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