Registration document 2011 - tota - Total.com

egions, causing substantial declines in production. Furthermore, in
addition to current production, TOTAL is 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 the Group has 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 the Group’s production and operations in the future.
Such oil and gas reserves and related operations are subject
to certain additional risks, including:
– the implementation of production and export quotas;
– the compulsory renegotiation of contracts;
– the expropriation or nationalization of assets;
– risks related to changes of local governments or the resulting
changes in business customs and practices;
3.3. Legal aspects of the Group’s activities
3.3.1. Legal aspects to exploration
and production activities
TOTAL’s exploration and production operations are conducted in
various countries and are therefore subject to a broad range of
regulations. These cover virtually all aspects of exploration and
production operations, including 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 contracts.
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
– payment delays;
– currency exchange restrictions;
consortium, on the one hand, and with the State or the stateowned
company, on the other hand.
Risk factors
Other risks 4
– depreciation of assets due to the devaluation of local currencies
or other measures taken by governments that might have a
significant impact on the value of activities; and
– losses and decreased activity due to armed conflicts, civil unrest,
the actions of terrorist groups or sanctions that target activities
or parties of certain countries.
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.
In some instances, concession agreements and PSCs coexist,
sometimes in the same country. Even though there are other
contractual models, TOTAL’s license portfolio is comprised mainly
of concession agreements.
In every country, 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
“risked service contracts”, which are similar to production sharing
contracts. However, the profit oil is replaced by risked monetary
remuneration, agreed by contract, which depends notably on the
field performance. Thus, the remuneration under the Iraqi contract
is based on an amount calculated per barrel produced.
Oil and gas exploration and production activities are subject
to authorization granted by public authorities (licenses), which
are granted for specific and limited periods of time and include
an obligation to return a large portion, or the entire portion in case
of failure, of the area covered by the license at the end of the
exploration period.
TOTAL pays taxes on income generated from its oil and gas
production and sales activities under its concessions, production
sharing contracts and risked service contracts, as provided for
by local regulations. In addition, depending on the country, TOTAL’s
production and sales activities may be subject to a number of
other taxes, fees and withholdings, including special petroleum
taxes and fees. The taxes imposed on oil and gas production and
sales activities may be substantially higher than those imposed
on other industrial or commercial 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 that, in certain cases, can reduce or challenge
the protections offered by this legal framework.
Registration Document 2011. TOTAL 81