Registration document 2007 - Total.com
Registration document 2007 - Total.com
Registration document 2007 - Total.com
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4<br />
Risks related to oil and gas exploration and<br />
production<br />
Oil and gas exploration and production require high levels of<br />
investment and are associated with particular risks and<br />
opportunities. These activities are subject to risks related<br />
specifically to the difficulties of exploring underground, to the<br />
characteristics of hydrocarbons, as well as relating to the<br />
physical characteristics of an oil and gas field. The first stage of<br />
exploration involves geologic risks. For example, exploratory wells<br />
may not result in the discovery of hydrocarbons, or in amounts<br />
that would be insufficient to allow for economic development.<br />
Even if an economic analysis of estimated hydrocarbon reserves<br />
justifies the development of a discovery, the reserves can prove<br />
lower than the estimates during the production process, thus<br />
adversely affecting the economic development.<br />
Almost all the exploration and production activities of TOTAL are<br />
ac<strong>com</strong>panied by a high level of risk of loss of the invested<br />
capital. It is impossible to guarantee that new resources of crude<br />
oil or of natural gas will be discovered in sufficient amounts to<br />
replace the reserves currently being developed, produced and<br />
sold to enable TOTAL to recover the capital it has invested.<br />
The development of oil and gas fields, the construction of<br />
facilities and the drilling of production or injection wells require<br />
advanced technology in order to extract and exploit fossil fuels<br />
with <strong>com</strong>plex properties over several decades. The deployment<br />
of this technology in such a difficult environment makes cost<br />
projections uncertain. TOTAL’s activities can be limited, delayed<br />
or cancelled as a result of numerous factors, such as<br />
administrative delays, particularly in terms of the host states’<br />
approval processes for development projects, shortages, late<br />
delivery of equipment, weather conditions (the production of four<br />
fields situated in the Gulf of Mexico were affected by hurricane<br />
damage, principally by Hurricane Ivan in September 2004 and, to<br />
a lesser degree, by Hurricane Katrina at the end of August 2005).<br />
Some of these risks may also affect TOTAL’s projects and<br />
facilities further down the oil and gas chain.<br />
86<br />
Risk Factors<br />
Other specific risks<br />
Other specific risks<br />
TOTAL – <strong>Registration</strong> Document 2006<br />
Risks related to economic or political factors<br />
The oil sector is subject to domestic regulations and the<br />
intervention of governments in such areas as:<br />
• the award of exploration and production interests;<br />
• authorizations by governments or by a state-controlled<br />
partner, especially for development projects, annual programs<br />
or the selection of contractors or suppliers;<br />
• the imposition of specific drilling obligations;<br />
• environmental protection controls;<br />
• control over the development and abandonment of a field<br />
causing restrictions on production;<br />
• calculating the costs that may be recovered from the relevant<br />
authority and what expenditures are deductible from taxes;<br />
and<br />
• possible, though exceptional, nationalization, expropriation or<br />
modification of contract rights.<br />
The oil industry is also subject to the payment of royalties and<br />
taxes, which may be high <strong>com</strong>pared with those imposed with<br />
respect to other <strong>com</strong>mercial activities and which may be subject<br />
to material modifications by the governments of certain countries.<br />
Substantial portions of TOTAL’s oil and gas reserves are located<br />
in certain countries which may be considered politically and<br />
economically unstable. These reserves and the related operations<br />
are subject to certain risks, including:<br />
• the establishment of production and export limits;<br />
• the renegotiation of contracts;<br />
• the expropriation or nationalization of assets;<br />
• risks relating to changes of local governments or resulting<br />
changes in business customs and practices;<br />
• payment delays;<br />
• currency exchange restrictions;<br />
• depreciation of assets due to the devaluation of local<br />
currencies or other measures taken by governments that<br />
might have a significant impact on the value of activities; and<br />
• losses and impairment of operations due to armed conflicts,<br />
civil unrest or the actions of terrorist groups.