Registration document 2007 - Total.com

4
Risks related to oil and gas exploration and
production
Oil and gas exploration and production require high levels of
investment and are associated with particular risks and
opportunities. These activities are subject to risks related
specifically to the difficulties of exploring underground, to the
characteristics of hydrocarbons, as well as relating to the
physical characteristics of an oil and gas field. The first stage of
exploration involves geologic risks. For example, exploratory wells
may not result in the discovery of hydrocarbons, or in amounts
that would be insufficient to allow for economic development.
Even if an economic analysis of estimated hydrocarbon reserves
justifies the development of a discovery, the reserves can prove
lower than the estimates during the production process, thus
adversely affecting the economic development.
Almost all the exploration and production activities of TOTAL are
accompanied by a high level of risk of loss of the invested
capital. It is impossible to guarantee that new resources of crude
oil or of natural gas will be discovered in sufficient amounts to
replace the reserves currently being developed, produced and
sold to enable TOTAL to recover the capital it has invested.
The development of oil and gas fields, the construction of
facilities and the drilling of production or injection wells require
advanced technology in order to extract and exploit fossil fuels
with complex properties over several decades. The deployment
of this technology in such a difficult environment makes cost
projections uncertain. TOTAL’s activities can be limited, delayed
or cancelled as a result of numerous factors, such as
administrative delays, particularly in terms of the host states’
approval processes for development projects, shortages, late
delivery of equipment, weather conditions (the production of four
fields situated in the Gulf of Mexico were affected by hurricane
damage, principally by Hurricane Ivan in September 2004 and, to
a lesser degree, by Hurricane Katrina at the end of August 2005).
Some of these risks may also affect TOTAL’s projects and
facilities further down the oil and gas chain.
86
Risk Factors
Other specific risks
Other specific risks
TOTAL – Registration Document 2006
Risks related to economic or political factors
The oil sector is subject to domestic regulations and the
intervention of governments in such areas as:
• the award of exploration and production interests;
• authorizations by governments or by a state-controlled
partner, especially for development projects, annual programs
or the selection of contractors or suppliers;
• the imposition of specific drilling obligations;
• environmental protection controls;
• control over the development and abandonment of a field
causing restrictions on production;
• calculating the costs that may be recovered from the relevant
authority and what expenditures are deductible from taxes;
and
• possible, though exceptional, nationalization, expropriation or
modification of contract rights.
The oil industry is also subject to the payment of royalties and
taxes, which may be high compared with those imposed with
respect to other commercial activities and which may be subject
to material modifications by the governments of certain countries.
Substantial portions of TOTAL’s oil and gas reserves are located
in certain countries which may be considered politically and
economically unstable. These reserves and the related operations
are subject to certain risks, including:
• the establishment of production and export limits;
• the renegotiation of contracts;
• the expropriation or nationalization of assets;
• risks relating to changes of local governments or resulting
changes in business customs and practices;
• payment delays;
• currency exchange restrictions;
• depreciation of assets due to the devaluation of local
currencies or other measures taken by governments that
might have a significant impact on the value of activities; and
• losses and impairment of operations due to armed conflicts,
civil unrest or the actions of terrorist groups.