Registration document 2007 - Total.com

4
Legal aspects of exploration and production
activities
TOTAL’s exploration and production activities are conducted in
many different countries and are therefore subject to an
extremely broad range of legislation and regulations. These cover
virtually all aspects of exploration and production activities,
including matters such as land tenure, production rates, royalties,
environmental protection, exports, taxes and foreign exchange.
The terms of the concessions, licenses, permits and contracts
governing the Group’s ownership of oil and gas interests vary
from country to country. These concessions, licenses, permits
and contracts are generally granted by or entered into with a
government entity or a state-owned company and are
sometimes entered into with private owners. These arrangements
usually take the form of concessions or production sharing
agreements.
The “oil concession agreement” remains the classic model for
agreements entered into with States: the oil company owns the
assets and the facilities and is entitled to the entire production. In
exchange, the operating risks, costs and investments are the oil
company’s responsibility and it agrees to remit to the State, as
owner of the subsoil resources, a production-based royalty,
income tax, and possibly other taxes that may apply under the
local tax legislation.
The “production sharing contract” (PSC) involves a more complex
legal framework than the concession agreement: it defines the
terms and conditions of production sharing and sets the rules
governing the cooperation between the company or consortium
in possession of the license and the host state, which is generally
represented by a state company. The latter can thus be involved
in operating decisions, cost accounting and production
allocation. The consortium agrees to undertake and finance all
exploration, development and production activities at its own risk.
In exchange, it is entitled to a portion of the production, known
as “cost oil”, the sale of which should cover all of these expenses
(investments and operating costs). The balance of production,
known as “profit oil”, is then shared in varying proportions with
the State or the state company.
In some instances, concession agreements and PSCs coexist,
sometimes in the same country. Even though other contractual
structures still exist, TOTAL’s license portfolio is comprised mainly
of concession agreements. In all countries, the authorities of the
host state, often assisted by international accounting firms,
perform joint venture and PSC cost audits and ensure the
observance of contractual obligations.
In some countries, TOTAL has also signed contracts called
“contracts for risk services” which are similar to productionsharing
contracts, with the main difference being that the
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Risk Factors
Legal risks
Legal risks
TOTAL – Registration Document 2006
repayment of expenses and the compensation for services are
established on a monetary basis. Current contracts for risk
services are backed by a compensation agreement (“buy-back”),
which allows TOTAL to receive part of the production equal to
the cash value of its expenses and compensation.
Hydrocarbon exploration activities and production activities are
subject to permits, which can be different for each of these
activities. These permits are granted for limited periods of time
and include an obligation to return a large portion – in case of
failure the entire portion – of the permit area at the end of the
exploration period.
In general, TOTAL is required to pay income tax on income
generated from its production and sale activities under its
concessions or licenses. In addition, depending on the country,
TOTAL’s production and sale activities may be subject to a range
of other taxes, fees and withholdings, including special petroleum
taxes and fees. The taxes imposed on oil and gas production
and sale activities may be substantially higher than those
imposed on other businesses.