1.2. 2010 results
(M€) 2010 2009 2008
Sales 159,269 131,327 179,976 Adjusted operating income from business segments(a) 19,797 14,154 28,114
Adjusted net operating income from business segments(a) 10,622 7,607 13,961
Net income (Group share) 10,571 8,447 10,590 Adjusted net income (Group share)(a) 10,288 7,784 13,920
Fully-diluted weighted-average shares (millions) 2,244.5 2,237.3 2,246.7 Adjusted fully-diluted earnings per share (euros)(a)(b) 4.58 3.48 6.20
Dividend per share (€)(c) 2.28 2.28 2.28
Net-debt-to-equity (as of December 31) 22% 27% 23% Return on average capital employed (ROACE)(d) 16% 13% 26%
Return on equity 19% 16% 32% Cash flow from operating activities 18,493 12,360 18,669 Investments 16,273 13,349 13,640 Divestments 4,316 3,081 2,585
(a) Adjusted income is defined as income using replacement cost, excluding special items, and through June 30, 2010, the Group’s equity share of adjustment items related to Sanofi-Aventis.
(b) Based on the fully-diluted weighted-average number of common shares outstanding during the period. (c) 2010 dividend is subject to the approval by the Shareholders’ Meeting on May 13, 2011.
(d) Based on adjusted net operating income and average capital employed at replacement cost.
Market environment 2010 2009 2008
Exchange rate (€-$) 1.33 1.39 1.47 Brent ($/b) 79.5 61.7 97.3 European refining margin indicator (ERMI)(a)($/t) 27.4 17.8 51.1
(a) ERMI is an indicator intended to represent the margin after variable costs for a hypothetical complex refinery located around Rotterdam in Northern Europe. The indicator margin may not be representative of the actual margins achieved by TOTAL in any period because of TOTAL’s particular refinery configurations, product mix effects or other company-specific operating conditions
Adjustments to operating income from business segments
(M€)(a) 2010 2009 2008 Special items affecting operating income from the business segments (1,394) (711) (375) Restructuring charges - - - Impairments (1,416) (391) (177) Other items 22 (320) (198) Pre-tax inventory effect: FIFO vs. replacement cost(a) 993 2,205 (3,503)
Total adjustments affecting operating income from the business segments (401) 1,494 (3,878)
(a) See Note 1 paragraph N to the consolidated financial statements.
Adjustments to net income (Group share)
(M€) 2010 2009 2008
Special items affecting net income (Group share) (384) (570) (485) Gains (losses) on disposals of assets 1,046 179 214 Restructuring charges (53) (129) (69) Impairments (1,224) (333) (205) Other items (153) (287) (425) Equity share of adjustment items recorded by Sanofi-Aventis(a) (81) (300) (393)
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1.2.1. Sales
Consolidated sales increased by 21% to €159,269 million in 2010 from €131,327 million in 2009.
1.2.2. Operating income
Compared to the full year 2009, the 2010 oil market environment was marked by a 29% increase in the average Brent price to 79.5 $/b while the average realized price of gas was stable. The ERMI increased to 27.4 $/t in 2010 from 17.8 $/t in 2009. The euro-dollar exchange rate was 1.33 $/€ compared to 1.39 $/€ on average in 2009.
In this environment, the adjusted operating income from the business segments was €19,797 million, an increase of 40% compared to 2009(1). Expressed in dollars(2), the adjusted operating
income from the business segments was $26.2 billion, an increase of 33% compared to 2009.
The effective tax rate(3)for the business segments was 56%
compared to 55% in 2009.
The adjusted net operating income from the business segments was €10,622 million compared to €7,607 million in 2009, an increase of 40%.
Expressed in dollars, the adjusted net operating income from business segments increased by 33%.
1.2.3. Net income Group share
Adjusted net income increased by 32% to €10,288 million compared to €7,784 million in 2009. Expressed in dollars, the adjusted net income increased by 26%.
Effective July 1, 2010, the Group no longer accounts for its interest in Sanofi-Aventis as an equity affiliate. The contribution to the Group’s adjusted net income from Sanofi Aventis was €290 million in 2010 compared to €786 million in 2009. Excluding the impact of the contribution of Sanofi-Aventis, the Group’s adjusted net income would have increased by 43% in euros and 36% in dollars. Adjusted net income excludes the after-tax inventory effect, special items, and through June 30, 2010, the Group’s equity share of adjustment items related to Sanofi-Aventis.
– The after-tax inventory effect had a positive impact of €748 million compared to a positive impact of €1,533 million in 2009. – The Group’s share of adjustment items related to Sanofi-Aventis
had a negative impact of €81 million in 2010 and a negative impact of €300 million in 2009.
– Special items had a negative impact on net income of €384 million in 2010, comprised essentially of asset impairments that had a negative impact of €1,224 million and gains on asset sales that had a positive impact of €1,046 million. Special items had a negative impact of €570 million in 2009.
Net income (Group share) was €10,571 million compared to €8,447 million in 2009.
The effective tax rate for the Group was 56% in 2010 compared to 55% in 2009.
On December 31, 2010, there were 2,249.3 million fully-diluted shares compared to 2,243.7 million fully-diluted shares on December 31, 2009.
In 2010, the adjusted fully-diluted earnings per share, based on 2,244.5 million weighted-average shares, was €4.58 compared to €3.48 in 2009, an increase of 32%.
Expressed in dollars, adjusted fully-diluted earnings per share were $6.08 compared to $4.85 in 2009, an increase of 25%.
1.2.4. Investments - divestments
Investments, excluding acquisitions and including net investments in equity affiliates and non-consolidated companies, were €11.9 billion ($15.8 billion) in 2010 compared to €12.3 billion ($17.1 billion) in 2009.
Acquisitions were €3.5 billion in 2010, comprised essentially of the acquisition of assets in the Barnett Shale in the United States, UTS in Canada, a 20% interest in the GLNG project in Australia and an increased stake in the Laggan Tormore blocks in the United Kingdom.
Asset sales in 2010 were €3.5 billion, comprised essentially of the sale of Sanofi-Aventis shares, the Valhall and Hod fields in Norway, the 5% interest in Block 31 in Angola, and the Mapa Spontex unit in the Chemicals segment.
Net investments(4)increased by 16% to €12.0 billion from
€10.3 billion in 2009. Expressed in dollars, net investments in 2010 increased by 11% to $15.9 billion.
1.2.5. Profitability
The ROACE for the full year 2010 was 16% for the Group and 17% for the business segments. In 2009, the ROACE was 13% for the Group and for the business segments. In 2008, it was 26% for the Group and 28% for the business segments.
Return on equity was 19% in 2010 compared to 16% in 2009.
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Management ReportSummary of results and financial position
(1) Special items affecting operating income from the business segments had a negative impact of €1,394 million in 2010 and a negative impact of €711 million in 2009. (2) Dollar amounts represent euro amounts converted at the average €-$ exchange rate for the period (1.3257 in 2010 and 1.3948 in 2009).
(3) Defined as : (tax on adjusted net operating income) / (adjusted net operating income – income from equity affiliates, dividends received from investments and impairments of acquisition goodwill + tax on adjusted net operating income).
(4) Net investments = investments including acquisitions and net investments in equity affiliates and non-consolidated companies – asset sales + net financing for employees related to stock purchase plans.
1.3. Upstream results
Environment -
liquids and gas price realizations(a) 2010 2009 2008 Brent ($/b) 79.5 61.7 97.3 Average liquids price ($/b) 76.3 58.1 91.1 Average gas price ($/Mbtu) 5.15 5.17 7.38 Average hydrocarbon price ($/boe) 56.7 47.1 72.1
(a) Consolidated subsidiaries, excluding fixed margin and buyback contracts.
TOTAL’s average liquids price increased by 31% in 2010 compared to 2009. TOTAL’s average gas price remained stable compared to 2009.
Hydrocarbon production 2010 2009 2008
Liquids (kb/d) 1,340 1,381 1,456 Gas (Mcf/d) 5,648 4,923 4,837
Combined production (kboe/d) 2,378 2,281 2,341
In 2010, hydrocarbon production was 2,378 kboe/d, an increase of 4.3% compared to 2009, essentially as a result of:
• +3% for production ramp-ups on new projects, net of the normal decline, and a lower level of turnarounds;
• +1,5% for lower OPEC reductions and an increase in gas demand; • +1% for improved security conditions in Nigeria;
• +2% for changes in the portfolio; • -3% for the price effect(1).
Oil and gas reserves
As of December 31, 2010 2009 2008
Liquids (Mb) 5,987 5,689 5,695 Gas (Bcf) 25,788 26,318 26,218
Hydrocarbon reserves (Mboe) 10,695 10,483 10,458
Proved reserves based on SEC rules (based on Brent at 79.02 $/b) were 10,695 Mboe at December 31, 2010. Based on the 2010 average rate of production, the reserve life is more than 12 years. The 2009 reserve replacement rate(2), based on SEC rules,
was 124%.
As of year-end 2010, TOTAL has a solid and diversified portfolio of proved and probable reserves(3)representing more than 20 years
of reserve life based on the 2010 average production rate, and resources(4)representing more than 40 years of reserve life.
Results
(M€) 2010 2009 2008
Adjusted operating income 17,653 12,879 23,639 Adjusted net operating income 8,597 6,382 10,724 Cash flow from operating activities 15,573 10,200 13,765 Adjusted cash flow
from operating activities 14,136 11,336 14,313 Investments 13,208 9,855 10,017 Divestments 2,067 398 1,130 Return on average capital employed 21% 18% 36%
For the full year 2010, adjusted net operating income from the Upstream segment was €8,597 million compared to €6,382 million in 2009, an increase of 35%. Expressed in dollars, adjusted net operating income for the Upstream segment increased by 28% to $11.4 billion, reflecting essentially the impact of production growth and higher hydrocarbon prices.
Technical costs for consolidated subsidiaries, in accordance with ASC 932(5), were 16.6 $/boe in 2010, compared to 15.4 $/boe
in 2009.
The return on average capital employed (ROACE(6)) for the
Upstream segment was 21% in 2010 compared to 18% in 2009. Management Report
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1.4. Downstream results
Operating data(a) 2010 2009 2008 Refinery throughput (kb/d) 2,009 2,151 2,362 Sales of refined product(b)(kb/d) 3,776 3,616 3,658
(a) Including TOTAL’s share in CEPSA and, as from October 1, 2010, in TotalErg. (b) Including Trading.
For the full year 2010, refinery throughput decreased by 7% compared to 2009, reflecting essentially the shutdown of the Dunkirk refinery and a distillation unit at the Normandy refinery as well as impacts from strikes in France.
Results
(M€) 2010 2009 2008
Adjusted operating income 1,251 1,026 3,602 Adjusted net operating income 1,168 953 2,569 Cash flow from operating activities 1,441 1,164 3,111 Adjusted cash flow from operating activities 2,405 1,601 4,018 Investments 2,343 2,771 2,418 Divestments 499 133 216 Return on average capital employed 8% 7% 20%
1.5. Chemicals results
(M€) 2010 2009 2008
Sales 17,490 14,726 20,150 Adjusted operating income 893 249 873 Adjusted net operating income 857 272 668 Cash flow from operating activities 934 1,082 920 Adjusted cash flow from operating activities 1,157 442 1,093 Investments 641 631 1,074 Divestments 347 47 53 Return on average capital employed 12% 4% 9% In 2010, the ERMI was 27.4 $/t, an increase of 54% compared
to 2009.
For the full year 2010, adjusted net operating income for the Downstream segment €1,168 million compared to €953 million in 2009, an increase of 23%.
Expressed in dollars, the adjusted net operating income for the Downstream segment was $1.5 billion, an increase of 16% compared to 2009. The increase is essentially due to the positive impact of the refining margin improvement, which was partially offset by lower throughput and reliability of the Group’s refineries in 2010 and less favorable conditions for supply optimization.
The persistence of an unfavorable economic environment for refining, affecting Europe in particular, led the Group to recognize an impairment in the Downstream, essentially on French and UK refining assets, in the fourth quarter 2010 in the amount of €1,192 million in operating income and €913 million in net operating income. These elements have been treated as adjustment items.
The ROACE(1)for the Downstream segment was 8% in 2010
compared to 7% in 2009.
For the full year 2010, Chemicals segment sales, excluding intra- Group sales, were €17,490 million, an increase of 19% compared to 2009.
The adjusted net operating income was €857 million compared to €272 million in 2009. The adjusted net operating income for the Base Chemicals increased by €377 million, due to an improved
environment and the ramp-up of new production units in Qatar. In 2010, Specialties benefited from strong operational performance and good positioning in growth markets.
The ROACE(1)of the Chemicals segment was 12% in 2010
compared to 4% in 2009.
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Management ReportSummary of results and financial position
1.6. TOTAL S.A. 2010 results and proposed dividend
2. Liquidity and capital resources
2.1. Long-term and short-term capital
Long-term capital As of December 31,
(M€) 2010 2009 2008
Shareholders’ equity(a) 58,718 50,993 47,410
Non-current financial debt 20,783 19,437 16,191 Hedging instruments of non-current financial debt (1,870) (1,025) (892)
Total net non-current capital 77,631 69,405 62,709
(a) Based on a 2010 dividend equal to the 2009 dividend (€2.28/share) less the interim dividend €1.14/share (€2,550 million) paid in November 2010.
Short-term capital As of December 31,
(M€) 2010 2009 2008
Current financial debt 9,653 6,994 7,722 Net current financial assets (1,046) (188) (29) Net current financial debt 8,607 6,806 7,693 Cash and cash equivalents (14,489) (11,662) (12,321)
2.2. Cash flow
(M€) 2010 2009 2008
Cash flow from operating activities 18,493 12,360 18,669 Changes in working capital adjusted for the pre-tax FIFO inventory effect 497 (1,111) (932)
Cash flow from operating activities before changes in working capital adjusted
for the pre-tax FIFO inventory effect 17,996 13,471 19,601 Investments (16,273) (13,349) (13,640) Divestments 4,316 3,081 2,585 Net cash flow at replacement cost, before changes in working capital 6,039 3,203 8,546 Dividends paid (5,250) (5,275) (5,158) Net income for TOTAL S.A., the parent company, was
€5,840 million in 2010 compared to €5,634 million in 2009. After closing the accounts, the Board of Directors decided to propose at the Shareholders’ Meeting to be held on May 13, 2011, a dividend of €2.28 per share for 2010, stable compared to the previous year.
Based on 2010 adjusted net income, the pay-out ratio would be 50%. After taking into account the interim dividend of €1.14 per share paid on November 17, 2010, the remaining €1.14 per share would be paid on May 26, 2011(1).
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Adjusted cash flow(1)was €17,996 million, an increase of 34%.
Expressed in dollars, adjusted cash flow from operations was $23.9 billion, an increase of 27%.
The Group’s net cash flow(2)was €6,536 million compared
to €2,092 million in 2009. Expressed in dollars, the Group’s net cash flow was €8.7 billion in 2010.
The net-debt-to-equity ratio was 22.2% on December 31, 2010, compared to 18.2% on September 30, 2010 and 26.6% on December 31, 2009.
2.3. Borrowing requirements and funding structure
2.4. External financing available
The Group’s policy consists of incurring long-term debt primarily at a variable rate, or, if an attractive opportunity arises at the time of an issuance, at a fixed rate. Debt is incurred in dollars or in euros depending on general corporate needs. Long-term interest rate and currency swaps may be used to hedge bonds at their issuance in order to create a variable or fixed rate synthetic debt. In order to partially modify the interest rate structure of the long-term debt, TOTAL may also enter into long-term interest rate swaps. The non-current debt is generally raised by the Treasury Department, either directly in dollars or in euros, or in currencies exchanged for dollars or euros, based on the Group’s general needs, through swaps.
The Group has established standards for market transactions under which bank counterparties must be approved in advance, based on
an assessment of the counterparty’s financial soundness (multi- criteria analysis including a review of market prices and of the Credit Default Swap (CDS), its ratings with Standard & Poor’s and Moody’s, which must be of high quality and its overall financial condition). An overall authorized credit limit is defined for each bank and is alloted among the subsidiaries and the Group’s Treasury Department depending on their needs.
To reduce the market values risk on its commitments, in particular for swaps set as part of bonds issuance, the Group also developed a system of margin call that is gradually implemented with significant counterparties.
The total amount, as of December 31, 2010, of the principal confirmed lines of credit granted by international banks to Group companies, including TOTAL S.A., was $10,395 million (compared to $10,084 million as of December 31, 2009), of which $10,383 million was unused (compared to $10,051 million as of December 31, 2009). TOTAL S.A. has confirmed lines of credit granted by international banks, that allow the company to fund a significant cash reserve. As of December 31, 2010, these lines of credit amounted to $9,592 million (compared to $9,322 million as of December 31, 2009), of which $9,581 million were unused (compared to €9,289 million as of December 31, 2009).
The contracts for the lines of credit granted to TOTAL S.A. contain no provisions that tie the terms and conditions of the loan to the Company’s financial ratios, to its financial ratings from specialized
agencies, or to the occurrence of events that could have a material adverse impact on its financial position.
The lines of credit granted to Group companies other than TOTAL S.A. are not intended to finance the general corporate needs; they are intended to finance either the general needs of the borrowing subsidiary or a specific project.
As of December 31, 2010, there was no restriction on the use of the capital received by the Group’s companies (including TOTAL S.A.) which could have a direct or indirect material impact on the Group’s operations.
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Management ReportLiquidity and capital resources
2.5. Anticipated sources of financing
In 2010, investments, working capital and dividend payments were financed essentially by the cash flow generated from operating activities and by asset disposals and net borrowings. For the coming years and based on the current financing conditions, the Company intends to maintain this method of
financing its investments and activities. As from 2011, a significant part of the Group’s financial debt might be issued directly or indirectly through swaps in Canadian dollars.
(1) Cash flow from operations at replacement cost before changes in working capital. (2) Net cash flow = cash flow from operations + divestments – gross investments.
3. Research & Development
3.1. Exploration & Production
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Research & Development
In 2010, Research & Development (R&D) expenses amounted to €715 million, compared to €650 million in 2009 and €612 million in 2008(1). The process initiated in 2004 to increase R&D budgets
continued in 2010. In addition, the Group implemented in 2009 a financial device to contribute to the development of start-ups that specialize in the development of innovative technologies
in the field of energy.
In 2010, 4,087 employees were dedicated to R&D, compared to 4,016 in 2009 and 4,285 in 2008.
There are six major R&D focuses at TOTAL:
– developing knowledge, tools and technological mastery to discover and operate complex oil and gas resources to help meet the global demand for energy;
– developing and industrializing solar, biomass and carbon capture and storage technologies to contribute to the changes in the global energy mix;
– developing practical, innovative and competitive materials that meet the market’s specific needs, contribute to the emergence of new features and systems, enable current materials to be replaced by materials showing higher performance for users, and
address the challenges of improved energy efficiency, lower environmental impact and toxicity and better management of their life cycle;
– developing, industrializing and improving conversion processes of oil, coal and biomass resources to adapt to changes in resources and markets, improve reliability and safety, achieve better energy efficiency, reduce the environmental footprint and maintain the Group’s economic margins in the long term; – understanding and measuring the impacts of the Group’s
operations and products on ecosystems (water, soil, air, biodiversity) to improve environmental safety, as part of the regulation in place, and reduce their environmental footprint to achieve sustainability in the Group’s operations; and – mastering and using innovative technologies such as
biotechnologies, nanotechnologies, high-performance computing, information and communications technologies and new analytic techniques.
These issues are addressed synergistically within a portfolio of projects. Different aspects may be looked at independently by different divisions.
In addition to continuously optimizing the development of deep- offshore projects and gas resources, TOTAL continues to improve its computing, exploration, seismic acquisition and processing tools as well as those for the initial appraisal of reservoirs and simulation of field evolution during operations, especially for tight sands, very deep and carbonated reservoirs.
Enhancing oil recovery from operated reservoirs and recovery of heavy oil and bitumen with lesser environmental impacts are also subjects involving major research. In particular, a new major project to enhance the technology for the development of oil shale was launched in 2008.
In addition, the carbon capture and storage project in the Rousse depleted field in Lacq (France) continues and the first injections took place in early 2010. This pilot is intended to increase expertise of the entire chain and site study methodology.
Finally, water management is also the subject of increased R&D activities.
3.2. Gas & Power
R&D efforts were sustained in new energies, in particular in the development of new-generation photovoltaic cells as part of several partnerships with recognized academic research institutes and start-ups (Konarka for organic photovoltaic and EAP for silicon purification and crystallization).
Energy production from biomass is also a major R&D challenge in the development of new energies. The Group is involved in
R&D also involves energy conversion related to:
– new technical features for LNG (liquefied natural gas) terminals and LNG routing;
– the emergence of DME (DiMethyl Ether) through the Group’s involvement in a testing program for this fuel; and
3.3. Refining & Marketing
In Refining & Marketing, TOTAL is preparing for the emergence of tomorrow’s resources, including non-conventional oil and biomass, and develops products that meet the market’s needs, such as higher-performance and energy-saving fuels, additives and lubricants.
The Refining & Marketing division develops processes and catalysts and studies the operation of its industrial sites to improve
production and adapt to the fuel market. The division develops new
products (fuels, heating fuels, lubricants, etc.) that are adapted to