Registration Document 2005 - Total.com

3
Trends and outlook
Outlook
Management Report of the Board of Directors
Trends and outlook
Since the start of 2006, the oil market environment has remained
globally favorable, with high oil and gas prices but with European
refining margins significantly below fourth quarter 2005 levels.
In Upstream, TOTAL intends to pursue a strategy of profitable
growth that should translate into production growth of close to 4%
per year on average between 2005 and 2010 in a 40 $/b Brent
environment (with growth of 7% per year on average in Africa
through 2010). Beyond 2010, the portfolio of projects offers strong
visibility, thanks to continued exploration success over the past
years and to new giant gas and heavy oil projects.
In Downstream, based on an environment with refining margins
near the average of the past five years (TRCV at 25 $/t), the
contribution of new conversion and desulphurization projects
combined with ongoing productivity programs should allow the
segment to achieve a ROACE of 20% by 2010 and increase cash
flow from operating activities by 0.9 billion euros per year.
In Petrochemicals, TOTAL’s objective is to continue to increase its
polymers production, particularly in Asia and the Middle East, while
reducing its fixed cost per unit. The Chemicals segment continues
to target a ROACE of 12% at mid-cycle by 2010.
In the area of Renewable Energies, in a new step forward in the
wind energy business, TOTAL has been selected to build the
largest onshore wind farm project in France in the Aveyron region.
The 90 MW project is expected to start up in 2008. In addition,
the Group expects a five-fold increase in the production of its
photovoltaic cells and plans to build a new solar panel factory in
Toulouse.
Implementing the Group’s growth strategy depends on a sustained
investment program. Using an exchange rate of 1.20 $/€, the 2006
Capex budget (excluding acquisitions) is about 13.5 billion dollars,
including 10 billion dollars for the Upstream segment. Over the
2006-2010 period, investments should remain relatively stable.
2006 SENSITIVITIES TO THE MARKET ENVIRONMENT
Market parameters Scenario Change
74 TOTAL - Registration Document 2005
The net-debt-to-equity ratio for the Group is targeted to remain at
around 25% to 30%.
TOTAL intends to pursue a dynamic dividend policy. Cash flow
remaining after investments and dividends will be available for share
buybacks.
The 2006-2007 period will be notable for the size and number of
major Upstream project start-ups, including Dalia, BBLT and Rosa
in Angola, Dolphin in Qatar, Surmont and Joslyn in Canada as
well as the start-up of the hydrocracker at the Normandy refinery.
The contribution of these start-ups will be significant by the end of
2006.
During 2006, TOTAL expects to rebalance its Chemicals portfolio
by spinning off Arkema, which is one of the proposals shareholders
will vote on at the May 12 Annual Meeting.
Risks and uncertainties
Due to the nature of its business, the Company is subject to
market risks (in both the oil and financial markets), industrial and
environmental risks related to their operations, and to geopolitical
risks stemming from the global presence of most of its activities.
In addition, risks related to cash management activities and to
interest rate and foreign exchange rate financial instruments
are managed according to strict rules set by the Company’s
Management, which also oversees the systematic centralization of
liquidity positions and the management of financial instruments.
A detailed description of these risks is included in the 2005
Registration Document (pages 76 to 88). Also included in the
Registration Document, in accordance with Article L. 225-102-1 of
the French Commercial Code, is information on the manner in which
TOTAL S.A. accounts for the social and environmental effects of its
activities (pages 251 to 256).
Estimated impact
on operating results
Estimated impact
on net operating results
€/$ 1.20 $/€ +0.1 €/$ +1.6 B€ +0.8 B€
Brent 40-50 $/b +1 $/b +0.41 B€ +0.17 B€
European refining margins TRCV 25 $/t +1 $/t +0.09 B€ +0.06 B€