ANNUAL REPORT ON FORM 20-F

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Total S.A. 20-F 2009

Documents found in this filing:

ANNUAL REPORT ON FORM 20-F

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

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

For the fiscal year ended December 31, 2008

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

For the transition period from to

¨	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 Jean Millier

La Défense 6

92400 Courbevoie

France

(Address of Principal Executive Offices)

Patrick de La Chevardière

Chief Financial Officer

TOTAL S.A.

2, place Jean Millier

La Défense 6

92400 Courbevoie

France

Tel: +33 (0)1 47 44 45 46

Fax: +33 (0)1 47 44 49 44

(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.

2,371,808,074 Shares, par value €2.50 each, as of December 31, 2008

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


		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	47
Item 4A.	Unresolved Staff Comments	55
Item 5.	Operating and Financial Review and Prospects	55
Item 6.	Directors, Senior Management and Employees	69
	Directors and Senior Management	69
	Compensation	75
	Corporate Governance	79
	Employees, Share Ownership, Stock Options and Restricted Share Grants	86
Item 7.	Major Shareholders and Related Party Transactions	105
Item 8.	Financial Information	105
Item 9.	The Offer and Listing	109
Item 10.	Additional Information	111
Item 11.	Quantitative and Qualitative Disclosures About Market Risk	121
Item 12.	Description of Securities Other than Equity Securities	121
Item 13.	Defaults, Dividend Arrearages and Delinquencies	121
Item 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds	121
Item 15.	Controls and Procedures	121
Item 16A.	Audit Committee Financial Expert	122
Item 16B.	Code of Ethics	122
Item 16C.	Principal Accountant Fees and Services	122
Item 16D.	Exemptions from the Listing Standards for Audit Committees	123
Item 16E.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers	123
Item 16F.	Change in Registrant’s Certifying Accountant	123
Item 16G.	Corporate Governance	124
Item 17.	Financial Statements	126
Item 18.	Financial Statements	126
Item 19.	Exhibits	127

Basis of Presentation

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, 2008.

Statements Regarding Competitive Position

Unless otherwise indicated, 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, 2008. 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”.

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, but does not include reserves attributable to any acreage for which an

iii

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
/d	per day	TWh	terawatt-hour
/y	per year	Wp	watt peak
		Btu	British thermal unit

CONVERSION TABLE


1 acre	= 0.405 hectares

1 b	= 42 U.S. gallons

1 boe	= 1 b of crude oil	= 5,505 cf of gas in 2008^(a)

		= 5,508 cf of gas in 2007

		= 5,494 cf of gas in 2006

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

1 t of LNG	= approximately 48 kcf of gas

1 Mt/y LNG	= approximately 131 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 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.

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 flow or obtain financing to fund growth and the cost of such financing and liquidity conditions in the capital markets generally;

•

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”.

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, 2008, 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.

SELECTED CONSOLIDATED FINANCIAL DATA


(M€, except per share data)	2008			2007		2006		2005		2004
INCOME STATEMENT DATA
Revenues from sales		160,331			136,824		132,689		117,057		95,325
Net income, Group share		10,590			13,181		11,768		12,273		10,868
Earnings per share^(a)		4.74			5.84		5.13		5.23		4.50
Fully diluted earnings per share^(a)		4.71			5.80		5.09		5.20		4.48

CASH FLOW STATEMENT DATA^(b)(c)
Cash flow from operating activities		18,669			17,686		16,061		14,669		14,662
Total expenditures		13,640			11,722		11,852		11,195		8,904

BALANCE SHEET DATA^(c)
Total assets		118,310			113,541		105,223		106,144		86,767
Non-current financial debt		16,191			14,876		14,174		13,793		11,289
Minority interests		958			842		827		838		810
Shareholders’ equity — Group share		48,992			44,858		40,321		40,645		31,608

DIVIDENDS
Dividend per share (euros)^(a)	€	2.28	^(d)	€	2.07	€	1.87	€	1.62	€	1.35
Dividend per share (dollars)^(a)	$	2.91	^(d)(e)	$	3.14	$	2.46	$	1.99	$	1.74

(a)

Historical figures regarding per share information for 2005 and 2004 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.

(c)

Comparative balance sheets and cash flow information for 2004, 2005 and (in the case of cash flow information) 2006 include Arkema, which was spun off on May 12, 2006.

(d)

Subject to approval by the shareholders’ meeting on May 15, 2009.

(e)

Estimated dividend in dollars includes the interim dividend of $1.424 paid in November 2008 and the proposed final dividend of €1.14, converted at a rate of $1.30/€.

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, 2008, of $1.39 per €1.00 (or €0.72 per $1.00). Effective January 1, 2009, The Federal Reserve Bank discontinued the daily publication of Noon Buying Rates.

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. 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)
2004		1.25
2005		1.24
2006		1.26
2007		1.37
2008		1.47

(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 three months ended December 31, 2008, based on the Noon Buying Rate expressed in dollars per euro, and for the first three months of 2009, based on the European Central Bank (“ECB”) reference exchange rate expressed in dollars per euro.

DOLLAR/EURO EXCHANGE RATES


Period	High	Low
October 2008	1.41	1.24
November 2008	1.30	1.25
December 2008	1.44	1.26
January 2009	1.39	1.28
February 2009	1.30	1.26
March 2009	1.37	1.26

The ECB reference exchange rate on March 31, 2009, for the dollar against the euro was $1.33/€.

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 and financial market 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 2009, we estimate that a decrease of $1.00 per barrel in the average annual price of Brent crude would have the effect of reducing our annual adjusted net operating income from the Upstream segment by approximately 0.15 B€ (calculated with a base case exchange rate of $1.30 per €1.00). In addition to the adverse effect on revenues, margins and profitability from any fall in oil and natural gas prices, a prolonged period of low prices or other indicators could lead to reviews for impairment of the Group’s oil and

natural gas properties. Such reviews would reflect management’s view of long-term oil and natural gas prices and could result in a charge for impairment that could have a significant effect on our results of operations in the period in which it occurs. 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.

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 as they may evolve. 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 33%, 18%, 11% and 10%, respectively, of our 2008 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. 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 are exposed to risks regarding safety and security of our operations. Our workforce and the public are exposed to risks inherent to our operations that potentially could lead to injuries or loss of life and could result in regulatory action, legal liability and damage to our reputation.

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;

•

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 or implement temporary shutdowns of facilities, which could diminish our productivity and materially and adversely impact our results of operations, including profits.

Security threats require continuous oversight and control. Acts of terrorism against our plants and offices, pipelines, transportation or computer systems could severely disrupt businesses and operations and could cause harm to people.

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 ILSA (now ISA) until 2007, TOTAL made investments in Iran (excluding South Pars) in excess of $20 million. TOTAL’s activities in Iran are currently limited mainly to the implementation of two buyback contracts signed between 1995 and 1999 for two permits on which the Group is no longer the operator. As a result, TOTAL’s involvement consists essentially of being reimbursed for its past investments. In 2008, TOTAL’s production in Iran was 8.8 kboe/d, approximately 0.4% of the Group’s daily average worldwide production. TOTAL does not believe that its activities in Iran have a material impact on the Group’s results. In the future, TOTAL may decide to invest amounts 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 possible 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 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 2008, TOTAL’s average daily production in Syria amounted to 15 kboe/d and that in Myanmar to 14 kboe/d, in each case less than 1% of its average daily worldwide production. 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 or industrial investments there. TOTAL has a production sharing contract for a block in southern 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.

Certain U.S. states have adopted legislation requiring state pension funds to divest themselves of investments in any company with active business operations in Iran or Sudan. On December 31, 2007, the U.S. Congress adopted the Sudan Accountability and Divestment Act, which supports these state legislative initiatives. If TOTAL’s activities in Iran or Sudan were determined to fall within the prohibited scope of these laws, and TOTAL were to not qualify for exemptions provided by such laws, certain U.S. state pension funds holding interests in TOTAL may be required to sell their interests. If significant, such sales could have an adverse effect on TOTAL’s share price. For more information on TOTAL’s presence in Sudan, see “Item 4. Other Matters — Regulations concerning Iran and 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 fifth 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’s principal office is 2, place Jean Millier, La Défense 6, 92400 Courbevoie, France. Its telephone number is +33 (0)1 47 44 45 46.

(1)

Based on market capitalization (in dollars) as of December 31, 2008.

The length of the life of the Company is 99 years from March 22, 2000, unless it is dissolved or extended prior to such date.

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

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 elsewhere herein.


(M€)	France	Rest of Europe	North America	Africa	Asia-Pacific and rest of world	Total
2008
Non-Group sales^(a)	43,616	82,761	14,002	12,482	27,115	179,976
Property, plant and equipment, intangible assets, net	7,260	13,485	5,182	15,460	10,096	51,483
Capital expenditures	1,997	2,962	1,255	4,500	2,926	13,640
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

(a)

Non-Group sales from continuing operations.

Upstream

TOTAL’s Upstream segment includes the Exploration & Production and Gas & Power divisions. The Group has exploration and production activities in more than forty countries and produces oil or gas in thirty 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 fields accounted for approximately 42% of the 2,571 Mboe added to the Upstream segment’s proved reserves during the three-year period ended December 31, 2008 (before deducting production and sales of reserves in place and adding any acquisitions of reserves in place during this period). The remaining 58% comes from revisions.

TOTAL continued to follow an active exploration program in 2008, with exploration investments of consolidated subsidiaries amounting to 1,243 M€ (including unproved property acquisition costs). The main exploration investments were made in Angola, Nigeria, Norway, the United Kingdom, Australia, the United States, Libya, Brunei, Gabon, Cameroon, Indonesia, China, the Republic of Congo and Canada. In 2007, exploration investments of consolidated subsidiaries amounted to 1,233 M€ (including unproved property acquisition costs), notably in Nigeria, Angola, the United Kingdom, Norway, Libya, the Republic of Congo, Australia, Venezuela, China, Indonesia, Canada, Brunei, Algeria, the United States, Mauritania, Yemen, Kazakhstan, Brazil, 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), notably in Nigeria, the United Kingdom, Angola, the United States, Libya, Venezuela, Norway, Algeria, the Republic of Congo, Kazakhstan, Canada, Indonesia, Australia, Argentina, Cameroon, Mauritania, Gabon, China, Azerbaijan and Thailand.

The Group’s consolidated Exploration & Production subsidiaries’ development expenditures amounted to 7 B€ in 2008, primarily in Angola, Nigeria, Norway, Kazakhstan, Indonesia, the Republic of Congo, the United Kingdom, Gabon, Canada, the United States and Qatar. Development expenditures for 2007 amounted to 7 B€ and were carried out principally in Angola, Norway, Nigeria, Kazakhstan, the Republic of Congo, the United Kingdom, Indonesia, Gabon, Canada, Qatar, Venezuela and the United States. In 2006, development expenditures amounted to 6 B€ (including the acquisition of an interest in the Ichthys LNG project in Australia), predominantly in Norway, Angola, Nigeria, Kazakhstan, Indonesia, the Republic of Congo, Yemen, Qatar, the United Kingdom, Canada, Australia, the United States, Venezuela, Azerbaijan and Gabon.

Reserves

The definitions used for proved, proved developed and proved undeveloped oil and gas reserves are in accordance with the applicable United States Securities & Exchange Commission (SEC) regulation, Rule 4-10 of Regulation S-X.⁽¹⁾ 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 requires:

•

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

•

that management make significant funding commitments towards the development of the reserves prior to booking.

TOTAL’s oil and gas reserves are assessed annually, taking into account, among other factors, 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 reflects 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 under the cost method. For further information concerning changes in TOTAL’s proved reserves for the years ended December 31, 2008, 2007 and 2006, see “Supplemental oil and gas information (unaudited)”.

Rule 4-10 of Regulation S-X requires that the estimation of reserves be based on the economic environment and operating conditions existing at year end. Reserves at year-end 2008 have been determined based on the Brent price on December 31, 2008 ($36.55/b).

As of December 31, 2008, TOTAL’s combined proved reserves of crude oil and natural gas were 10,458 Mboe (50% of which were proved developed reserves). Liquids represented approximately 54% of these reserves and natural gas the remaining 46%. These reserves were located for the most part in Europe (Norway, the United Kingdom, The Netherlands, Italy and France), Africa (Nigeria, Angola, the Republic of 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, 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 were located for the most part in Europe (Norway, the United Kingdom, The Netherlands, Italy and France), Africa (Nigeria, Angola, the Republic of 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).

(1)

In December 2008, the SEC published a revised set of rules for the estimation of reserves. These revised rules will be used for the 2009 year-end estimation of reserves, and have not been used in the determination of reserves for the year-end 2008.

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 United Kingdom, The Netherlands, Italy and France), Africa (Nigeria, Angola, the Republic of 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).

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

Changes in the year-end price results in non-proportionate inverse changes in proved reserves associated with production sharing and buyback agreements (which represent approximately 32% of TOTAL’s reserves as of December 31, 2008). Under such contracts, TOTAL is entitled to a portion of the production, the sale of which is meant to cover expenses incurred by the Group. As oil prices increase, fewer barrels are necessary to cover the same amount of expenses. Moreover, the number of barrels retrievable under these contracts may vary according to criteria such as cumulative production, the rate of return on investment or the income-cumulative 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 extended field life resulting from higher prices is generally less than the decrease in reserves under production sharing or buyback agreements due to such higher prices. As a result, higher year-end prices lead to 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, 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%)
December 31, 2008	5,695	26,218	10,458
Change from December 31, 2007	(1.4%)	1.9%	0%

(a)

Includes TOTAL’s proportionate share of the proved reserves of equity affiliates and of two companies accounted for under the cost method. See “Supplemental oil and gas information (unaudited)”.

(b)

Proved reserves as of December 31, 2008, were calculated based on a Brent crude price of $36.55/b, proved reserves as of December 31, 2007, were calculated based on a Brent crude price of $93.72/b and proved reserves as of December 31, 2006, were calculated based on a Brent crude price of $58.93/b, pursuant to Rule 4-10 of Regulation S-X.

Production

For the full year 2008, average daily oil and gas production was 2,341 kboe/d compared to 2,391 kboe/d in 2007.

Liquids accounted for approximately 62% and natural gas accounted for approximately 38% of TOTAL’s combined liquids and natural gas production in 2008 on an oil equivalent basis.

The table ”Production by geographic area,” below, 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 fields 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.

As in 2007 and 2006, substantially all of the crude oil production from TOTAL’s Upstream segment in 2008 was marketed by the Trading & Shipping division of TOTAL’s 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 United Kingdom, 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)”.

PRODUCTION BY GEOGRAPHIC AREA


	2008			2007			2006
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	635	655	763	658	636	783	603	479	694
Algeria	32	141	59	32	136	58	35	129	59
Angola	200	33	205	198	29	203	108	24	112
Cameroon	13	2	14	13	2	14	13	2	13
Congo, Republic of	85	23	89	74	17	77	93	22	97
Gabon	73	20	76	78	29	83	82	27	87
Libya	74	—	74	87	—	87	84	—	84
Nigeria	158	436	246	176	423	261	188	275	242
North America	11	15	14	14	34	20	7	47	16
Canada	8	—	8	2	—	2	1	—	1
United States	3	15	6	12	34	18	6	47	15
South America	32	573	136	118	618	230	119	598	226
Argentina	14	365	81	14	365	80	11	375	78
Bolivia	3	105	22	3	131	28	3	97	21
Colombia	9	45	18	10	46	19	13	43	22
Trinidad & Tobago	6	2	6	9	2	9	9	2	9
Venezuela	—	56	9	82	74	94	83	81	96
Asia-Pacific	29	1,236	246	28	1,287	252	29	1,282	253
Brunei	2	60	14	2	60	14	3	65	15
Indonesia	21	857	177	20	882	180	20	891	182
Myanmar	—	117	14	—	136	17	—	121	15
Thailand	6	202	41	6	209	41	6	205	41
Commonwealth of Independent States	12	75	26	10	46	19	7	2	8
Azerbaijan	4	73	18	3	44	11	< 1	< 1	< 1
Russia	8	2	8	7	2	8	7	2	8
Europe	302	1,704	616	335	1,846	674	365	1,970	728
France	6	103	25	6	115	27	6	124	30
The Netherlands	1	244	44	1	252	45	1	247	44
Norway	204	706	334	211	685	338	237	726	372
United Kingdom	91	651	213	117	794	264	121	873	282
Middle East	88	281	137	83	91	99	88	11	90
U.A.E.	10	10	12	11	10	13	14	6	15
Iran	9	—	9	15	—	15	20	—	20
Qatar	44	269	91	33	79	47	29	3	29
Syria	15	2	15	15	2	15	16	2	17
Yemen	10	—	10	9	—	9	9	—	9
Total consolidated production	1,109	4,539	1,938	1,246	4,558	2,077	1,218	4,389	2,015
Equity affiliates and non-consolidated subsidiaries
Africa^(a)	19	4	20	23	4	23	25	4	25
Middle East^(b)	241	288	295	240	277	291	263	281	316
Rest of world^(c)	87	6	88	—	—	—	—	—	—
Total equity affiliates and non-consolidated subsidiaries	347	298	403	263	281	314	288	285	341
Worldwide production	1,456	4,837	2,341	1,509	4,839	2,391	1,506	4,674	2,356

(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.

(c)

Essentially TOTAL’s share of PetroCedeño’s production in Venezuela.

PRESENTATION OF PRODUCTION ACTIVITIES BY GEOGRAPHIC AREA

The table below sets forth, by country, 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, 2008^(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	Blocks 3-85, 3-91 (50.00%)		L
		Girassol, Jasmim, Dalia, Rosa (Block 17) (40.00%)		L
			Cabinda (Block 0) (10.00%)	L
			Kuito, BBLT (Block 14) (20.00%)	L
Cameroon	1951	Bakingili (25.50%)		L
		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
			Mokoko - Abana (10.00%)	L
			Mondoni (25.00%)	L
Congo, Republic of	1928	Kombi-Likalala (65%)		L
		Nkossa (53.50%)		L
		Nsoko (53.50%)		L
		Moho Bilondo (53.50%)		L
		Sendji (55.25%)		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	Anguille (100.00%)		L
		Atora (40.00%)		L
		Avocette (57.50%)		L
		Baudroie Nord (50.00%)		L
		Gonelle (100.00%)		L
		Torpille (100.00%)		L
			Rabi Kounga (47.50%)	L
Libya	1959	Al Jurf (37.50%)		L
		Mabruk (75.00%)		L
			NC 115 (El Sharara) (3.90%)	L
			NC 186 (2.88%)	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


	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%)		L
			Surmont (50.00%)	L
United States	1957	Matterhorn (100.00%)		L, G
		Virgo (64.00%)		L, G
South America
Argentina	1978	Aguada Pichana (27.27%)		L, G
		Aries (37.50%)		L, G
		Canadon Alfa Complex (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		Caracara (34.18%)^(c)	L
			Cupiagua (19.00%)	L, G
			Cusiana (19.00%)	L, G
Trinidad & Tobago	1996		Angostura (30.00%)	L
Venezuela	1980		PetroCedeño (30.323%)	L
			Yucal Placer (69.50%)	G
Asia-Pacific
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
		Sisi-Nubi (47.90%)		L, G
		Tambora-Tunu (50.00%)		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
Commonwealth of Independent States
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
			Åasgard (7.68%)	L, G
			Ekofisk (39.90%)	L, G
			Eldfisk (39.90%)	L, G
			Embla (39.90%)	L, G
			Gimle (4.90%)	L
			Glitne (21.80%)	L
			Heimdal (26.33%)	G
			Hod (25.00%)	L
			Huldra (24.33%)	L, G
			Kristin (6.00%)	L, G


	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)
Europe
			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%)	G
			Vale (24.24%)	L, G
			Valhall (15.72%)	L
			Vigdis (5.60%)	L
			Vilje (24.24%)	L
			Visund (7.70%)	L, G
			Volve (10.00%)	G
The Netherlands	1964	F15-A (32.47%)		G
		F15-B (38.20%)		G
		K1a (40.10%)		G
		K4a (50.00%)		G
		K4b/K5a (36.31%)		G
		K5b (45.27%)		G
		K5F (40.39%)		G
		K6/L7 (56.16%)		G
		L4a (55.66%)		G
			Markham unitized fields (14.75%)	G
United Kingdom	1962	Alwyn North, Dunbar, Ellon, Grant
		Nuggets (100.00%)		L, G
		Elgin-Franklin (EFOG 46.17%)^(d)		L, G
		Forvie Nord (100.00%)		L, G
		Glenelg (49.47%)		L, G
		Jura (100.00%)		L, G
		Otter (81.00%)		L
		West Franklin (EFOG 46.17%)^(d)		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
			Everest (0.87%)	G
			Keith (25.00%)	L, G
			Maria (28.96%)	L, G
			Nelson (11.53%)	L
			SW Seymour (25.00%)	L
Middle East
U.A.E.	1939	Abu Dhabi –Abu Al Bu Khoosh (75.00%)		L
			Abu Dhabi offshore (13.33%)^(e)	L
			Abu Dhabi onshore (9.50%)^(f)	L


	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)
Europe
Iran	1954		Dorood (55.00%)^(g)	L
			South Pars 2 & 3 (40.00%)^(h)	L, G
Oman	1937		Various fields onshore (Block 6) (4.00%)⁽ⁱ⁾	L
			Mukhaizna field (Block 53) (2.00%)^(j)	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%)^(k)		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 k below).

(b)

In Algeria, TOTAL has an indirect 19.41% interest in the Ourhoud field and a 48.83% indirect interest in the RKF field via its participation in CEPSA (equity affiliate).

(c)

In Colombia, TOTAL has an indirect 34.18% interest in the Caracara field via its participation in CEPSA (equity affiliate).

(d)

TOTAL has a 35.8% indirect interest in Elgin Franklin via its participation in EFOG.

(e)

Via ADMA (equity affiliate), TOTAL has a 13.33% interest and participates in the operating company, Abu Dhabi Marine Operating Company.

(f)

Via ADPC (equity affiliate), TOTAL has a 9.50% interest and participates in the operating company, Abu Dhabi Company for Onshore Oil Operation.

(g)

TOTAL has transferred operatorship of Dorood to the National Iranian Oil Company (NIOC). The Group has a 55% interest in the foreign consortium.

(h)

TOTAL has transferred operatorship to the National Iranian Oil Company (NIOC) for phases 2 and 3 of the South Pars field. The Group has a 40.00% interest in the foreign consortium.

(i)

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).

(j)

TOTAL has a direct participation of 2.00% in Block 53.

(k)

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 principal growth regions. 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 783 kboe/d in 2008, compared to 806 kboe/d in 2007 and 720 kboe/d in 2006 (including its share in the production of equity affiliates), amounting to 33% of the Group’s overall production and making TOTAL one of the leading international oil companies in the region, based on production⁽¹⁾.

Since 2006, production has started on the Dalia (2006) and Rosa (2007) fields in Angola, the Moho Bilondo field (2008) in the Republic of Congo and the Akpo field (March 2009) in Nigeria. TOTAL has also launched the OML 58 upgrade project and the development of Usan in Nigeria and the development of Pazflor in Angola. In Madagascar, the Group has acquired an interest on the Bemolanga oil sands permit.

In Angola, the Group’s production amounted to approximately 205 kboe/d in 2008 and 2007, compared to 117 kboe/d in 2006. Production comes essentially

from Blocks 17, 0 and 14. From 2006 to 2008, several discoveries were made, mainly on Blocks 14, 31 and 32.

•

Deep-offshore Block 17 (40%, operator) is TOTAL’s principal asset in Angola. 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 260 kb/d (in 100%) in 2008. The Rosa field, which began production in June 2007, makes a significant contribution to the supply for Girassol’s FPSO (Floating Production, Storage and Offloading facility).

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

On the third production zone, Pazflor, comprising the Perpetua, Zinia, Hortensia and Acacia fields, production is scheduled to begin in 2011. This development, approved late in 2007, calls for the installation of an FPSO with a production capacity of 200 kb/d.

(1)

Based on publicly available information.

On the fourth production zone, basic engineering studies were launched in 2008 for the development of the Cravo, Lirio, Orquidea and Violeta fields. This development is expected to lead to the installation of a fourth FPSO with a production capacity of 160 kb/d.

•

On Block 14 (20%), the development of the Benguela-Belize-Lobito-Tomboco (BBLT) project continued, after the start-up of the platform in January 2006, with ongoing drilling operations. Production from this block is expected to continue to increase with the start-up of Tombua Landana scheduled for 2009.

•

On ultra-deep offshore Block 32 (30%, operator), the twelve discoveries made between 2003 and 2007 confirmed the oil potential of the block. Pre-development studies for a first production zone in the central/southeastern portion of the block are underway.

From 2006 to 2008, TOTAL also acquired and disposed of acreage. In 2008, leasehold rights for the Calulu zone on Block 33 were extended for five years. TOTAL became the operator of this block, where it has a 55% interest, in 2008. 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.

In addition, the Angola LNG project (13.6%) for the construction of a liquefaction plant near Soyo is designed to bring the country’s natural gas reserves to market, in particular the associated gas from the fields on Blocks 0, 14, 15, 17 and 18. This project was approved by the government of Angola and the project’s partners in December 2007. Construction is underway, with production expected to begin in 2012.

In Cameroon, TOTAL has been a producer since 1977 and currently operates production of approximately 60 kb/d, or nearly 70% of the country’s overall production.⁽¹⁾ In 2008, the Group’s share of production was 14 kb/d, a level similar to that of 2007 and 2006, due to the start-up of new discoveries which offset the natural decline of mature fields.

The exclusive authorization to operate the Dissoni field (37.5%, operator) was granted by the Cameroonian authorities in November 2008, with production expected to commence in 2012. Plateau production for this field is expected to reach nearly 15 kb/d (in 100%). The Njonji exploration well on this field, drilled in 2008, made a discovery in the deltaic layers. Appraisal of this well is planned for 2009.

In Gabon, the Group’s share of production was 76 kboe/d in 2008, compared to 83 kboe/d in 2007 and 87 kboe/d in 2006, due to the natural decline of mature fields. Total Gabon⁽²⁾ is one of the Group’s oldest subsidiaries in sub-Saharan Africa. 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.

•

The first phase of redevelopment of the Anguille field, started in 2007, continued in 2008 with the drilling of thirteen wells over the 2007-2008 period.

•

On January 1, 2008, Total Gabon sold a 21.25% interest in the deep-offshore Diaba block. Total Gabon now holds a 63.75% interest in this permit, on which a seismic acquisition campaign was conducted early in 2008.

In Libya, the Group’s share of production amounted to 74 kb/d in 2008, down from 87 kb/d in 2007 and 84 kb/d in 2006. This decline is primarily due to the disruption of production on the Al-Jurf offshore field, located on Block C 137, after difficulties encountered in April 2008 during drilling operations.

•

On the Mabruk field (Block C 17, 75%, operator), plateau production of 19 kb/d was maintained in 2008 through the commissioning of new production facilities in 2007 and the continuation of drilling operations, notably on the deeper Dahra and Garian zones.

•

On Block C 137 (75%⁽³⁾, operator), operations resumed on the Al Jurf field late in December 2008. The production capacity amounts to 50 kb/d (in 100%).

TOTAL and the Libyan National Oil Corporation (NOC) signed a Memorandum of Understanding in February 2009 to convert the existing contracts for Blocks C 137 and C 17 into exploration and production sharing agreements (EPSA IV) and extend them until 2032.

•

On Block NC 186 (24%⁽³⁾), structure I came onstream in June 2008, while structures B and H began production late in 2006. Pursuant to the renewal of the contract for this block in July 2008 and the extension of the permit until 2032, the consortium made a new commitment to drill eight exploration wells during the period from August 2008 to August 2013.

(1)

Source: TEP Cameroun et Société Nationale des hydrocarbures du Cameroun.

(2)

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%.

(3)

Participation in the foreign consortium.

•

On Block NC 115 (30%⁽¹⁾), development work is continuing, with the drilling of several producing wells. A new 5-year exploration phase started in 2008, with a commitment to drill eight wells. The permit was also extended until 2032.

•

In the Murzuk Basin, pursuant to the extension of the exploration period for a portion of Block NC 191 (100%, operator), an appraisal well was drilled late in 2008 on the discovery made in 2006. The development plan for this discovery is under study.

•

In the Cyrenaic Basin, a seismic campaign was completed on Block 42 (60%, operator), which was awarded pursuant to the second bidding process launched by Libya in 2005. Drilling of an exploration well is scheduled for 2009.

In Nigeria, the Group’s share of production reached 246 kboe/d in 2008, compared to 261 kboe/d in 2007, and 242 kboe/d in 2006. TOTAL has been present in Nigeria in Exploration & Production since 1962. It operates seven production permits (OML) out of the forty-seven in which it holds an interest, and two exploration permits (OPL) out of the eight in which it holds an interest.

•

TOTAL holds a 15% interest in the Nigeria LNG Ltd gas liquefaction facility located on Bonny Island. The sixth liquefaction train came onstream late in 2007, increasing the plant’s overall capacity to 22 Mt/y of LNG. Studies for a project to construct a seventh train with a capacity of 8.5 Mt/y continued in 2008.

•

In 2008, 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. Front end engineering and design studies (FEED) for this plant are currently being completed. The shareholders of this project began site preparation work in 2008.

•

TOTAL confirmed its ability to supply gas to the LNG plants in which it has interests to meet the growing domestic demand in gas:

•

On the OML 136 permit (40%), the Group conducted an appraisal of the Amatu field in 2008 and is planning to appraise the Temi Agge field in 2009.

•

On the OML 112/117 permits (40%), TOTAL continued development studies for the Ima gas field in 2008.

•

As part of its joint venture with the Nigerian National Petroleum Corporation (NNPC), TOTAL launched a project to increase the production capacity of the OML 58 permit (40%, operator) to 550 Mcf/d of gas by 2011. A second phase of this project, currently being assessed, would allow the development of other reserves through these facilities. The Group also continued the appraisal of the Amenam East gas and condensates field, located on the OML 99 permit. Studies underway on this field suggest that it may be possible to develop it as a satellite of the currently producing Amenam field.

•

On the OML 102 permit (40%, operator), TOTAL continued to develop the Ofon II project in 2008, as part of its joint venture with NNPC. The Group also discovered the Etisong oil field, located 15 km from the Ofon field, which is currently in production.

•

On the OML 130 permit (24%, operator), TOTAL is actively valuing its deep-offshore discoveries. Regarding the development of the Akpo field, the FPSO arrived on site in October 2008, as planned, and production started in March 2009 ahead of the planned start-up date. Plateau production is expected to reach 225 kboe/d (in 100%). The Group also completed pre-project studies to develop a second production facility on the Egina field, for which the Nigerian authorities have approved a development plan.

•

On the OML 138 permit (20%, operator), TOTAL also launched the Usan project in February 2008. The main engineering and construction contracts are being implemented with the objective of producing 180 kb/d (in 100%) early in 2012.

As part of its strategy of deep-offshore development, the Group acquired interests in three exploration permits in 2008: the OPL 279 (14.5%) and OPL 285 (25.7%) permits, adjacent to the Ehra and Bonga fields, respectively, and the OPL 257 permit (40%), south of the OML 130 permit (Akpo, Egina). An exploration well is expected to be drilled in 2009 on the OPL 285 permit.

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. Repair work on facilities in the western zone of the Niger Delta region continued in 2008, allowing production to partially resume. The SPDC joint venture’s gas and condensates production was affected by the shutdown of the Soku treatment plant,

(1)

Participation in the foreign consortium.

which had to be repaired after vandalism on the export pipelines late in 2008. NLNG’s export capacity also decreased as a result of this shutdown. The offshore Bonga field on the OML 118 permit, operated by SNEPCO in which the Group holds a 12.5% interest, was attacked in June 2008, which did not have a significant impact on the Group’s production in the country.

In the Republic of Congo, the Group’s share of production was 89 kboe/d in 2008, compared to 77 kboe/d in 2007 and 97 kboe/d in 2006.

•

Production began on the Moho-Bilondo field (53.5%, operator) in April 2008, where the drilling of development wells is continuing. Plateau production (in 100%), currently approximately 50 kboe/d, is expected to reach 90 kboe/d. The Moho North Marine 3 appraisal well, drilled late in 2008 after two discoveries made in 2007 (Moho North Marine 1 and 2), confirmed the pole of resources in the tertiary layer in the northern portion of this permit.

•

In 2008, production resumed on the Nkossa field (53.5%, operator) after the accident that occurred on a cargo hose in 2007. In 2008, production averaged approximately 46 kb/d (in 100%).

•

In October 2008, TOTAL approved the launch of the Libondo (65%, operator) development. Located on the Kombi-Likalala-Libondo operating field, 50 km off the coast at a depth of 114 meters below sea level, this field will be developed through an additional fixed platform. The production will be offloaded on the existing Yanga platform. Commissioning is scheduled for the second half 2010, with an expected plateau production of 8 kb/d (in 100%) to be reached in 2011.

This project will be carried out locally in Pointe-Noire, as part of the Group’s sustainable development policy, through the redevelopment of a construction site which has been unused for several years.

In Algeria, the Group is present with production of 79 kboe/d in 2008 stable compared to 2007 and 2006. The Group’s production comes from its direct interests in the TFT (Tin Fouyé Tabenkort) and Hamra gas fields and from its 48.83% interest in CEPSA, a partner of Sonatrach (the Algerian national oil and gas company) on the Ourhoud and Rhourde El Krouf fields.

On TFT, a compression project is expected to be completed in 2009, which would permit plateau production to remain stable.

Early in 2009, TOTAL, in partnership with Sonatrach and CEPSA, requested an operating permit for the Timimoun gas field located in the southwest of the country.

In Madagascar, TOTAL acquired a 60% interest in, and the operatorship of, the Bemolanga oil sands permit in September 2008. Bemolanga contains oil sands accumulations which are expected to be developed through mining techniques. A first two-year appraisal phase is expected to confirm the bitumen resources which are necessary for development through mining techniques.

The Group is conducting exploration activities in Mauritania on the Ta7 and Ta8 permits (operator), located in the Taoudenni Basin. TOTAL now owns 60% of these permits following the sale of a 20% interest to Sonatrach, the Algerian national company, and a 20% interest to Qatar Petroleum International, the Qatari national company. Drilling of an exploration well on the Ta8 permit is scheduled for 2009.

In Sudan, the Group had its rights to an exploration permit upheld in the southern part of the country, although no activity is currently underway in this country. For more information on TOTAL’s presence in Sudan, see “Item 4. Other Matters — Regulations concerning Iran and Sudan”.

North America

The Group has been present in North America since 1957, with production of 14 kboe/d in 2008, compared to 20 kboe/d in 2007 and 16 kboe/d in 2006.

Changes in production were partly due to shutdowns related to hurricane damage in the Gulf of Mexico.

In this region, the strategy of the Group is to strengthen its positions in Canadian oil sands, notably through the acquisition of Synenco in 2008 and the takeover bid for UTS Energy Corporation launched at the end of January 2009, and in deep-offshore permits in the Gulf of Mexico.

In Canada, the Group is involved in oil sands projects in Athabasca, Alberta, through its interests in the Surmont (50%), Joslyn (74%, operator, after selling a 10% interest to INPEX in 2007) and Northern Lights (50%) permits. Since the end of 2004, the Group has also acquired 100% of several permits (oil sands leases) through several auction sales, notably the Griffon permit, where the third 2008/2009 winter appraisal campaign is being completed. In 2008, the Group’s production was 8 kboe/d.

•

On the Surmont permit, after the positive results from the 1999 start-up of a pilot project to extract bitumen using Steam Assisted Gravity Drainage (SAGD), the decision to launch a first phase of industrial development (Surmont Phase 1A) was made late in 2003. Construction of this first phase was completed in June 2007, with the gradual

start-up of steam injection for the first eighteen pairs of wells. The first pair of wells switched to SAGD mode in October 2007, and commercial production started in November 2007. Ramp-up of production on Surmont continued throughout 2008 to reach approximately 18 kboe/d (in 100%) late in 2008. In parallel, the operator of the field launched construction work for phases 1B and 1C, which are designed to add the sixteen pairs of wells needed to reach plateau production. Since 2005, the Group has acquired several permits north and west of Surmont.

•

The Joslyn permit, located approximately 140 km north of Surmont, is expected to be developed through mining techniques in two development phases of 100 kb/d of bitumen each. The decision to launch the Joslyn North Mine phase is expected to be made at the beginning of the next decade, with the decision to launch the Joslyn Mine Expansion phase to be made thereafter. However, this schedule is subject to the Alberta Energy Resources Conservation Board (ERCB) administrative approval process. A small SAGD production unit began production in 2006, but, because it did not reach the expected 10 kb/d plateau production due to constraints on the pressure of the steam being injected, this unit is currently suspended. Both the mothballing of this site’s facilities and the possible complete removal of assets from this site are being studied. The corresponding reserves were debooked as of December 31, 2008.

•

In 2006, TOTAL conducted studies leading to the decision to locate a delayed coker technology upgrader with a capacity of approximately 230 kb/d in Edmonton (Alberta). This upgrader is expected to be built in two phases to correspond to the anticipated increase in mining production on the Joslyn permit. The public announcement was made in May 2007 and the ERCB filing was made in December 2007. The final decision to launch this project will be made after basic engineering studies launched in May 2008 are completed, and remains subject to administrative approval.

•

In August 2008, the Group closed the acquisition of Synenco, whose two principal assets are a 60% interest in the Northern Lights project and 100% of the adjacent McClelland permit. In the first quarter 2009, the Group sold a 10% share in the Northern Lights project and a 50% share in the McClelland permit to Sinopec, reducing its interest in each of the assets to 50%. The Northern Lights project, located approximately 50 km north of Joslyn, is expected to be developed through mining techniques.

•

In January 2009, TOTAL’s subsidiary Total E&P Canada Ltd launched a public offer to acquire all the issued and outstanding shares of UTS Energy Corporation (UTS), a company listed on the Toronto Stock Exchange. UTS’s main asset is a 20% interest in the Fort Hills project.

In the United States, highlights since 2005 included the acquisition of acreage offshore in the Gulf of Mexico and in Alaska. In 2008, the Group’s production amounted to 6 kboe/d, compared to 18 kboe/d in 2007 and 15 kboe/d in 2006.

•

In 2005, TOTAL acquired a 17% share in the deep-offshore Tahiti field located in the Gulf of Mexico. The Tahiti field is currently being developed and start-up of production is scheduled for June 2009.

•

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

•

In the Gulf of Mexico, in 2008 TOTAL acquired eighteen deep-offshore exploration blocks. In 2007 and 2006, the Group acquired forty-seven deep-offshore exploration blocks.

•

In Alaska, TOTAL acquired a 30% interest in several onshore exploration blocks, referred to as White Hills, in March 2008. These blocks are located 40 km southwest of the Prudhoe Bay field. In 2007, the Group acquired thirty-two offshore exploration blocks in the Beaufort Sea.

•

Over the 2006-2007 period, the Group sold its interests in several assets, including two mature fields, Bethany and Maben, located, respectively, in 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 2003 and renewed in 2008.

South America

The Group’s production in South America reached 224 kboe/d in 2008, compared to 230 kboe/d in 2007 and 226 kboe/d in 2006, nearly 10% of its worldwide production in 2008.

In Venezuela, the transformation of Sincor into a mixed company, PetroCedeño, in which TOTAL now holds a 30.323% interest, was finalized in February 2008.

In Bolivia, six new exploration and production contracts, renegotiated pursuant to the May 1, 2006, decree regarding the nationalization of hydrocarbons, became effective on May 2, 2007. The Group’s interest in Block XX West (operator) was increased to 75% in 2006.

TOTAL has been present in Argentina since 1978 and operates approximately 25% of the country’s gas production.⁽¹⁾ Production averaged 81 kboe/d in 2008, compared to 80 kboe/d in 2007 and 78 kboe/d in 2006.

•

In the Neuquen Basin, the connection of satellite discoveries and an increase in the low-pressure compressing capacity allowed the extension of the San Roque (24.7%, operator) and Aguada Pichana (27.3%, operator) fields’ production plateaus and the use of the full capacity of the gas treatment plants at each site.

On the San Roque field, the low-pressure compression project, started in January 2006, was brought on-line in March 2008, following up on medium-pressure compression units brought on-line in August 2006. Production on the Rincon Chico Nord discovery started in October 2008.

The low-pressure compression project on the Aguada Pichana field was brought on-line in August 2007. Development of the Aguada Pichana North discovery is underway. Start-up of the second development phase, launched in September 2007, is scheduled for the second half 2009. The first phase began production in December 2007. In addition, drilling of additional wells continued. Sixteen new wells, approved in April 2008, are expected to come onstream in the first half 2009, followed by eighteen contingent wells.

In February 2009, TOTAL and the Argentinean authorities signed an agreement extending the Aguada Pichana and San Roque concessions for ten years (from 2017 until 2027).

•

In Tierra del Fuego, where the Group operates notably the offshore Carina and Aries fields (37.5%), 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 (approximately 424 Mcf/d to 530 Mcf/d).

The Tierra del Fuego gas export pipeline does not currently have the capacity to transport all of the gas that could be produced with this development. Work to increase the capacity of the pipeline is on-going since 2008. Carina and Aries came onstream in June 2005 and January 2006, respectively.

In Bolivia, the Group’s share of production, primarily gas, amounted to 22 kboe/d in 2008, compared to 28 kboe/d in 2007 and 21 kboe/d in 2006. TOTAL holds 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% was acquired in 2006, operator), Aquio and Ipati (80%, operator) and Rio Hondo (50%).

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. Six new exploration and production contracts signed in late October 2006 became effective on May 2, 2007, after approval and notarization by the Bolivian legislature.

In September 2008, TOTAL entered into a cooperation agreement with Gazprom and Yacimentos Petrolíferos Fiscales Bolivianos to explore the Azero Block within the framework of a mixed public/private company. This block is adjacent to the Ipati and Aquio blocks where the Group made a significant gas discovery in 2004. Seismic work to appraise this discovery was conducted in 2008. The interpretation of seismic data is underway.

Development studies for the Itau field, discovered on Block XX West, are also underway.

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.). In 2008, the Group’s share of production amounted to 92 kboe/d, compared to 94 kboe/d in 2007 and 96 kboe/d in 2006.

•

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.

In May 2006, the Venezuelan 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, PetroCedeño, and the transfer of operations to this mixed company. Under this agreement, TOTAL’s interest in the project decreased from 47% to 30.323% and PDVSA’s interest increased to 60%. Conditions for this transformation were approved by the Venezuelan National Assembly in October 2007 and the transformation was finalized in February 2008.

(1)

Source: Argentinean Ministry of Federal Planning, Public Investment and Services — Energy Secretary.

PDVSA agreed to compensate TOTAL for the reduction of its interest in Sincor by assuming $326 million of debt and by paying, mostly in crude oil, $834 million. As of December 31, 2008, substantially all of this compensation had been paid.

•

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

On April 15, 2008, the Venezuelan Parliament approved a law providing for a special tax on extraordinary profits. This new tax is calculated based on net liquid hydrocarbon volumes exported and is payable when the average reference price for the month exceeds $70/b.

•

TOTAL’s holding of a 49% interest in the offshore exploration Block 4, located in the Plataforma Deltana, was formally approved by the authorities in January 2006. The exploration campaign, which involved three wells, was completed on October 23, 2007. In October 2008, the Ministry for Energy and Oil agreed to let the joint venture retain the Cocuina discovery zone (lots B and F) and relinquish the rest of the block.

In Brazil, TOTAL holds interests in Block BC-2 (41.2%) and Block BM-C-14 (50%) located in the Campos Basin.

The partners on Block BC-2 drilled an appraisal well early in 2007 and filed a Declaration of Commercial Discovery with the National Oil Agency in late August 2007. Xerelete (formerly Curió), offshore at a depth of 2,400 m, was discovered in 2001. The southern extremity of Xelerete is located on the adjacent BM-C-14 Block.

The partners on both blocks are planning to unitize the field in 2009 and file a development plan with the Brazilian National Oil Agency. A 27-year concession agreement is expected to be granted starting on the date of filing of the unitization agreement.

TOTAL has been present in Colombia since 1973 through its 19% interest in the onshore Cupiaga and Cusiana fields located at the base of the Andes, and via its participation in CEPSA (48.83%), which has operated the Caracara oil field since 2008. The Group’s share of production was 23 kboe/d in 2008 compared to 19 kboe/d in 2007 and 22 kboe/d in 2006.

Two development projects are currently going through the approval process. They are designed to increase the gas production capacity from 180 Mcf/d to 250 Mcf/d

and to begin recovering 6 kb/d of LPG. Construction of the facilities is expected to begin in 2009 and first production for additional gas and LPG is expected in 2010 and 2011, respectively.

TOTAL also holds a 50% interest in the Niscota exploration permit where the drilling of an exploration well is currently underway.

TOTAL has been present in Trinidad & Tobago since 1996 through its 30% interest in the offshore Angostura field located on Block 2C. The Group’s production was 6 kb/d in 2008 compared to 9 kb/d in 2006 and 2007. A second phase, for the development of gas reserves, is underway, with production expected to begin in 2011.

Asia-Pacific

In 2008, TOTAL’s production in the Asia-Pacific region, mainly from Indonesia, was 246 kboe/d, compared to 252 kboe/d in 2007 and 253 kboe/d in 2006, representing approximately 11% of the Group’s overall production for the year.

Highlights of the 2006-2008 period included the acquisition of interests in several exploration permits in Vietnam, Australia, Indonesia, Malaysia and Bangladesh and the acquisition of a 24% interest in the Ichthys LNG project in Australia.

In addition, TOTAL started the appraisal and development studies of the South Sulige block in China. During this period, new discoveries were also made in Brunei, Australia, Thailand and in Indonesia on the Mahakam permit.

In Australia, where TOTAL has been present since the beginning of 2005, the Group has progressively increased its acreage with the acquisition of interests in thirteen offshore permits, four of which are operated by the Group, off the northwest coast of Australia in the Carnavon, Browse, Vulcan and Bonaparte Basins.

•

In the Browse Basin, preparation of the Ichthys gas and condensates field development, located on the WA-285P permit (24%), continued. This LNG project has been designed to produce 8.4 Mt/y of LNG, 1.6 Mt/y of LPG and 75 kb/d of condensates. The gas will be processed offshore to recover, stabilize, stock and export the condensates, and then routed by an 875 km pipeline to Darwin where the liquefaction plant will be built. Front end engineering and design studies (FEED) were launched in January 2009 for the liquefaction plant and are expected to be launched soon for the offshore portion for a start-up of production at the field by the middle of the next decade.

On the WA-344P (40%) permit, located near the Ichthys field, the Mimia-1 well drilled in 2008 led to a gas discovery.

•

In 2008, TOTAL strengthened its position near Ichthys with the acquisition of the WA-408P permit (100%, operator). In the Vulcan Basin, TOTAL acquired a 50% interest in the AC/P42 and 43 permits. The WA-297P and WA-301/303/304/305P permits were relinquished.

•

In 2008, significant seismic acquisition activities were conducted on the four permits operated by the Group. Data interpretation and site preparation are expected in 2009, to be followed by a drilling campaign.

In Brunei, where TOTAL has been present since 1986, the Group operates the offshore Maharaja Lela Jamalulalam field located on Block B (37.5%). Gas and liquids production in Group share was 14 kboe/d in 2008, compared to 14 kboe/d in 2007 and 15 kboe/d in 2006. The gas produced at this field is delivered to the Brunei LNG liquefaction plant.

In 2008, two exploration wells, ML-4 and MLJ2-06, drilled on Block B, south of the zone currently in production, discovered significant new gas and condensates accumulations. The MLJ2-06 well, drilled in high pressure/high temperature formations, has a final depth of 5,850 m. Production began in November 2008. The exploration drilling campaign is expected to resume in 2009.

Exploration activities on deep-offshore Block J (60%, operator) have been suspended since May 2003 due to a border dispute with Malaysia.

In China, the Group is active on the South Sulige block, located in the Ordos Basin, in the Inner Mongolia province. In 2008, two additional wells were drilled and successfully tested. Appraisal work, which began in September 2006, continued in 2007 with seismic acquisition, the drilling of two new wells and tests on existing wells. Development studies for this field, carried out in 2008, will continue in 2009 in order to define a joint development plan with the China National Petroleum Corporation (CNPC) by the end of 2009.

In Indonesia, where TOTAL has been present since 1968, production amounted to 177 kboe/d in 2008, compared to 180 kboe/d in 2007 and 182 kboe/d in 2006.

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 2008, gas production operated by TOTAL amounted to 2,570 Mcf/d. The gas delivered by TOTAL to Bontang LNG accounted for 80% of its supply. In addition to gas production, operated condensates and oil production from the Handil and Bekapai fields amounted to 51 kb/d and 24 kb/d, respectively.

•

On the Tunu field, drilling of additional wells continued in 2008 as part of the twelfth and thirteenth development phases. A new seismic campaign is scheduled for 2009 to improve imaging on the shallow reservoirs and to identify the optimal location for additional wells. Gas production on Tunu was 1,304 Mcf/d in 2008. The eleventh development phase, launched in 2005 to install onshore low-pressure compression units, is continuing with completion scheduled in 2009.

•

The development of the Peciko field continued in 2008, with the drilling of additional wells and the installation of a new platform as part of the fifth development phase. New compression capacities (phase 6) are currently being developed and are expected to be commissioned in 2009. Drilling of additional wells is expected to continue in 2009 (phase 7). Gas production on Peciko was 869 Mcf/d in 2008.

•

On the Sisi-Nubi field (47.9%, operator), which began production in November 2007, drilling continued in 2008 and gas exports reached 350 Mcf/d late in 2008. The gas from Sisi-Nubi is produced through Tunu’s processing facilities.

•

On the Mahakam permit, the oil discovery made in 2008 on the East Bekapai exploration well led to the launch of a development study, currently underway. On this permit, the development of South Mahakam with the Stupa, West Stupa and East Mandu discoveries was launched early in 2008, with production scheduled to begin late in 2011.

•

In 2008, a seismic campaign was conducted on the South East Mahakam exploration block (50%, operator), located in the Mahakam Delta. TOTAL was awarded this block early in 2007.

•

After disappointing exploration results, TOTAL relinquished the East Sepanjang (27%) offshore permit located northeast of the Island of Java in September 2008.

In Thailand, TOTAL’s main asset is the Bongkot gas and condensates field (33.3%), where the Group’s 2008 production amounted to 41 kboe/d, similar to 2006 and 2007. PTT (the state-owned Thai company) purchases the entire gas and condensates production. Late in 2007, the Thai authorities agreed to extend the end of the concession period of the field by ten years, from 2013 to 2023.

On Bongkot, two successful exploration wells were drilled in 2008 on the Ton Sak and Ton Son structures. Ton Sak is being developed as part of phase 3H and Ton Son is expected to be developed as part of future phase J.

Production from the 3F development phase started in July 2008. This phase included the installation of three production platforms. Start-up of production at the new 3G development phase (two platforms) is expected in the second quarter 2009. This phase was launched in April 2007 after gas discoveries were made early in 2007 on Blocks 15 and 16.

Gas discoveries made in the first half 2008 led to a new development phase. This 3H phase (three platforms) was launched in July 2008. Start-up of production is expected in 2010.

The development plan for the southern portion of the field (Great Bongkot South) was completed. This development, planned in several phases, is designed to include a processing platform, a residential platform and thirteen production platforms. Start-up of the facilities is expected in 2012.

In Myanmar, TOTAL operates the Yadana field (31.2%). Located offshore Blocks M5 and M6, this field produces gas which is primarily delivered to PTT to be used in Thai power plants. In 2008, production amounted to 14 kboe/d in Group share, compared to 17 kboe/d in 2007 and 15 kboe/d in 2006.

In Malaysia, TOTAL signed a production sharing contract in May 2008 with state-owned Petronas for the offshore exploration Blocks PM303 and PM324 (70%, operator). An operating structure was created in 2008 in Kuala Lumpur. 3D seismic work is expected to be carried out in 2009, followed by drilling in high pressure/high temperature conditions. TOTAL is also involved in exploration activities on the SKF offshore block (42.5%).

In Vietnam, a 3D seismic acquisition covering 1,600 km² was conducted from May to July 2008 on the offshore exploration Block 15-1/05. In 2007, TOTAL and PetroVietnam entered into an agreement under which the Group holds a 35% interest in the production sharing agreement for this block.

In March 2009, TOTAL and PetroVietnam signed a production sharing contract for Blocks DBSCL-02 and DBSCL-03. Located in the Mekong Delta region, these onshore blocks are held by TOTAL (75%, operator) and PetroVietnam (25%).

In Bangladesh, TOTAL operates two exploration blocks located offshore the southeastern coast, Blocks 17 and 18, acquired in 2007. In 2008, a 3D seismic campaign was conducted on these blocks. Pursuant to the interpretation results, the decision to relinquish the blocks was made late in February 2009.

Commonwealth of Independent States (CIS)

In 2008, TOTAL’s production in this area reached 26 kboe/d, representing approximately 1% of the Group’s overall production, compared to 19 kboe/d in 2007 and 8 kboe/d in 2006.

Highlights of 2008 included the signature of a number of agreements for the Kashagan field by members of the North Caspian Sea Production Sharing Agreement (NCSPSA) consortium and the Kazakh authorities.

In Russia, TOTAL and Gazprom signed a cooperation agreement in 2007 for the first phase of development on the Shtokman field. In Azerbaijan, the Shah Deniz project began production late in 2006.

In Azerbaijan, where TOTAL has been present since 1996, production averaged 18 kboe/d in 2008, compared to 11 kboe/d in 2007. TOTAL’s activities 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.

Gas deliveries from the Shah Deniz field to Turkey, Georgia and Azerbaijan continued in 2008. A new appraisal well is being drilled on this field to further evaluate available reserves before the launch of a second development phase.

In 2008, the BTC (Baku-Tbilissi-Ceyhan) pipeline was used to drain off the condensates produced at Shah Deniz. This pipeline, owned by BTC Co., in which TOTAL holds a 5% interest, links Baku to the Mediterranean Sea. Construction of this pipeline began in August 2002 and was completed in 2006.

TOTAL and SOCAR also have signed an exploration, development and production sharing agreement in February 2009 for a permit located on the offshore Absheron block. During the exploration phase, TOTAL will be the operator of the block. For the development

phase, TOTAL and SOCAR will create a company to conduct operations, with the partners holding, respectively, 60% and 40%.

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

On October 31, 2008, members of the NCSPSA consortium and the Kazakh authorities signed a number of agreements to end the disagreement that began at the end of August 2007. The implementation of these agreements led to a reduction of TOTAL’s share in NCSPSA from 18.52% to 16.81%. The operating structure was reconfigured and the North Caspian Operating Company (NCOC), a joint operating company, was entrusted with the operatorship. NCOC started operating the field in January 2009. NCOC supervises and coordinates NCSPSA’s activities and is directly responsible for scheduling, reservoir modeling, conceptual development studies and relations with the Kazakh authorities. NCOC uses TOTAL’s management system. The company’s chief executive officer is also an executive from TOTAL.

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 2008 and production is expected to begin late in 2012.

TOTAL has been present in Russia since 1989. In 2008, production from the Kharyaga field (50%, operator) averaged 8 kboe/d, similar to 2006 and 2007.

•

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. Shtokman Development AG (TOTAL, 25%) was established in February 2008 to operate this first development phase of the project, designed to produce 23.7 Bm³/y of natural gas (nearly 2.3 Bcf/d), approximately 50% of which will be used to supply an LNG plant with a capacity of 7.5 Mt/y. The main technology challenges related to this project have been addressed and engineering studies have been launched for an investment decision expected in 2010.

•

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%) by around 2011. Work on this development is proceeding on schedule.

Europe

In 2008, TOTAL’s production in this zone reached 616 kboe/d, representing 26% of the Group’s overall production, compared to 674 kboe/d in 2007 and 728 kboe/d in 2006.

In Norway, highlights of the 2006-2008 period included the start-up of the Snøhvit field, the increase of the Group’s interest in the PL211 permit (Victoria) and new developments on existing fields. In the UK, production began on satellites of Alwyn (Jura, discovered in 2006) and Elgin-Franklin (Glenelg, West Franklin) as well as on the Maria field.

In both countries, TOTAL made several major discoveries and was awarded new exploration permits.

In France, the Group has operated fields since 1939, notably the Lacq (100%) and Meillon (100%) gas fields, located in the southwest. The Group’s production was 25 kboe/d in 2008, down from 27 kboe/d in 2007 and 30 kboe/d in 2006.

The Group’s most significant production activity in France has been on the Lacq field, which began in 1957. A pilot project to capture, inject and store carbon dioxide is proceeding at this site. In connection with this project, a gas burning plant is being modified to operate in an oxy-combustion environment and the carbon dioxide produced is to be re-injected in the depleted Rousse field. The plant is expected to be operational by mid-2009. As part of the Group’s sustainable development policy, this project will allow the Group to assess one of the technological possibilities for reducing 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 (Basilicate region), is one of TOTAL’s principal assets in the country.

The plan of extending the Tarente refinery export system, which is necessary for the development of the Tempa Rossa field, will be submitted to the Italian authorities in 2009. The partners in the Tempa Rossa field are then expected to make the final investment decision regarding the project, subject to the condition that the commercial offers for the principal engineering and construction contracts are competitive, failing which a new call for tenders may be launched. Proceedings initiated by the Prosecutor of the Potenza Court against Total Italia could also delay this project.

Site preparation work started in August 2008. Depending on the date the principal contracts are awarded, production is planned to begin in 2012 or 2013, with a plateau production of 50 kb/d.

In Norway, where the Group has been present since the late 1960s, TOTAL holds interests in seventy-four production permits on the Norwegian continental shelf, thirteen of which it operates. Norway is the largest single-country contributor to the Group’s production, with 334 kboe/d in 2008, compared to 338 kboe/d in 2007 and 372 kboe/d in 2006.

•

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 2008, benefiting from the start-up of the Ekofisk Area Growth project (EAG) in October 2005.

•

In the Haltenbanken area in the Norwegian Sea, the Åasgard (7.7%), Mikkel (7.7%) and Kristin (6%) fields contributed nearly 13% of the Group’s Norwegian production. Production on the Tyrihans oil, gas and condensates field (23.2%) is expected to begin in July 2009. Yttergryta (24.5%), a satellite of Åasgard, started production in January 2009, and Morvin (6%), a satellite of Åasgard, is expected to be commissioned in August 2010.

•

Drilling of an appraisal well on the undeveloped Victoria discovery began in January 2009. Victoria, operated by TOTAL, is part of the PL 211 license in which the Group increased its interest from 20% to 40% in 2006.

•

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

•

Between 2006 and 2008, exploration and appraisal work occurred on various permits, notably the Onyx SW discovery (PL 255, 20%) 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. In 2008, the oil discovery on Dagny (12%) and the Pandora discovery, in the Visund zone, significantly increased the potential of this zone.

TOTAL has been conducting natural gas exploration and production activities in The Netherlands and on the North Sea continental shelf since 1964. In 2008, the Group’s production amounted to 44 kboe/d, compared to 45 kboe/d in 2007 and 44 kboe/d in 2006.

TOTAL owns twenty-three offshore production permits, nineteen of which are operated, and one operated exploration permit. In February 2008, the Group was awarded an interest of 16.92% in the E17c exploration permit.

Pursuant to an agreement signed in August 2008, TOTAL acquired Goal Petroleum (Netherlands) B.V. This acquisition is expected to increase the Group’s production by 8 kboe/d by 2011.

On the K5F sub-sea field (40.39%, operator), production began in September 2008. This project is comprised of two sub-sea wells connected to the existing production and transport facilities. K5F is the first project in the world to use only electrically driven sub-sea well heads and systems. This advance in sub-sea technologies is expected to increase the reliability of systems and improve environmental performance. The development of the K5CU project (46.6%, operator) is expected to take place from 2009 to 2011. This project is designed to include four wells supported by a new platform connected to the K5A platform by a 15 km gas pipeline.

TOTAL has been present in the United Kingdom since 1962. The Group’s production reached 213 kboe/d in 2008 compared to 264 kboe/d in 2007 and 282 kboe/d in 2006. The UK accounts for nearly 9% of the Group’s overall production. 82% 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. In addition, the Tormore discovery in 2007 led the Group and its partners to consider the joint development of the Laggan/Tormore fields, located west of the Shetland Islands and to select the development plan.

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On the Alwyn zone, the start-up of production from satellites or new reservoir compartments allowed the potential for production to remain at a level near to the processing and compressing capacities of the platform (530 Mcf/d of gas increased to 575 Mcf/d during the summer 2008 planned shutdown for heavy maintenance). In addition, wells drilled on the Alwyn North field (N49 and N50) discovered new reserves, in production since 2007.

The Jura field (100%), discovered late in 2006, started production in May 2008 through two sub-sea wells connected to the pipeline linking Forvie North and Alwyn. The production capacity of this field is 50 kboe/d (gas and condensates).

A second gas and condensates dicovery, Islay (100%), located in a faulted panel immediately east of Jura, was made in 2008. Development studies for this discovery are underway.

Late in 2008, TOTAL increased its interest in the Otter field, from 54.30% to 81.00%.

•

The development of the Elgin-Franklin zone, in production since 2001, 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 well, which came onstream in March 2006. The first well of West Franklin (F7) started production in September 2007 at a rate of 13 kboe/d. A second well, F9, was drilled on this field and production started in September 2008 at a rate of nearly 25 kboe/d. Anticipated production for this field over its life is estimated to total approximately 200 Mboe (in 100%).

On the Elgin field, drilling of an infill well started in October 2008. A similar well was completed on the Franklin field in 2007. Drilling of such a well in a high pressure/high temperature depleted field is a significant technical milestone.

As part of an agreement signed in 2005, TOTAL acquired 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 increase 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 quarter 2009. If the development of Kessog were approved, TOTAL would be the operator.

•

In the West Shetland zone, a successful exploration well was drilled on the Tormore prospect, located 15 km southwest of the Laggan field. Development studies allowed the Group and its partners to select a joint development plan for both fields, using sub-sea facilities and off-gas treatment (gas and condensates) at a plant in Sullom Voe in the Shetland Islands. The gas would be exported to the Saint-Fergus terminal via a new pipeline connected to the Frigg pipeline (FUKA). Basic engineering studies for the development have been launched and production is expected to begin in 2013.

TOTAL also owns interests in a number of assets operated by third parties, notably in the Bruce and Maria

fields. The Bruce field, where a new drilling campaign started in 2008, is the most significant among them. The development of the Maria field was completed and production began in December 2007.

Middle East

TOTAL has been developing long-term partnerships in this region since 1924. The Middle East is one of the major growth regions for the Group over the medium term, with the Yemen LNG and Qatargas II projects expected to start production in 2009. Highlights of 2007 included the start-up of the Dolphin gas project in Qatar, which achieved plateau production in the first quarter 2008.

In 2008, TOTAL’s production in the Middle East (including production of equity affiliates and non-consolidated subsidiaries) was 432 kboe/d, representing 18% of the Group’s overall production, compared to 390 kboe/d in 2007 and 406 kboe/d in 2006.

In Saudi Arabia, following disappointing exploration results and pursuant to contractual arrangements, the Group withdrew in early 2008 from the joint venture with Saudi Aramco, the state-owned oil company.

In the United Arab Emirates, where the Group has been present since 1939, TOTAL’s production was 243 kboe/d in 2008, compared to 242 kboe/d in 2007 and 267 kboe/d in 2006.

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 in Abu Dhabi Gas Liquefaction Company (ADGAS, 5%), which produces LNG, LPG and condensates.

TOTAL signed in 2009 the agreements for a 20-year extension of its participation in the GASCO joint venture.

The Group also holds a 33.3% interest in Ruwais Fertilizer Industries (FERTIL), which produces ammonia and urea. 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 Iraq, TOTAL was prequalified by the Iraqi Ministry of Oil to participate in the bidding process related to the development of Iraqi oil fields. TOTAL is pursuing its significant training program for Iraqi engineers.

In Iran, the Group’s production, under buyback agreements, amounted to 9 kboe/d in 2008, compared to 15 kboe/d in 2007 and 20 kboe/d in 2006.

In Oman, the Group’s production amounted to 34 kboe/d in 2008 and 2007, compared to 35 kboe/d in 2006. The Group is present in oil production on Blocks 6 and 53 as well as in liquefied natural gas production through its interests in the Oman LNG (5.54%)/Qalhat LNG (2.04%⁽¹⁾) gas liquefaction plant, which has a capacity of 10.5 Mt/y.

TOTAL has been present in Qatar since 1936 and holds interests in the Al Khalij and North fields, the Dolphin project, the Qatargas I liquefaction plant and the second train of Qatargas II. The Group’s production (including its share in the production of equity affiliates) averaged 121 kboe/d in 2008, up from 74 kboe/d in 2007 and 58 kboe/d in 2006. This production increased significantly with the ramp-up of the Dolphin project.

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Production from the Dolphin project (24.5%) started during the summer of 2007 and reached its full capacity in the first quarter 2008. On the North field, the Group signed a contract with state-owned Qatar Petroleum in December 2001 providing for the sale of 2 Bcf/d of gas produced by the Dolphin project, for a 25-year period. This gas is carried to the United Arab Emirates through a 360 km pipeline.

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In July 2006, TOTAL signed four contracts providing for the purchase by the Group of 5.2 Mt/y of LNG and formalized in December 2006 its acquisition of a 16.7% interest in the second train of Qatargas II. This integrated project includes the development of

two new LNG trains, each with a capacity of 7.8 Mt/y. Commissioning is expected in 2009.

TOTAL is present in Syria on the Deir Ez Zor permit (100%, operated by DEZPC, of which 50% is owned by TOTAL). The Group’s production was 15 kboe/d in 2008 and 2007 compared to 17 kboe/d in 2006.

In 2008, TOTAL signed three agreements with the Syrian authorities. The first agreement provides for a 10-year extension of the Deir Ez Zor permit, until 2021. The second sets forth the principles to be incorporated into a final agreement concerning the increase in production on the Tabiyeh gas and condensates field. TOTAL also signed a framework agreement related to the development of oil projects in partnership with the state-owned companies, Syrian Petroleum Company and Syrian Gas Company.

TOTAL has been present in Yemen since 1987. In 2008, the Group’s production amounted to 10 kboe/d, compared to 9 kboe/d in 2007 and 2006. TOTAL 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 has an interest of 39.62% in the Yemen LNG project.

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The commissioning of Yemen LNG is expected in the second quarter 2009. This LNG project, launched in August 2005, calls for the construction of two LNG liquefaction trains with a capacity of 6.7 Mt/y, all of which has been sold under long-term contracts.

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In 2008, TOTAL strengthened its position in offshore exploration through the acquisition of a 30.9% interest in Block 70 following the purchase of a 40% share in Blocks 69 and 71 in 2007. Results of the first well drilled on Block 71 are currently being assessed.

(1)

Indirect interest through the 36.8% share of Qalhat LNG owned by Oman LNG.

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, 2008

Pipeline(s)

Origin

Destination

interest

Operator

Liquids

Gas

EUROPE

France

TIGF

Network South West

100.00

Norway

Frostpipe (inhibited)

Lille-Frigg, Froy

Oseberg

36.25

Gassled^(a)

7.995

Heimdal to Brae Condensate

Heimdal

Brae

16.76

Line

Kvitebjørn pipeline

Kvitebjørn

Mongstad

5.00

Norpipe Oil

Ekofisk Treatment center

Teeside (UK)

34.93

Oseberg Transport System

Oseberg, Brage and Veslefrikk

Sture

8.65

Sleipner East Condensate Pipe

Sleipner East

Karsto

10.00

Troll Oil Pipeline I and II

Troll B and C

Vestprosess (Mongstad refinery)

3.70

The Netherlands

Nogat pipeline

F3-FB

Den Helder

23.19

WGT K13-Den Helder

K13A-K4/K5

Den Helder

4.66

WGT K13-Extension

Markham

K13-K4/K5

23.00

United Kingdom

Alwyn Liquid Export Line

Alwyn North

Cormorant

100.00

Bruce Liquid Export Line

Bruce

Forties (Unity)

43.25

Central Area Transmission

Cats Riser Platform

Teeside

0.57

System (CATS)

Central Graben

Elgin-Franklin

ETAP

15.885

Liquid Export Line (LEP)

Frigg System: UK line

Alwyn North, Bruce and others

St.Fergus (Scotland)

100.00

Ninian Pipeline System

Ninian

Sullom Voe

16.00

Shearwater Elgin Area Line (SEAL)

Elgin-Franklin, Shearwater

Bacton

25.73

AFRICA

Algeria

Medgas

Algeria

Spain

9.77

^(b)

Gabon

Mandji Pipe

Mandji fields

Cap Lopez Terminal

100.00

^(c)

Rabi Pipe

Rabi

Cap Lopez Terminal

100.00

^(c)

AMERICAS

Argentina

Gas Andes

Neuquen Basin (Argentina)

Santiago (Chile)

56.50

TGN

Network (Northern Argentina)

15.40

TGM

TGN

Uruguyana (Brazil)

32.68

Bolivia

Transierra

Yacuiba (Bolivia)

Rio Grande (Bolivia)

11.00

Brazil

TBG

Bolivia-Brazil border

Porto Alegre via São Paulo

9.67

TSB (project)

TGM (Argentina)

TBG (Porto Alegre)

25.00

Colombia

Ocensa

Cusiana, Cupiagua

Covenas Terminal

15.20

Oleoducto de Alta Magdalena

Tenay

Vasconia

0.93

Oleoducto de Colombia

Vasconia

Covenas

9.55

ASIA

Yadana

Yadana (Myanmar)

Ban-I Tong (Thai border)

31.24

REST OF WORLD

BTC

Baku (Azerbaijan)

Ceyhan (Turkey)

5.00

SCP

Baku (Azerbaijan)

Georgia/Turkey Border

10.00

Dolphin (International transport and network)

Ras Laffan (Qatar)

U.A.E.

24.50

(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)

Through the Group’s interest in CEPSA (48.83%).

(c)

Interest of Total Gabon. The Group has a financial interest of 57.96% in Total Gabon.

Gas & Power

The Gas & Power division is focused on the optimization of the Group’s gas resources through marketing, trading, transport of natural gas and liquefied natural gas (LNG), LNG re-gasification and natural gas storage.

The division also contributes to the Group’s activities in the following areas:

•

liquefied petroleum gas (LPG) shipping and trading;

•

coal production, marketing and trading;

•

power generation from gas-fired power plants or renewable energies;

•

trading and marketing of electricity; and

•

solar power systems (through its subsidiaries Tenesol and Photovoltech).

The Gas & Power division also conducts research and development related to alternative energies as complementary energy resources to oil and gas.

Natural Gas

In 2008, TOTAL pursued its strategy of developing its activities downstream from natural gas production in order to optimize access for the Group’s current and future gas production and reserves to traditional markets (with long-term contracts between producers and integrated gas companies) and to markets open to international competition (including short-term contracts and spot sales).

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. In most cases, price formulas induce a time-lag or an adjustment over time to reflect changes in oil indexes.

In the context of deregulated natural gas markets, which allow customers to more freely access suppliers, in turn leading to new marketing methods that are more flexible than traditional long-term contracts, TOTAL is developing trading, marketing and logistics activities to offer its natural gas production directly to customers, primarily in the industrial and commercial markets.

Europe

TOTAL has been active in the downstream sector of the gas value chain in Europe for more than sixty years.

Natural gas transport, marketing and storage activities were initially developed to complement the Group’s domestic production in Lacq (France). The Group further developed these activities upon additional gas discoveries, and they are now part of its comprehensive downstream gas chain.

The Group’s transport and storage activities in southwest France are grouped under TIGF, a wholly-owned subsidiary of the Group. This subsidiary operates a regulated transport network of 4,905 km of gas pipelines, as well as two storage units with 84 Bcf

(2.4 Bm³) of combined usable capacity, representing approximately 20% of the overall natural gas storage capacity in France⁽¹⁾. Highlights of 2008 included:

•

Obtaining the authorization, pursuant to an April 9, 2008 decree, to increase the storage capacity of the Lussagnet site from 84 Bcf (2.4 Bm³) to 124 Bcf (3.5 Bm³) over a period of eleven years.

•

The start-up, on November 7, 2008, of the Artère de Guyenne gas pipeline. This pipeline (70 km long and 900 mm in diameter) connects Captieux and Mouliets-et-Villemartin and will allow the flow of gas from the Fos Cavaou LNG terminal to the north of France.

•

In addition to retaining its Quality, Security and Environment certification, TIGF was awarded an HEQ (High Environmental Quality) certification for its office and technical buildings at the Lussagnet site.

•

The participation of TIGF in Gas Powernext, a gas trading exchange.

•

The active participation of TIGF in the development of Franco-Spanish interconnections as part of ERGEG (European Regulator Group for Electricity and Gas).

Regarding TOTAL’s marketing activities:

•

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

(1)

GIE data (Gaz Infrastructure Europe), February 2008.

48.83% interest in CEPSA, the Group has a combined direct and indirect interest of approximately 52% in this company. In 2008, Cepsa Gas Comercializadora sold approximately 70 Bcf (2 Bm³) of natural gas to industrial and commercial customers, compared to approximately 59 Bcf (1.7 Bm³) in 2007 and 49 Bcf (1.4 Bm³) in 2006. CEPSA also has a 20% interest in the Medgaz pipeline project which directly connects Algeria to Spain.

•

In France, TOTAL sold 229 Bcf (6.5 Bm³) of gas in 2008 through its marketing subsidiary Total Énergie Gaz (TEGAZ), compared to 245 Bcf (7 Bm³) in 2007 and 240 Bcf (6.9 Bm³) in 2006.

•

In the United Kingdom, 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 2008, Total Gas & Power Ltd sold 134 Bcf (3.8 Bm³) of natural gas to industrial and commercial customers, compared to 124 Bcf (3.5 Bm³) in 2007 and 134 Bcf (3.8 Bm³) in 2006. Electricity sales amounted to 4.6 TWh in 2008, compared to 3.6 TWh in 2007 and 3.2 TWh in 2006. 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 1,652 Bcf (46.9 Bm³) of natural gas in 2008, compared to approximately 1,606 Bcf (45.5 Bm³) in 2007 and 923 Bcf (26.2 Bm³) in 2006, supplied by its own production and external sources.

In Mexico, Gas del Litoral, a company in which TOTAL holds a 25% interest, sold approximately 173 Bcf (4.9 Bm³) of natural gas in 2008, its second full year of activity, compared to 95 Bcf (2.7 Bm³) in 2007 and 25 Bcf (0.7 Bm³) in 2006.

In South America, TOTAL owns interests in several natural gas transport companies in Argentina, Chile and Brazil, including the following:

•

a 15.4% interest in Transportadora de Gas del Norte (TGN), which operates a gas transport network covering the northern half of Argentina;

•

a 56.5% interest in the companies that own the GasAndes pipeline, which connects the TGN network to the Santiago del Chile region; and

•

a 9.7% interest in 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 of pipelines 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.

In 2008, the fall in domestic gas production in Argentina considerably reduced gas export flows to Chile.

Asia

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

In India, Hazira LNG Private Limited, a company in which TOTAL holds a 26% interest, sold approximately 87 Bcf (2.5 Bm³) of natural gas in 2008, its third full year in operation, compared to 76 Bcf (2.2 Bm³) in 2007 and 28 Bcf (0.8 Bm³) in 2006.

Liquefied Natural Gas

The Gas & Power division conducts LNG activities downstream from liquefaction plants,⁽¹⁾ including 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 that are the largest consumers of natural gas: North America (the 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.

(1)

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

Europe

In France, TOTAL acquired in June 2006 a 30.3% interest in the Société du Terminal Méthanier de Fos Cavaou (STMFC). This terminal is expected to have a re-gasification capacity of 291 Bcf/y (8.25 Bm³/y), of which 79 Bcf/y (2.25 Bm³/y) has been reserved by TOTAL through its subsidiary Total Gas & Power Ltd. The terminal is scheduled to come onstream commercially in the second half 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 United Kingdom. The terminal is scheduled to come onstream in the first half 2009.

In addition, as part of the Snøhvit project (Norway ), in which TOTAL holds an 18.4% interest and where the first deliveries started in October 2007, Total Gas & Power Ltd signed in November 2004 a purchase agreement for 35 Bcf/y (1 Bm³/y) of natural gas primarily intended for North America and Europe. 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 353 Bcf/y (10 Bm³/y), which could be subsequently increased to 494 Bcf/y (14 Bm³/y).

In addition, TOTAL holds a 30% interest in Gaztransport & Technigaz (GTT) which primarily focuses on the design and engineering of membrane cryogenic tanks dedicated to LNG tankers. As of December 31, 2008, 193 active LNG tankers were equipped with membrane tanks built under GTT licenses out of a world tonnage estimated at 302 LNG tankers.⁽¹⁾

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 236 Bcf/y (6.7 Bm³/y). This capacity has been entirely reserved by Gas del Litoral, in which TOTAL has a 25% interest. The terminal received forty-two cargos in 2008, compared to thirty-three 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 terminal was inaugurated in April 2008. The LNG to supply Sabine Pass is expected to come from LNG purchase agreements providing for shipments from various producing projects worldwide in which TOTAL holds interests, notably in the Middle East, Norway and West Africa.

Asia

The Hazira re-gasification terminal, located on the west coast of India in the Gujarat state, was inaugurated in April 2005. It had an initial re-gasification capacity of approximately 120 Bcf/y (3.4 Bm³/y). At the end of 2008, its capacity reached 177 Bcf/y (5 Bm³/y) after debottlenecking operations were conducted during the year.

TOTAL has held a 26% interest in the Hazira merchant terminal since May 2005. Its activities include 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 2008, the Hazira terminal was operated on the basis of short-term contracts, both for the sale of gas on the Indian market and the purchase of LNG from international markets. Thirty cargos were delivered in 2008, compared to twenty-eight in 2007 and twelve in 2006.

On December 10, 2008, TOTAL, through its subsidiary Total Gas & Power Ltd, signed an LNG sale agreement with China National Offshore Oil Company (CNOOC). As part of this agreement, TOTAL is expected to supply CNOOC with up to 1 Mt/y of LNG starting in 2010. The gas supplied will come from the Group’s global LNG resources.

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. Start-up is expected in 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 second quarter of 2009.

(1)

Gaztransport & Technigaz data.

Africa

In Nigeria, as part of the expansion of the Nigeria LNG plant (NLNG), in which TOTAL holds a 15% interest, 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 the sixth train 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 for this new train.

TOTAL also acquired a 17% interest in the Brass LNG project in Nigeria in July 2006. This liquefaction project calls for the construction of two liquefaction trains, each with a capacity of 5 Mt/y. TOTAL 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 primarily to North America and Western Europe. 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 the Angola LNG 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 quantities 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 began to receive cargos in 2007 under its long-term supply contracts in Nigeria and Norway. In 2008, Total Gas & Power Ltd purchased twelve contractual cargos and twenty-two spot cargos from Nigeria, Egypt, Equatorial Guinea, Abu Dhabi, Oman and Trinidad & Tobago. This mix of spot and term LNG purchases allows TOTAL to supply its principal clients over the world with gas, while retaining a certain degree of flexibility to react to market opportunities or unexpected fluctuations in supply and demand.

Liquefied Petroleum Gas

In 2008, TOTAL traded and sold 5.2 Mt of LPG (butane and propane) worldwide (compared to 5.2 Mt in 2007 and 5.8 Mt in 2006), including approximately 1.4 Mt in the Middle East and Asia, approximately 0.7 Mt in Europe on small coastal trading vessels and approximately 3 Mt on large vessels in the Atlantic and Mediterranean regions. Approximately 40% of these quantities comes from fields or refineries operated by the Group. LPG trading involved the use of seven time-charters and approximately sixty spot charters. In 2008, this activity represented approximately 9% of the worldwide seaborne LPG trade⁽¹⁾.

In January 2008, SALPG (South Asian LPG Limited), a company in which TOTAL holds a 50% interest, in partnership with Hindustan Petroleum Company Ltd, announced the start-up of commercial operations at the underground import and storage LPG terminal located in Visakhapatnam, on the east coast of India in the state of Andhra Pradesh. This terminal, the first of its kind in India, has a storage capacity of 60 kt.

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, in operation since May 2003, combines electricity generation and water desalination. It is owned and operated by Gulf Total Tractebel Power Cy, in which TOTAL has a 20% interest. The Taweelah A1 power plant currently has an overall power generation capacity of 1,430 MW and a water desalination capacity of 385,000 m³ per day. An additional development of 250 MW of capacity, under construction, is expected to enter into operation in the first half 2009.

Also in Abu Dhabi, TOTAL entered a partnership agreement in early 2008 with GDF Suez and Areva to propose the development of a nuclear power plant project, based on third generation EPR technology, to the local authorities at the appropriate time. The local authorities have launched a process to develop civil nuclear energy. This process includes the setting up of a national development organization and the

(1)

Poten & partners LPG in world markets 2008.

publication of a specific law for the use of nuclear energy. To this end, authorities look to international best practices and follow the rules of transparency set forth by the International Atomic Energy Agency while also relying on partnerships with countries employing nuclear power technologies, such as France, the United States, the UK and Japan. Currently, the authorities have not yet made a decision on this project. This project would provide TOTAL with an opportunity to enter the nuclear energy production sector, building on its historical presence in the Emirates.

TOTAL entered into a partnership with the Spanish company Abengoa Solar to participate in a bidding process launched by Abu Dhabi Future Energy Company (ADFEC) in 2008 as part of the MASDAR initiative to support new energies. This call for tenders concerns the construction of a concentrated solar thermal plant.

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 power generation units. These projects are part of the Nigerian government’s policy to develop power generation, stop gas flaring and privatize the power generation sector:

•

the Afam project, part of the SPDC (Shell Petroleum Development Company) joint venture in which TOTAL holds a 10% interest, concerns upgrading the Afam V power plant to increase its capacity to 276 MW and developing the Afam VI power plant, with a planned capacity of approximately 600 MW; and

•

the OML 58 project, part of the TEPNG (Total Exploration Production Nigeria) 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.

Renewable Energy

As part of its strategy to develop energy resources to complement oil and gas, TOTAL continued in 2008 to strengthen its positions in renewable energies, with a particular focus on solar-photovoltaic power where the Group has been present since 1983.

Solar-photovoltaic power

In solar-photovoltaic power (silicon-crystal technology), TOTAL is involved in upstream activities, with the

manufacturing of photovoltaic cells, and, in downstream activities, with the marketing of solar panels.

In partnership with GDF Suez and IMEC (Interuniversity MicroElectronics Centre), TOTAL owns 47.8% of Photovoltech, a company specialized in manufacturing high-efficiency photovoltaic cells. This company, whose production capacity is 80 MWp/y, has invested 45 M€ to increase the overall production capacity of its Tierlemont plant (Tienen, Belgium) to 140 MWp/y early in 2010. In 2008, Photovoltech announced a new project to increase the production capacity of photovoltaic cells to 260 MWp/y at its Tierlemont site in 2012. Photovoltech sales rose to approximately 106 M€ in 2008, compared to 73 M€ in 2007 and 42 M€ in 2006.

In addition, TOTAL holds a 50% interest in Tenesol, in partnership with EDF. Tenesol, whose headquarters are located in Lyon (France), designs, manufactures, markets and operates solar-photovoltaic power systems. Tenesol’s consolidated sales were 193 M€ in 2008, compared to 133 M€ in 2007 and 134 M€ in 2006, the equivalent of selling production of approximately 61.3 MWp. Its principal markets are for network connections in France and in the French Overseas Territories, and it is also active in certain professional applications (telecommunications, oil and gas sites, etc.). Tenesol owns two solar panel manufacturing plants: Tenesol Manufacturing in South Africa, with an annual production capacity of 60 MWp; and Tenesol Technologies in the Toulouse region of France, which trebled its production capacity in 2008 from 17 MWp/y to 50 MWp/y.

Temasol, a wholly-owned subsidiary of Tenesol in Morocco since the transfer in 2008 of the respective shares of Total Maroc and EDF EDEV, focuses on decentralized rural electrification activities. Since its creation in 2001, approximately 25,500 households have been equipped by Temasol.

TOTAL is pursuing additional decentralized rural electrification activities by responding to calls for tenders from authorities in several countries. In South Africa, KES (Kwazulu Energy Services Company), of which TOTAL owns 35%, was awarded an initial program in the Kwazulu-Natal province in 2002; late in 2008, approximately 8,000 isolated homes were equipped with individual decentralized systems. In 2008, the program was extended to the Eastern Cape province with the objective to equip approximately 26,000 households. In Mali, Korayé Kurumba (TOTAL, 30%), a company specialized in decentralized service, operated decentralized power micro-networks and individual solar photovoltaic kits, with approximately 500 customers at the end of 2008. In Yemen and Indonesia, studies are underway related to decentralized rural electrification projects as part of commitments to support local populations.

On December 10, 2008, TOTAL acquired, as a core industrial shareholder, an interest in the share capital of the U.S. start-up Konarka, which is specialized in the development of third generation organic solar technologies. With a significant interest of slightly below 20%, TOTAL is Konarka’s principal shareholder.

As part of the Group’s contribution to the “Grenelle de l’environnement” program launched by the French government in 2008, TOTAL established a subsidiary, Total Énergie Solaire, to develop photovoltaic projects. Total Énergie Solaire’s primary objectives are to carry out demonstration projects for educational purposes and to display different photovoltaic solutions at the Group’s sites. The selection of five industrialized sites was finalized in 2008 (Pau, Lacq, Provence refinery, Sara refinery and Cray Valley Sorgues) with an overall installed capacity of between 2 MWp and 3 MWp and an investment of 15 M€ in 2008 and 2009.

In addition, TOTAL plans to build a plant in the Carling region in eastern France to manufacture silicon wafers for the photovoltaic industry in partnership with GDF Suez.

Wind power

TOTAL operates a wind farm in Mardyck (near its Flanders refinery, located in Dunkirk, France). Mardyck, commissioned in November 2003, has a capacity of 12 MW and produced approximately 29.5 GWh of electricity in 2008, compared to an annual average of 24.7 GWh from 2005 to 2007.

TOTAL has decided to dispose of certain of its wind farm projects.

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, with a capacity of 40 kW, was completed and the buoy was put into the water in September 2008. This project is intended to assess the technical and economic potential of this technology.

With respect to tidal current energy, TOTAL held as of the end of 2007 a 24.9% interest in Scotrenewables Marine Power, located in the Orkney Islands in Scotland. Agreements bringing new partners into the company’s share capital were signed in January 2008. As a result, the Group’s participation was diluted to 16%. Scotrenewables Marine Power is developing tidal current energy converter technology. A 1/5 scale model is expected to be tested offshore in 2009. Construction of a full-scale prototype is scheduled for 2010.

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. A fourth mine is under construction and several mining development projects are being reviewed. The Group also trades and markets steam coal through its subsidiaries Total Gas & Power Ltd, Total Energy Resources (Pacific Basin) and CDF Énergie (France).

TOTAL sold approximately 8.4 Mt of coal worldwide in 2008 (compared to 10 Mt in 2007 and 9.2 Mt in 2006) of which 4.0 Mt was South African steam coal (compared to 4.7 Mt in 2007). Approximately 50% of the Group’s South African coal production was sold to European utility companies and approximately 40% was sold in Asia.

The Group’s South African coal is exported through the port of Richard’s Bay in which TOTAL has a 5.7% interest. In 2008, the Group and its partner Mmakau Mining acquired an additional 1 Mt/y of harbor 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 0.5 Mt in 2008, primarily destined for the industrial and metallurgic sectors.

Total Coal South Africa (TCSA) is developing new mines. The Forzando South mine, with a planned final capacity of 1.2 Mt/y, entered into production in 2007 and the Tumelo mine in January 2009. In 2007, TCSA 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. Approximately 34% of the 8.4 Mt of coal traded in 2008 was sold in Asia.

DME (Di-Methyl Ether)

After tests were successfully conducted on DME direct synthesis between 2001 and 2006, TOTAL and eight Japanese partners inaugurated on September 3, 2008, a DME production plant located in Niigata (Honshu Island, Japan). With a capacity of 80 kt/y, this plant produces DME from imported methanol and promotes this new generation clean fuel to Japanese consumers.

Within the consortium led by Volvo, TOTAL has been participating since 2008 in a “bio-DME” European project. DME would be produced by gasifying black liquor, a production residue from paper pulp. It will then be transported to four cities in Sweden, including Stockholm, to supply a pilot fleet of 14 trucks constructed by Volvo. This project is cofinanced by the partners in the consortium, the EU Seventh Framework Program and the Swedish Energy Agency. This preliminary step precedes production on an industrial scale.

In 2008, the Group’s Chinese subsidiary in charge of marketing LPG, Shanghai Total China Merchants LPG Consulting Co., Ltd (TOTAL, 50%), pursued its test program on mixed LPG and DME products in a sample of seventy-five industrial and individual customers. These tests confirmed the positive results achieved in laboratories in 2007. Continuation of the tests is now

subject to regulations to be introduced by the Chinese authorities for these mixed products.

The ISO standardization process for DME, launched in 2007, continued in 2008 through an international working group established for this purpose.

Downstream

The Downstream segment comprises TOTAL’s Refining & Marketing and Trading & Shipping divisions.

Refining & Marketing

As of December 31, 2008, TOTAL’s worldwide refining capacity was 2,604 kb/d. The Group’s worldwide refined products sales were 3,658 kb/d (including trading activities), compared to 3,774 kb/d in 2007 and 3,682 kb/d in 2006. TOTAL is the largest refiner/marketer in Western Europe⁽¹⁾, and the largest marketer in Africa⁽²⁾. As of December 31, 2008, TOTAL’s worldwide marketing network consisted of 16,425 retail stations (compared to 16,497 in 2007 and 16,534 in 2006), more than 50% of which are owned by the Group. In addition, 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.

In refining, the Group continues to improve its position by focusing on three key areas: adapting its European refining system to market changes; modernizing its Port Arthur refinery (United States) with the construction of a deep-conversion unit; and pursuing the Jubail refinery project in Saudi Arabia.

Regarding its marketing activities, the Group intends to consolidate its position in Western Europe and to pursue targeted developments in Africa and the growing markets of the Asia-Pacific region, while also growing its worldwide specialty products activities.

Refining

As of December 31, 2008, TOTAL held interests in twenty-five refineries (including twelve that it operates), located in Europe, the United States, the French West Indies, Africa and China.

TOTAL’s refining capacity in Western Europe was 2,281 kb/d in 2008, accounting for more than 85% of the Group’s overall refining capacity and making TOTAL the leading refiner in this region⁽¹⁾. The Group operates eleven refineries in Western Europe, and holds interests in the German refinery of Schwedt and in four Spanish refineries through its holding in CEPSA⁽³⁾.

In France, TOTAL announced in February 2009 its intention to sell its minority interest (40%) in Société de la Raffinerie de Dunkerque (SRD), a company specialized in the production of bitumen and basic oils, subject to the satisfaction of certain conditions precedent and to the consultation of the SRD works council.

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

In Africa, TOTAL holds interests in six refineries.

In China, TOTAL has held since 1997 a 22.4% interest in the WEPEC refinery, located in Dalian, in partnership with Sinochem and PetroChina.

Over the period from 2009 to 2013, TOTAL plans to invest on average more than 1.3 B€ per year in refining, excluding major turnarounds.

•

Nearly 40% of this investment is designated for two major construction projects: a deep-conversion unit in the United States, and a new refinery in Saudi Arabia.

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Based on publicly available information, refining capacities.

(2)

PFC Energy September 2008, based on quantities sold.

(3)

Group’s share in CEPSA: 48.83% as of December 31, 2008.

At its Port Arthur refinery in the United States, TOTAL started the construction in 2008 of a deep-conversion unit (or coker), a vacuum distillation unit, a desulphurization unit and other associated units as part of a modernization project. This project is designed to process more heavy and high-sulphur crudes and to increase production of lighter products, in particular low-sulphur distillates. Start-up is expected in 2011.

In Saudi Arabia, TOTAL and Saudi Arabian Oil Company (Saudi Aramco) confirmed in May 2008 the construction of a 400 kb/d refinery in Jubail. The heavy conversion process for this refinery is designed for the processing of heavier crudes (Arabian Heavy) and for the production of fuels and lighter products that meet strict specifications and are mainly intended for export.

As part of this project, a joint venture initially held by Saudi Aramco (62.5%) and TOTAL (37.5%) was created in September 2008. TOTAL and Saudi Aramco eventually plan to each retain a 37.5% interest with the remaining 25% expected to be listed on the Saudi stock exchange, subject to the approval of the relevant authorities.

The bidding process for the construction of the project was launched in July 2008. Construction is expected to start in the third quarter 2009 for start-up in 2013.

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Nearly 25% of this investment is designated to adapt TOTAL’s European refineries to changes in the oil market: shortage of diesel fuel in Europe; stricter fuel specifications; and an increased portion of supply consisting of high-sulphur crudes.

In the United Kingdom, the Lindsey refinery started the construction in June 2007 of a hydrodesulphurization unit (HDS) and a steam methane reformer (SMR) to process high-sulphur crudes and to increase its low-sulphur diesel production. The HDS unit is expected to be commissioned in late 2009 and is designed to increase the portion of high-sulphur crude that the plant can process from 10% to nearly 70%.

In Germany, the construction of a new desulphurization unit at the Leuna refinery started in 2008 and is scheduled to be commissioned in the fourth quarter 2009. This unit is designed to supply the German market with low-sulphur heating oil.

In France, the Group announced in March 2009 an industrial plan to adapt its refining base, primarily by reconfiguring the Normandy refinery and rescaling certain corporate departments at its Paris headquarters. The Normandy refinery project will shift the production emphasis to diesel, as oil consumption diminishes and gasoline surpluses increase in France. An investment program of approximately 770 M€ is intended to upgrade and reconfigure the facility, reducing its refining capacity to 12 Mt/y from 16 Mt/y. At the same time, the distillate hydrocracker (DHC) commissioned in 2006, which enables diesel production, will be upsized. These investments will lift the annual average diesel output by 10% and reduce surplus gasoline output by 60%. Implementation of this project, which is scheduled to be spread over three years, is subject to prior consultation with employee representatives.

•

Lastly, nearly 35% 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 additional distillation units (one atmospheric and one vacuum) and a desulphurization unit is underway at the Huelva refinery, with start-up scheduled for early 2010.

2008 was marked by a high level of maintenance activity, with six refineries having undergone complete or partial turnarounds, compared to ten⁽¹⁾ in 2007 and three in 2006. In 2009, six refineries operated by the Group are scheduled for major turnarounds, spread throughout the year.

(1)

Including the Milford Haven refinery, in which the Group sold its entire 70% interest in December 2007.

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)	2008	2007	2006
Refineries operated by the Group
Normandy (France)	339	331	331
Provence (France)	158	158	158
Flandres (France)	137	141	141
Donges (France)	230	230	230
Feyzin (France)	117	117	116
Grandpuits (France)	101	101	99
Antwerp (Belgium)	350	350	350
Leuna (Germany)	230	227	227
Rome (Italy)^(b)	64	63	64
Immingham (UK)	221	221	221
Milford Haven (UK)^(c)	—	—	74
Vlissingen (Netherlands)^(d)	81	81	81
Port Arthur, Texas (United States)	174	174	174
Sub-total	2,202	2,194	2,266
Other refineries in which the Group has an interest^(e)	402	404	434
Total	2,604	2,598	2,700

(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 was 70% as of December 31, 2006. Interest sold in 2007.

(d)

TOTAL’s interest is 55%.

(e)

TOTAL has interests ranging from 16.7% to 50% in thirteen refineries (six in Africa, four in Spain, one in Germany, one in Martinique and one in China). TOTAL disposed of its 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)	2008	2007	2006
Gasoline	443	501	532
Avgas and jet fuel^(b)	208	208	203
Diesel and heating oils	987	964	952
Heavy fuel oils	257	254	266
Other products	417	412	455
Total	2,312	2,339	2,408

(a)

Including TOTAL’s share in CEPSA.

(b)

Avgas, jet fuel and kerosene.

Utilization rate⁽^a)

The table below sets forth the utilization rate of the Group’s refineries.


	2008		2007		2006
Crude	88	%	87	%	88	%
Crude and other feedstock	91	%	89	%	91	%

(a)

Including TOTAL’s share in CEPSA.

Marketing

TOTAL is one of the leading marketers in Western Europe.⁽¹⁾ The Group is also the largest marketer in Africa, with a market share of 11%.⁽²⁾

TOTAL markets a wide range of specialty products, which it produces from its refineries and other facilities. TOTAL is among the leading companies in the specialty products market⁽³⁾, in particular for lubricants, liquefied petroleum gas (LPG), jet fuel, special fluids and bitumen, with products marketed in approximately 150 countries⁽⁴⁾.

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)	2008	2007		2006
France	822	846		837
Rest of Europe^(a)	1,301	1,432		1,438
United States	147	162	^(b)	160	^(b)
Africa	279	286		274
Rest of world	171	167		153
Total excluding Trading	2,720	2,893	^(b)	2,862	^(b)
Trading (Balancing and Export Sales)	938	881		820
Total including Trading	3,658	3,774	^(b)	3,682	^(b)

(a)

Including TOTAL’s share in CEPSA.

(b)

Amounts are different from those in TOTAL’s 2007 and 2006 Forms 20-F due to a change in the calculation method for sales of the Port Arthur refinery.

(1)

Based on publicly available information, quantities sold. Portfolio: France, Benelux, United Kingdom, Germany, Italy, and, through CEPSA, Spain and Portugal.

(2)

PFC Energy September 2008, based on quantities sold.

(3)

Based on publicly available information, quantities sold.

(4)

Including through national distributors.

Retail stations

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


As of December 31,	2008		2007	2006
France	4,782	^(a)	4,992	5,220
Rest of Europe (excluding France and CEPSA)	4,541		4,762	4,628
CEPSA^(b)	1,811		1,680	1,672
Africa	3,500		3,549	3,562
Rest of world	1,791		1,514	1,452
Total	16,425		16,497	16,534

(a)

Of which nearly 2,400 retail stations are under the TOTAL brand, nearly 300 retail stations are under the Elf brand and more than 1,800 retail stations are under the Elan brand.

(b)

Including all retail stations within the CEPSA network.

Europe

In Europe, TOTAL has a network of 11,134 retail stations in France, Belgium, The Netherlands, Luxembourg, Germany, the United Kingdom, Italy, and, through its 48.83% interest in CEPSA, Spain and Portugal. TOTAL is among the leaders in Europe for fuel-payment cards, with approximately 3.4 million cards issued in more than twenty European countries.

In France, the TOTAL-branded network benefits from a wide number of retail stations and a diverse selection of products (such as the Bonjour convenience stores and car washes). Elf-branded retail stations offer quality fuels at prices that are particularly competitive. As of December 31, 2008, nearly 2,400 TOTAL-branded retail stations and 300 Elf-branded retail stations were operating in France. TOTAL also markets fuels at more than 1,800 Elan-branded retail stations, generally located in rural areas.

TOTAL launched, in the fall of 2008, a universal Visa^® card entitling customers to immediate discounts on fuels in all French TOTAL-branded retail stations. The Group intends to strengthen its leadership⁽¹⁾ in the marketing of fuels in France by increasing the attractiveness of its network to its individual customers.

In 2008, TOTAL continued its efforts to optimize its marketing activities in Western Europe. In Portugal, TOTAL and CEPSA merged their oil marketing activities in 2008. The combined entity has a leading position on

the Portuguese oil market with a market share of approximately 11%⁽¹⁾, a network of 300 retail stations and a strengthened position in the specialty products market. In Spain, the Group sold its LPG marketing activities in August 2008. In France and Germany, TOTAL continued a program initiated in 2007 to adapt and restructure its marketing activities to optimize its organization and to reduce operating costs.

In Central and Eastern Europe, the Group is developing its positions primarily through its specialty products. In 2008, TOTAL continued to expand its presence in the growing markets of Eastern Europe, in particular for lubricants. In September 2008, the Group finalized the acquisition of bitumen assets in Poland, strengthening its position in the rapidly growing market for bitumen in that country.

As of December 31, 2008, TOTAL had a network of more than 500 “AS24”-branded retail stations in twenty European countries specialized in the marketing of fuels to professional transporters. During the next few years, the AS24 network is expected to continue its growth and to expand to other countries in northern and southeastern Europe.

Africa & the Middle East

As of December 31, 2008, TOTAL is the leading marketer of petroleum products in the African continent, with a market share of 11%⁽²⁾ and 3,500 retail stations in more than forty countries. The Group operates two major networks in South Africa and Nigeria. TOTAL also has a large presence in the Mediterranean Basin, principally in Turkey, Morocco and Tunisia. In the Middle East, the Group is primarily active in the specialty products market and is pursuing its growth strategy in the region, notably through the production and marketing of lubricants.

In 2008, the Group continued to strengthen its positions on the African continent. In November 2008, TOTAL entered into an agreement to acquire marketing and logistics assets in Kenya and Uganda. The transaction covers 165 retail stations, aviation product distribution as well as several logistics sites and a lubricant manufacturing plant. Subject to the approval of the relevant authorities, this agreement is expected to enable the Group to strengthen its position in Eastern Africa.

In August 2008, TOTAL disposed of its marketing activities in Rwanda, Burundi and Guinea-Bissau.

(1)

Based on publicly available information, quantities sold.

(2)

PFC Energy September 2008, based on quantities sold.

Asia-Pacific

As of December 31, 2008, TOTAL was present in nearly twenty countries in the Asia-Pacific region, primarily through its specialty products. The Group is also developing its position as a fuel distributor in the region, in particular in China, and operates two major networks, in Pakistan and the Philippines.

In China, the Group operated approximately 100 retail stations as of December 31, 2008, pursuant to two joint venture agreements signed in 2005 by TOTAL and Sinochem to develop a network of 500 retail stations in the Beijing and Shanghai areas.

In South Korea, TOTAL increased its interest in its subsidiary Total ISU Oil Co. Ltd to 100% early in 2008 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. This transaction is expected to make TOTAL a leading marketer of lubricants in South Korea.⁽¹⁾

In India, the Group is pursuing the development of its specialty products activities. In September 2008, a joint venture (TOTAL, 50%) was created for bitumen activities to supply the Indian road industry in special and emulsion bitumen. Marketing under this joint venture started in December 2008.

In Vietnam, TOTAL acquired a company specialized in the marketing of LPG in December 2008. This transaction is expected to enable the Group to substantially strengthen its presence on the market.

Rest of world

In Latin America and the Caribbean, TOTAL is active in nearly twenty countries, primarily through its specialty products. In the Caribbean, the Group pursued the development of its marketing activities through the acquisition, in the second half 2008, of marketing and logistics assets in Puerto Rico, Jamaica and the Virgin Islands. This transaction covers approximately 200 retail stations, aviation product distribution and several terminals. The purchase of these assets is expected to strengthen TOTAL’s activities in the region.

In North America, TOTAL markets lubricants and, late in 2008, it expanded its presence in the United States by acquiring a company present in nearly twenty U.S. states.

The Group intends to accelerate the development of its specialty products activities in Russia and the Ukraine, two regions with significant potential for growth. Through the development of its presence in these markets in 2008, the Group has primarily targeted the growth of its lubricant sales.

Biofuels and hydrogen

Biofuels

TOTAL is active in the biodiesel and biogasoline biofuel sectors. In 2008, TOTAL consolidated its position as a leading oil and gas company in the European biofuels market⁽¹⁾ by producing and incorporating 790 kt of ETBE⁽²⁾ at ten refineries⁽³⁾ (compared to 710 kt in 2007 and 500 kt in 2006) and incorporating 1,470 kt of VOME⁽⁴⁾ at fourteen European refineries and several storage sites (compared to 880 kt in 2007 and 420 kt in 2006).

TOTAL, in partnership with the leading companies in this area, is developing second generation biofuels derived from biomass. The Group is also participating in French, European and international bioenergy development programs.

In this framework, TOTAL announced in September 2008 its participation in Futurol, a research and development project for cellulosic bioethanol, which intends to perfect and promote on an industrial scale a production process involving hydrolisis of lignocellulosic biomass.

Hydrogen

In 2008, TOTAL continued its research and testing programs for fuel cell and hydrogen fuel 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 participated in the creation of a Center of Excellence for Hydrogen in Berlin.

TOTAL is also participating in the hydrogen technology platform launched by the European Commission 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.

(1)

Based on publicly available information, quantities sold.

(2)

ETBE: Ethyl-Tertio-Buthyl-Ether.

(3)

Including the Algeciras and Huelva refineries (CEPSA).

(4)

VOME: Vegetable-Oil-Methyl-Ester.

Trading & Shipping

The Trading & Shipping division:

•

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

Trading & Shipping’s worldwide activities are conducted through various wholly-owned subsidiaries, including TOTSA Total Oil Trading S.A., Total International Ltd, Socap International Ltd, Atlantic Trading & Marketing Inc., Total Trading Asia Pte, Total Trading Canada Ltd, Total Trading and Marketing Canada L.P. and Chartering & Shipping Services S.A.

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 and sales of crude oil


For the year ended December 31 (kb/d, except %)	2008	2007	2006
Supply of crude oil
Total supply	3,839	4,194	4,112
Production sold^(a)(b)	1,365	1,502	1,473
Purchased from external suppliers	2,474	2,692	2,639
Production by the Group as a percentage of total supply	36%	36%	36%
Sales of crude oil
Total sales	3,839	4,194	4,112
Sales to Downstream segment^(c)	1,995	2,042	2,074
Sales to external customers	1,844	2,152	2,038
Sales to external customers as a percentage of total sales	48%	51%	50%

(a)

Including condensates and natural gas liquids.

(b)

Including TOTAL’s proportionate share of the production of joint ventures.

(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 (futures, forwards, swaps, options) to adjust its exposure to fluctuations in the price of crude oil and

refined products. These transactions are entered into with various counterparties. For additional information concerning Trading & Shipping’s derivatives, see Notes 30 and 31 to the Consolidated Financial Statements.

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

Throughout 2008, the Trading division maintained a level of activity similar to the levels attained in 2007 and 2006, trading physical volumes of crude oil and refined products amounting to an average of approximately 5 Mb/d.

In 2008, the principal market benchmarks stood at historically high levels of volatility:


		2008	2007	2006	min 2008			max 2008
Brent ICE Futures — 1^st Line^(a)	($/b)	98.52	72.67	66.11	36.61	(Dec 24	)	146.08	(Jul 03	)
Gasoil ICE Futures — 1^st Line^(a)	($/t)	920.65	637.8	580.4	402	(Dec 26	)	1,325.25	(Jul 11	)
VLCC Ras Tanura Chiba — BITR^(b)	($/t)	24.09	13.93	14.52	11.16	(Nov 28	)	45.49	(Jan 02	)

(a)

1^st 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.

Shipping

The Shipping division arranges 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 2008, the Shipping division of the Group chartered 3,182 voyages to transport approximately 128 Mt of oil. As of December 31, 2008, the Group employed a fleet of sixty-two vessels chartered under long-term or medium-term agreements (including six LPG carriers). The fleet, consisting entirely of double-hulled vessels, has an average age of approximately five years.

While the beginning of the year was marked by relatively low freight-rate levels, the shrinkage in the freight market in 2008, particularly between the end of April and the beginning of August, led to historically high freight-rate levels.

On route TD3 (transportation of crude, Persian Gulf -Japan, VLCC), spot interest rates averaged WS209⁽¹⁾ between May and July (compared to an average of WS106 over the 2003-2007 period). Daily average income on TD3 from May to July exceeded $158,000/d (compared to approximately $61,000/d over the 2003- 2007 period). Consistent with past experience, freight

rates for other ship sizes predominantly followed the trend recorded by VLCCs. Transport of petroleum products also benefited, to a lesser extent, from the general increase of freight rates.

These historically high freight-rate levels can be explained by several factors. Worldwide tanker fleet growth was moderate, notably with a reduction in size of the VLCC fleet during the first three quarters of the year (with zero overall growth in 2008) and a stagnation of the Suezmax fleet over the same period (weak growth in 2008). This is particularly due to the removal of single-hulled tankers from the fleet for conversion into dry bulks. The use of several VLCCs to store Iranian crude between June and August 2008 also limited the effective tonnage (40 Mb at the beginning of June, i.e., the equivalent of nearly twenty VLCCs).

In addition, demand for transport in 2008 remained strong, in particular during the summer months due to Saudi Arabia’s increased production as from July, which led to a growth in demand for crude transport, especially on long-haul VLCC flows from the Persian Gulf.

From the end of August 2008, market trends reversed. The decrease in global oil demand due to the global economic crisis led the OPEC countries to cut production, resulting in a decrease in crude transport demand. As offered tonnage levels increased and demand remained stable, the surplus in tonnage increased, leading to a drop in spot freight rates.

Chemicals

The Chemicals segment includes the Base Chemicals and Specialty Chemicals divisions:

•

Base Chemicals encompasses the Group’s petrochemicals and fertilizers activities; and

•

Specialty Chemicals encompasses the Group’s rubber processing, resins, adhesives and electroplating activities.

TOTAL is one of the world’s largest integrated chemical producers.⁽²⁾

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.

The Chemicals segment improved its safety performance in 2008 by focusing on on-the-job safety, safety management systems and major risk prevention.

(1)

WS (Worldscale rate): "Worldscale" refers to the "New Worldwide Tanker Nominal Freight Scale," an index intended to permit the comparison of freight rates for various size tanker routes. A particular route’s "Worldscale Rate" represents a voyage charter rate for a hypothetical 75,000 dwt tanker on such route, with Worldscale 100 representing the break-even cost for such a tanker on that route. Worldscale Rates are calculated in USD per ton of crude oil and are updated annually.

(2)

Based on publicly available information, consolidated sales.

Base Chemicals

The Base Chemicals division includes TOTAL’s Petrochemicals and Fertilizers activities.

2008 sales amounted to 13.18 B€, compared to 12.56 B€ in 2007 and 12.01 B€ in 2006. Adjusted net operating income decreased by 25% in 2008 compared to 2007, after an 11% decrease in 2007 compared to 2006. This change primarily reflects the fall in petrochemicals margins in the first half 2008 due to the significant increase in the price of naphtha and the

decrease in sales volume of polymers stemming from the global economic slowdown. In petrochemicals, the Group’s operations in Qatar helped to offset the decrease in results in the mature markets of Europe and the United States. The Fertilizers activity benefited from a favorable environment and an improvement of its industrial operations, which contributed to the significant recovery of its results in 2008.

Petrochemicals

TOTAL’S PRODUCTION CAPACITIES BY

MAIN PRODUCT GROUPS AND REGIONS


	2008				2007	2006
(kt/y)	Europe	North America	Asia and Middle East^(c)	Worldwide	Worldwide	Worldwide
Olefins^(a)	5,085	1,195	1,005	7,285	7,175	7,035
Aromatics	2,665	940	755	4,360	4,335	4,255
Polyethylene	1,315	440	280	2,035	2,035	2,035
Polypropylene	1,275	1,180	295	2,750	2,575	2,420
Styrenics^(b)	1,240	1,350	630	3,220	3,160	3,105

(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).

The Petrochemicals activities of Total Petrochemicals include base petrochemicals (olefins and aromatics) and their derivatives (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), 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 owns a 50% interest in the Daesan petrochemicals site in South Korea, in partnership with Samsung. This integrated site is located 400 km off the Chinese coast.

TOTAL also holds a 20% interest in a site with a steam cracker and two polyethylene units in Mesaieed, Qatar.

TOTAL has continued to strengthen its leadership positions in the industry by focusing on the following strategic areas:

•

In mature markets, TOTAL is improving the competitiveness of its sites notably through continued improvement of energy efficiency and industrial safety at its facilities. The reorganization plans of 2006 (approved) and 2009 (presented) for the Carling and Gonfreville sites in France are part of this strategy.

The first plan calls for the closing of a steam cracker and the styrene plant at Carling and the construction of a world-class⁽¹⁾ styrene plant at Gonfreville to replace the existing one on this site. Implementation of this plan is expected to be completed in the first half 2009.

In addition, the Group presented in March 2009 a second plan to upgrade its most efficient units and consolidate its petrochemicals competitiveness in France. As part of the project, approximately 230 M€€

(1)

Facilities ranking among the first quartile for production capacities based on publicly available information.

will be invested to bring to the most efficient level the energy efficiency and competitive strength of the steamcracker and high-density polyethylene (HDPE) unit in Gonfreville and to consolidate polystyrene production at the Carling facility. It will also lead to the closure of structurally loss-making units: a low-density polyethylene line in Carling in eastern France and a low-density polyethylene line and a polystyrene line in Gonfreville in northwestern France. This reorganization plan is also intended to improve the efficiency of support services and central services.

Furthermore, following the sole customer’s termination of the supply contract for the secondary butyl alcohol produced at the Notre-Dame-de-Gravenchon facility in northwestern France, this dedicated facility will have to be closed. Implementation of this project is subject to prior consultation with employee representatives.

Finally, debottlenecking operations conducted in 2008 at the Feluy (Belgium), La Porte and Port Arthur (Texas, United States) sites are expected to strengthen the competitiveness of these sites.

•

In Asia, the principal growth area for demand for petrochemicals, Samsung-Total Petrochemicals Co. Ltd completed in 2008 the first modernization phase of the Daesan site in South Korea. This major development increased the site’s initial production capacity by nearly one-third by expanding the steam cracking and styrene units, by building a new polypropylene line in 2007 and by starting up a new metathesis⁽¹⁾ plant in 2008. The project was completed on time and on budget.

•

In May 2008, the project to build a paraxylene plant in Saudi Arabia was confirmed by both partners, TOTAL and Saudi Aramco. This project, carried out in cooperation with the Group’s Refining & Marketing division, is expected to lead to the construction of a world-class⁽²⁾ paraxylene plant to supply the Asian market. Start-up of this project is scheduled for 2013.

•

TOTAL continues to develop 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, with a production capacity of 1.3 Mt, and a new world-class⁽²⁾ linear low-density polyethylene plant in Mesaieed.

These two units are scheduled to come onstream in the second half 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 whose commissioning is scheduled in 2011.

Pursuant to the contract signed in July 2007, TOTAL is continuing its partnership with Sonatrach, the Algerian national oil company, to build a petrochemicals site in Arzew (Algeria). The project includes an ethane-based steam cracker with a production capacity of 1.1 Mt, two polyethylene units and a monoethylene glycol production unit. This world-class⁽²⁾ project, with favorable access to one of the last particularly competitive sources of relevant raw materials, is ideally located to supply Europe, the Americas and Asia.

In addition, TOTAL inaugurated in October 2008 a pilot MTO plant (Methanol to Olefins) at its Feluy site (Belgium). This research project, one of the Group’s most important research projects, is intended to assess, on a semi-industrial scale, the technical and economical feasibility of producing olefins from methanol derived from natural gas, as well as from coal and biomass, and to consider new methods to produce polyolefins.

On all of TOTAL’s petrochemicals sites, the progress realized in 2008 with respect to industrial security and environmental protection was in-line with the Group’s annual objectives.

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 strongly influenced by supply and demand and the evolution of the price of naphtha, the principal raw material used.

2008 was marked by highly volatile commodity prices combined with a decrease of demand due to the global economic slowdown.

Olefins production decreased by 2% in 2008 compared to 2007, after a 2% increase in 2007 compared to 2006.

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 the raw material, ethane, to produce ethylene.

(1)

Conversion of ethylene and butene into propylene.

(2)

Facilities ranking among the first quartile for production capacities based on publicly available information.

2008 was marked by the global economic slowdown and strong decline in mature regions (Europe and the United States). TOTAL’s sales volume dropped by 9% in 2008 compared to 2007 and margins shrank. This pressure on margins is expected to persist during the upcoming years due to competition from new plants in the Middle East and Asia. In this context, TOTAL intends to focus on lowering the break-even points in its plants and strengthening its efforts to better differentiate its range of products.

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, household, appliances, fibers and sanitary goods markets. Margins are mainly influenced by the level of demand and the availability and price of propylene.

2008 was marked by a decline of the polypropylene market, notably in Europe and in the United States, with TOTAL’s sales volume having decreased by 4% compared to 2007. Taking into account increased competition in the years to come from the start-up of new plants in the Middle East, TOTAL benefits from plants whose industrial performance, both in Europe and the United States, places the Group among the industry’s leaders. In this regard, TOTAL successfully achieved capacity increases of 60 kt/y in Feluy (Belgium) and 110 kt/y in La Porte (Texas, United States) in 2008.

Styrenics

This business activity includes the production of styrene and polystyrene. 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, which is polystyrene’s principal raw material.

After a slight rise in world demand in 2007, the polystyrene market decreased in 2008, marked by a sharp decline of demand in mature zones and a net slowdown of growth in Asia, notably in China. After two years of slight increases, TOTAL’s polystyrene sales volume decreased by 7% in 2008 compared to 2007.

Fertilizers

Through its subsidiary GPN, TOTAL manufactures and markets nitrogen fertilizers made from natural gas. Margins are strongly influenced by the price of natural gas.

2008 was marked by the significant recovery of GPN’s results. GPN’s sales increased by 47% in 2008 compared to 2007, after a 20% rise in 2007. The rise in global demand for cereals was reflected in a growth of nearly 5% of fertilizer demand in Europe compared to 2007. Improved production of the ammonia plants at Grandpuits and Rouen (France) enabled GPN to take advantage of this favorable environment.

In 2006, the Fertilizers activity launched a major restructuring plan to restore its profitability on a long-term basis:

•

GPN stopped its production in France of complex fertilizers, made from nitrogen, phosphorus and potassium products, due to the declining market for these products, and closed its plants in Bordeaux, Basse Indre, Rouen and Granville. In addition, TOTAL sold its Dutch affiliate, Zuid Chemie, to Engrais Rosier, in which the Group holds a 57% share, to create a more competitive player in the Benelux market.

•

The Fertilizers activity’s core business, the production of nitrogen fertilizers, was strengthened through a major investment in the construction of two competitive nitric acid plants in Rouen and a urea plant in Grandpuits. Start-up of these plants is expected in the first half 2009. This additional urea production is expected to position GPN on the growing markets for DENOX products for industrial applications and Adblue for transportation applications. These products contribute to reducing nitrogen oxide emissions.⁽¹⁾

•

In France, the Oissel site and three obsolete nitric acid units in Rouen and Mazingarbe are expected to shut down during 2009.

This plan is expected to improve the competitiveness of GPN by regrouping its operations at three sites, two of which feature a production capacity greater than the European average, as market perspectives remain satisfactory in the medium term.

Specialty Chemicals

TOTAL’s Specialty Chemicals 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

(1)

Nitrogen oxide’s emissions are noxious to the environment and subject to regulation.

key drivers. The Group markets specialty products in more than fifty-five 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 2008, Specialty Chemicals faced a difficult environment due to the economic slowdown in the United States and Europe. In this adverse environment, Specialty Chemicals’ sales decreased by 4% compared to 2007. Adjusted net operating income decreased by 18% compared to 2007.

Rubber processing

Hutchinson manufactures and markets products derived from rubber processing that are principally intended for the automotive, aerospace and defense industries and consumer markets.

•

In the industrial market (automotive, aerospace, defense and transports), Hutchinson, among the industry’s leaders⁽¹⁾, intends to provide its customers with innovative solutions in the domains of fluid transfer, water and airtightness, transmission, mobility and vibration, sound and thermal insulation.

Globally, Hutchinson’s 2008 sales remained at a level similar to 2007 despite an uneven environment for its various activities. Automotive’s sales decreased by 6% compared to 2007 in an increasingly challenging environment, both in North America and in Europe, due to the difficulties faced by the automotive industry. In the other industrial markets, sales increased by more than 15% in 2008 compared to 2007 due to strong demand from the defense industry in the United States and from the aerospace and railway industries in Europe. To strengthen its position in the aerospace industry, Hutchinson acquired late in 2008 a company specialized in the expanding carbon fiber industry.

Throughout 2008, Hutchinson continued to develop in expanding markets, primarily Eastern Europe, South America and China, relying notably on the sites launched in 2006 in Romania (Brasov), Poland (Lodz) and China (Suzhou). To further this strategic objective, Hutchinson is expected to open a new site in Tunisia in 2009.

•

The consumer market is essentially oriented towards two ranges of products: baby care (Nuk^® and Tigex^®) and household specialties (Mapa^® and

Spontex^®). These activities depend highly on the level of household consumption. Despite the adverse effects of the economic slowdown that began mid-2008, the baby care sector and the household specialties sector continued to grow in 2008. The purchase of Gerber^®’s baby care products in 2008 is expected to consolidate Hutchinson’s leading position⁽¹⁾ in this activity by strengthening its presence in the Western Hemisphere, notably in the United States, Canada and Brazil.

Resins

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

Since the middle of 2007, this sector was affected by the slowdown of the U.S. economy. This trend continued in 2008. The decrease in volumes extended to Europe from the middle of 2008. Sales decreased by 9% in 2008 compared to 2007, after a 4% decrease in 2007.

In 2008, Cray Valley continued to streamline its European production.

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

In the first quarter 2008, Sartomer started its new plant in Nansha, southern China, to pursue its development in growing markets.

Adhesives

Bostik is one of the world leaders in its sector, based on sales⁽²⁾, with leading positions in the industrial, hygiene, construction and consumer and professional distribution markets.

In 2008, sales decreased by 6% compared to 2007 but remained relatively stable (-1%) at constant exchange rates.

These results in an adverse economy confirm Bostik’s strategy of strengthening its position in the industrial market, which has been less affected than the construction industry, and continuing its development in growing markets, especially in the Asia-Pacific region.

As a result, new production units were commissioned in China (Zhuhai) and Australia (Sydney).

(1)

Based on publicly available information, consolidated sales.

(2)

Based on publicly available information.

Furthermore, Bostik is actively pursuing its program for innovation and is focusing notably on new products and applications contributing to sustainable development.

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.

The electroplating activities faced a slowdown at the end of 2008 that affected the general metal finishing market,

influenced by the difficulties faced by the automotive industry and the electronics industry. Sales decreased by 4% in 2008 compared to 2007.

During this period of economic slowdown, Atotech intends to pursue a full-service strategy for its customers in terms of equipment, chemical products and global geographical coverage through its technical centers. Major research will continue, notably to bring new solutions that meet the strictest environmental requirements. Finally, Atotech intends to continue its development in Asia, which represents more than 50% of its global sales.

Other Matters

Various factors, including certain events or circumstances discussed below, have affected or may affect TOTAL’s 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 regulations. These cover virtually all aspects of exploration and production activities, including matters such as leasehold rights, production rates, royalties, environmental protection, exports, taxes and foreign exchange rates. 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 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-owned 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-owned company, on the other hand.

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 and production activities are subject to public authorizations (permits), which can be

(1)

Based on publicly available information.

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.

TOTAL is required to pay income tax on income generated from its production and sales 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.

The legal framework of TOTAL’s exploration and production activities, established through concessions, licenses, permits and contracts granted by or entered into with a government entity, a state-owned company or, sometimes, private owners, is subject to certain risks which in certain cases can diminish or challenge the protections offered by this legal framework.

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. More specifically, in

Europe, TOTAL operates industrial 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 and specialty products, 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 remediation and closure and decommissioning 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 the Refining & Marketing division 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 result in long-term environmental impacts such as greenhouse gas emissions. 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:

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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.

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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.

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

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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.

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The Framework Directive on Waste Disposal is intended to ensure that waste is recovered or disposed of without endangering human health and without using processes or methods that could unduly harm the environment. Numerous related directives regulate specific categories of waste. In November 2008, the Framework Directive on Waste Disposal was partially modified by the Directive on Waste 2008/98, which features more precise definitions and stronger provisions. This directive is expected to completely enter into force and replace the Framework Directive and certain other directives by 2010.

•

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.

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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 regulations obligating member countries to classify all water courses according to their biological, chemical and ecological quality; and to completely ban the discharges of approximately thirty toxic substances by 2017.

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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 EU Member States, the European Commission and the European Chemical Agency in

Copenhagen are 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. This directive was transposed into EU Member State national legislations in 2007 and 2008, and in France in August 2008. The directive seeks to implement a strict liability approach for damage to biodiversity from high-risk operations.

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Directives implementing the Aarhus Convention concerning public information rights and certain public participation rights in a variety of activities affecting the environment were adopted in January and May 2003, respectively.

•

In November 2008, the European Commission adopted an environmental protection directive which obliges EU Member States to provide for criminal penalties in respect of serious infringements of EC law. Member States must transpose this directive into their national legislation by December 26, 2010.

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

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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 active, abandoned or non-operating sites contaminated by releases of hazardous substances regardless of fault or the amount of hazardous substances sent to a site. The U.S. Environmental Protection Agency has authority under Superfund to order responsible parties to clean up contaminated sites and may seek recovery of the government’s response costs from responsible parties. States have similar legal authority to compel site investigations and cleanups and to recover costs from responsible parties. The U.S. government and states may also sue responsible parties for injuries to natural resources (e.g., rivers and wetlands) arising from contamination.

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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.

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The Clean Air Act and its regulations, which require, among other measures: 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 pollutant emission limits; 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.

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The Clean Water Act, which regulates the discharge of wastewater and other pollutants from both onshore and offshore operations and, among other measures, 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.

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The Resource Conservation and Recovery Act (RCRA), which regulates the generation, storage, handling, treatment, transportation and disposal of hazardous waste and imposes corrective action requirements on regulated facilities requiring 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 safety 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 of industrial activities in the United States is extensive at both the federal and state levels. One area of particular focus for the U.S. government is emissions of greenhouse gases (primarily carbon dioxide) and their effect on the Earth’s climate. Although emissions of carbon dioxide from industrial processes are not currently regulated, it appears increasingly likely that the U.S. government will, in the future, seek to impose restrictions on greenhouse gas

emissions from industrial sources, institute a greenhouse gas cap and trade system for large industrial facilities, 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 that 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, all the sites that meet the criteria of the European Union Seveso II directive are developing Risk Management Plans pursuant to the French law of July 30, 2003. Each of these plans will introduce various urban planning 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 the authorization of the relevant authorities according to the studies they are provided with.

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 useful life.

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 addressed 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 minimize the risks of accidents and to limit their consequences and environmental impacts. These measures concern the equipment design itself, the reinforcement of safety devices, the design of structures to be built and the protection against the consequences of environmental events. 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 detailed 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 strengthening the management of 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 75% between the end of 2001 and the end of 2008. In terms of industrial risks, this plan’s initiatives include specific organization and behavioral plans as well as plans to minimize risks at source and increase safety for people and equipment use.

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. By the end of 2009, the Group intends to obtain ISO 14001 certification for all of its sites that it considers particularly important to the environment (as of today, 80% of such sites are so certified). More than 250 of the Group’s sites worldwide are certified ISO 14001. These activities are monitored through periodic, coordinated reporting by all Group entities.

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, however, it is impossible to predict whether additional future 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 adoption of more comprehensive bans on the new installation of asbestos-containing products 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 arise (up to 40 years), TOTAL anticipates 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, 2008, 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.

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 and to the physical characteristics of an oil or gas field. Of risks related to oil and gas exploration, geologic risks are the most important.

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 due to the risks related to economic or political factors detailed hereafter. 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, including the risk of hurricanes in the Gulf of Mexico. 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:

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the award of exploration and production interests;

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

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the imposition of specific drilling obligations;

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environmental protection controls;

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

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

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possible, though exceptional, nationalization, expropriation or reconsideration 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 additional risks, including:

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the establishment of production and export limits;

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the compulsory renegotiation of contracts;

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the expropriation or nationalization of assets;

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

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payment delays;

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currency exchange restrictions;

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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

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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.

Regulations concerning Iran and Sudan

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 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 regulations which prohibit 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) until 2007, TOTAL made investments in Iran (excluding South Pars) in excess of $20 million. TOTAL’s activities in

Iran are currently limited mainly to the implementation of two buyback contracts signed between 1995 and 1999 for two 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 2008, TOTAL’s production in Iran was 8.8 kboe/d, approximately 0.4% of the Group’s worldwide production. TOTAL does not believe that its activities in Iran have a material impact on the Group’s results.

In the future, TOTAL may decide to invest amounts 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 possible 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.

France and the European Union have adopted measures, based on United Nations Security Council resolutions, 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 has no active business in Sudan. TOTAL has no oil or gas production in Sudan and, to date, has not made any significant investments or industrial 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 voluntarily suspended in 1985 because of escalating security concerns, but the company maintained its exploration 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 the Group’s 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 any other vulnerable groups. In particular, the Group will study the situation with non-governmental organizations and stakeholders involved in southern Sudan and conduct socio-economic programs adapted to the needs of the local population. Significant programs were launched at the end of 2008 in the fields of access to potable water, social infrastructures and schools with two international non-governmental organizations present in the region.

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.

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 major international oil companies in competition with TOTAL are ExxonMobil, Royal Dutch Shell, Chevron and BP. As of December 31, 2008, TOTAL ranked fifth among these companies in terms of market capitalization.⁽¹⁾

(1)

Source: Reuters.

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 is used as a centralized global operations tool for covering the Group’s risks. It allows the Group to implement its worldwide insurance program in compliance with the various regulatory environments in the countries where the Group operates.

Some countries require the purchase of insurance from a local insurance company. If the local insurer accepts to cover the subsidiary of the Group in compliance with its worldwide insurance program, OIRC requests a retrocession of the covered risks from the local insurer. As a result, OIRC negotiates reinsurance contracts with the subsidiaries’ local insurance companies, which transfer most of the risk 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 standardize coverage throughout the Group.

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 2008, the net amount of risk retained by OIRC after reinsurance was 50 M€ per property/business interruption insurance claim and 60 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 (estimated maximum loss);

•

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

•

help in implementing measures to limit the probability of the event and the extent of the occurrences of such events; and

•

manage the level of risk from such events to be either covered internally by the Group or to be transferred to the insurance market.

Insurance policy

The Group has worldwide third party liability 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 and the coverage terms offered by the market (available capacities and price conditions).

More specifically, for:

•

Third party liability insurance: since the maximum financial risk cannot be evaluated by a systematic approach, the amounts insured are based on market conditions and industry practice, in particular, the oil industry. The insurance cap in 2008 for general and product liability was $800 million.

•

Property damage and business interruption: the amounts insured by sector and by site are based on estimated costs and reconstruction scenarios under the estimated maximum loss scenarios and on insurance market conditions. The Group subscribed for business interruption coverage in 2008 for its main refining and petrochemical sites.

For example, for the highest estimated risks of the Group (main European refineries), the limit of indemnity was $1.4 billion in 2008.

Deductibles for property damages fluctuate between 0.1 M€ and 10 M€ depending on the level of risk, and are borne 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 for car fleets, credit insurance and employee benefits. These risks are entirely underwritten by outside insurance companies.

The above-described policy 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 risks incurred 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, 2008, there were 721 consolidated subsidiaries, of which 622 were fully consolidated, 12 were proportionately consolidated and 87 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.

Overview

TOTAL’s 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 expressed 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 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, until the fourth quarter of 2008 when prices dropped sharply, 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 (despite a more recent strengthening of the dollar) as TOTAL reports its results in euros. TOTAL’s results are also significantly affected by the costs of our activities, in particular related to exploration and production, and by

the outcome of our strategic decisions with respect to cost reduction efforts in the current period of significant economic uncertainty. TOTAL’s results are also affected by general economic and political conditions and changes in governmental laws and regulations, as well as by the impact of decisions by OPEC on oil and gas prices. For more information, see “Item 3. Key Information — Risk Factors” and “Item 4. Information on the Company — Other Matters”.

Following the spin-off of Arkema in May 2006, the 2006 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 pursuant to IFRS to exclude contributions from the activities of Arkema to the Chemicals segment. The Arkema spun-off activities are treated as “discontinued operations”, the results of which are presented on the corresponding line in the income statement.

(1)

ROACE = adjusted net operating income divided by average capital employed. For more information on ROACE, see “— Results 2006-2008 — Business Segment Reporting” below and Note 2 to the Consolidated Financial Statements included elsewhere herein.

2006-2008 results

TOTAL’s net income (Group share) was 10,590 M€ in 2008 compared to 13,181 M€ in 2007. The 20% decrease in net income in 2008 compared to 2007 was mainly due to the negative after-tax impact of prices on inventory valuation (-3.8 B€), due to the sharp drop in oil prices in the last quarter of 2008. Other factors contributing to the variation in net income in 2008 compared to 2007 consisted mainly of: the weaker dollar (-0.8 B€); special items (-0.5 B€); higher Upstream costs (-0.5 B€); lower production (-0.5 B€); less favorable results from U.S. refining, mainly due to a less favorable business environment and hurricanes (-0.2 B€); a less favorable environment in the Chemicals business (-0.2 B€); the Group’s equity share of the amortization of intangibles related to the Sanofi-Aventis merger (-0.1 B€); and a decrease in income from equity affiliates in the Downstream segment, mainly due to losses incurred through TOTAL’s participation in Wepec, its affiliate for refining in China (-0.1 B€). These negative impacts were partially offset by the positive impacts of higher hydrocarbon prices (+3.5 B€) and a more favorable Downstream business environment (+0.6 B€).

The 12% increase in TOTAL’s net income (Group share) 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€), production 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 expense (-0.3 B€) and the higher net cost of net debt for the Group (-0.1 B€ ).

The Group’s expenditures⁽¹⁾ in 2008 were 13,640 M€ compared to 11,722 M€ in 2007 and 11,852 M€ for 2006. Included in the 2008 expenditures are 1,022 M€ of acquisitions reflecting mainly the acquisitions of Synenco in Canada and Goal in The Netherlands, the acquisition of a 60% stake in the Bemolanga permit in Madagascar and payments for new permits and contract extensions in Nigeria and Libya. Included in the 2007 expenditures are approximately 0.2 B€ of acquisitions related primarily to new permits. In 2006, expenditures included approximately 0.8 B€ for acquisitions, principally Ichthys LNG and Tahiti.

Divestments in 2008 amounted to 2,585 M€ compared to 1,556 M€ in 2007 and 2,278 M€ in 2006. Divestments in 2008 included asset sales of 1,451 M€, consisting mainly of the sale of Sanofi-Aventis shares. 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. 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.

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

Outlook

In the Upstream segment, TOTAL benefits from the high-quality of its portfolio. Production start-ups for several major projects planned for 2009 include Akpo in Nigeria, Yemen LNG and Qatargas II. In addition, engineering studies for the next wave of major projects that are expected to be launched between 2009 and 2010 are ongoing, notably for Egina in Nigeria, Laggan Tormore in the UK North Sea, Shtokman in Russia, Ichthys in Australia and certain heavy oil projects in Canada. The Group seeks to maintain its technical costs at one of the lowest levels among the major oil and gas companies, which it considers one of its competitive advantages in a weaker oil market environment. In addition, TOTAL is continuing with its efforts to improve the reliability of its facilities and to emphasize safety throughout its operations.

In the Downstream and Chemicals segments, the Group will define the necessary changes needed to adapt its industrial assets to new trends in market demand. At the same time, major construction projects are continuing, notably for the modernization of the Port Arthur refinery in the United States, the Jubail refinery project in Saudi Arabia and the start-up of the Qatofin cracker in Qatar.

The 2009 budget for capital expenditures, which is comparable to the 2008 budget, is approximately 14 B€⁽²⁾, with 75% of it allocated to the Upstream segment.

TOTAL is actively seeking to reduce the cost of its projects by reviewing contractual terms, technical plans and project timing. The Group has implemented company-wide productivity plans to reduce costs and to lower breakeven points for its operations.

In an environment marked by significant economic weakness, TOTAL continues to adhere to its strategy of strict financial discipline and is committed to taking the actions necessary to adapt and rebalance its industrial assets. TOTAL believes that a solid financial base should

(1)

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.

(2)

Including net investments in equity affiliates and non-consolidated companies, excluding acquisitions, based on €1 = $1.30 for 2009.

allow the company to pursue a sustained investment program to prepare for the long term, while also maintaining good profitability, its dividend policy and a net-debt-to-equity ratio around 25-30%. In addition, the Company plans to continue to progressively divest its Sanofi-Aventis shares over the short to medium term to give the Group a certain amount of financial flexibility to

adapt its financial resources to its growth and dividend strategies.

Since the beginning of 2009, the price of Brent has traded around $45 per barrel. Additional production cuts announced by OPEC may better balance existing supply to the currently weakened market demand.

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. In December 2008, the SEC published a revised set of rules for the estimation of reserves. These revised rules will be used for the 2009 year-end estimation of reserves, and have not been used in the determination of reserves for the year-end 2008. 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

•

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.

•

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.

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 is 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.

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 2008 amounted to 232 M€ and the Company’s contributions to pension plans were 855 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, 2008, were 953 M€ compared to 160 M€ for 2007. The increase in unrecognized actuarial losses is explained by actuarial losses due to a decrease in the value of plan assets that were partially offset by an increase in discount rates in 2008. 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 2009, it is considering a decreased weighted-average expected return on pension plan assets for the year (6.13% compared to the 2008 rate of 6.60%), due to a change in the pension assets allocation as of December 31, 2008, that was partially offset by an increase in discount rates in 2008. 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 66 M€ decrease or increase, respectively, in the 2008 net periodic pension cost. The estimated impact on expense of the amortization of the unrecognized actuarial losses of 953 M€ as of December 31, 2008, is 99 M€ for 2009, compared to 20 M€ in 2008.

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.

Results 2006-2008


As of and for the year ended December 31, (M€ , except per share data)	2008	2007	2006
Sales^(a)	179,976	158,752	153,802
Net income (Group share)	10,590	13,181	11,768
Diluted earnings per share	4.71	5.80	5.09
Investments	13,640	11,722	11,852
Divestments	2,585	1,556	2,278
Cash flow from operating activities	18,669	17,686	16,061

(a)

Pursuant to IFRS 5, excludes contributions from Arkema in 2006.

Group Results 2008 vs. 2007

Unprecedented volatility marked the 2008 oil market environment. In the first part of the year, the price of Brent crude climbed rapidly toward $150/b. In the second part of the year, the global economy suffered a sharp slowdown, which contributed to driving Brent down to a new low for the year of $35/b in December. The average Brent oil price in 2008 increased by 34% to $97.30/b from $72.40/b in 2007, and its price averaged $55/b for the fourth quarter of 2008. Refining margins also increased in 2008, with the European refining margin indicator used by TOTAL’s management (TRCV) up 16% to $37.80/t from $32.50/t in 2007. The Chemicals environment weakened in 2008 compared to 2007, turning sharply negative at year-end due to decreasing demand resulting from the global economic slowdown. While the dollar lost 7% of its value against the euro during 2008, with the average dollar/euro exchange rate being $1.47/€ in 2008 compared to $1.37/€ in 2007, it did gain 14% against the euro during the fourth quarter.

TOTAL’s consolidated sales increased by 13% to 180.0 B€ in 2008 from 158.8 B€ in 2007.

(-0.1 B€); and a decrease in income from equity affiliates in the Downstream segment, mainly due to losses incurred through TOTAL’s participation in Wepec, its affiliate for refining in China (-0.1 B€). These negative impacts were partially offset by the positive impacts of higher hydrocarbon prices (+3.5 B€) and a more favorable Downstream business environment (+0.6 B€).

The effective tax rate for the Group was 56.3% in 2008 compared to 55.6% in 2007 due primarily to the relatively higher comparative weight of the Upstream segment in the Group’s results.

In 2008, the Group bought back 27.6 million of its shares⁽¹⁾ for 1,339 M€. The number of fully-diluted shares at December 31, 2008, was 2,235 million compared to 2,265 million at December 31, 2007.

Diluted earnings per share, based on 2,247 million fully-diluted weighted-average shares, decreased by 19% to €4.71 in 2008 from €5.80 in 2007.

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 margin 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.

(1)

Includes 2.8 million shares purchased to cover restricted share grants pursuant to the decision of the Board on September 9, 2008.

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 after-tax impacts 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 expense (-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.

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. Under the FIFO method, the cost of inventory is based on the historic cost of acquisition or manufacture rather than the current replacement cost. In volatile energy markets, this can have a significant distorting effect on the reported income. Accordingly, 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 in the United States, and to help illustrate the operating performance of these segments excluding the impact of oil price changes on the replacement of inventories. 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, income from equity 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.

(1)

Includes 2.4 million shares purchased to cover restricted share grants pursuant to the decision of the Board on July 17, 2007.

Upstream results


(M€)	2008		2007		2006
Non-Group sales	24,256		19,706		20,782
Operating income^(a)	23,468		19,503		20,307
Equity in income (loss) of affiliates and other items	1,541		1,330		1,211
Tax on net operating income	(14,563	)	(11,996	)	(12,764	)
Net operating income^(a)	10,446		8,837		8,754
Adjustments affecting net operating income	278		12		(45	)
Adjusted net operating income^(b)	10,724		8,849		8,709
Investments	10,017		8,882		9,001
Divestments	1,130		751		1,458

ROACE	36%		34%		35%

Total S.A. (TOT)

Annual Reports

Other

Documents found in this filing: