TotalEnergies SE
Q3 2007 Earnings Call Transcript

Published: 7 Nov 2007

[Operator:]

Good afternoon, ladies andgentlemen, and welcome to Total Conference Call. I now hand over to Mr. RobertCastaigne, Chief Financial Officer. Sir, please go ahead.

[Robert Castaigne:]

Thank you. So, hello. And thankyou for calling in. By now you have all seen our third quarter results and theresults of our peers. I am sure that you have probably heard all about themicroenvironment into numerous conference calls you have already attended. So,let's go straight to the results. We have a very good quarter

[Operator:]

(Operator Instructions). We havea first question from Mr. Gordon Gray from JP Morgan. Sir, please go ahead.

[Gordon Gray:]

Thanks. Good afternoon, gentlemen.

[Robert Castaigne:]

Good afternoon, Gordon

[Gordon Gray:]

A couple of quick questions, if Icould

[Robert Castaigne:]

On the Jubail project?Comfortable with our downstream portfolio in the UK,the answer is

[Gordon Gray:]

Okay. Thanks very much.

[Robert Castaigne:]

Thank you.

[Operator:]

We have a question from Mr.Jean-Luc Koman from CIMC Securities. Sir, please go ahead.

[Robert Castaigne:]

Yes good afternoon Jean-Luc.Hello?

[Jean-Luc Koman:]

You said that the results relatedto project could be considered

[Robert Castaigne:]

The first one is Synertakproject

[Jean-Luc Koman:]

Sorry. Stating that the reservesin Shtokman could be considered as reserves when the final investment decisionis made?

[Robert Castaigne:]

The answer is

[Jean-Luc Koman:]

But Total, in all, was not sosure about that and was it doing? Why it was different?

[Robert Castaigne:]

No, no, I think it is clear thatwhen the project will be launched, when the decision to launch a project willbe taken. I think, Total we clearly have the possibility to book its share ofthe reserves. There is no doubt about that and this has been confirmed.

[Jean-Luc Koman:]

Thank you.

[Robert Castaigne:]

Not at all. So, next question?

[Operator:]

We have a question from Mr. DanBarcelo from Banc of America. Sir, please go ahead.

[Dan Barcelo:]

Hi, yes, good morning, gentlemen.Regarding third quarter volumes very strong and going into fourth quarter theramp up, I guess, for Snohvit, Dolphin and Nkossa recovery. I don't know if youcan just touch a little bit more about

[Robert Castaigne:]

Okay. Concerning the buyback forthe whole year

[Dan Barcelo:]

Thank you very much.

[Operator:]

We have a question from Mrs.Irene Himona from Exane BNP Paribas. Please go ahead.

[Irene Himona:]

Good afternoon, Robert.

[Robert Castaigne:]

Yes, good afternoon.

[Irene Himona:]

I was wondering

[Robert Castaigne:]

I think

[Irene Himona:]

Thank you.

[Robert Castaigne:]

Thank you. Irene.

[Operator:]

We have a question from Mr. JonRigby from UBS. Please go ahead.

[Jon Rigby:]

Thanks, hi Robert.

[Robert Castaigne:]

Hi Jon.

[Jon Rigby:]

There are two quick questions

[Robert Castaigne:]

Okay. The DHC that should takeplace?

[Jon Rigby:]

Yes.

[Robert Castaigne:]

Concerning the DHC for 2007 Ithink the cash that has been bought by this new plant should be about $150million. It is what we expect over the earlier little a year if we finish theyear in good conditions.

[Jon Rigby:]

Okay.

[Robert Castaigne:]

The marketing in the thirdquarter, you know, that we do not report our marketing results. I think thatour marketing results globally speaking in Europe was slightly higher than inthe second quarter, especially, because the situation has improved in somecountries such as I think Germany and UK. Having said that, these results werelower than they were in the third quarter of 2006. That was, globally speaking,relatively good in Europe. Concerning now the decision thatshould take place between now and at the end of the year, I think [Usan] and [Akpo]should be launched before the end of the year. And, by the way, this projecthas been already internally approved by the different partners. As to Brass LNG decision, I thinkit should be taken somewhere in 2008. I think it is too difficult to be moreprecise now.

[Jon Rigby:]

Okay. That's cool. Thank you verymuch.

[Operator:]

We have a question from Mr. MarkGilman from The Benchmark Company. Sir, please go ahead.

[Mark Gilman:]

Robert, good afternoon. Just acouple of things if I could, please. It appears that the tax rate on thedownstream refining and marketing business in the third quarter wasparticularly low. Is there any specific explanation for that?

[Robert Castaigne:]

Yes, in fact what is low or highis the ratio of the net operating profit divided by the operating profit. Andthis is fundamentally due to the fact that the rate of our trading profits washigher in the third quarter, especially, because of the reduction of therefining profit. The other point is that our share of equity profits, thereduction of our share of equity profit especially in Cepsa was lower than theaverage of our downstream profits. So, this is the way we can explain, you areright to say that's relatively high ratio net operating income divided byoperating income. So it's a way of trading that as a lower tax rate, plus theimpact of our share in the profits of Cepsa.

[Mark Gilman:]

Robert, just staying with the downstream for just a moment--

[Robert Castaigne:]

Right.

[Mark Gilman:]

It appears particularly over recent quarters that theperformance of the downstream business relative to the environment in place hasbeen fairly significantly disappointing. And I was wondering

[Robert Castaigne:]

Compared to the second quarter, it's clear that the refiningmargins were lower. And I would say that our downstream results decreased likeall the downstream results of the other when I make a comparison, and I didthat for the board. I think we are at a position that these comparable and inmost cases much better than it is for our peers. The level of turnaround was collectively good. During thatpoint it was maybe a little bit disappointed, is the conversion margins. And itis clearly has had negative impact on the profit. What else can I say? Last point that we have to keep inmind, finally, if I take the third quarter, the profitability of our downstreamoperations on an annualized basis is I think something by memory 19%, which isnot so bad in I would say a moderate environment. Now, it's clear that it isnot a 25%, 30% that we had before. But remember that in the past, three or fouryears ago, we would have been very happy with that. It's clear though I think,globally speaking, in the third quarter, our refinery worked pretty well.

[Mark Gilman:]

I guess that in fact was part of my point in terms ofmargins not being captured. Just one other upstream-related question

[Robert Castaigne:]

No, quite frankly, the book value I think for our 47% wassomething like $2 billion, more or less for our 47%. And our stake will bereduced from 47 to 30%, that is to say the book value of this 17% you can makean easy division. And as to the level of your indemnity, I cannot speak ofthat.

[Mark Gilman:]

Thank you, Robert.

[Operator:]

We have a question from a Ms. Nicole Decker from BearStearns. Madam, please go ahead.

[Robert Castaigne:]

Yes, hello, Nicole.

[Nicole Decker:]

Good morning or good afternoon, Robert. A couple ofquestions on the upstream and then one on the downstream

[Robert Castaigne:]

You mean for maintenance, have done for maintenance for thefourth quarter? I think just we should have in mind for the fourth quarter, wepartial shutdown in the refinery of Feyzin, in the south of France. And in the third quarter, we had a shutdown in our Lindseyrefinery in the U.K.and a partial shutdown in our Normandyrefinery. But globally speaking, I think, that the level of shutdowns formaintenance should be lower in the fourth quarter than in the third quarter. Then you asked a question concerning our position in the Gulf of Mexico. I think, as you are aware, we took some additionalblocks. Our strategy is to continue, even if up to now on average we have notbeen very successful. We think that year-after-year, I would say we haveimproved up to ability interpipe the subsea, and our geologists convince usthat it was justified to continue to explore and to take additional blocks. Ithink, with this, we followed them and we see really we succeeded in improvingjust capability to have a better understanding of the subsea. Concerning the impact of Nkossa recovery, you said it wasnot really visible. Nkossa, in fact, you have to know that we have 53% and thatwe have raised in August something like one-third of the production capacity ofNkossa, that is to say 20,000 barrels per day. In fact, the 20,000 barrels perday is for the totality of the field, and we are 53% of the, that is 15,000barrels per day. So this is why the impact of the recovery of Nkossa was notvery visible.

[Nicole Decker:]

Thank you, Robert. And now just getting back on the Gulf of Mexico

[Robert Castaigne:]

What activity in the Gulf of Mexico?First we have production. Then we have an interest in the field of Tahitiwhere the production should start I think in 2009. And now, we have a lot ofseismic in order to prepare for the drilling activities on our permits.

[Nicole Decker:]

Great! Thank you, Robert.

[Robert Castaigne:]

Thank you.

[Operator:]

We have a question from a Mr. Colin Smith from Dresdner.Sir, please go ahead.

[Colin Smith -Dresdner:]

Good afternoon, Robert.

[Robert Castaigne:]

Good afternoon.

[Colin Smith:]

I was reminded recently that the last production guidancethat Total gave was 1.5% to 2% versus 2006. I think, you mentioned your rangeof 1% to 2%. I mean

[Robert Castaigne:]

In Nigeriaor in Algeria?

[Colin Smith -Dresdner:]

Algeria.

[Robert Castaigne:]

Algeria?No, no, no. It’s true that Algeriawanted to set up a new refinery, and we looked at that project, but we decidednot to participate to this project. The project of Jubail is the one, becauseit should be a full converting refinery with dedicated supply from one of twofields. And as a consequence of that, the economics of this refinerywould be fundamentally linked to the differential of price between Arabianlight and Arabian heavy. And so, which is totally different story. And it willbe also a refinery to export. And as far as there is a project that Algeriaasked for (inaudible) refinery, it was an inland refinery. So I think it's aproject that is totally different.

[Colin Smith -Dresdner:]

What other projects are there in mind besides Jubail?

[Robert Castaigne:]

As far as we are concerned, Jubail is the only project ofrefinery that we have. In addition to that, we have a project for a coker in Port Arthur. Maybe in Europe, wewill be led in the coming years to build and those are one or two conversionplants. And that is all except that maybe we will have also to adapt ourportfolio of assets. But that's all. Concerning now the guidance, for 2007, it shows that we saidthat our production growth should be something between 1% to 2%, depending, infact, on the assumption of oil price. Of course, it is clear that as we are nowwith (Technical Difficulty) per barrel, we should probably close up to 1% than2% because of the production showing contract effect, which by the way in thistype of price relatively limited something like 2000 barrels per day, perdollar per barrel. Also the bottom line is the impact should be extremelystrong.

[Colin Smith -Dresdner:]

Okay. Thanks.

[Robert Castaigne:]

Thank you.

[Operator:]

We have a question from Ms. Lydia Rainforth, from LehmanBrothers. Plead go ahead.

[Robert Castaigne:]

Hi, Lydia.

[Lydia Rainforth:]

Hi, Good afternoon, Robert.

[Robert Castaigne:]

Good afternoon.

[Lydia Rainforth:]

A couple of questions if I could

[Robert Castaigne:]

Well, concerning the reserve replacement side, I think it'ssomething that we'll disclose at the beginning of next year, because there willbe many things. First, we still have to know the results of our lastexploration activities. There will be the consequences on the Sincor migrationand of reduction of interest. There will be also, by the way, the big impact and that isboth for the production and for the reserves. So I think due to all thesereasons, we will come back to you at the beginning of next year. And you alsoknow, by the way, that the work of evaluation of the reserves is an exactvalue, which is very sensitive due to several [players]. Basically, this was, I would say, the negative impact;positive being exploration discoveries. Another point that would be difficult toexercise and that makes even more difficult to answer to your question now iswhat will be the consequences on the existing fields of the type of contract wehave now. And it's clear that this should enable us to enlarge thereserves. Having said that, I'm not sure that it will be foreseeable to revieweverything, because it is a huge work, in fact, to integrate new assumptions interms of oil price. Concerning the restructuring of NMPC and the sanction of Usan,we are still expecting a sanction to be taken before the end of the year, andwe have to wait. We are confident. We are still in some talks with NMPC withMinistry of Nigerian (inaudible), which aren't available, but up to now, we arestill waiting, but we are expecting a sanction to be taken for Usan before theend of the year.

[Lydia Rainforth:]

Hi, that's great. Thank you.

[Robert Castaigne:]

Thank you.

[Operator:]

We have a question from Joseph Tovey from LLC. Please goahead.

[Joseph Tovey:]

Hi. This is Joe Tovey. I was rather -- sorry.

[Robert Castaigne:]

Excuse me. The line was cut. Hello.

[Joseph Tovey:]

Just one minute. Yes, hello?

[Robert Castaigne:]

Yes.

[Joseph Tovey:]

Is this fine? Sorry. Is this better?

[Robert Castaigne:]

I don't hear anything in fact. Do you hear me?

[Joseph Tovey:]

Yes, I can hear you clearly. Is this better?

[Robert Castaigne:]

Yes, it is.

[Joseph Tovey:]

Thank you. I was wondering about two things. Number one

[Robert Castaigne:]

I think that this flow of product exports of gasoline from Europeto the U.S.will continue. And in fact, globally speaking, the European refining tool isdesigned to take into account, not only the possibility, by the way, to exportgasoline in to the U.S.,but also to book the diesel oil from Russia. Which means that suppose that tomorrow morning, we didn'thave the possibility to export gasoline to the USAor to somewhere else, we would have to adjust our refining capacities. So Ithink this will continue. One question is now what could be the impact on the demandof gasoline in diesel oil of this type of new oil price that we have now, $100per barrel. The answer is not easy. Remember at the beginning of the '80s, wehad something like $40, $44 per barrel, which is the equivalent of $85 to $90per barrel. But with the weight of NLG into GDP, that was about doubleof what it is now. This is why by the way we have seen good capability of theeconomies of the Western economies to absorb this pretty strong increase in theoil price. So, up 70, 80, I think more or less everything was okay,difficult, but it was accepted by the Western economies. Now, if we are at $100and over $100 I think that we should start some consequences on the evolutionof the demand. I don't think this should be very big impact if we remain in therange of 80, but there would be some clearly. If we have to adjust, and I speak not for Total, but for theoil industry's refining capacity, I don't think it should be an issue. But wehave to wait and see what would be the consequences on the market.

[Joseph Tovey:]

Thank you. I'm afraid I did not quite express my question asclearly as I should have. I was wondering as to

[Robert Castaigne:]

No, I don't think that this should lead us to somesignificant changes in our refinery. By the way, we continue to have anincrease of the diesel market in Europe. So I think,again, just for the future of it, it's not for tomorrow morning, we maybe ledto build additional conversion in order to produce a little bit more of dieselout of diesel, out of diesel oil. But it is not where we are now. So I think upto now, I do not expect any significant changes in our CapEx in our refiningtool in Europe.

[Joseph Tovey:]

Thank you, very much.

[Robert Castaigne:]

Thank you.

[Operator:]

We have a question from Mr. Dave Thomas form Citigroup.Please go ahead.

[Dave Thomas -Citigroup:]

Hi. Good afternoon, Robert.

[Robert Castaigne:]

Good afternoon, Dave.

[Dave Thomas:]

A couple of questions, please. Firstly, on West Africa

[Robert Castaigne:]

Concerning Dolphin, I think, as the production of condensateshould be something like 20% of the production. And these liquids are sold onthe market at the market price, which is good, because price of gas isrelatively low. But of course, production costs are also extremely low. And I think that taking into account all these elements, wemanaged to have pretty good profitability for the Dolphin development. And now,the question was concerning the FID for the block 32 in Angola.We have in mind something like 2009. And now, this is very tentative, and wecould expect the production starting up maybe in 2012, something like that.

[Dave Thomas -Citigroup:]

Thanks, Robert.

[Robert Castaigne:]

Okay. Thank you.

[Operator:]

We have a question from Mr. Neill Morton from MF Global.Sir, please go ahead.

[Neill Morton:]

Good afternoon.

[Robert Castaigne:]

Good afternoon, Neil.

[Neill Morton:]

Just a follow-up on refining investments

[Robert Castaigne:]

In India,we have some studies, and that's all. I think it is important before we havesomething to have better knowledge of the market -- I know the difficulty bythe way when you decide to build a new refinery now is a supply, is long-termsupply of this refinery. We are no longer with the company coming from a producingcountry with a different, with the group that we have formed in order to makesome studies. So this is just where we are now. And it's a question of study,but we've some difficulties. So I think we signed a memorandum ofunderstanding, but that is all. I cannot say more now quite frankly. It is morea question of studying.

[Neill Morton:]

Okay. But perhaps a more general question

[Robert Castaigne:]

Sometimes in the oil industry, you have to wait. Concerningour underperformance, I think that you probably understand better than I do themarket. Maybe recently, our share price has been affected by someshareholders that decided to sell some shares, because we are in Myanmar,I don't know, because we are in Iran.Fundamentally, I think -- the other point is that, in fact, we were the last bythe way to publish our results. And maybe there were also some uncertainties onour results. Quite frankly, I am very confident with our performance interms of, I would say, hydrocarbon price validation, production cost,preparation of the future. So, I am convinced that at the end of the day, maybewe are seeing today the start of that, that the market or the operators so ourshareholders or investors will understand the future of the company, which tome seems relatively unique compared to the other majors. I think that we are probably the only company that has nowin its portfolio of activity enough reserves to be confident to be able to growthe production, not only between now and 2010, but I see also for almost allthe next decade. And given the evolution of the share price, given alsorelatively the fact that we will be always relatively cautious, you know thatup to now all the investment that we have decided should fly with $50 perbarrel, maybe cash would require $60 per barrel. But for all the others, thiswould be able to deliver a pretty good economy with something between 40 to 50. And I think that if I take marginally all the projects thatwe are in front of, first, we should be able to launch them with good economicsin oil prices. That may appear to be relatively cheap compared to what we seenow. So clearly, I am very confident that we have probably the best futurecompared to our peers. And it's clear that one time or another, this will berecognized by the market.

[Neill Morton:]

Okay. That's fine. Thank you very much.

[Robert Castaigne:]

Thank you.

[Operator:]

We have no further questions.

[Robert Castaigne:]

So yes. Do you want to say something?

[Operator:]

Go ahead.

[Robert Castaigne:]

I just would to like to thank you for being with us today.Thank you.

[Operator:]

Ladies and gentlemen, this concludes the Total third quarter2007 results. Thank you all for attending. You may now disconnect.