Registration document 2007 - Total.com

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Risk Factors
Market risks
Market risks
Sensitivity to market environment
The financial performance of TOTAL is sensitive to a number of
parameters, the most significant being oil and gas prices,
generally expressed in dollars, and exchange rates, in particular
that of the dollar versus the euro.
Overall, a rise in the price of crude oil has a positive effect on
earnings as a result of an increase in revenues from oil and gas
production. Conversely, a decline in crude oil prices reduces
revenues. For the year 2007, the Group estimates that an
increase or decrease of $1.00 per barrel in the price of Brent
crude would respectively improve or reduce annual net operating
income by approximately 0.15 B€ (1) . The impact of changes in
crude oil prices on Downstream and Chemicals operations
depends upon the speed at which the prices of finished products
TOTAL – Registration Document 2006
adjust to reflect these changes. The Group estimates that an
increase or decrease in TRCV refining margins of $1 per ton
would improve or reduce annual net operating income by
approximately 0.06 B€ (1) .
All of the Group’s activities are, to various degrees, sensitive to
fluctuations in the euro/dollar exchange rate. For the year 2007,
the Group estimates that a strengthening or weakening of the
dollar against the euro by 0.10 euro per dollar would respectively
improve or reduce annual net operating income, expressed in
euros, by approximately 1.1 B€.
The Group’s results, particularly in the Chemicals segment, also depend on the overall economic environment.
Estimated impact Estimated impact on net
2007 Sensitivities Scenario Change on operating results operating results
Euro-dollar exchange rate 1.25 $/€ +0.10 € per $ +2.2 B€ +1.1 B€
Brent $ 60/b +$ 1/b +0.38 B€ +0.15 B€
European refining margins (TRCV) $ 30/t +$ 1/t +0.09 B€ +0.06 B€
Oil and gas market related risks
Due to the nature of its business, the Group has significant oil
and gas trading activities as part of its day-to-day operations in
order to attempt to optimize revenues from its oil and gas
production and to 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. The Group also uses freightrate
derivatives contracts in its shipping activities to adjust its
exposure to freight-rate fluctuations. To hedge against this risk,
the Group uses various instruments such as futures, forwards,
swaps and options on organized markets or over-the-counter
markets.
(1) Calculated with a base case exchange rate of $1.25 per 1.00€.
To measure market risk related to oil, gas and electricity price
movements, the Group uses the “value at risk” method. Under
this method, there is a 97.5% probability that unfavorable daily
market variations for the Group’s trading activities of crude oil,
refined products and freight rate derivatives would result in a loss
of less than 11.4 M€ per day, defined as the “value at risk”,
based on positions as of December 31, 2006. As part of its gas
and electricity trading activities, 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 through physical delivery.
Based on positions as of December 31, 2006, there is a 97.5%
probability that unfavorable daily market variations would result in
a loss of less than 6.0 M€ euros per day.