Registration document 2011 - tota - Total.com

As part of its gas, power and coal trading activity, the Group also
uses derivative instruments such as futures, forwards, swaps and
options in both organised and over-the-counter markets. In general,
the transactions are settled at maturity date through physical
delivery. The Gas & Power division measures its market risk
exposure, i.e. potential loss in fair values, on its trading business
using a value-at-risk technique. This technique is based on an
Gas & Power trading: value-at-risk with a 97.5% probability
The Group has implemented strict policies and procedures to manage
and monitor these market risks. These are based on the separation
of control and front-office functions and on an integrated information
system that enables real-time monitoring of trading activities.
Limits on trading positions are approved by the Group’s Executive
Committee and are monitored daily. To increase flexibility and
encourage liquidity, hedging operations are performed with
numerous independent operators, including other oil companies,
major energy producers or consumers and financial institutions.
The Group has established counterparty limits and monitors
outstanding amounts with each counterparty on an ongoing basis.
Financial markets related risks
As part of its financing and cash management activities, the Group
uses derivative instruments to manage its exposure to changes in
interest rates and foreign exchange rates. These instruments are
principally interest rate and currency swaps. The Group may also
use, on a less frequent basis, futures and options contracts.
These operations and their accounting treatment are detailed
in Notes 1 paragraph M, 20, 28 and 29 to the Consolidated
Financial Statements.
Risks relative to cash management operations and to interest rate
and foreign exchange financial instruments are managed according
to rules set by the Group’s senior management, which provide for
regular pooling of available cash balances, open positions and
management of the financial instruments by the Treasury
Department. Excess cash of the Group is deposited mainly in
government institutions, deposit banks, or major companies
through deposits, reverse repurchase agreements and purchase
of commercial paper. Liquidity positions and the management of
financial instruments are centralized by the Treasury Department,
where they are managed by a team specialized in foreign exchange
and interest rate market transactions.
The Cash Monitoring-Management Unit within the Treasury
Department monitors limits and positions per bank on a daily
basis and results of the Front Office. This unit also prepares
marked-to-market valuations of used financial instruments and,
when necessary, performs sensitivity analysis.
Counterparty risk
The Group has established standards for market transactions
under which bank counterparties must be approved in advance,
based on an assessment of the counterparty’s financial soundness
(multi-criteria analysis including a review of market prices and
of the Credit Default Swap (CDS), its ratings with Standard
& Poor’s and Moody’s, which must be of high quality, and its
overall financial condition).
An overall authorized credit limit is set for each bank and is allotted
among the subsidiaries and the Group’s central treasury entities
according to their needs.
To reduce the market values risk on its commitments, in particular
for swaps set as part of bonds issuance, the Treasury Department
also developed a system of margin call that is gradually
implemented with significant counterparties.
Currency exposure
Consolidated Financial Statements 9
Notes to the Consolidated Financial Statements
historical model and makes an assessment of the market risk
arising from possible future changes in market values over a oneday
period. The calculation of the range of potential changes in fair
values takes into account a snapshot of the end-of-day exposures
and the set of historical price movements for the past two years for
all instruments and maturities in the global trading business.
As of December 31,
(M€) High Low Average Year end
2011 21.0 12.7 16.0 17.6
2010 13.9 2.7 6.8 10.0
2009 9.8 1.9 5.0 4.8
The Group seeks to minimize the currency exposure of each entity
to its functional currency (primarily the euro, the dollar, the
Canadian dollar, the pound sterling and the Norwegian krone).
For currency exposure generated by commercial activity, the
hedging of revenues and costs in foreign currencies is typically
performed using currency operations on the spot market and,
in some cases, on the forward market. The Group rarely hedges
future cash flows, although it may use options to do so.
With respect to currency exposure linked to non-current assets
booked in a currency other than the euro, the Group has a policy
of reducing the related currency exposure by financing these assets
in the same currency.
Net short-term currency exposure is periodically monitored against
limits set by the Group’s senior management.
The non-current debt described in Note 20 to the Consolidated
Financial Statements is generally raised by the corporate treasury
entities either directly in dollars, in euros or in Canadian dollars,
or in other currencies which are then exchanged for dollars or euros
through swaps issues to appropriately match general corporate
needs. The proceeds from these debt issuances are loaned to
affiliates whose accounts are kept in dollars, in Canadian dollars
or in euros. Thus, the net sensitivity of these positions to currency
exposure is not significant.
Registration Document 2011. TOTAL
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