlenecked and its production capacity brought to 720 kt/y in August 2007. Qapco expects to build a new low-density polyethylene unit in 2011.

In July 2007, TOTAL entered into a partnership with Sonatrach, the Algerian national oil company, to build an integrated petrochemicals plant in Arzew, Algeria, over the next five years, including an ethane-based steam cracker, two polyethylene units and a monoethylene glycol production unit.

In September 2007, TOTAL announced the construction of a pilot plant to produce and test polylactic acid-based second generation polymers. Polylactic acid is a biodegradable bioplastic made from sugar.

At all sites, safety and environmental improvements were in line with the yearly targets set by the Group.

Base petrochemicals

Base petrochemicals include olefins and aromatics produced by steam cracking petroleum cuts, mainly naphtha, as well as propylene and aromatics manufactured in the Group’s refineries. The economic environment for these activities is extremely volatile and margins are strongly influenced by the evolution of the price of naphtha.

2007 was marked by important fluctuations in the price of naphtha and a strong global demand for steam cracker derivatives, reflecting the healthy economic environment.

Consequently, margins remained at high levels, especially in Europe, before they dropped significantly during the fourth quarter of the year due to the strong increase in the price of naphtha.

Olefins production rose by 2% in 2007 compared to 2006 and 1% in 2006 compared to 2005.

Polyethylene

Polyethylene is a plastic produced by the polymerization of ethylene manufactured in the Group’s steam crackers. It is primarily intended for the packaging, automotive, food, cable and pipe markets. Margins are strongly influenced by the level of demand and by competition from expanding production in the Middle East, which takes advantage of favorable access to raw materials (ethylene, made from ethane).

 

In 2007, the strong level of world demand helped to absorb new production brought onstream in the Middle East and China, and contributed to maintaining margins. Overall volumes were stable compared to 2006 after having increased by 1.4% in 2006 compared to 2005.

Polypropylene

Polypropylene is a plastic produced by the polymerization of propylene manufactured in the Group’s steam crackers and refineries. It is primarily intended for the automotive, packaging, carpet and household, appliances, fibers and sanitary goods markets. Margins are mainly influenced by the level of demand and the availability and price of propylene.

In 2007, European demand remained strong and margins were at satisfactory levels. However, in the United States, demand was weak as margins were affected by the volatility and high level of prices for propylene. Overall sales volumes increased by 1.5% compared to 2006, after a 1.8% increase in 2006 compared to 2005.

Styrenics

This business activity encompasses styrene and polystyrene. The elastomers activity was shut down at the end of 2006.

Most of the styrene manufactured by the Group is used to produce polystyrene, a plastic principally used in packaging, domestic appliances, electronics and audio-video. Margins are strongly influenced by the level of polystyrene demand and the price of benzene, the principal raw material.

In 2007, polystyrene world demand slightly increased due to stronger Chinese demand and a rebound in European demand. However, American demand continued to decrease due to strong competition from other materials and plastics, as well as paper. Margins were affected by the high prices of raw materials, benzene and ethylene, and by the high costs of energy. In 2007, TOTAL’s polystyrene sales volumes increased by approximately 1% compared to 2006, after a 0.3% increase in 2006 compared to 2005.

Fertilizers

GPN, formerly Grande Paroisse, manufactures and markets nitrogen fertilizers made from natural gas and complex fertilizers made from nitrogen, phosphorus and potassium products. Margins are strongly influenced by the price of natural gas.

In 2007, GPN sales increased by approximately 20% compared to 2006, after a decrease by approximately 11% in 2006 compared to 2005. Demand for fertilizers


 

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remained strong due to healthy conditions in agricultural markets. Nevertheless, ammonia productions were affected by technical problems at the Group’s plants in Rouen and Grandpuits during the first half of the year.

In 2006, GPN stopped its French production of complex fertilizers due to the continuously declining market for those products, closed its plants in Bordeaux, Basse Indre, Rouen and Granville and sold its Dutch affiliate, Zuid Chemie, to Engrais Rosier, of which the Group holds a 57% share, to create a more competitive player in the Benelux market.

An important plan intended to reinforce the nitrogen derivatives activities was launched in 2006. It includes

the construction of a new urea plant in Grandpuits as well as a new world-class nitric acid plant in Rouen, to be commissioned late in 2008. The plan also includes the shutdown of the fertilizers site in Oissel in 2008 and three small, obsolete, nitric acid units in Rouen and Mazingarbe.

Regarding the explosion which struck its Toulouse plant in September 2001, payments made by the Group, under the French law presumption of civil responsibility, over and above the compensation paid by insurance companies, continued in 2007, reaching a cumulative amount approaching 1,278 M as of December 31, 2007.


 

Specialties

 

 

 

TOTAL’s Specialties division includes rubber processing (Hutchinson), resins (Cray Valley, Sartomer and Cook Composites & Polymers), adhesives (Bostik) and electroplating (Atotech). The division serves consumer and industrial markets for which customer-oriented marketing and service as well as innovation are key drivers. The Group markets specialty products in more than 55 countries. Its strategy is to pursue its international expansion by combining internal growth and targeted acquisitions while concentrating on growing markets and focusing on the distribution of new products with high added value.

In 2007, the Specialties division benefited from a generally favorable environment, in particular stronger demand in Europe, despite a significant slowdown in the U.S. economy. Sales reached 7.25 B, an increase of nearly 2% compared to 2006, after a 9% increase in 2006 compared to 2005. Adjusted net operating income from the Specialties division increased by 8% in 2007 compared to 2006 and by 10% in 2006 compared to 2005.

Rubber processing

Hutchinson manufactures and markets products derived from rubber processing principally intended for the automotive and aerospace industries as well as for consumer markets.

Sales increased by approximately 3% in 2007 compared to 2006, after a 5% increase in 2006 compared to 2005. In 2007, sales from the automotive activity rose by nearly 2% compared to 2006 in an uneven economic environment, relatively favorable in Europe, well oriented in Latin America, but difficult in the United States where the activity declined. Sales from the industrial activities increased by approximately 5% in 2007 compared to

2006, due to a strong demand from the defense industry in the United States and from the aerospace and railway industries in Europe. Sales from consumer goods activity increased by approximately 3.5% due to the higher consumer demand in Europe.

Throughout 2007, Hutchinson continued to develop in expanding markets, primarily Eastern Europe, South America and China. Hutchinson brought onstream a new production site in Brasov, Romania, continued to develop its new plant in Lodz, Poland, as well as its plant in Suzhou, China, and decided to build a new plant in Tunisia in 2008. In addition, Hutchinson bought back the shares held by its partner in the plant located in Wuhan, China.

Resins

TOTAL produces and markets resins for adhesives, inks, paints, coatings and structural materials through its three subsidiaries Cray Valley, Sartomer and Cook Composites & Polymers.

In 2007, the Group continued to improve its results from the resins activity despite the downturn of demand in North America and the weakening of the dollar against the euro which affected the results from this activity. This decline was offset by more favorable conditions on European markets. Sales decreased by approximately 4% in 2007 compared to 2006, after an increase of 8% in 2006 compared to 2005.

In 2007, Cray Valley pursued the restructuring of its European productions and closed its maleic anhydride plant in Drocourt (France) and its photocuring resins plant in Eckles (UK).

Cook Composites & Polymers, through its affiliate Composite One, strengthened its composite materials distribution activities in the United States by acquiring Polygard.


 

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Sartomer developed its photocuring resins production capacities in Villers-Saint-Paul (France), West Chester (Pennsylvania, United States) and Chatham (Virginia, United States) and completed the construction of its plant in Nansha (China), commissioned in January 2008.

Adhesives

Bostik is one of the worldwide leaders(1) in its sector, based on sales, with leading positions in the industrial, hygiene, construction and consumer and professional distribution markets.

Sales increased by more than 5% in 2007 compared to 2006, after a 15% increase in 2006 compared to 2005. The increase in sales recorded in 2007 primarily stems from strong organic growth favored by healthy global economic conditions and also from acquisitions made in the second half 2006. The activity was sustained in the Asia-Pacific zone, remained well oriented in Europe, but was affected by the crisis in the construction sector in the United States.

 

In 2007, Bostik brought onstream new production capacities for tile powders in Sainville (France) and Sydney (Australia), laminated products in Milwaukee (Wisconsin, United States) and Helsingborg (Sweden), and double glazing in Leicester (UK).

Electroplating

Atotech, which encompasses TOTAL’s electroplating activities, is the second largest company in this sector, based on worldwide sales(1). It is active in both the electronics and general metal finishing markets.

Sales rose by 9% in 2007 compared to 2006, after a 19% increase in 2006 compared to 2005. Electroplating activity benefited from the growth of the electronic industry in Asia.

In 2007, Atotech expanded its general metal finishing activities by acquiring the electroplating activities of Sidasa, a Spanish company specialized in anticorrosive coating technologies, notably zinc-based, principally intended for automotive applications.


 

Other Matters

 

 

 

Various factors, including certain events or circumstances discussed below, have affected or may affect our business and results.

Exploration and production legal considerations

TOTAL’s exploration and production activities are conducted in many different countries and are therefore subject to an extremely broad range of legislation and regulations. These cover virtually all aspects of exploration and production activities, including matters such as land tenure, production rates, royalties, environmental protection, exports, taxes and foreign exchange. The terms of the concessions, licenses, permits and contracts governing the Group’s ownership of oil and gas interests vary from country to country. These concessions, licenses, permits and contracts are generally granted by or entered into with a government entity or a state-owned company and are sometimes entered into with private owners. These arrangements usually take the form of concessions or production sharing agreements.

The “oil concession agreement” remains the traditional model for agreements entered into with States: the oil company owns the assets and the facilities and is

entitled to the entire production. In exchange, the operating risks, costs and investments are the oil company’s responsibility and it agrees to remit to the relevant State, usually the owner of the subsoil resources, a production-based royalty, income tax, and possibly other taxes that may apply under the local tax legislation.

The “production sharing contract” (PSC) involves a more complex legal framework than the concession agreement: it defines the terms and conditions of production sharing and sets the rules governing the cooperation between the company or consortium in possession of the license and the host State, which is generally represented by a State company. The latter can thus be involved in operating decisions, cost accounting and production allocation. The consortium agrees to undertake and finance all exploration, development and production activities at its own risk. In exchange, it is entitled to a portion of the production, known as “cost oil”, the sale of which should cover all of these expenses (investments and operating costs). The balance of production, known as “profit oil”, is then shared in varying proportions, between the company or consortium, on the one hand, and with the State or the state company, on the other hand.


 

 

(1) Company data.

 

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In some instances, concession agreements and PSCs coexist, sometimes in the same country. Even though other contractual structures still exist, TOTAL’s license portfolio is comprised mainly of concession agreements. In all countries, the authorities of the host state, often assisted by international accounting firms, perform joint venture and PSC cost audits and ensure the observance of contractual obligations.

In some countries, TOTAL has also signed contracts called “contracts for risk services” which are similar to production sharing contracts, with the main difference being that the repayment of expenses and the compensation for services are established on a monetary basis. Current contracts for risk services are backed by a compensation agreement (“buyback”), which allows TOTAL to receive part of the production equal to the cash value of its expenses and compensation.

Hydrocarbon exploration activities and production activities are subject to permits, which can be different for each of these activities. These permits are granted for limited periods of time and include an obligation to return a large portion — in case of failure the entire portion — of the permit area at the end of the exploration period.

In general, TOTAL is required to pay income tax on income generated from its production and sale activities under its concessions or licenses. In addition, depending on the country, TOTAL’s production and sale activities may be subject to a range of other taxes, fees and withholdings, including special petroleum taxes and fees. The taxes imposed on oil and gas production and sale activities may be substantially higher than those imposed on other businesses.

Industrial and environmental considerations

TOTAL’s activities involve certain industrial and environmental risks which are inherent in the production of products that are flammable, explosive or toxic. Its activities are therefore subject to government regulations concerning environmental protection and industrial safety in most countries. For example, in Europe, TOTAL operates sites that meet the criteria of the European Union Seveso II directive for classification as high-risk sites. Other sites operated by TOTAL in other parts of the world involve similar risks.

The broad scope of TOTAL’s activities, which include drilling, oil and gas production, on-site processing, transportation, refining, petrochemicals activities, storage and distribution of petroleum products, production of base chemical products and specialty chemicals, involve a wide range of operational risks. Among these risks are those of explosion, fire or leakage

of toxic products. In the transportation area, the type of risks depends not only on the hazardous nature of the products transported, but also on the transportation methods used (mainly pipelines, maritime, river-maritime, rail, road), the volumes involved, and the sensitivity of the regions through which the transport passes (population density, environmental considerations). Most of these activities involve environmental risks related to emissions into the air, water or soil and the creation of waste, and also require environmental site restoration after production is discontinued.

Certain branches or activities face specific risks. In oil and gas exploration and production, there are risks related to the physical characteristics of an oil or gas field. These include eruptions of crude oil or of natural gas, discovery of hydrocarbon pockets with abnormal pressure, crumbling of well openings, leaks generating toxic risks and risks of fire or explosion. All these events could possibly damage or even destroy crude oil or natural gas wells as well as related equipment and other property, cause injury or even death, lead to an interruption of activity or cause environmental damage. In addition, since exploration and production activities may take place on sites that are ecologically sensitive (tropical forest, marine environment, etc.), each site requires a specific approach to avoid or minimize the impact on the related ecosystem, biodiversity and human health.

TOTAL’s activities in the Chemicals segment and, to a lesser extent, the Downstream segment may also have health, safety and environmental risks related to the overall life cycle of the products manufactured. These risks can arise from the intrinsic characteristics of the products involved, which may, for example, be flammable, toxic, or linked to the greenhouse gas effect. Risks of facility contamination and off-site impacts may also arise from emissions and discharges resulting from processing or refining, and from recycling or disposing of materials and wastes at the end of their useful life.

Health, safety and environment regulations

TOTAL is subject in general to extensive and increasingly strict environmental regulation in the European Union. Significant directives which apply to its operations and products, particularly refining and marketing, but also its chemicals and, to a lesser extent, its upstream business, are:

 

 

The directive for a system of Integrated Pollution Prevention and Control (IPPC), a cost/benefit framework used to comprehensively assess the environmental quality standards, prior environmental impacts, and potential additional emissions limits on, large industrial plants, including its refineries and chemical sites.


 

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Air Quality Framework Directive and related directives on ambient air quality assessment and management, which, among other things, limit emissions for sulfur dioxide, oxides of nitrogen, particulate matter, lead, carbon monoxide, benzene and ozone.

 

The Sulfur Content Directive, under which sulfur in diesel fuel has been limited to 0.2% since July 2000, and 0.1% as of January 2008. Since January 2003, sulfur in heavy fuel oil has been limited to 1%, with certain exceptions for combustion plants provided that local air quality standards are met.

 

The Large Combustion Plant Directive, a directive which limits certain emissions from large combustion plants, including sulfur dioxide, nitrogen oxides and particulates; this directive will become effective in 2008.

 

Automobile emission directives which control and limit exhaust emissions from cars and other motor vehicles. Under these directives, emission controls will continue to become more stringent over time. Since 2005, maximum sulfur levels for gasoline and diesel fuels have been 50 ppm and, beginning in 2009, a maximum sulfur content of 10 ppm will be mandatory throughout the EU.

 

The directive, adopted in September 2003, implementing the Kyoto Protocol within the European Union by establishing a system for greenhouse gas emissions quotas. This system, which entered into effect in January 2005, requires the Member States of the European Union to prepare quotas for industrial activities, in particular the energy sector, and to deliver carbon dioxide emissions permits based on these quotas.

 

The Major Hazards Directive, which requires emergency planning, public disclosure of emergency plans, assessment of hazards, and effective emergency management systems.

 

The Framework Directive on Waste Disposal, intended to ensure that waste is recovered or disposed of without endangering human health and without using processes or methods which could unduly harm the environment. Numerous related directives regulate specific categories of waste. This directive is expected to be modified in 2008, leading to more precise definitions and stronger provisions.

 

Maritime oil spill directives, a number of which were passed in the wake of the Erika spill. Recent regulations require that tankers have double hulls and mandate improvements to navigation practices in the English Channel.

 

Numerous water directives impose water quality standards based on the various uses of inland and coastal waters, including ground water, by setting limits on the discharges of many dangerous substances and by imposing information gathering and reporting requirements.

 

Adopted and effective in 2003, a comprehensive framework water directive has begun progressively

 

replacing the numerous existing directives with a comprehensive set of requirements, including additional regulation obligating member countries to classify all water courses according to their biological, chemical and ecological quality; and to completely ban the discharges of approximately 30 toxic substances by 2017.

 

Numerous directives regulating the classification, labeling and packaging of chemical substances and their preparation as well as restricting and banning the use of certain chemical substances and products. The European Commission is still in the process of implementing a new system for Registration, Evaluation and Authorization of Chemicals (REACH) which replaces or complements the existing rules in this area. REACH was adopted in June 2006 and will require the registration of up to 100,000 chemicals, including intermediaries and polymers. Detailed economic studies have shown that implementing this regulation is expected to involve significant costs and administrative burden.

In March 2004, the European Union adopted a Directive on Environmental Liability. Member States have three years from the time of adoption to transpose the directive into their national legislation. The directive seeks to implement a strict liability approach for damage to biodiversity from high-risk operations. Citizens’ right to know about activities that potentially harm the environment is ensured through a 1990 directive regarding access to environmental information. In January 2003, this directive was replaced by a subsequent right-to-know directive which goes beyond the previous directive in setting the timescale in which information must be provided and imposing fines for non-compliance. The directive also increases public disclosure of emissions to the environment.

A directive implementing the Aarhus Convention concerning certain public participation rights in a variety of activities affecting the environment was adopted in May 2003.

In the United States, where TOTAL’s operations are less extensive than in Europe, it is also subject to significant environmental and safety regulation. Of particular relevance to TOTAL’s lines of business are:

 

 

The Comprehensive Environmental Response, Compensation, and Liability Act (also known as CERCLA or Superfund), under which waste generators, former and current site owners and operators, and certain other parties can be held jointly and severally liable for the entire cost of remediating abandoned, non-operating or other sites contaminated by spills or waste disposal regardless of fault or the amount of waste sent to a site. The U.S. Environmental Protection Agency has authority, under Superfund, to order responsible parties to clean up sites and may seek from responsible parties recovery of the government


 

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response costs and natural resource damages. Additionally, each state has separate laws similar to CERCLA and state environmental agencies have broad authority under these laws and under CERCLA to impose investigation and remediation obligations and liability for releases to the environment.

 

National and international maritime oil spill laws, regulations and conventions, including the Oil Pollution Act of 1990 which imposes significant oil spill prevention requirements, spill response planning obligations, ship design requirements (including in certain instances double hull requirements), operational restrictions and spill liability for tankers and barges transporting oil, offshore oil platform facilities and onshore terminals.

 

The Clean Air Act and its regulations, which require, among other things, stricter phased-in fuel specifications and sulphur reductions, enhanced emissions controls and monitoring at major sources of volatile organic compounds, nitrogen oxides, and other specific and hazardous air pollutants; stringent air emission limits, and construction and operating permits for major sources at chemical plants, refineries, marine and distribution terminals and other facilities; and risk management plans for the handling and storage of hazardous substances.

 

The Clean Water Act, which regulates the discharge of wastewater and other pollutants from both onshore and offshore operations and, among other things, requires industrial facilities to obtain permits for most surface water discharges, install control equipment and treatment systems, implement operational controls and preventative measures, including spill prevention and control plans and practices to control stormwater runoff.

 

The Resource Conservation and Recovery Act (RCRA) regulates the storage, handling, treatment, transportation and disposal of hazardous and non-hazardous wastes and imposes corrective action requirements on regulated activities that mandate the investigation and remediation of potentially contaminated areas at these facilities.

Other significant U.S. environmental legislation includes the Toxic Substances Control Act which regulates the development, testing, import, export and introduction of new chemical products into commerce and the Emergency Planning and Community Right-to-Know Act which requires emergency planning and spill notification as well as public disclosure of chemical usage and emissions. In addition, the Occupational Safety and Health Act, which imposes workplace safety and health, training and extensive process standards to reduce the risks of chemical exposure and injury to employees, has a significant impact on U.S. operations due to the comprehensive nature of its regulations which directly affect numerous aspects of refinery and chemical plant operations.

 

Environmental regulation in the United States is extensive and subject to future changes. Due to increased concern over climate change caused by rising atmospheric carbon dioxide levels, the U.S. government may, in the future, impose restrictions on greenhouse gas emissions from industrial sources, or otherwise regulate emissions of carbon dioxide as a criteria pollutant under the Clean Air Act.

Proceedings instituted by governmental authorities are pending or known to be contemplated against certain U.S.-based subsidiaries of TOTAL under applicable environmental laws which could result in monetary sanctions in excess of $100,000. No individual proceeding is, nor are the proceedings as a group, expected to have a material adverse effect on TOTAL’s consolidated financial position or profitability.

Risk evaluation

Prior to developing their activities and then on a regular basis during the operations, business units evaluate the related industrial and environmental risks, taking into account the regulatory requirements of the countries where these activities are located.

On sites with significant technological risks, analyses are performed for new developments, updated in case of planned significant modifications of existing equipment, and periodically re-evaluated. To harmonize these analyses and reinforce risk management, TOTAL has developed a group-wide methodology which is being implemented progressively throughout the sites it operates. In France, several pilot sites are contributing to develop Risk Management Plans pursuant to the French law of July 30, 2003. Each of these plans will implement various urbanization measures to reduce risks to urban environments surrounding industrial sites. The texts implementing these aspects of the law of July 30, 2003 were published at the end of 2005 and during 2006.

Similarly, environmental impact studies are done prior to any industrial development with a thorough initial site analysis, taking into account any special sensitivities and plans to prevent and reduce the impact of accidents. These studies also take into account the impact of the activities on the local population, based on a common methodology. In countries where prior authorization and supervision is required, the projects are not undertaken without informing the relevant authorities of the studies.

For new products, risk characterizations and evaluations are performed. Furthermore, life cycle analyses for related risks are performed on certain products to study all the stages of a product’s life cycle from its conception until the end of its existence.


 

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TOTAL’s entities actively monitor regulatory developments to comply with local and international rules and standards for the evaluation and management of industrial and environmental risks.

The Group’s environmental contingencies and asset retirement obligations are discussed in Note 19 to the Consolidated Financial Statements. Future expenses related to asset retirement obligations are accounted for in accordance with the principles described in paragraph Q of Note 1 to the Consolidated Financial Statements.

Risk management

Risk evaluations lead to the establishment of management measures that are designed to prevent and decrease environmental impacts, to minimize the risks of accidents and to limit their consequences. These measures may be put into place through equipment design itself, reinforcing safety devices, designs of structures to be built and protections against the consequences of environmental risks. Risk evaluations may be accompanied, on a case-by-case basis, by an evaluation of the cost of risk control and impact reduction measures.

TOTAL is working to minimize industrial and environmental risks inherent to its activities by putting in place performance procedures and quality, safety and environmental management systems, as well as by moving towards obtaining certification for or assessment of its management systems (including International Safety Rating System, ISO 14001, European Management and Audit Scheme), by performing strict inspections and audits, training staff and heightening awareness of all the parties involved, and by an active investment policy.

More specifically, following up on the 2002-2005 plan, an action plan was defined for the 2006-2009 period. This plan is focused on two initiatives for improvement: reducing the frequency and seriousness of on-the-job accidents and managing industrial risks. The results related to reducing on-the-job accidents are in line with goals, with a significant decrease in the rate of accidents (with or without time-lost) per million hours worked by nearly 70% between the end of 2001 and the end of 2007. In terms of industrial risks, this plan’s initiatives include specific organization and behavioral plans as well as plans to minimize risks and increase safety for people and equipment.

Several environmental action plans have been put in place in different activities of the Group covering periods

up until 2012. These plans are designed to improve environmental performance, particularly regarding the use of natural resources, air and water pollution, waste production and treatment, and site decontamination. They also contain quantified objectives to reduce greenhouse gas emissions, water pollution and sulphur dioxide emissions and to improve energy efficiency. As part of its efforts to reduce greenhouse gases and combat climate change, in December 2006 the Group committed to reducing gas flaring at its Exploration & Production sites by 50% compared to 2005 volumes by 2012. 77% of its major sites received ISO 14001 certification in 2007, and it is expected that all of the Group’s major sites will be ISO 14001 certified by the end of 2009. These activities are monitored through periodic, coordinated reporting by all Group entities.

Although the Group believes that, according to its current estimates, contingencies or liabilities related to health, safety and environmental concerns would not have a material impact on its consolidated financial situation, its cash flow or its income, due to the nature of such concerns it is impossible to predict if in the future these types of commitments or liabilities could have a material adverse effect on the Group’s activities.

Asbestos

Like many other industrial groups, TOTAL is involved in claims related to occupational diseases caused by asbestos exposure. The circumstances described in these claims generally concern activities prior to the beginning of the 1980s, long before the complete ban on the use of asbestos in most of the countries where the Group operates (January 1, 1997 in France). The Group’s various activities are not particularly likely to lead to significant exposure to asbestos related risks, since this material was generally not used in manufacturing processes, except in limited cases. The main potential sources of exposure are related to the use of certain insulating components in industrial equipment. These components are being gradually eliminated from the Group’s equipment through asbestos-elimination plans that have been underway for several years. However, considering the long period of time that may elapse before the harmful results of exposure to asbestos manifest themselves (up to 40 years), we anticipate that claims may be filed in the years to come. Asbestos related issues have been subject to close monitoring in all branches of the Group. As of December 31, 2007, the Group estimates that the ultimate cost of all asbestos related claims paid or pending is not likely to have a material adverse effect on the financial situation of the Group.


 

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Oil and gas exploration and production operations

Oil and gas exploration and production require high levels of investment and are associated with particular risks and opportunities. These activities are subject to risks related specifically to the difficulties of exploring underground, to the characteristics of hydrocarbons, as well as relating to the physical characteristics of an oil or gas field. The first stage of exploration involves geologic risks. For example, exploratory wells may not result in the discovery of hydrocarbons, or in amounts that would be insufficient to allow for economic development. Even if an economic analysis of estimated hydrocarbon reserves justifies the development of a discovery, the reserves can prove lower than the estimates during the production process, thus adversely affecting the economic development.

Almost all the exploration and production activities of TOTAL are accompanied by a high level of risk of loss of the invested capital. It is impossible to guarantee that new resources of crude oil or of natural gas will be discovered in sufficient amounts to replace the reserves currently being developed, produced and sold to enable TOTAL to recover the capital it has invested.

The development of oil and gas fields, the construction of facilities and the drilling of production or injection wells require advanced technology in order to extract and exploit fossil fuels with complex properties over several decades. The deployment of this technology in such a difficult environment makes cost projections uncertain. TOTAL’s activities can be limited, delayed or cancelled as a result of numerous factors, such as administrative delays, particularly in terms of the host states’ approval processes for development projects, shortages, late delivery of equipment and weather conditions (the production of certain fields situated in the Gulf of Mexico was affected by Hurricane Katrina in 2005). Some of these risks may also affect TOTAL’s projects and facilities further down the oil and gas chain.

Economic or political factors

The oil sector is subject to domestic regulations and the intervention of governments, or state-owned companies, in such areas as:

 

 

the award of exploration and production interests,

 

authorizations by governments or by a state-controlled partner, especially for development projects, annual programs or the selection of contractors or suppliers,

 

the imposition of specific drilling obligations,

 

environmental protection controls,

 

control over the development and abandonment of a field causing restrictions on production,

 

calculating the costs that may be recovered from the relevant authority and what expenditures are deductible from taxes, and

 

possible, though exceptional, nationalization, expropriation or modification of contract rights.

The oil industry is also subject to the payment of royalties and taxes, which may be high compared with those imposed with respect to other commercial activities and which may be subject to material modifications by the governments of certain countries. Substantial portions of TOTAL’s oil and gas reserves are located in certain countries which may be considered politically and economically unstable. These reserves and the related operations are subject to certain risks, including:

 

 

the establishment of production and export limits,

 

the renegotiation of contracts,

 

the expropriation or nationalization of assets,

 

risks relating to changes of local governments or resulting changes in business customs and practices,

 

payment delays,

 

currency exchange restrictions,

 

depreciation of assets due to the devaluation of local currencies or other measures taken by governments that might have a significant impact on the value of activities, and

 

losses and impairment of operations due to armed conflicts, civil unrest or the actions of terrorist groups.

TOTAL, like other major international oil companies, has a geographically diverse portfolio of reserves and operational sites, which allows it to conduct its business and financial affairs so as to reduce its exposure to such political and economic risks. However, there can be no assurance that such events will not adversely affect the Group.

Geopolitical situation in the Middle East

In 2007, the Middle East represented 16% of the Group’s production of oil and gas and 5% of the Group’s net operating income. The Group produces oil and gas in the United Arab Emirates, Iran, Oman, Qatar, Syria and Yemen. TOTAL cannot predict developments of the geopolitical situation in the Middle East and its potential consequences on the Group’s activities in this area.

Regulations concerning Iran

In September 2006, the U.S. legislation implementing sanctions against Iran and Libya (Iran and Libya Sanction Act, referred to as “ILSA”), was amended and


 

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extended until December 2011. Pursuant to this statute, which now concerns only Iran (Iran Sanctions Act, referred to as “ISA”), the President of the United States is authorized to initiate an investigation into the possible imposition of sanctions (from a list that includes denial of financing by the U.S. Export-Import Bank and limitations on the amount of loans or credits available from U.S. financial institutions) against persons found, in particular, to have knowingly made investments of $20 million or more in any 12-month period in the petroleum sector in Iran. In May 1998, the U.S. government waived the application of sanctions for TOTAL’s investment in the South Pars gas field. This waiver, which has not been modified since it was granted, does not address TOTAL’s other activities in Iran, although TOTAL has not been notified of any related sanctions.

In November 1996, the Council of the European Union adopted Council Regulation No. 2271/96, which prohibits TOTAL from complying with any requirement or prohibition based on or resulting directly or indirectly from certain enumerated legislation, including ILSA. It also prohibits TOTAL from extending its waiver for South Pars to other activities.

In each of the years since the passage of ILSA (now ISA), TOTAL has made investments in Iran (excluding South Pars) in excess of $20 million. TOTAL may invest amounts significantly in excess of $20 million per year in the country. TOTAL cannot predict interpretations of or the implementation policy of the U.S. government under ISA with respect to its current or future activities in Iran. It is possible that the United States may determine that these or other activities constitute activity prohibited by ISA and will subject TOTAL to sanctions.

TOTAL does not believe that enforcement of ISA, including the imposition of the maximum sanctions under the current applicable law and regulations, would have a material negative effect on its results of operations or financial condition.

Furthermore, the United States currently imposes economic sanctions, which are administrated by the U.S. Treasury Department’s Office of Foreign Assets Control and which apply to U.S. persons, with the objective of denying certain countries, including Iran, Syria and Sudan, the ability to support international terrorism and, additionally in the case of Iran and Syria, to pursue weapons of mass destruction and missile programs. TOTAL does not believe that these sanctions are applicable to any of its activities in these countries.

France and the European Union have adopted measures, based on United Nations resolutions 1737/2006, 1747/2007 and 1803/2008, that restrict the movement of certain individuals and goods to or from Iran as well as certain financial transactions with Iran, in

each case when such individuals, goods or transactions are related to nuclear proliferation and weapons activities or likely to contribute to their development. As currently applicable, the Group believes that these measures do not cover TOTAL’s activities and projects in this country.

TOTAL’s activities in Iran are limited mainly to the implementation of two buyback contracts signed between 1995 and 1999 for permits on which the Group is no longer the operator. As a result, TOTAL’s involvement consists essentially in being reimbursed for its past investments.

In 2007, TOTAL’s production in Iran was 15 kboe/d, approximately 0.5% of the Group’s worldwide production. TOTAL does not believe that its activities in Iran have a material impact on the Group’s results.

Regulations concerning Sudan

TOTAL has no active business in Sudan. TOTAL has no oil or gas production in Sudan and, to date, has not made any significant investments there.

TOTAL holds a 32.5% interest in Block B in Southern Sudan through a 1980 Exploration and Production Sharing Agreement (EPSA). Operations were suspended in 1985 because of escalating security concerns, but the company maintained its rights. The EPSA was revised, effective December 21, 2004, and provided that the parties (the Government of Sudan and the consortium partners) would mutually agree upon a resumption date when the petroleum operations could be undertaken physically in the contract area. Such resumption date would mark the starting point of our work obligations as foreseen in the contract. A joint decision on the resumption date has not occurred yet.

If TOTAL were to resume its activities in Southern Sudan, it would do so in compliance with applicable national, European and international laws and regulations, as well as with the Group’s Code of Conduct and Ethics Charter. Within the Group’s scope of operations and authority, it is committed to upholding human rights and fundamental freedoms, including social, economic and cultural rights, and the rights and interests of local residents, minorities and other vulnerable groups. If TOTAL is able to gain access to the area, the Group will study the situation with non-governmental organizations and stakeholders involved in Southern Sudan to determine the best possibilities for the implementation of socio-economic programs adapted to the needs of the local population.

In recent years certain U.S. states, including California, Iowa and Illinois, have passed legislation requiring state pension funds to divest themselves of investments in


 

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any company with active business operations in Sudan. On December 31, 2007, the U.S. Congress adopted the Sudan Accountability and Divestment Act, which supports these state legislative initiatives. If such laws were to apply to TOTAL’s presence in Sudan and were implemented resulting in certain state pension funds holding large interests in TOTAL selling such interests, such sales, if significant, could have an adverse effect on TOTAL’s share price.

Competition

The Group is subject to intense competition within the oil sector and between the oil sector and other sectors aiming to fulfill the energy needs of the industry and of individuals. TOTAL is subject to competition from other oil companies in the acquisition of assets and licenses for the exploration and production of oil and natural gas. Competition is particularly strong with respect to the acquisition of resources of oil and natural gas, which are in great demand. Competition is also intense in the sale of manufactured products based on crude and refined oil.

In this regard, the main international competitors of TOTAL are ExxonMobil, Royal Dutch Shell, BP and Chevron. At the end of 2007, TOTAL ranked fourth among these international oil companies in terms of market capitalization(1).

Insurance and risk management

Organization

TOTAL has its own insurance and reinsurance company, Omnium Insurance and Reinsurance Company (OIRC). OIRC is integrated into the Group’s insurance management and acts as a centralised global operations

tool for covering the Group’s risks. It allows the Group to implement its insurance program, notwithstanding the varying regulatory environments, in the range of countries where the Group is present.

Certain countries require the purchase of insurance from a local insurance company. When a subsidiary company of the Group is subject to these constraints and is able to obtain insurance from a local company meeting Group standards, OIRC merely obtains a retrocession of the covered risks. As a result, OIRC negotiates reinsurance contracts with the subsidiaries’ local insurance companies, which transfer almost all of the risk (between 97.5% and 100%) to OIRC. When a local insurer covers the risks at a lower level than that defined by the Group, OIRC provides additional coverage so as

to standardise coverage Group-wide. On the other hand, certain countries require insurance in excess of what the Group may deem necessary under Group-wide standards. In these cases, OIRC also provides the additional coverage necessary to satisfy these legal obligations and the Group does not need to turn to an outside insurer.

At the same time, OIRC negotiates a reinsurance program at the Group level with mutual insurance companies for the oil industry and commercial reinsurers. OIRC permits the Group to better manage price variations in the insurance market, by taking on a greater or lesser amount of risk corresponding to the price trends in the insurance market.

In 2007, the net amount of risk retained by OIRC after reinsurance was 50 M per property/business interruption insurance claim and 50 M per third party liability insurance claim.

Risk and insurance management policy

In this context, the Group risk and insurance management policy is to work with the relevant internal department of each subsidiary to:

 

 

Define scenarios of major disaster risks by analyzing those events whose consequences would be the most significant for third parties, for employees and for the Group;

 

Assess the potential financial impact on the Group in case these disasters should occur;

 

Implement measures to limit the possibility that such events occur and the scope of damage in case of their occurrence; and

 

Manage the level of risk from such events that is covered internally by the Group and that which is transferred to the insurance market.

Insurance policy

The Group has worldwide tort and property insurance coverage for all its subsidiaries.

These programs are contracted with first-class insurers (or reinsurers and mutual insurance companies of the oil industry through OIRC).

The amounts insured depend on the financial risks defined in the disaster scenarios discussed above and the coverage terms offered by the market (available capacities and price conditions).


 

 

(1) Source: Reuters.

 

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More specifically, for:

 

 

Third party liability insurance: since the maximum financial risk cannot be evaluated using a systematic approach, the amounts insured are based on market conditions and industry practice, in particular, the oil industry. The insurance cap in 2007 for general and product liability was $750 million.

 

Property damage and business interruption: the amounts insured by sector and by site are based on estimated costs and reconstruction scenarios under the identified worst-case disaster scenarios and on insurance market conditions.

For example, for the highest estimated risks of the Group (UK North Sea or main European refineries), the insurance cap was $1.1 billion in 2007.

Moreover, deductibles for property damages fluctuate between 0.1 M and 10 M depending on the level of risk, and are carried by the subsidiary. For business interruption, they represent 60 days.

Other insurance contracts are bought by the Group in addition to property damage and third party liability coverage, mainly car fleet, credit insurance and employee benefits. These risks are entirely underwritten by outside insurance companies.

 

The Group subscribed business interruption coverage in 2007 for its main refining and petrochemical sites.

The policy described above is given as an example of past practice over a certain period of time and cannot be considered as representative of future conditions. The Group’s insurance policy may be changed at any time depending on the market conditions, specific circumstances and on management’s assessment of the incurred risks and the adequacy of their coverage. The Group cannot guarantee that it will not suffer any uninsured loss.

Organizational Structure

TOTAL S.A. is the parent company of the TOTAL Group. As of December 31, 2007, there were 723 consolidated subsidiaries, of which 619 were fully consolidated, 13 were proportionately consolidated, and 91 were accounted for under the equity method. For a list of the Principal Subsidiaries of the Company, see Note 35 to the Consolidated Financial Statements.

Property, Plants and Equipment

TOTAL has freehold and leasehold interests in numerous countries throughout the world, none of which is material to TOTAL. See “— Business Overview — Upstream” for a description of TOTAL’s reserves and sources of crude oil and natural gas.


 

ITEM 4A. UNRESOLVED STAFF COMMENTS

None.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

This section is the Company’s analysis of its financial performance and of significant trends that may affect its future performance. It should be read in conjunction with the Consolidated Financial Statements included elsewhere in this Annual Report. The Consolidated Financial Statements are prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the IASB and IFRS as adopted by the European Union.

 

This section contains forward-looking statements which are subject to risks and uncertainties. For a list of important factors that could cause actual results to differ materially from those expressed in the forward-looking statements, see “Cautionary Statement Concerning Forward-Looking Statements” on page v.


 

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Overview

 

 

 

TOTAL’s operating results are generally affected by a variety of factors, including changes in crude oil and natural gas prices as well as refining and marketing margins, which are all generally denominated in dollars, and in exchange rates, particularly the value of the euro compared to the dollar. Higher crude oil and natural gas prices generally have a positive effect on the operating income of TOTAL, since its Upstream oil and gas business benefits from the resulting increase in revenues realized from production. Lower crude oil and natural gas prices generally have a corresponding negative effect. The effect of changes in crude oil prices on TOTAL’s Downstream activities depends upon the speed at which the prices of refined petroleum products adjust to reflect such changes. In the past several years, TOTAL has benefited from a sharp increase in crude oil and natural gas prices, which have been offset in part by a significant weakening of the dollar relative to the euro as TOTAL reports its results in euros. TOTAL’s operating results are also affected by general economic and political conditions as well as changes in governmental laws and regulations. For more information, see “Item 3. Key Information — Risk Factors” and “Item 4. Information on the Company — Other Matters”.

Pursuant to IFRS, 2006 and 2005 income statement figures for the Group and the Chemicals segment, with the exception of the Group’s net income, as well as the return on average capital employed (ROACE)(1) for the Chemicals segment, have been recalculated to exclude contributions from the activities of Arkema to the Chemicals segment, which were spun-off in May 2006. These activities are treated as “discontinued operations”, the results of which are presented on the corresponding line in the income statement.

2005-2007 results

TOTAL’s net income (Group share) was 13,181 M compared to 11,768 M in 2006 and 12,273 M in 2005. The 12% increase in net income in 2007 compared to 2006 was mainly due to the positive after-tax impact of prices on inventory valuation (+1.7 B), the overall more favorable environment (+0.6 B), growth in the Upstream

segment (+0.6 B) and growth and productivity plans in the Downstream and Chemicals segments (+0.3 B), which were partially offset by the negative impacts of the weaker dollar (-1.0 B), higher costs in the Upstream and Downstream segments (-0.4 B), increased exploration (-0.3 B) and the higher net cost of net debt for the Group (-0.1 B ). The 4% decrease in net income in 2006 compared to 2005 was mainly due to the after-tax impact of prices on inventory valuation (-1.4 B), the impact of lower volumes and higher costs (-0.8 B) and the impact of changes in tax rates (-0.4 B), which were only partially offset by the impacts of a more favorable environment (+1.5 B), gains from the sale of certain non-strategic financial assets (+0.3 B) and productivity gains (+0.3 B).

The Group’s expenditures(2) were 11,722 M compared to 11,852 M in 2006 and 11,195 M for 2005. Included in the 2007 expenditures are 161 M of acquisitions related primarily to new permits. In 2006, expenditures included approximately 0.8 B for acquisitions, principally Ichthys LNG and Tahiti, while expenditures in 2005 included 1.1 B in the Upstream segment for the acquisition of Deer Creek Energy Ltd.

Divestments in 2007 amounted to 1,556 M compared to 2,278 M in 2006 and 1,088 M in 2005. The 2007 divestments included Upstream assets in Canada, the UK and Norway and Downstream assets in the UK, as well as the sale of shares representing 0.4% of Sanofi-Aventis in the fourth quarter for 316 M. In 2006, divestments included the sale of Upstream assets in the United States and in France as well as the reimbursement of carried investments on Akpo in Nigeria and the sale of non-strategic financial assets. Divestments in 2005 included the sale of 1.85% of the Kashagan permit to KazMunayGas and the sale of TOTAL’s interest in Humber Power in the UK.

In each of the three years, the main source of funding for expenditures was cash from operating activities.


 

 

(1) ROACE = adjusted net operating income divided by average capital employed. For more information on ROACE, see “— Results 2005-2007 — Business Segment Reporting” below and Note 2 to the Consolidated Financial Statements.

 

(2) Expenditures include intangible assets and property, plant and equipment additions; acquisitions of subsidiaries, net of cash acquired; investments in equity affiliates and other securities; and increases in non-current loans.

 

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Outlook

In the Upstream segment, TOTAL intends to pursue its strategy of profitable organic growth which the Company believes should translate to an increase in hydrocarbon production of 4% per year on average over the period 2006 to 2010, based on a Brent price of $60/b and excluding the effect of portfolio changes. This growth is expected to stem primarily from significant TOTAL-operated projects that recently entered into production (Dalia, Rosa and Dolphin) and that are in the development phase. Growth is also expected to be particularly significant for the Group’s LNG activities, where the Company believes its sales(1) will grow by 13% per year on average over the period 2006 through 2010. TOTAL’s portfolio of projects provides strong visibility for growth beyond 2010, due in particular to the number of exploration successes in recent years and to major new projects in LNG and heavy oil.

In the Downstream segment, the Group is pursuing its strategy to consolidate and modernize its refining activities in Europe and the United States. As part of its efforts to increase its presence in growing markets, such

as Asia and the Middle East, the Group is finalizing the study of the Jubail refinery project in Saudi Arabia.

In petrochemicals, TOTAL’s objective is to continue to concentrate its activities around large integrated platforms in Europe and the United States while developing growth through projects based on ethane feedstock in Qatar and Algeria.

Implementing the Group’s growth strategy calls for a sustained investment program. The 2008 budget for capital expenditure is approximately 12.7 B(2), 75% of which is intended for the Upstream segment.

The net-debt-to-equity ratio(3) for the Group is targeted to remain in the range of 25% to 30%.

TOTAL intends to pursue a policy of competitive dividend growth relative to the other major oil companies. Future dividends will, however, depend on the Company’s earnings, financial position and other factors(4).

Significant events in 2008 are expected to include the ramp-up of production from the Dolphin project in Qatar and the start-up of production from several Upstream projects, including the Jura field in the UK and Moho Bilondo in Congo.


 

(1) Group share, excluding trading.
(2) Including net investments in equity affiliates and non-consolidated companies, excluding acquisitions and based on $1.50/.
(3) This ratio comprises the sum of current borrowings, other current financial liabilities and non-current financial debt, net of current financial assets, hedging instruments on non-current financial debt and cash and cash equivalents, divided by the sum of shareholders’ equity and minority interests after expected dividends payable.
(4) The payment and amount of dividends are subject to the recommendation of the Board of Directors and resolution by the company’s shareholders. For more information, see “Item 8. Financial Information — Dividend Policy”.

 

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Critical Accounting Policies

 

 

 

A summary of the Group accounting policies is included in Note 1 to the Consolidated Financial Statements. Management believes that the application of these policies on a consistent basis enables the Group to report useful and reliable information about the Group’s financial condition and results of operations.

The preparation of financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of preparation of the financial statements and reported income and expenses for the period. Management reviews these estimates and assumptions on an ongoing basis, by reference to past experience and various other factors considered as reasonable which form the basis for assessing the book value of assets and liabilities. Actual results may differ significantly from these estimates, if different assumptions or circumstances apply.

Lastly, where the accounting treatment of a specific transaction is not addressed by any accounting standards or interpretation, management applies its judgment to define and apply accounting policies that will lead to relevant and reliable information, so that the financial statements:

 

 

give a true and fair view of the Group’s financial position, financial performance and cash flows,

 

reflect the substance of transactions,

 

are neutral,

 

are prepared on a prudent basis, and

 

are complete in all material aspects.

The following summary provides further information about the critical accounting policies, which could have a significant impact on the results of the Group. It should be read in conjunction with Note 1 to the Consolidated Financial Statements.

The assessment of critical accounting policies below is not meant to be an all-inclusive discussion of the uncertainties in financial results that can occur from the application of the full range of the Company’s accounting policies. Materially different financial results could occur in the application of other accounting policies as well. Likewise, materially different results can occur upon the adoption of new accounting standards promulgated by the various rule-making bodies.

 

Successful efforts method of oil and gas accounting

The Group follows the successful efforts method of accounting for its oil and gas activities. The Group’s oil and gas reserves are estimated by the Group’s petroleum engineers in accordance with industry standards and SEC regulations. Proved oil and gas reserves are the estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Accordingly, these estimates do not include probable or possible reserves. Estimated oil and gas reserves are based on available reservoir data and prices and costs in the accounting period during which the estimate is made and are subject to future revision. The Group reassesses its oil and gas reserves at least once a year on all its properties.

Exploration leasehold acquisition costs are capitalized when acquired. During the exploration phase, management exercises judgment on the probability that prospects ultimately would partially or fully fail to find proved oil and gas reserves. Based on this judgmental approach, a leasehold impairment charge may be recorded. This position is assessed and adjusted throughout the contractual period of the leasehold based in particular on the results of exploratory activity and any impairment is adjusted prospectively.

When a discovery is made, exploratory drilling costs continue to be capitalized pending determination of whether potentially economic oil and gas reserves have been discovered by the drilling effort. The length of time necessary for this determination depends on the specific technical or economic difficulties in assessing the recoverability of the reserves. If a determination is made that the well did not encounter oil and gas in economically viable quantities, the well costs are expensed and are reported in exploration expense.

Exploratory drilling costs are temporarily capitalized pending determination of whether the well has found proved reserves if both of the following conditions are met:

 

 

The well has found a sufficient quantity of reserves to justify, if appropriate, its completion as a producing well, assuming that the required capital expenditure is made; and


 

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Satisfactory progress toward ultimate development of the reserves is being achieved, with the Company making sufficient progress assessing the reserves and the economic and operating viability of the project.

The Company evaluates the progress made on the basis of regular project reviews which take into account the following factors:

 

 

First, if additional exploratory drilling or other exploratory activities (such as seismic work or other significant studies) are either underway or firmly planned, the Company deems there is satisfactory progress. For these purposes, exploratory activities are considered firmly planned only if they are included in the Company’s three-year exploration plan/budget. At December 31, 2007, the Company had capitalized 288 M of exploratory drilling costs on this basis.

 

 

In cases where exploratory activity has been completed, the evaluation of satisfactory progress takes into account indicators such as the fact that costs for development studies are incurred in the current period, or that governmental or other third-party authorizations are pending or that the availability of capacity on an existing transport or processing facility awaits confirmation. At December 31, 2007, exploratory drilling costs capitalized on this basis amounted to 196 M and mainly related to six projects.

See “Supplemental Oil and Gas Information (Unaudited)” for additional information.

The successful efforts method, among other things, requires that the capitalized costs for proved oil and gas properties (which include the costs of drilling successful wells) be amortized on the basis of reserves that are produced in a period as a percentage of the total estimated proved reserves. The impact of changes in estimated proved reserves are dealt with prospectively by amortizing the remaining book value of the asset over the expected future production. If proved reserve estimates are revised downward, earnings could be affected by higher depreciation expense or an immediate write-down of the property’s book value. Conversely, if the oil and gas quantities were revised upwards, future per-barrel depreciation and depletion expense would be lower.

Valuation of long-lived assets

In addition to oil and gas assets that could become impaired under the application of successful efforts accounting, other assets could become impaired and require write-down if circumstances warrant. Conditions

that could cause an asset to become impaired include lower-than-forecasted commodity sales prices, changes in the Group’s business plans or a significant adverse change in the local or national business climate. The amount of an impairment charge would be based on estimates of an asset’s fair value compared with its book value. The fair value usually is based on the present values of expected future cash flows using assumptions commensurate with the risks involved in the asset group. The expected future cash flows used for impairment reviews are based on judgmental assessments of future production volumes, prices and costs, considering information available at the date of review.

Asset retirement obligations and environmental remediation

When legal and contractual obligations require it, the Group, upon application of International Accounting Standard (IAS) 37 and IAS 16, records provisions for the future decommissioning of production facilities at the end of their economic lives. Management makes judgments and estimates in recording liabilities. Most of these removal obligations are many years in the future and the precise requirements that will have to be met when the removal event actually occurs are uncertain. Asset removal technologies and costs are constantly changing, as well as political, environmental, safety and public expectations.

The Group also makes judgments and estimates in recording costs and establishing provisions for environmental clean-up and remediation costs which are based on current information on costs and expected plans for remediation. For environmental provisions, actual costs can differ from estimates because of changes in laws and regulations, public expectations, discovery and analysis of site conditions and changes in clean-up technology.

Pensions and post-retirement benefits

Accounting for pensions and other post-retirement benefits involves judgments about uncertain events, including estimated retirement dates, salary levels at retirement, mortality rates, rates of return on plan assets, determination of discount rates for measuring plan obligations, healthcare cost-trend rates and rates of utilization of healthcare services by retirees. These assumptions are based on the environment in each country. The assumptions used are reviewed at the end of each year and may vary from year-to-year, based on the evolution of the situation, which will affect future results of operations. Any differences between these assumptions and the actual outcome will also impact future results of operations.


 

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The significant assumptions used to account for pensions and other post-retirement benefits are determined as follows:

Discount and inflation rates reflect the rates at which the benefits could be effectively settled, taking into account the duration of the obligation. Indications used in selecting the discount rate include rates of annuity contracts and rates of return on high-quality fixed-income investments (such as government bonds). The inflation rates reflect market conditions observed on a country-by-country basis.

Salary increase assumptions (when relevant) are determined by each entity. They reflect an estimate of the actual future salary levels of the individual employees involved, including future changes attributed to general price levels (consistent with inflation rate assumptions), productivity, seniority, promotion and other factors.

Healthcare cost trend assumptions (when relevant) reflect an estimate of the actual future changes in the cost of the healthcare related benefits provided to the plan participants and are based on past and current healthcare cost trends including healthcare inflation, changes in healthcare utilization, and changes in health status of the participants.

Demographic assumptions such as mortality, disability and turnover reflect the best estimate of these future events for the individual employees involved, based principally on available actuarial data.

Determination of expected rates of return on assets is made through compound averaging. For each plan, the distribution of investments among bonds, equities and cash and the expected rates of return on bonds, equities and cash are taken into account. A weighted-average rate is then calculated.

The effect pensions had on results of operations, cash flow and liquidity is fully set out in Note 18 to the Consolidated Financial Statements. Net employee benefit expense in 2007 amounted to 230 M and the Company’s contributions to pension plans were 556 M.

 

Differences between projected and actual costs and between the projected return and the actual return on plan assets routinely occur and are called actuarial gains and losses.

The Group applies the corridor method to amortize its actuarial losses and gains. This method amortizes the net cumulative actuarial gains and losses that exceed 10% of the greater of (i) the present value of the defined benefit obligation and (ii) the fair value of plan assets, over the average expected remaining working lives of the employees participating in the plan.

The unrecognized actuarial losses of pension benefits as of December 31, 2007 were 160 M compared to 423 M for 2006. The decrease in unrecognized actuarial losses is explained by an increase in discount rates in 2007 that was partially offset by actuarial losses due to a decrease in the value of plan assets. As explained above, pension accounting principles allow that such actuarial losses be deferred and amortized over future periods, in the Company’s case a period of 15 years.

While the Company has not completed its calculations for 2008, it is considering an increased weighted-average return for the year (6.60% compared to the 2007 rate of 6.26%), mainly due to the increase in discount rates in 2007. The Company does not believe that it will be significantly modifying its discount rate in the near future.

The Company’s estimates indicate that a 1% increase or decrease in the expected rate of return on pension plan assets would have caused a 64 M decrease or increase, respectively, in the 2007 net periodic pension cost. The estimated impact on expense of the amortization of the unrecognized actuarial losses of 160 M as of December 31, 2007, is 15 M for 2008, compared to 17 M in 2007.

Income tax computation

The computation of the Group’s income tax expense requires the interpretation of complex tax laws and regulations in many taxing jurisdictions around the world, the determination of expected outcomes from pending litigation, and the assessment of audit findings that are performed by numerous taxing authorities. Actual income tax expense may differ from management’s estimates.


 

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Results 2005-2007

 

 

 

As of and for the year ended December 31, (M, except per share data)    2007    2006    2005

Sales(a)

   158,752    153,802    137,607

Net income (Group share)

   13,181    11,768    12,273

Diluted earnings per share(b)

   5.80    5.09    5.20

Investments

   11,722    11,852    11,195

Divestments

   1,556    2,278    1,088

Cash flow from operating activities

   17,686    16,061    14,669

 

(a) Pursuant to IFRS 5, excludes contributions from Arkema in 2006 and 2005.
(b) 2005 amounts recalculated to reflect the four-for-one stock split on May 18, 2006.

 

Group Results 2007 vs. 2006

The average oil market environment in 2007 was marked by higher oil prices, with the average Brent oil price increasing 11% to $72.40/b from $65.10/b in 2006. Refining margins also increased in 2007, with the European refining margins indicator used by TOTAL’s management (TRCV) up 12% to $32.50/t from $28.90/t in 2006. The environment for Chemicals weakened in 2007 compared to 2006, essentially due to the negative impact on petrochemical margins from the rapid increase in the price of naphtha late in 2007. The average dollar/euro exchange rate was $1.37/ in 2007 compared to $1.26/ in 2006, an 8% decline in the value of the dollar.

TOTAL’s consolidated sales increased by 3% to 158.8 B in 2007 from 153.8 B in 2006.

TOTAL’s net income (Group share) was 13,181 M in 2007 compared to 11,768 M in 2006. The 12% increase in net income in 2007 compared to 2006 was mainly due to the positive impacts of after-tax prices on inventory valuation (+1.7 B), the overall more favorable environment (+0.6 B), growth in the Upstream segment (+0.6 B) and growth and productivity plans in the Downstream and Chemicals segments (+0.3 B), which were partially offset by the negative impacts of the weaker dollar (-1.0 B), higher costs in the Upstream and Downstream segments (-0.4 B), increased exploration (-0.3 B) and the higher net cost of net debt for the Group (-0.1 B ).

The effective tax rate for the Group was 56% in 2007, stable compared to 56% in 2006. The Upstream segment had a comparable relative weight in the results of both years.

In 2007, the Group bought back 32.4 million of its shares(1) for 1,787 M. The number of fully-diluted shares at December 31, 2007 was 2,265 million compared to 2,285 million at December 31, 2006.

 

Diluted earnings per share, based on 2,274 million fully-diluted weighted-average shares, increased by 14% to 5.80 in 2007 from 5.09 in 2006, slightly greater than the increase in net income due to the accretive effect of the share buybacks.

Group Results 2006 vs. 2005

The average oil market environment in 2006 was marked by higher oil prices, with the average Brent oil price increasing 19% to $65.10/b from $54.50/b in 2005, while refining margins decreased, with the European refining margins indicator used by TOTAL’s management (TRCV) down 31% to $28.90/t in 2006 from $41.60/t in 2005. The environment for Chemicals activities was generally comparable over the two years. The average dollar/euro exchange rate was $1.26/ in 2006 compared to $1.24/ in 2005.

TOTAL’s consolidated sales increased by 12% to 153.8 B in 2006 from 137.6 B in 2005.

TOTAL’s net income (Group share) was 11,768 M compared to 12,273 M in 2005. The 4% decrease in net income in 2006 compared to 2005 was mainly due to the after-tax impact of prices on inventory valuation (-1.4 B), the impact of lower volumes and higher costs (-0.8 B) and the impact of changes in tax rates (-0.4 B), which were only partially offset by the impacts of a more favorable environment (+1.5 B ), gains from the sale of certain non-strategic financial assets (+0.3 B) and productivity gains (+0.3 B).

The effective tax rate for the Group was 56% in 2006 compared to 53% in 2005. The higher rate was mainly due to the increase in UK petroleum taxes, higher hydrocarbon prices, and the larger share of the more heavily taxed Upstream segment in the results.

In 2006, the Group bought back 75.9 million of its shares(2)(3) for 3,975 M. The number of fully-diluted shares at December 31, 2006 was 2,285 million compared to 2,344 million at December 31, 2005.


 

 

(1) Includes 2.4 million shares purchased to cover restricted share grants pursuant to the decision of the Board on July 17, 2007.
(2) Excludes 2.3 million shares reserved for restricted share grants pursuant to the decision of the Board on July 18, 2006.
(3) Recalculated to reflect the four-for-one stock split on May 18, 2006.

 

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Diluted earnings per share, based on 2,312 million fully-diluted weighted-average shares, decreased 2% to 5.09 in 2006 from 5.20(1) in 2005, less than the decrease in net income due to the accretive effect of the share buybacks.

Business Segment Reporting

The financial information for each business segment is reported on the same basis as that used internally by the chief operating decision maker in assessing segment performance and the allocation of segment resources. Due to their particular nature or significance, certain transactions qualified as “special items” are excluded from the business segment figures. In general, special items relate to transactions that are significant, infrequent or unusual. However, in certain instances, certain transactions such as restructuring costs or assets disposals, which are not considered to be representative of the normal course of business, may be qualified as special items although they may have occurred in prior years or are likely to recur in following years.

In accordance with IAS 2, the Group values inventories of petroleum products in the financial statements according to the FIFO (First-In, First-Out) method and other inventories using the weighted-average cost method. The adjusted results of the Downstream segment and Chemicals segment are presented according to the replacement cost method in order to facilitate the comparability of the Group’s results with those of its competitors, mainly North American. In the replacement cost method, which approximates the LIFO (Last-In, First-Out) method, the variation of inventory value in the income statement is determined by the

average prices of the period rather than the historical value. The inventory valuation effect is the difference between the results according to the FIFO method and the replacement cost method. The adjusted business segment results (adjusted operating income and adjusted net operating income) are defined as replacement cost results, adjusted for special items. For further information on the adjustments affecting operating income on a segment-by-segment basis, and for a reconciliation of segment figures to figures reported in the Company’s audited consolidated financial statements, see Note 4 to the Consolidated Financial Statements.

In addition, the Group measures performance at the segment level on the basis of net operating income and adjusted net operating income. Net operating income comprises operating income of the relevant segment after deducting the amortization and the depreciation of intangible assets other than leasehold rights, translation adjustments and gains or losses on the sale of assets, as well as all other income and expenses related to capital employed (dividends from non-consolidated companies, equity in income in affiliates, capitalized interest expenses), and after income taxes applicable to the above. The income and expenses not included in net operating income which are included in net income are only interest expenses related to long-term liabilities net of interest earned on cash and cash equivalents, after applicable income taxes (net cost of net debt and minority interests). Adjusted net operating income excludes the effect of the adjustments (special items and the inventory valuation effect) described above.

For further discussion on the calculation of net operating income and the calculation of ROACE, see Note 2 to the Consolidated Financial Statements.


 

Upstream results

 

(M)    2007     2006     2005  

Non-Group sales

   19,706     20,782     20,888  

Operating income(a)

   19,503     20,307     18,421  

Equity in income (loss) of affiliates and other items

   1,330     1,211     587  

Tax on net operating income

   (11,996 )   (12,764 )   (10,979 )

Net operating income

   8,837     8,754     8,029  

Adjustments affecting net operating income

   12     (45 )   —    

Adjusted net operating income(b)

   8,849     8,709     8,029  

Investments

   8,882     9,001     8,111  

Divestments

   751     1,458     692  

ROACE

   34%     35%     40%  

 

(a) For the definition of operating income, see Note 2 to the Consolidated Financial Statements.
(b) Adjusted for special items.

 

 

(1) Recalculated to reflect the four-for-one stock split on May 18, 2006.

 

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2007 vs. 2006

Upstream segment sales (excluding sales to other segments) were down 5% to 19,706 M in 2007 compared to 20,782 M in 2006, reflecting the impact of the decrease of the dollar compared to the euro, which more than offset the impacts of the increase in production and higher average hydrocarbon prices.

TOTAL’s average liquids price realization in 2007 increased 11% to $68.9/b from $61.80/b in 2006, in line with the increase in the average Brent price of oil, which was $72.4/b in 2007 compared to $65.10/b in 2006. TOTAL’s average gas price realization decreased 9% to $5.40/MBtu from $5.91/MBtu in 2006 due to weakness in the UK spot price as well as the ramp-up in production from the Dolphin project in the second half of 2007.

For 2007, adjusted net operating income for the Upstream segment increased 2% to 8,849 M compared to 8,709 M in 2006. The increase in adjusted net operating income was mainly due to the positive impacts of the more favorable environment (+0.75 B) and growth (+0.6 B) which were for the most part offset by the negative impacts of the weaker dollar (-0.65 B), higher production costs (-0.3 B) and increased exploration (-0.25 B).

The exclusion of special items (which in 2007 comprised principally asset impairments of 93 M largely offset by capital gains of 89 M) had a positive impact of 12 M on adjusted net operating income for the Upstream segment in 2007 and a negative impact of 45 M in 2006 (comprised of capital gains on asset disposals).

ROACE for the Upstream segment was down slightly to 34% in 2007 from 35% in 2006 because the average level of capital employed increased slightly more than adjusted net operating income as a result of the increased investment program to support future growth.

In 2007, Upstream net operating income amounted to 8,837 M (for 2006, 8,754 M) from operating income of 19,503 M (for 2006, 20,307 M), with the difference resulting primarily from taxes on net operating income of 11,996 M (12,764 M in 2006), partially offset by income from equity affiliates and other items of 1,330 M (1,211 M in 2006). The decrease in taxes in 2007 was primarily due to a relative increase in the share of the Group’s production in countries with lower tax rates.

Oil and gas production in 2007 averaged 2,391 kboe/d compared to 2,356 kboe/d in 2006. This 1.5% increase was due to the positive impact of underlying production growth (+5%, primarily from production ramp-ups and start-ups of major TOTAL-operated projects, including Dalia, Rosa and Dolphin), partially offset by the negative impacts of the price effect(1), OPEC quota reductions and

shutdowns in the Niger delta because of security issues (-2%), of changes in the Group’s portfolio, mainly the termination of a concession in Dubai (-1%), and of the May 2007 fire on the Nkossa platform in Congo (-0.5%).

The Group’s proved reserves at December 31, 2007 decreased 6% to 10,449 Mboe from 11,120 Mboe at December 31, 2006. At the 2007 average rate of production, these reserves represent approximately 12 years of production. Changes in 2007 proved reserves were primarily due to the sale of 16.7% of Sincor to PDVSA and other divestments (-4%), the price effect(1) (-2%) and production over the year 2007 (-1.5%), which were only partially offset by new additions from successful exploration and business developments (2%).

See “Item 4. Information on the Company — Exploration & Production — Reserves ” for a table showing changes in proved reserves by year and “Supplemental Oil and Gas Information (Unaudited)” contained elsewhere herein for additional information on proved reserves, including tables showing changes in proved reserves by region.

Total expenditures of the Upstream segment decreased by 1% to 8,882 M in 2007 from 9,001 M in 2006. In 2007, expenditures mainly included the following projects: Kashagan (Kazakhstan), Akpo (Nigeria), Yemen LNG (Yemen), Moho Bilondo (Congo), Dalia, Rosa, Tombua/Landana and Angola LNG (Angola), Snøhvit and Tyrihans (Norway), Dunbar and Jura (UK), Anguille (Gabon), Dolphin (Qatar), Surmont and Joslyn (Canada) and Tahiti (United States).

2006 vs. 2005

Upstream segment sales (excluding sales to other segments) were 20,782 M in 2006 compared to 20,888 M in 2005. The increase in TOTAL’s average liquids price realization to $61.80/b in 2006 from $51.00/b in 2005 was globally in line with the increase in the average price of Brent oil, which was $65.10/b in 2006 compared to $54.50/b in 2005. TOTAL’s average gas price realization increased to $5.91/MBtu in 2006 from $4.77/MBtu in 2005, comparatively greater than the percentage increase for liquids price realizations due to the delayed impact of oil prices on gas price formulas under long-term contracts, mainly in Europe, and strong LNG prices in Asia.

For 2006, adjusted net operating income for the Upstream segment was 8,709 M compared to 8,029 M in 2005, an increase of 8%. The contribution of income from equity affiliates rose sharply, reflecting mainly the growth in LNG activities, particularly the larger contribution from trains 4 and 5 at Nigeria LNG. The increase of 0.7 B compared to 2005 was mainly


 

 

(1) The “price effect” refers to the impact of hydrocarbon prices on entitlement volumes from production sharing and buyback contracts.

 

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due to the 2 B positive impact of higher hydrocarbon prices, partially offset by the negative impact of lower production volumes and effects of portfolio changes, (approximately 0.5 B), higher production costs (approximately 0.4 B, including 0.2 B for exploration) and the impact of changes in tax terms (approximately 0.4 B).

The exclusion of special items (which in 2006 comprised capital gains on asset disposals) had a negative impact of 45 M on adjusted net operating income for the Upstream segment in 2006. There were no adjustments affecting Upstream net operating income in 2005.

ROACE for the Upstream segment was 35% in 2006 compared to 40% in 2005. The decline was mainly due to an increase in the level of capital employed for work-in-progress assets, which reflects the sustained level of investments being made to support future growth.

In 2006, Upstream net operating income amounted to 8,754 M (for 2005, 8,029 M) from operating income of 20,307 M (for 2005, 18,421 M), with the difference resulting primarily from taxes on net operating income of 12,764 M (for 2005, 10,979 M), partially offset by

income from equity affiliates and other items of 1,211 M (for 2005, 587 M). The increase in taxes in 2006 occurred primarily in the UK and Venezuela.

Oil and gas production in 2006 was 2,356 kboe/d compared to 2,489 kboe/d in 2005, a decrease of 5% due principally to the impacts of the price effect(1) (-2%), shutdowns of production in the Niger Delta area because of security issues (-2%) and changes in the Group’s portfolio (-1%). Excluding these items, the positive impact of new field start-ups was offset by normal production declines at mature fields and shutdowns in the North Sea.

The Upstream segment’s proved reserves at December 31, 2006 increased slightly to 11,120 Mboe from 11,106 at December 31, 2005.

Expenditures of the Upstream segment increased by 11% to 9,001 M in 2006 from 8,111 M in 2005. In 2006, expenditures mainly included the following projects: Kashagan (Kazakhstan), Yemen LNG (Yemen), Ekofisk and Snøhvit (Norway), Dalia and Rosa (Angola), Akpo (Nigeria), Tunu/Tambora (Indonesia), Moho Bilondo (Congo), Dolphin and Qatargas II (Qatar), Surmont and Joslyn (Canada) and Tahiti (United States).


 

Downstream results

 

(M)    2007     2006     2005  

Non-Group sales

   119,212     113,887     99,934  

Operating income(a)

   4,824     3,372     5,096  

Equity in income (loss) of affiliates and other items

   284     384     422  

Tax on net operating income

   (1,482 )   (1,125 )   (1,570 )

Net operating income

   3,626     2,631     3,948  

Adjustments affecting net operating income

   (1,091 )   153     (1,032 )

Adjusted net operating income(b)

   2,535     2,784     2,916  

Investments

   1,875     1,775     1,779  

Divestments

   394     428     204  

ROACE

   21%     23%     28%  

 

(a) For the definition of operating income, see Note 2 to the Consolidated Financial Statements.
(b) Adjusted for special items and the inventory valuation effect.

 

2007 vs. 2006

Downstream segment sales (excluding sales to other segments) increased to 119,212 M in 2007 compared to 113,887 M in 2006.

In 2007, refined product sales averaged 3,863 kb/d, up 2% from 3,786 kb/d in 2006. 2007 refinery throughput decreased slightly to 2,413 kb/d from 2,454 kb/d in 2006. The refinery utilization rate for 2007 based on crude throughput was 87% (89% based on crude and

other feedstock) compared to 88% (91% based on crude and other feedstock) in 2006. In 2007, ten refineries were affected by turnarounds compared to three in 2006. Maintenance activity in 2008 should be comparable to that in 2007.

For 2007, adjusted net operating income for the Downstream segment decreased 9% to 2,535 M compared to 2,784 M in 2006. The decrease was mainly due to the impact of a weaker dollar (-0.25 B), as the negative impacts of higher maintenance activity


 

 

(1) The “price effect” refers to the impact of hydrocarbon prices on entitlement volumes from production sharing and buyback contracts.

 

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(-0.11 B), cost inflation (-0.07 B) and the overall slightly negative environment (-0.04 B) were offset by the positive effect of growth and productivity programs (+0.22 B), notably the contribution from the Normandy distillate hydrocracker for a full year.

The adjustment for the inventory valuation effect had a negative impact on Downstream adjusted net operating income of 1,098 M in 2007 compared to a positive impact of 327 M in 2006. The exclusion of special items in 2007 had a negative impact of 7 M, with capital gains of 101 M more than offsetting restructuring charges, asset impairments and other special items. In 2006, special items (relating to capital gains on the sale of certain non-strategic financial interests) had a negative impact of 174 M on adjusted net operating income.

ROACE for the Downstream segment was 21% in 2007 compared to 23% in 2006 due principally to increased investment in 2007.

In 2007, Downstream net operating income increased to 3,626 M (for 2006, 2,631 M) from operating income of 4,824 M (for 2006, 3,372 M ), with the difference resulting primarily from taxes on net operating income of 1,482 M (for 2006, 1,125 M), partially offset by income from equity affiliates and other items of 284 M (for 2006, 384 M).

Investments by the Downstream segment were 1,875 M in 2007 compared to 1,775 M in 2006.

2006 vs. 2005

Downstream segment sales (excluding sales to other segments) increased to 113,887 M in 2006 compared to 99,934 M in 2005.

In 2006, refined product sales averaged 3,786 kb/d, stable compared to 2005. 2006 refinery throughput

increased 2% to 2,454 kb/d compared to 2,410 kb/d in 2005. The refinery utilization rate for 2006 remained at 88%, the same as in 2005.

For 2006, adjusted net operating income for the Downstream segment decreased 5% to 2,784 M compared to 2,916 M in 2005. The decrease was due to a weaker refining environment, partially offset by favorable market effects, which had a negative impact estimated at 0.5 B. Performance improvement contributed 0.2 B and volumes recuperated from losses in 2005 (due to strikes in France and the aftermath of Hurricane Rita in the United Sates) added an estimated 0.2 B.

The adjustment for the inventory valuation effect had a positive impact on adjusted net operating income of 327 M in 2006 compared to a negative impact of 1,032 M in 2005. The exclusion of special items in 2006 (relating to capital gains on the sale of certain non-strategic financial interests) had a negative impact of 174 M on Downstream adjusted net operating income, while there were no Downstream special items in 2005.

ROACE for the Downstream segment was 23% in 2006 compared to 28% in 2005 due principally to weaker refining margins.

In 2006, Downstream net operating income declined to 2,631 M (for 2005, 3,948 M) from operating income of 3,372 M (for 2005, 5,096 M), with the difference resulting primarily from taxes on net operating income of 1,125 M (for 2005, 1,570 M), partially offset by income from equity affiliates and other items of 384 M (for 2005, 422 M).

Investments by the Downstream segment were 1,775 M in 2006 compared to 1,779 M in 2005. Downstream investments in 2006 included approximately 1 B in refining (excluding turnarounds).


 

Chemicals(1)

 

(M)      2007      2006      2005  

Non-Group sales

     19,805      19,113      16,765  

Operating income(a)

     1,424      996      1,119  

Equity in income (loss) of affiliates and other items

     (11 )    (298 )    (348 )

Tax on net operating income

     (426 )    (191 )    (170 )

Net operating income

     987      507      601  

Adjustments affecting net operating income

     (140 )    377      366  

Adjusted net operating income(b)

     847      884      967  

Investments

     911      995      1,115  

Divestments

     83      128      59  

ROACE

     12%      13%      15%  

 

(a) For the definition of operating income, see Note 2 to the Consolidated Financial Statements.
(b) Adjusted for special items and the inventory valuation effect.

 

 

(1) For 2006 and 2005, pursuant to IFRS 5, income statement data and ROACE have been recalculated to exclude Arkema.

 

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2007 vs. 2006

Chemicals segment sales (excluding sales to other segments) increased by 4% to 19,805 M in 2007 from 19,113 M in 2006.

Adjusted net operating income for the Chemicals segment decreased by 4% to 847 M in 2007 from 884 M in 2006, due principally to the negative impacts of the weaker dollar (-0.11 B) and the petrochemicals environment (-0.07 B), essentially linked to the weak margins in the fourth quarter 2007, which were only partially offset by the positive impact of growth and productivity programs (+0.15 B).

The adjustment for the inventory valuation effect had a negative impact of 201 M on adjusted net operating income for the Chemicals segment in 2007, compared to a positive impact of 28 M in 2006. In 2007, the exclusion of special items (comprised of restructuring charges, asset impairments and other elements) had a positive impact of 61 M on adjusted net operating income. In 2006, the exclusion of special items (comprised mainly of restructuring charges and asset impairments) had a positive impact of 349 M on adjusted net operating income.

ROACE for the Chemicals segment was 12% in 2007 compared to 13% in 2006.

In 2007, net operating income amounted to 987 M (for 2006, 507 M) from operating income of 1,424 M (for 2006, 996 M), with the difference resulting primarily from losses from equity affiliates and other items of 11 M (for 2006, a loss of 298 M), as well as from taxes on net operating income of 426 M (for 2006, 191 M).

Investments by the Chemicals segment decreased to 911 M in 2007 compared to 995 M in 2006.

 

2006 vs. 2005

Chemicals segment sales (excluding sales to other segments) increased by 14% to 19,113 M in 2006 from 16,765 M in 2005.

Adjusted net operating income for the Chemicals segment decreased by 9% to 884 M from 967 M in 2005, due principally to the impact of deferred tax credits related to Arkema activities, which amounted to 18 M in 2006 compared to 151 M in 2005, slightly offset by the positive impact of growth and productivity programs.

The adjustment for the inventory valuation effect had a positive impact on adjusted net operating income for the Chemicals segment of 28 M in 2006, compared to a negative impact of 50 M in 2005. In 2006, the exclusion of special items (comprised mainly of restructuring charges and asset impairments) had a positive impact of 349 M on adjusted net operating income. In 2005, the exclusion of special items (comprised mainly of restructuring charges, impairments and provisions for environmental liabilities in the Chemicals segment) had a positive impact of 416 M on adjusted net operating income.

ROACE for the Chemicals segment was 13% in 2006 compared to 15% in 2005 (12% in 2005 excluding the deferred tax credits related to Arkema).

In 2006, net operating income amounted to 507 M (for 2005, 601 M) from operating income of 996 M (for 2005, 1,119 M), with the difference resulting primarily from losses from equity affiliates and other items of 298 M (for 2005, a loss of 348 M), as well as from taxes on net operating income of 191 M (for 2005, 170 M).

Investments by the Chemicals segment decreased to 995 M in 2006 compared to 1,115 M in 2005. In 2006, 49% of these expenditures were for Base Chemicals, 42% for Specialties and 8% for Arkema activities which were spun off in May 2006.


 

Liquidity And Capital Resources

 

 

 

TOTAL’s cash requirements for w