Nov 7, 2007
Executives
Robert Castaigne - ChiefFinancial Officer
Analysts
Gordon Gray - JP Morgan Jean-Luc Koman - CIMC Securities Dan Barcelo - Banc of America Irene Himona - Exane BNP Paribas Jon Rigby - UBS Mark Gilman - The BenchmarkCompany Nicole Decker - Bear Stearns Colin Smith - Dresdner LydiaRainforth - Lehman Brothers Joseph Tovey - LLC Dave Thomas - Citigroup Neill Morton - MF Global
Operator
Good afternoon, ladies andgentlemen, and welcome to Total Conference Call. I now hand over to Mr.
RobertCastaigne, Chief Financial Officer. Sir, please go ahead.
Robert Castaigne
Thank you. So, hello.
And thankyou for calling in. By now you have all seen our third quarter results and theresults of our peers.
I am sure that you have probably heard all about themicroenvironment into numerous conference calls you have already attended. So,let's go straight to the results.
We have a very good quarter: bothoperationally and financially. Actually, Total had by far the best performanceamong the majors, while most of the typical metrics both on quarterly andyear-to-date basis.
First, despite OPEC reductions, price effects and otherimpacts, Total is the only major oil to increase production so far this year. Then in the third quarter, theadjusted net income was up by 4% year-over-year to $4.1 billion.
And EPS was upby 5%. Year-to-date, the EPS was up by 2%.
Adjusted cash flow in the last wasup by 4% on a quarterly basis and 5% year-to-date. Our business segment to achieve, remains at a verycompetitive level of 26%, and we have continued to increase our dividend verysubstantially.
All of that was achieved in an environment that was mixed, butstill very good. Comparing the first nine monthsof 2007 to the same period in 2006, on average, oil prices were flat, gasprices were sharply lower, petroleum margins were better on average, butvolatile.
Inflation is continuing to impact the cost base, and the dollarcontinues to weaken. In terms of cash flow, looking atthe first nine months, our adjusted cash flow from operations was $17.4billion.
This represents a very competitive increase of 5% over the same periodlast year. We have invested $10.3 billion togrow the company, which is the same amount as last year, and we ended the thirdquarter with a gearing of 24%, in line with our target range.
Looking now at the rest of theyear, we should invest something close to our budget of $16 billion for 2007.We will pay the interim dividend next week. So, this is $3.3 billion that willgo directly to our shareholders.
This is on top of the $5 billion that wereturned to our shareholders in the first nine months of the year throughdividend and buybacks. And to the extent that we have net cash flow I believeas to CapEx and dividend, we will continue to buy back shares.
So overall, these resultsillustrate how the strength of Total, notably, the underlying growth can, andwill, continue to lead to differentiated results in the volatile environmentlike this one. Now, on the business developmentside: We continue to be very successful.
Since the beginning of the thirdquarter, Total managed to capture significant growth opportunities, inparticular with first stock value [divestiture]. Also, some new very promisingblocks in Nigeriato supply future LNG project and a new world class Asantaka project withSanantak Nigeria.
In addition, we are continuing toexplore successfully. We have recently announced some nice discoveries in Angola,Congo, the UK,Indonesia and Thailand.Overall, we are in line with our exploration program for the year.
With this,and all that has been done over the past two years to capture new giantopportunities, we have significantly expanded the potential for future growth. We have created, what we believeis, one of the best positions and most diversified asset portfolios in theindustry.
Notice that, on one side, our exposure to declining areas in fixed marginsis limited or decreasing. While, on the other side, our leading positions inthe fastest growing segment of the industry are increasingquarter-after-quarter.
So, now I will comment briefly onthe segments, starting with the upstream. Our reported volumes for the thirdquarter: with [2.35] million barrel of oil equivalent per day.
This is anincrease of 2.5% compared to last year. The underlying growth was 6.5%.
This underlying growth takes intoaccount the net effect of new production minus normal declines and productionshutdowns. This underlying growth was partially offset by some specific items.Minus 1% for the price effects on entitlement volumes, and for OPEC reductions;minus 1.5% for changes in portfolio, notably, in Dubaiand minus 1.5% for shutdown of Nkossa.
Altogether, this business: the2.5% of reported growth. Net operating income for the upstream segmentexpressed in dollars increased by 18% in the third quarter 2007.
If we exclude from the thirdquarter 2006, the special charge related to the increase in the U.K.petroleum taxes for the first and second quarter, the net operating income wasup by 10%. The upstream, we achieved was very competitive with 32%.
For the upstream all of thisrepresents clearly the strongest performance among the majors and itdemonstrates that combining return to production growth with our high qualityportfolio will be reflected in our future results. Now, still for the upstream lookingat the first nine months: The Brent price was $67 per barrel on average, flatcompared to the first nine months of last year.
Our realized price for oilincreased by 1% and for gas decreased by 12%. Our average hydrocarbon realizationswere down by 2% compared to last year.
Upstream net operating income per barrelmoved in line with our hydrocarbon price realizations down by 2%. Thisrepresents by far the best performance among the major and it illustrates oursensitivity to the environment, our core discipline and the positive impact ofthe recent production growth on the portfolio mix.
In terms of production growth, ona year-to-date basis production was 2.37 million barrel of oil equivalent perday, which represents an increase of more than 1% compared to last year, withthe first nine months. In the year-to-date comparison, we had 4.5% ofunderlying growth that was partially offset by some specific items.
Minus 1.5% from the price effectand for OPEC reductions, minus 1% for changes in the portfolio notably in Dubai,and minus 1% for the shutdown of Nkossa in Congo.Most of the growth came from fields that started up last year, notably Daliaand Shah Deniz, plus new fields, newly started this year, that are stillramping up. And for example: Rosa, that reached close to 90,000 barrels per dayat the end of the quarter and that would continue to increase up to a plateauof 150,000 barrels per day in the first part of 2008.
Dolphin was around 1 billioncubic feet per day at the end of the quarter, and it should reach the plateauof 2 billion cubic feet per day in the first half of 2008. Snohvit started up and the firstLNG cargo was lifted in October.
So plateau for Snohvit of 120,000 barrel ofoil equivalent per day should be reached in 2008. I would like to make a veryimportant point for you about the mix of production growth and the bottom lineeffect.
Most of the 3.5% of production that we lost, that is to say the priceeffect, the portfolio changes, OPEC, Qatarand Nkossa was relatively low margin production. In fact, the bottom lineimpact from these negative items was around minus 1.5% of the net operatingincome for the first nine months of the year.
In contrast, the bottom lineimpact of the 4.5% of the underlying growth was around 7.5% of the netoperating income for the same period. For 2007, now we indicated inSeptember that full year production growth should be into 1% to 2% rangedepending on the oil price.
We are globally on track and onbudget with the next wave of startups. The most important of these are Jura,Mobil Ando, Acpo and Yemen LNG.
So, 2008 and 2009 look to be in a very good shape.These are high quality bandwidth and this should be accretive to our earnings.So, that was all the upstream, and I move now to downstream. So, TRCV refining marginindicator sell to $24 per ton in the third quarter compared to $29 per ton lastyear and $43 in the second quarter.
Adjusted net operating income for thedownstream was $0.7 billion compared to $1 billion in the second quarter. Refining throughput in the thirdquarter was 2.47 million barrels per day.
Actually 5% increase from theprevious quarter, mainly due to lower turnaround activity. So, downstream ROACEwas 22% for the past 12 months and 19% for the quarter on an annualized basis,which shows that our downstream segment is very resilient even in a moderatingenvironment.
Also in the third quarter, weannounced an agreement to sell our stake in the Milford Haven refinery in the UKto our minority interest partner, Murphy. This transaction should be recordedin the first quarter.
We began the construction of new desulfurization units atthe Lindsey refinery into UKand at the Leuna refinery in Germany. This is part of our strategy toadd conversion capacity and to focus on largest refineries.
And in terms ofscheduled turnarounds, the impact on the first quarter should be similar to thethird quarter or even a little bit that. Chemicals now: Demand forpetrochemical products was good in the third quarter and the margins werebetter except for aromatics.
Adjusted net operating income for the chemicalswas $0.3 billion, which was slightly above the levels reported in the secondquarter of this year, and the third quarter of last year. It is difficult now to predicthow the chemicals will perform in the fourth quarter, because the price ofnaphtha has been increasing with our prices.
For the specialties, the thirdquarter usually reflects some seasonal weakness, and normally we would expectthe fourth quarter to be a bit stronger. Also, as you know, the thirdquarter was very good in terms of growing the best chemical portfolio, and, inparticular, we started up two petrochemical expansion projects, one in Qatarand another in South Korea.
So, we should keep strengthening our chemicalsovertime. Corporate now: Interim dividendof EUR1 per share will be paid on November 16.
This represents an increase of15% compared to the 2006 interim dividend and in dollars at the currentexchange rate it is close to a 30% increase. So, gearing should remain into 25%to 30% target band.
Looking now at the marketenvironment in the first quarter, so far it continues to be volatile. Thedollar has fallen to new lows.
By the way, from time-to-time, [we all keep]changes into euro-dollar exchange rate, has a greater impact on Total than onthe other majors. Particularly, I think that we areall in a dollar-dominated industry.
And we all have broadly the same exposureto our used currencies. Total reports in euros, so the effect is more visible.But, ultimately, I think we are all affected in pretty much the same way.
Oil prices have set new records,and today Brent is trading at more than $95 per barrel. Gas prices in Europeare better on average than in the third quarter, thanks to the progressiverecovery of the UKgas market.
Refining margins in October werein line with the third quarter average, but have been increasing rapidly so farthis month. And petrochemical margins areunder some pressure from the rapidly rising oil prices.
So, the fourth quarterenvironment should be volatile, but generally good. In any case, our strategyis based on delivering profitable organic growth.
Looking ahead to next year, wewill make the 2008 strategy presentations in February, as usual. So, pleaseunderstand that we do not intend to go into detail on certain subjects for 2008at this time.
So, that concludes my remarks, and I am now ready to take yourquestions.
Operator
(Operator Instructions). We havea first question from Mr.
Gordon Gray from JP Morgan. Sir, please go ahead.
Gordon Gray - JP Morgan
Thanks. Good afternoon, gentlemen.
Robert Castaigne
Good afternoon, Gordon
Gordon Gray - JP Morgan
A couple of quick questions, if Icould: Price in the downstream, following the disposal in Milford Haven: areyou now comfortable with your refining asset base? And: its geographical mix,particularly, your continued strong European buyers?
And secondly: are you also stillcomfortable with prospective returns on the Jubail project, given the currentenvironment in terms of cost escalation? Thanks.
Robert Castaigne
On the Jubail project?Comfortable with our downstream portfolio in the UK,the answer is: yes. It is clear that in the future we might be led to make someadditional, specialty conversion plants.
To do that, it is clear that it canonly be made in refineries that have its suitable size. So, which means that inthe future, we might have to continue to adapt our refining portfolios, butthis is not for tomorrow morning.
It is clear that it is something that we haveto take into account. Concerning Jubail: I think that,in fact, we are now assessing the cost of this project.
And the idea is: totake decision at the beginning of 2008. So it is something that we will discussfurther in February.
Gordon Gray - JP Morgan
Okay. Thanks very much.
Robert Castaigne
Thank you.
Operator
We have a question from Mr.Jean-Luc Koman from CIMC Securities. Sir, please go ahead.
Robert Castaigne
Yes good afternoon Jean-Luc.Hello?
Jean-Luc Koman - CIMC Securities
You said that the results relatedto project could be considered: as the reserves, if and when there is a finalinvestment decision. It all seems to have been: not so sure about that.
Couldyou comment? The second question is about yourShtokman gas project: is it on track?
Will Total take part to a new gas field developmentto feed this project with gas?
Robert Castaigne
The first one is Synertakproject: no, in fact the gas will be delivered by Synertak and Total is notgoing to participate to new gas development to feed this project. What was yourquestion concerning the reserves, please?
Because I think the line was bad whenyou started talking.
Jean-Luc Koman - CIMC Securities
Sorry. Stating that the reservesin Shtokman could be considered as reserves when the final investment decisionis made?
Robert Castaigne
The answer is: yes, but this…
Jean-Luc Koman - CIMC Securities
But Total, in all, was not sosure about that and was it doing? Why it was different?
Robert Castaigne
No, no, I think it is clear thatwhen the project will be launched, when the decision to launch a project willbe taken. I think, Total we clearly have the possibility to book its share ofthe reserves.
There is no doubt about that and this has been confirmed.
Jean-Luc Koman - CIMC Securities
Thank you.
Robert Castaigne
Not at all. So, next question?
Operator
We have a question from Mr. DanBarcelo from Banc of America.
Sir, please go ahead.
Dan Barcelo - Banc of America
Hi, yes, good morning, gentlemen.Regarding third quarter volumes very strong and going into fourth quarter theramp up, I guess, for Snohvit, Dolphin and Nkossa recovery. I don't know if youcan just touch a little bit more about: what to expect into the fourth quarter?And I recognize you don't want to discuss '08 at this time.
But I am justlooking to get more comfort that Snohvit, Dolphin as you discussed Nkossarecovery is on track and there is no offset. Second question is: if you canjust touch on the buyback rate?
It slowed a bit in the third quarter relativeto the first half rate. I recognized the focus on cash dividends, but I justwanted to confirm: what type of excess cash flow you're looking at to see howthat buyback rate to continue?
Thank you.
Robert Castaigne
Okay. Concerning the buyback forthe whole year: we are in line something, I would say: around 1.5% of theequity.
Concerning Dolphin now: you know that the first gas was produced inJune, exported in July, and we are now, I would say: at the end of the firstphase of the production, that is to say: 1 billion cubic feet per day that wasreached, in fact, in September. You know, that we are also secondphase and full plateau for this second phase of another 1 billion cubic feetper day should be reached something in the second quarter 2008.
Concerning Nkossa now: we alwaystalked about one-third of our production, 20,000 barrels per day on a maximumof something like 65 from our share. A new flow line has been connected and wethink we should be able to increase our production to 45 barrels per day by theend of November.
And, as to the last third of our production capacity, we haveto produce a second flow line. So, I think, it should take place in the lastthird increase, something in 2008.
So, we should finish the yearwith a production of 45,000 barrels per day and somewhere in 2008, we should beable to recover the 65,000 barrels per day that we had before.
Dan Barcelo - Banc of America
Thank you very much.
Operator
We have a question from Mrs.Irene Himona from Exane BNP Paribas. Please go ahead.
Irene Himona - Exane BNP Paribas
Good afternoon, Robert.
Robert Castaigne
Yes, good afternoon.
Irene Himona - Exane BNP Paribas
I was wondering: if you arealready receiving compensation in line at Tencor? And can you say: how muchthat might be?
Secondly, again in E&P inprevious quarters, you had some positive effects from the changing sales toproduction ratio. Was that a feature this quarter?
And my final question is, I note,in your discussion, the results is all in US dollar terms. Can you say if youare contemplating, changing or reporting to the dollar?
Thank you.
Robert Castaigne
I think: no, we do not intend nowto change as reporting. Also we could do it, but we are the first marketcapitalization of (inaudible) and it's not so easy to take the decision tochange reporting from euro to dollar.
So, let say that it is something wecontinue to think about it, but it is not end of use decision. Concerning the ratio of sales, Ithink, I have in mind that we should be by the end of the third quarter alittle under listed, so that we should recover in the fourth quarter thisposition, and this will be small plus, but a plus for the next quarter.
Concerning compensation forSincor, in fact, you know, that we have reached an agreement that thisagreement has been ratified by the Parliament of Venezuela. So, closing shouldtake place, that is to say, the move from Sincor to the mixed company shouldtake place formally, I would say, between now and the end of the year.
And I would say, only at thattime, when the closing will have taken place, that we will be entitled to thecompensation. You also know that this compensation will be paid in kind I thinkover two years, 2008 and 2009.
And on the basis of fair value that wassomething between the book value and the economic value.
Irene Himona - Exane BNP Paribas
Thank you.
Robert Castaigne
Thank you. Irene.
Operator
We have a question from Mr. JonRigby from UBS.
Please go ahead.
Jon Rigby - UBS
Thanks, hi Robert.
Robert Castaigne
Hi Jon.
Jon Rigby - UBS
There are two quick questions:one on downstream and one on the upstream. On the downstream, I guess, thereare two moving parts; one is the distillate hydrocracker startup between thisyear and last year and also I think you know marketing effects between thisyear and last year.
Is it possible you could quantify for me those two effects?I think one is negative, one is positive. And the second is just: are youable to give some kind of outlook about what is likely to be and by date [andby date] between now and the end of the year with a fair wind, nothingproblematic cropping up, between now and the 31st of December?
Robert Castaigne
Okay. The DHC that should takeplace?
Jon Rigby - UBS
Yes.
Robert Castaigne
Concerning the DHC for 2007 Ithink the cash that has been bought by this new plant should be about $150million. It is what we expect over the earlier little a year if we finish theyear in good conditions.
Jon Rigby - UBS
Okay.
Robert Castaigne
The marketing in the thirdquarter, you know, that we do not report our marketing results. I think thatour marketing results globally speaking in Europe was slightly higher than inthe second quarter, especially, because the situation has improved in somecountries such as I think Germany and UK.
Having said that, these results werelower than they were in the third quarter of 2006. That was, globally speaking,relatively good in Europe.
Concerning now the decision thatshould take place between now and at the end of the year, I think [Usan] and [Akpo]should be launched before the end of the year. And, by the way, this projecthas been already internally approved by the different partners.
As to Brass LNG decision, I thinkit should be taken somewhere in 2008. I think it is too difficult to be moreprecise now.
Jon Rigby - UBS
Okay. That's cool.
Thank you verymuch.
Operator
We have a question from Mr. MarkGilman from The Benchmark Company.
Sir, please go ahead.
Mark Gilman - The Benchmark Company
Robert, good afternoon. Just acouple of things if I could, please.
It appears that the tax rate on thedownstream refining and marketing business in the third quarter wasparticularly low. Is there any specific explanation for that?
Robert Castaigne
Yes, in fact what is low or highis the ratio of the net operating profit divided by the operating profit. Andthis is fundamentally due to the fact that the rate of our trading profits washigher in the third quarter, especially, because of the reduction of therefining profit.
The other point is that our share of equity profits, thereduction of our share of equity profit especially in Cepsa was lower than theaverage of our downstream profits. So, this is the way we can explain, you areright to say that's relatively high ratio net operating income divided byoperating income.
So it's a way of trading that as a lower tax rate, plus theimpact of our share in the profits of Cepsa.
Mark Gilman - TheBenchmark Company
Robert, just staying with the downstream for just a moment--
Robert Castaigne
Right.
Mark Gilman - The BenchmarkCompany
It appears particularly over recent quarters that theperformance of the downstream business relative to the environment in place hasbeen fairly significantly disappointing. And I was wondering: if you wouldagree with that?
And: whether you believe that frequent turnarounds,turnarounds such as the one Gonfreville, which extend well beyond the timeperiod initially intended, help to explain what has been the somewhatchronically weak performance in this segment?
Robert Castaigne
Compared to the second quarter, it's clear that the refiningmargins were lower. And I would say that our downstream results decreased likeall the downstream results of the other when I make a comparison, and I didthat for the board.
I think we are at a position that these comparable and inmost cases much better than it is for our peers. The level of turnaround was collectively good.
During thatpoint it was maybe a little bit disappointed, is the conversion margins. And itis clearly has had negative impact on the profit.
What else can I say? Last point that we have to keep inmind, finally, if I take the third quarter, the profitability of our downstreamoperations on an annualized basis is I think something by memory 19%, which isnot so bad in I would say a moderate environment.
Now, it's clear that it isnot a 25%, 30% that we had before. But remember that in the past, three or fouryears ago, we would have been very happy with that.
It's clear though I think,globally speaking, in the third quarter, our refinery worked pretty well.
Mark Gilman - TheBenchmark Company
I guess that in fact was part of my point in terms ofmargins not being captured. Just one other upstream-related question: I believe,in response to a prior question, you indicated that the Sincor compensationwould be between book value and fair market value.
Can you give a rough numberfor the book value of your investment in Sincor?
Robert Castaigne
No, quite frankly, the book value I think for our 47% wassomething like $2 billion, more or less for our 47%. And our stake will bereduced from 47 to 30%, that is to say the book value of this 17% you can makean easy division.
And as to the level of your indemnity, I cannot speak ofthat.
Mark Gilman - TheBenchmark Company
Thank you, Robert.
Operator
We have a question from a Ms. Nicole Decker from BearStearns.
Madam, please go ahead.
Robert Castaigne
Yes, hello, Nicole.
Nicole Decker - BearStearns
Good morning or good afternoon, Robert. A couple ofquestions on the upstream and then one on the downstream: The production atNkossa seems to be ramping up slowly.
If I have done the calculation right, itdoesn't look like production has risen much from the beginning of thirdquarter. So maybe you could comment on that?
Secondly, you've added to your position in the Gulf of Mexico. Just wondering: what you are looking at and how thatprogram might evolve?
And then, following through on the previous question inrefining: would you just talk about the status of production at your refineries?What is down and what's expected to be down in the fourth quarter?
Robert Castaigne
You mean for maintenance, have done for maintenance for thefourth quarter? I think just we should have in mind for the fourth quarter, wepartial shutdown in the refinery of Feyzin, in the south of France.
And in the third quarter, we had a shutdown in our Lindseyrefinery in the U.K.and a partial shutdown in our Normandyrefinery. But globally speaking, I think, that the level of shutdowns formaintenance should be lower in the fourth quarter than in the third quarter.
Then you asked a question concerning our position in the Gulf of Mexico. I think, as you are aware, we took some additionalblocks.
Our strategy is to continue, even if up to now on average we have notbeen very successful. We think that year-after-year, I would say we haveimproved up to ability interpipe the subsea, and our geologists convince usthat it was justified to continue to explore and to take additional blocks.
Ithink, with this, we followed them and we see really we succeeded in improvingjust capability to have a better understanding of the subsea. Concerning the impact of Nkossa recovery, you said it wasnot really visible.
Nkossa, in fact, you have to know that we have 53% and thatwe have raised in August something like one-third of the production capacity ofNkossa, that is to say 20,000 barrels per day. In fact, the 20,000 barrels perday is for the totality of the field, and we are 53% of the, that is 15,000barrels per day.
So this is why the impact of the recovery of Nkossa was notvery visible.
Nicole Decker - BearStearns
Thank you, Robert. And now just getting back on the Gulf of Mexico: what activity is occurring there now?
Robert Castaigne
What activity in the Gulf of Mexico?First we have production. Then we have an interest in the field of Tahitiwhere the production should start I think in 2009.
And now, we have a lot ofseismic in order to prepare for the drilling activities on our permits.
Nicole Decker - BearStearns
Great! Thank you, Robert.
Robert Castaigne
Thank you.
Operator
We have a question from a Mr. Colin Smith from Dresdner.Sir, please go ahead.
Colin Smith -Dresdner
Good afternoon, Robert.
Robert Castaigne
Good afternoon.
Colin Smith - Dresdner
I was reminded recently that the last production guidancethat Total gave was 1.5% to 2% versus 2006. I think, you mentioned your rangeof 1% to 2%.
I mean: presumably with oil prices where they are, are yousuggesting that is maybe more like 1% that comes from the year? That’s onequestion.
The second question is: you mentioned a summary and outlookthat you are looking at certain development projects with regard to newrefining. Can you discuss what those are besides presumably that you buy arefinery?
But, I think you've been linked in the press with new refiningcapacity in Algeria?
Robert Castaigne
In Nigeriaor in Algeria?
Colin Smith -Dresdner
Algeria.
Robert Castaigne
Algeria?No, no, no. It’s true that Algeriawanted to set up a new refinery, and we looked at that project, but we decidednot to participate to this project.
The project of Jubail is the one, becauseit should be a full converting refinery with dedicated supply from one of twofields. And as a consequence of that, the economics of this refinerywould be fundamentally linked to the differential of price between Arabianlight and Arabian heavy.
And so, which is totally different story. And it willbe also a refinery to export.
And as far as there is a project that Algeriaasked for (inaudible) refinery, it was an inland refinery. So I think it's aproject that is totally different.
Colin Smith -Dresdner
What other projects are there in mind besides Jubail?
Robert Castaigne
As far as we are concerned, Jubail is the only project ofrefinery that we have. In addition to that, we have a project for a coker in Port Arthur.
Maybe in Europe, wewill be led in the coming years to build and those are one or two conversionplants. And that is all except that maybe we will have also to adapt ourportfolio of assets.
But that's all. Concerning now the guidance, for 2007, it shows that we saidthat our production growth should be something between 1% to 2%, depending, infact, on the assumption of oil price.
Of course, it is clear that as we are nowwith (Technical Difficulty) per barrel, we should probably close up to 1% than2% because of the production showing contract effect, which by the way in thistype of price relatively limited something like 2000 barrels per day, perdollar per barrel. Also the bottom line is the impact should be extremelystrong.
Colin Smith -Dresdner
Okay. Thanks.
Robert Castaigne
Thank you.
Operator
We have a question from Ms. Lydia Rainforth, from LehmanBrothers.
Plead go ahead.
Robert Castaigne
Hi, Lydia.
Lydia Rainforth - Lehman Brothers
Hi, Good afternoon, Robert.
Robert Castaigne
Good afternoon.
Lydia Rainforth - Lehman Brothers
A couple of questions if I could: The first one is on Nigeriaand I was just wondering: given the restructuring that we are seeing within anNMPC, has there been any impact on the project plans there in the area? And I'mthinking particularly in the time it takes to sanction the projects like Usanand Brass LNG.
And then, secondly, I know maybe a little bit of this, but:could you give us just the outlook for reserve replacement? And I'm thinkingparticularly here about: what sort of $90 a year in oil price would mean forreserves replacement for the PSE side of things?
Robert Castaigne
Well, concerning the reserve replacement side, I think it'ssomething that we'll disclose at the beginning of next year, because there willbe many things. First, we still have to know the results of our lastexploration activities.
There will be the consequences on the Sincor migrationand of reduction of interest. There will be also, by the way, the big impact and that isboth for the production and for the reserves.
So I think due to all thesereasons, we will come back to you at the beginning of next year. And you alsoknow, by the way, that the work of evaluation of the reserves is an exactvalue, which is very sensitive due to several [players].
Basically, this was, I would say, the negative impact;positive being exploration discoveries. Another point that would be difficult toexercise and that makes even more difficult to answer to your question now iswhat will be the consequences on the existing fields of the type of contract wehave now.
And it's clear that this should enable us to enlarge thereserves. Having said that, I'm not sure that it will be foreseeable to revieweverything, because it is a huge work, in fact, to integrate new assumptions interms of oil price.
Concerning the restructuring of NMPC and the sanction of Usan,we are still expecting a sanction to be taken before the end of the year, andwe have to wait. We are confident.
We are still in some talks with NMPC withMinistry of Nigerian (inaudible), which aren't available, but up to now, we arestill waiting, but we are expecting a sanction to be taken for Usan before theend of the year.
Lydia Rainforth - Lehman Brothers
Hi, that's great. Thank you.
Robert Castaigne
Thank you.
Operator
We have a question from Joseph Tovey from LLC. Please goahead.
Joseph Tovey - LLC
Hi. This is Joe Tovey.
I was rather -- sorry.
Robert Castaigne
Excuse me. The line was cut.
Hello.
Joseph Tovey - LLC
Just one minute. Yes, hello?
Robert Castaigne
Yes.
Joseph Tovey - LLC
Is this fine? Sorry.
Is this better?
Robert Castaigne
I don't hear anything in fact. Do you hear me?
Joseph Tovey - LLC
Yes, I can hear you clearly. Is this better?
Robert Castaigne
Yes, it is.
Joseph Tovey - LLC
Thank you. I was wondering about two things.
Number one: weare seeing that in Europe, much of the previousinvestment in gasoline capacity in the refineries is in fact surplus to thecurrent European market, and it used to therefore going to the United States. Is this a trend that you anticipate will continue?
Do youanticipate this will change over your refinery outturn over the longer run andyour refinery capacity? How long will it take to make the adjustments for yourTotal?
Robert Castaigne
I think that this flow of product exports of gasoline from Europeto the U.S.will continue. And in fact, globally speaking, the European refining tool isdesigned to take into account, not only the possibility, by the way, to exportgasoline in to the U.S.,but also to book the diesel oil from Russia.
Which means that suppose that tomorrow morning, we didn'thave the possibility to export gasoline to the USAor to somewhere else, we would have to adjust our refining capacities. So Ithink this will continue.
One question is now what could be the impact on the demandof gasoline in diesel oil of this type of new oil price that we have now, $100per barrel. The answer is not easy.
Remember at the beginning of the '80s, wehad something like $40, $44 per barrel, which is the equivalent of $85 to $90per barrel. But with the weight of NLG into GDP, that was about doubleof what it is now.
This is why by the way we have seen good capability of theeconomies of the Western economies to absorb this pretty strong increase in theoil price. So, up 70, 80, I think more or less everything was okay,difficult, but it was accepted by the Western economies.
Now, if we are at $100and over $100 I think that we should start some consequences on the evolutionof the demand. I don't think this should be very big impact if we remain in therange of 80, but there would be some clearly.
If we have to adjust, and I speak not for Total, but for theoil industry's refining capacity, I don't think it should be an issue. But wehave to wait and see what would be the consequences on the market.
Joseph Tovey - LLC
Thank you. I'm afraid I did not quite express my question asclearly as I should have.
I was wondering as to: whether part of Total'sexpenditures for refineries, and its changed refinery configuration, is becauseTotal has a view that the gasoline component worldwide will decline? And that,therefore: its refinery configuration should be more geared to diesel and thatpart of the market rather than to gasoline?
And: if that's part of the reasonfor the capital expenditures and the change in Total's refinery configuration?
Robert Castaigne
No, I don't think that this should lead us to somesignificant changes in our refinery. By the way, we continue to have anincrease of the diesel market in Europe.
So I think,again, just for the future of it, it's not for tomorrow morning, we maybe ledto build additional conversion in order to produce a little bit more of dieselout of diesel, out of diesel oil. But it is not where we are now.
So I think upto now, I do not expect any significant changes in our CapEx in our refiningtool in Europe.
Joseph Tovey - LLC
Thank you, very much.
Robert Castaigne
Thank you.
Operator
We have a question from Mr. Dave Thomas form Citigroup.Please go ahead.
Dave Thomas -Citigroup
Hi. Good afternoon, Robert.
Robert Castaigne
Good afternoon, Dave.
Dave Thomas - Citigroup
A couple of questions, please. Firstly, on West Africa:could you give some advice on what the timeline is presently for deciding onblock 32 Angola developments?
And secondly on Dolphin in Qatar:I think there is some reports of a high condensate yield in that field. And Iwonder: if you could comment around that and give some indication of thepossibly improved probability from that project as a response to that?
Robert Castaigne
Concerning Dolphin, I think, as the production of condensateshould be something like 20% of the production. And these liquids are sold onthe market at the market price, which is good, because price of gas isrelatively low.
But of course, production costs are also extremely low. And I think that taking into account all these elements, wemanaged to have pretty good profitability for the Dolphin development.
And now,the question was concerning the FID for the block 32 in Angola.We have in mind something like 2009. And now, this is very tentative, and wecould expect the production starting up maybe in 2012, something like that.
Dave Thomas -Citigroup
Thanks, Robert.
Robert Castaigne
Okay. Thank you.
Operator
We have a question from Mr. Neill Morton from MF Global.Sir, please go ahead.
Neill Morton - MFGlobal
Good afternoon.
Robert Castaigne
Good afternoon, Neil.
Neill Morton - MFGlobal
Just a follow-up on refining investments: Can you perhapstalk about your plans in India?I thought you were, perhaps, considering a refinery there.
Robert Castaigne
In India,we have some studies, and that's all. I think it is important before we havesomething to have better knowledge of the market -- I know the difficulty bythe way when you decide to build a new refinery now is a supply, is long-termsupply of this refinery.
We are no longer with the company coming from a producingcountry with a different, with the group that we have formed in order to makesome studies. So this is just where we are now.
And it's a question of study,but we've some difficulties. So I think we signed a memorandum ofunderstanding, but that is all.
I cannot say more now quite frankly. It is morea question of studying.
Neill Morton - MFGlobal
Okay. But perhaps a more general question: Back inSeptember, you started your presentation and painted a picture of a very strongcompany, and you highlighted day-to-day the best metrics amongst the majors.And yet, your share price this year has lagged the other large cap majors bysome margin.
It's catching up a little bit today, but I just wondered: ifthe executive committee has, perhaps, considered more radical ways for arrestingthis underperformance? Or: are you just happy to let fundamentals take theircourse?
Robert Castaigne
Sometimes in the oil industry, you have to wait. Concerningour underperformance, I think that you probably understand better than I do themarket.
Maybe recently, our share price has been affected by someshareholders that decided to sell some shares, because we are in Myanmar,I don't know, because we are in Iran.Fundamentally, I think -- the other point is that, in fact, we were the last bythe way to publish our results. And maybe there were also some uncertainties onour results.
Quite frankly, I am very confident with our performance interms of, I would say, hydrocarbon price validation, production cost,preparation of the future. So, I am convinced that at the end of the day, maybewe are seeing today the start of that, that the market or the operators so ourshareholders or investors will understand the future of the company, which tome seems relatively unique compared to the other majors.
I think that we are probably the only company that has nowin its portfolio of activity enough reserves to be confident to be able to growthe production, not only between now and 2010, but I see also for almost allthe next decade. And given the evolution of the share price, given alsorelatively the fact that we will be always relatively cautious, you know thatup to now all the investment that we have decided should fly with $50 perbarrel, maybe cash would require $60 per barrel.
But for all the others, thiswould be able to deliver a pretty good economy with something between 40 to 50. And I think that if I take marginally all the projects thatwe are in front of, first, we should be able to launch them with good economicsin oil prices.
That may appear to be relatively cheap compared to what we seenow. So clearly, I am very confident that we have probably the best futurecompared to our peers.
And it's clear that one time or another, this will berecognized by the market.
Neill Morton - MFGlobal
Okay. That's fine.
Thank you very much.
Robert Castaigne
Thank you.
Operator
We have no further questions.
Robert Castaigne
So yes. Do you want to say something?
Operator
Go ahead.
Robert Castaigne
I just would to like to thank you for being with us today.Thank you.
Operator
Ladies and gentlemen, this concludes the Total third quarter2007 results. Thank you all for attending.
You may now disconnect.