Registration Document 2005 - Total.com

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9 28. Market risks Appendix 1 – Consolidated financial statements Notes to the consolidated financial statements Oil and Gas market related risks Due to the nature of its business, the Group has a significant involvement in oil and gas trading as part of its normal operations in order to attempt to optimize revenues from its crude oil and gas production and obtain favorable pricing for supplies for its refineries. In its international oil trading activities, the Group follows a policy of not selling its future oil and gas production for future delivery. However, in connection with these trading activities, the Group, like most other oil companies, uses energy derivative instruments to adjust its exposure to price fluctuations of crude oil, refined products, natural gas and power. Furthermore, the Group also uses freight-rate derivative contracts in its shipping activities in order to adjust its exposure to freight-rate fluctuations. In order to hedge against this risk, the Company uses various instruments such as futures, forwards, swaps and options on organized markets or over-the-counter markets. To measure market risks related to the prices of oil and gas products, the Group uses a “value at risk” method. Under this method, for the Group’s crude oil and refined products trading activities, there is a 97.5% probability that unfavorable daily market variations would result in a loss of less than 7.7 M€ per day, defined as the “value at risk”, based on positions as of December 31, 2005. Over the year 2005, the average value at risk was 9.7 M€, the lowest value at risk was 4.2 M€, the highest value at risk was 17.6 M€. As part of its gas and power trading activity, the Group also uses derivative instruments such as futures, forwards, swaps and options in both organized and over-the-counter markets. In general, the transactions are settled at maturity date through physical delivery. There is a 97.5% probability that unfavorable daily market variations would result in a loss of less than 4.6 M€ per day, based on positions as of December 31, 2005. Over the year 2005, the average value at risk was 3.6 M€, the lowest value at risk was 1.6 M€, the highest value at risk was 8.4 M€. The Group has implemented strict policies and procedures to manage and monitor these market risks. Trading and financial controls are carried out separately and an integrated information system 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 consumers and financial institutions. The Group has established limits for each counterparty, and outstanding amounts for each counterparty are monitored on a regular basis. 214 TOTAL - Registration Document 2005 Financial markets related risks Within its financing and cash management activities, the Group uses derivative instruments in order to manage its exposure to changes in interest rates and foreign exchange rates. This includes mainly interest rates and currency swaps. The Group might also use on an occasional basis futures, caps, floors and options contracts. The current operations and their accounting treatment are detailed in notes 1 L, 20 and 27 to the consolidated financial statements. Risks relative to cash management activities and to interest rate and foreign exchange financial instruments are managed in accordance with rules set by the Group’s executive management. Liquidity positions and the management of financial instruments are centralized in the Treasury Department. Cash management activities are organized into a specialized department for operations on financial markets. The Financial Control Department handles the daily monitoring of limits and positions and validates results. It values financial instruments and, if necessary, performs sensitivity analysis. Management of currency exposure The Group seeks to minimize the currency exposure of each exposed entity by reference to its functional currency (primarily the euro, dollar, pound sterling and 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 estimated flows and, in this case; when it does so, it typically uses options. With respect to currency exposure linked to non-current assets in foreign currencies, the Group has a hedging policy which results in reducing the associated currency exposure by financing in the same currency. Short-term net currency exposure is periodically monitored with limits set by the Group’s executive management. The Group’s central treasury entities manage this currency exposure and centralizes borrowing activities on the financial markets (the proceeds of which are then loaned to the borrowing subsidiaries), cash centralization for the Group companies and investments of these funds on the monetary markets.
Management of short-term interest rate exposure and cash Cash balances, which are primarily composed of euros and dollars, are managed with three main objectives set out by management (to maintain maximum liquidity, to optimize revenue from investments considering existing interest rate yield curves, and to minimize the cost of borrowing), over a horizon of less than twelve months and on the basis of a daily interest rate benchmark, primarily through short-term interest rate swaps and short-term currency swaps, without modification of the currency exposure. Sensitivity analysis on interest rate and foreign exchange risk Appendix 1 – Consolidated financial statements Notes to the consolidated financial statements 9 The tables below present the potential impact on the fair value of the current financial instruments as of December 31, 2005, of an increase or decrease of 10% in the interest rate yield curves in each of the currencies. ASSETS/(LIABILITIES) As of December 31, 2005 (in millions of euros) Carrying amount Management of interest rate risk on non-current debt The Group’s policy consists of incurring non-current debt primarily at a floating rate or at a fixed rate depending on opportunities at the issuance with regards to the level of interest rates, in dollars or in euros according to the general corporate purposes. Long-term interest rate and currency swaps can hedge debenture loans at their issuance in order to create a variable rate synthetic debt. In order to partially modify the interest rate structure of the long-term debt, TOTAL can also enter into long-term interest rate swaps. Estimated fair value Change in fair value with a 10% interest rate increase TOTAL - Registration Document 2005 Change in fair value with a 10% interest rate decrease Debenture loans (non-current portion, before swaps) (11,025) (11,025) 126 (129) Issue swaps and swaps hedging debenture loans (liabilities) (128) (128) (62) 63 Issue swaps and swaps hedging debenture loans (assets) 450 450 (53) 54 Fixed-rate bank loans (411) (406) 7 (7) Current portion of non-current debt after swap (excluding capital lease obligations) (920) (919) 1 (1) Other interest rates swaps 3 3 (3) 3 Currency swaps and forward exchange contracts 260 260 4 (4) Currency options - - - - As of December 31, 2004 (in millions of euros) Debenture loans (non-current portion, before swaps) (9,727) (9,727) 110 (112) Issue swaps and swaps hedging debenture loans (liabilities) - - - - Issue swaps and swaps hedging debenture loans (assets) 1,476 1,476 (107) 109 Fixed-rate bank loans (288) (274) 8 (9) Current portion of non-current debt after swap (excluding capital lease obligations) (2,199) (2,199) 1 (1) Other interest rates swaps 11 11 - - Currency swaps and forward exchange contracts (317) (317) - - Currency options - - - - 215
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Registration Document 2005
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Registration Document 2005 This is
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Key figures Selected financial info
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104,652 2003 French GAAP Sales (M
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DOWNSTREAM Refined product sales (k
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Business overview History and strat
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Upstream TOTAL’s Upstream segment
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Exploration & Production Exploratio
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Production TOTAL’s average daily
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Presentation of production activiti
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Europe Year of entry into the count
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Africa TOTAL has been present in Af
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Libya The Group’s share of produc
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North America The Group’s presenc
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On the Yucal Placer field, the init
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Commonwealth of Independent States
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The Netherlands TOTAL is the second
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Kuwait Since 1997, the Group has pr
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Gas & Power The Gas & Power sector
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Middle East In Qatar, negotiations
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TOTAL is pursuing decentralized rur
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Refining & Marketing On December 31
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Marketing The Group is one of the l
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the provinces of Shanghai, Jiangsu
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All of TOTAL’s trading activities
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Base Chemicals TOTAL’s Base Chemi
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Specialties TOTAL’s Specialties s
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trademarks. It is present on three
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Other activities E-Commerce In 2005
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Organizational structure Position o
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Executive Committee Trading & Shipp
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Management Report of the Board of D
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Market environment Management Repor
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Upstream results (in millions of eu
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Downstream results (in millions of
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Adoption of IFRS rules The principa
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Liquidity and capital resources Lon
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Research and development Research a
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Risk factors Market risks p. 76 •
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Financial markets related risks Wit
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The non-current debt in dollars des
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Grande Paroisse An explosion occurr
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Myanmar Under the Belgian “univer
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Risk management Risk evaluations le
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ILSA - Other US regulations In 2001
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Insurance and risk management Organ
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Corporate governance Board of Direc
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Anne Lauvergeon 46 years old. Indep
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Additional information required und
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Statutory auditors Statutory audito
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Executive Officers’ Compensation
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Report of the Chairman of the Board
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july 19: • estimated earnings for
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Nominating & Compensation Committee
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The hydrocarbon reserves are review
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Headcount, Employee shareholdings,
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Allocation of TOTAL share subscript
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TOTAL share subscription and purcha
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Allocation of TOTAL restricted shar
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Elf Aquitaine share subscription op
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TOTAL and its shareholders TOTAL sh
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Four-for-one stock split A proposal
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TOTAL share over the last 18 months
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Dividend payment on Stock Certifica
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• were repurchased under the auth
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These transactions may be carried o
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Shareholders Relationship between T
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The holdings of the principal share
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Shareholders Estimate of capital di
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The above-mentioned French forms ar
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• • • • On November 18 and
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2006 Calendar February 15 Results f
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Financial information Historical fi
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Additional information Financial in
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General information Share capital p
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• Authority to grant restricted e
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Potential capital as of December 31
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General information Articles of inc
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Shareholders’ Meetings Notices of
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Documents on display The documents
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Page 167 and 168: Consolidated statement of income TO
Page 169 and 170: Consolidated statement of cash flow
Page 171 and 172: Notes to the consolidated financial
Page 173 and 174: The cost of employee-reserved capit
Page 175 and 176: K. Impairment of long-lived assets
Page 177 and 178: Crude oil costs include raw materia
Page 179 and 180: Fair value option In June 2005, the
Page 181 and 182: A. Information by business segment
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Page 191 and 192: RECONCILIATION BETwEEN PROVISION FO
Page 193 and 194: 12. Equity affiliates: investments
Page 195 and 196: 14. Other non-current assets Append
Page 197 and 198: Capital increase reserved for Group
Page 199 and 200: The Group expects to contribute 371
Page 201 and 202: 19. Other non-current liabilities A
Page 203 and 204: (in millions of euros) TOTAL CAPITA
Page 205 and 206: Impact on net income Appendix 1 - C
Page 207 and 208: 23. Commitments and contingencies A
Page 209 and 210: B. TOTAL share purchase plan Append
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Page 215: B. Financial instruments related to
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Page 231 and 232: 53.2% 95.7% Elf Aquitaine 99.5% 100
Page 233 and 234: Oil and gas reserves p. 232 • Cha
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Page 237 and 238: Changes in liquids and gas reserves
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Page 241 and 242: Standardized measure of discounted
Page 243 and 244: Other information Accounting for ex
Page 245 and 246: Appendix 3 - TOTAL S.A. Special aud
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Page 249 and 250: Summary balance sheet at December 3
Page 251 and 252: Other five-year financial data TOTA
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Page 255 and 256: 4) Compensation TOTAL - Registratio
Page 257 and 258: Environment Pursuant to French Law
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Page 261 and 262: 10. CAPITAL RESOURCES 10.1. Informa
Page 264: TOTAL S.A. Registered Offi ce: 2, p
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Registration Document 2005 - Total.com

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