Registration Document 2005 - Total.com

4
Risk factors
Other specific risks
Other specific risks
Risks related to oil and gas exploration
and production
Oil and gas exploration and production require high levels
of investment and are associated with particular risks and
opportunities. These activities are subject to risks related specifically
to the difficulties of exploring underground, to the characteristics of
hydrocarbons, as well as relating to the physical characteristics of
an oil and gas field. The first stage of exploration involves geologic
risks. For example, exploratory wells may not result in the discovery
of hydrocarbons at all, or in amounts that would be sufficient to
allow for economic development. Even if an economic analysis
of estimated hydrocarbon reserves justify the development of a
discovery, the reserves can prove lower than the estimates during
the production process, thus adversely affecting the development
economics.
Almost all the exploration and production activities of TOTAL are
accompanied by a high level of risk of loss of the invested capital.
It is impossible to guarantee that new resources of crude oil or of
natural gas will be discovered in sufficient amounts to replace the
reserves currently being developed, produced and sold to enable
TOTAL to recover the capital invested.
The development of oil fields, the construction of facilities and the
drilling of production or injection wells require advanced technology
in order to extract and exploit fossil fuels with complex properties
over several decades. The deployment of this technology in
such a difficult environment makes cost projections uncertain.
TOTAL’s activities can be limited, delayed or cancelled as a result
of numerous factors, such as administrative delays, particularly
in terms of the host states’ approval processes for development
projects or shortages of or late delivery of equipment, weather
conditions (the production of four fields situated in the Gulf of
Mexico were affected by hurricane damage, principally by Hurricane
Ivan in mid-September 2004 and, to a lesser degree, by Hurricane
Katrina at the end of August 2005). Some of these risks may also
affect TOTAL’s projects and facilities further down the oil chain.
86 TOTAL - Registration Document 2005
Risks related to economic and political factors
The oil sector is subject to domestic regulations and the
intervention of governments in such areas as:
• the award of exploration and production interests;
• the imposition of specific drilling obligations;
• environmental protection controls ;
•
•
control over the development and abandonment of a field
causing restrictions on production; and
possible, though exceptional, nationalization, expropriation or
cancellation of contract rights.
The oil industry is also subject to the payment of royalties and
taxes, which may be high compared with those imposed with
respect to other commercial activities and which might be subject
to material modifications by the governments of certain countries.
Substantial portions of TOTAL’s oil and gas reserves are located in
countries, certain of which may individually be considered politically
and economically unstable. These reserves and the related
operations are subject to certain risks, including:
• the establishment of production and export limits;
• the renegotiation of contracts;
• the expropriation or nationalization of assets;
•
risks relating to changes of local governments or resulting
changes in business customs and practices;
• payment delays;
• currency exchange restrictions;
•
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 impairment of operations by armed conflicts and
actions of terrorist groups.
TOTAL, like other major international oil companies, attempts to
conduct its business and financial affairs so as to protect against
such political and economic risks. However, there can be no
assurances that such events will not adversely affect the Group.