Edgar Filing: TOTAL SA

TOTAL S.A.

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 20-F

(Mark One)


o		REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g)
		OF THE SECURITIES EXCHANGE ACT OF 1934
		OR
x		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
		OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended December 31, 2003
		OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
		OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to
		Commission file number: 1-10888

TOTAL S.A.

(Exact name of Registrant as specified in its charter)


N/A (Translation of registrant’s name into English)		Republic of France (Jurisdiction of incorporation organization)

TOTAL S.A.

2, place de la Coupole

La Défense 6

92400 Courbevoie

France

(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act.


Title of each class		Name of each exchange on which registered

Shares		New York Stock Exchange*
American Depositary Shares		New York Stock Exchange


*	Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

649,118,236 Shares, nominal value € 10 each, as of December 31, 2003

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o.

Indicate by check mark which financial statement item the registrant has elected to follow. Item 17 o Item 18 x

TABLE OF CONTENTS


		Page

CERTAIN TERMS			ii
ABBREVIATIONS			iv
CONVERSION TABLE			iv
PART I
Item 1.	Identity of Directors, Senior Management and Advisers		1
Item 2.	Offer Statistics and Expected Timetable		1
Item 3.	Key Information		1
	Selected Financial Data		1
	Exchange Rate Information		3
	Risk Factors		4
Item 4.	Information on the Company		8
	History and Development of the Company		8
	Business Overview		8
	Organizational Structure		53
	Property, Plants and Equipment		53
Item 5.	Operating and Financial Review and Prospects		53
Item 6.	Directors, Senior Management and Employees		66
	Directors and Senior Management		66
	Compensation		72
	Board Practices		73
	Employees		79
	Share Ownership		79
Item 7.	Major Shareholders and Related Party Transactions		82
	Major Shareholders		82
	Related Party Transactions		82
Item 8.	Financial Information		82
	Consolidated Statements and Other Supplemental Information		82
	Significant Changes		85
Item 9.	The Offer and Listing		86
	Markets		86
	Offer and Listing Details		86
Item 10.	Additional Information		88
	Memorandum and Articles of Association		88
	Material Contracts		99
	Exchange Controls		99
	Taxation		99
	Dividends and Paying Agents		104
	Documents On Display		104
Item 11.	Quantitative and Qualitative Disclosures About Market Risk		104
	Oil and Gas Market Related Risk		105
	Financial Markets Related Risks		106


		Page

Item 12.	Description of Securities Other than Equity Securities		110
PART II
Item 13.	Defaults, Dividend Arrearages and Delinquencies		110
Item 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds		110
Item 15.	Controls and Procedures		110
Item 16A.	Audit Committee Financial Expert		111
Item 16B.	Code of Ethics		111
Item 16C.	Principal Accountant Fees and Services		111
PART III
Item 17.	Financial Statements		112
Item 18.	Financial Statements		112
Item 19.	Exhibits		112
CHARTER AND BYLAWS
CODE OF ETHICS
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
CERTIFICATION OF CHIEF FINANCIAL OFFICER
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
CERTIFICATION OF CHIEF FINANCIAL OFFICER
CONSENT OF BARBIER FRINAULT & AUTRES
CONSENT OF KPMG S.A.

Basis of Presentation

In general, financial information included in this Annual Report is presented according to French GAAP and accordingly reflects the pooling of interest method for the acquisition of Elf Aquitaine beginning with fiscal year 2000, as well as for the acquisition of PetroFina in 1999 (Article 215 of Rule 99-02 of the French Accounting Rule Committee).

Statements Regarding Competitive Position

Statements made in “Item 4. Information on the Company” referring to TOTAL’s competitive position are based on the Company’s belief, and in some cases rely on a range of sources, including investment analysts’ reports, independent market studies and TOTAL’s internal assessments of market share based on publicly available information about the financial results and performance of market participants.

Additional Information

This Annual Report on Form 20-F reports information primarily regarding TOTAL’s business and operations and financial information relating to the fiscal year ended December 31, 2003. For more recent updates regarding TOTAL, you may read and copy any reports, statements or other information TOTAL files with the Securities and Exchange Commission. All of TOTAL’s Securities and Exchange Commission filings made after December 31, 2001 are available to the public at the Securities and Exchange Commission web site at http://www.sec.gov and from certain commercial document retrieval services. Our website at http://www.total.com includes information about our businesses and also includes recent press releases and other publications of TOTAL, including some of our filings with the Securities and Exchange Commission made prior to December 31, 2001. See also “Item 10. Additional Information — Documents on Display”.

CERTAIN TERMS

Unless the context indicates otherwise, the following terms have the meanings shown below:


“acreage”		The total area, expressed in acres, over which TOTAL has interests in exploration or production. “Net acreage” is TOTAL’s interest, expressed in acres, in the relevant exploration or production area.

“ADRs”		American Depositary Receipts evidencing ADSs.

“ADSs”		American Depositary Shares representing the Shares.

“barrels”		Barrels of crude oil, including condensate and natural gas liquids.


“Company”		TOTAL S.A. and its subsidiaries and affiliates. The terms Company and Group are used interchangeably.

“condensate”		Light hydrocarbon substances produced with natural gas which condense into liquid at normal temperatures and pressures associated with surface production equipment.

“crude oil”		Crude oil, including condensate and natural gas liquids.

“Group”		TOTAL S.A. and its subsidiaries and affiliates. The terms Company and Group are used interchangeably.

“LNG”		Liquefied natural gas.

“LPG”		Liquefied petroleum gas.

“proved reserves”		Proved oil and gas reserves are the estimated quantities of crude oil, natural gas and natural gas liquids that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, i.e., prices and costs as of the date the estimate is made. Prices include consideration of changes in existing prices provided only by contractual arrangements, but not of escalations based upon future conditions. The full definition of “proved reserves” which we are required to follow in presenting such information in our financial results and elsewhere in reports we file with the Securities and Exchange Commission is found in Rule 4-10 of Regulation S-X under the U.S. Securities Act of 1933, as amended.

“proved developed reserves”		Proved developed oil and gas reserves are reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Additional oil and gas expected to be obtained through the application of fluid injection or other improved recovery techniques for supplementing natural forces and mechanisms of primary recovery are included as “proved developed reserves” only after testing by a pilot project or after the operation of an installed program has confirmed through production response that increased recovery will be achieved. The full definition of “proved developed reserves” which we are required to follow in presenting such information in our financial results and elsewhere in reports we file with the Securities and Exchange Commission is found in Rule 4-10 of Regulation S-X under the U.S. Securities Act of 1933, as amended.

“proved undeveloped reserves”		Proved undeveloped oil and gas reserves are reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion, but does not include reserves attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual tests in the area and in the same reservoir. Reserves on undrilled acreage are limited to those drilling units offsetting productive units that are reasonably certain of production when drilled. Proved reserves for other undrilled units can be claimed only where it can be demonstrated with certainty that there is continuity of production from the existing productive formation. The full definition of “proved undeveloped reserves” which we are required to follow in presenting such information in our financial results and elsewhere

iii


	in reports we file with the Securities and Exchange Commission is found in Rule 4-10 of Regulation S-X under the U.S. Securities Act of 1933, as amended.


“TOTAL”		TOTAL S.A. and its subsidiaries and affiliates. We use such term interchangeably with “Company” and “Group”. When we refer to the parent holding company alone, we use the term “TOTAL S.A.”.

ABBREVIATIONS


b	barrel	k	thousand
cf	cubic feet	M	million
boe	barrel of oil equivalent	B	billion
t	metric ton	T	trillion
cm	cubic meter	W	watt
/y	per year	Wp	watt peak
		€	euro

CONVERSION TABLE


1 acre	= 0.405 hectares
1 b	= 42 U.S. gallons
1 boe	= 1 b of crude oil	= 5,458 cf of gas in 2001 5,483 cf of gas in 2002 and 5,460 cf of gas in 2003(1)
1 b/d of crude oil	= approximately 50 t/y of crude oil
1 cubic meter	= 35.3147 cf
1 kilometer	= approximately 0.62 miles
1 ton	= 1 t	= 1,000 kilograms (approximately 2,205 pounds)
1 ton of crude oil	= 1 t of crude oil	= approximately 7.5b of crude oil (assuming a specific gravity of 37 API)
1 t of LNG	= approximately 8.9 boe	= approximately 48 mcf of gas
1 Mt/y LNG		= approximately 133 Mcf/d


(1)	Natural gas is converted to barrels of oil equivalent using a ratio of cubic feet of natural gas per one barrel. This ratio is based on the actual average equivalent energy content of the Company’s natural gas reserves during the applicable periods, and is subject to change. The tabular conversion rate is applicable to the Company’s natural gas reserves on a group-wide basis.

Cautionary Statement Concerning Forward-Looking Statements

TOTAL has made certain forward-looking statements in this document and in the documents referred to in, or incorporated by reference into, this Annual Report. Such statements are subject to risks and uncertainties. These statements are based on the beliefs and assumptions of the management of TOTAL and on the information currently available to such management. Forward-looking statements include information concerning forecasts, projections, anticipated synergies, and other information concerning possible or assumed future results of TOTAL, and may be preceded by, followed by, or otherwise include the words “believes”, “expects”, “anticipates”, “intends”, “plans”, “targets”, “estimates” or similar expressions.

Forward-looking statements are not assurances of results or values. They involve risks, uncertainties and assumptions. TOTAL’s future results and stockholder value may differ materially from those expressed in these forward-looking statements. Many of the factors that will determine these results and values are beyond TOTAL’s ability to control or predict. Except for its ongoing obligations to disclose material information as required by

applicable securities laws, TOTAL does not have any intention or obligation to update forward-looking statements after the distribution of this document, even if new information, future events or other circumstances have made them incorrect or misleading.

You should understand that various factors, in addition to those discussed elsewhere in this document and in the documents referred to in, or incorporated by reference into, this document, could affect the future results of TOTAL and could cause results to differ materially from those expressed in such forward-looking statements, including:


	•	material adverse changes in general economic conditions or in the markets served by TOTAL, including changes in the prices of oil, natural gas, refined products, petrochemical products and other chemicals;

	•	changes in currency exchange rates;

	•	the success of the economic efficiency of oil and natural gas exploration, development and production programs, including without limitation, those that are not controlled and/or operated by TOTAL;

	•	uncertainties about estimates of changes in proven and potential reserves and the capabilities of production facilities;

	•	uncertainties about the ability to control unit costs in exploration, production, refining and marketing (including refining margins) and chemicals;

	•	changes in the current capital expenditure plans of TOTAL;

	•	the ability of TOTAL to realize anticipated cost savings, synergies and operating efficiencies;

	•	the financial resources of competitors;

	•	changes in laws and regulations, including environmental laws and industrial safety regulations;

	•	the quality of future opportunities that may be presented to or pursued by TOTAL;

	•	the ability to generate cash flows or obtain financing to fund growth and the cost of such financing;

	•	the ability to obtain regulatory approvals;

	•	the ability to respond to challenges in international markets, including political or economic conditions, including international armed conflict, and trade and regulatory matters;

	•	the ability to complete and integrate appropriate acquisitions, strategic alliances and joint ventures;

	•	changes in the political environment that adversely affect exploration, production licenses and contractual rights or impose minimum drilling obligations, price controls, nationalization or expropriation, and regulation of refining and marketing, chemicals and power generating activities;

	•	the possibility that other unpredictable events such as labor disputes or industrial accidents will adversely affect the business of TOTAL; and

	•	the risk that TOTAL will inadequately hedge the price of crude oil or finished products.

For additional factors, you should read the information set forth under “Item 3. Risk Factors”, “Item 4. Information on the Company — Other Matters”, and “Item 5. Operating and Financial Review and Prospects”.

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable

ITEM 3. KEY INFORMATION

SELECTED FINANCIAL DATA

The following table presents selected consolidated financial data for TOTAL for the five-year period ended December 31, 2003. The historical financial statements of TOTAL for this period, from which the financial data presented below for such period are derived, have been audited by Barbier Frinault & Autres (Ernst & Young Network) and KPMG S.A., independent public accountants and the Company’s auditors. All such data should be read in conjunction with the Consolidated Financial Statements and the related Notes thereto included elsewhere herein.

The presentation of financial information is made on the following basis: Pursuant to Article 215 of Rule 99-02 of the French Accounting Rule Committee, the 1999 Total/ PetroFina and the 2000 TotalFina/Elf Aquitaine combinations have been treated as a pooling of interests under French generally accepted accounting principles (“French GAAP”). Under generally accepted accounting principles applicable in the United States (“U.S. GAAP”), both combinations are treated as purchases.

In 2003, TOTAL adopted the Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations”, as mentioned in Note 1 paragraph L of the Notes to the Consolidation Financial Statements.

The Company acquired the remaining shares of PetroFina in the first quarter of 2002 leading to a decrease in minority interests in that quarter (PetroFina was 99.6% owned as of December 31, 2000 and 2001).

SELECTED CONSOLIDATED FINANCIAL DATA


		2003(1)		2003		2002		2001			2000			1999


		(in millions, except per share data)
INCOME STATEMENT DATA
Amounts in accordance with French GAAP
	Sales	$	131,862	€	104,652	€	102,540	€	105,318		€	114,557		€	42,178
	Operating income		16,090		12,770		10,126		12,777			14,213			2,804
	Net income		8,852		7,025		5,941		7,658			6,904			1,520
	Earnings per Share(2)		13.94		11.06		8.92		11.05			9.76			4.32
Amounts in accordance with U.S. GAAP(3)
	Sales(4)	$	107,837	€	85,585	€	84,883	€	105,318	(7)	€	114,557	(7)	€	37,030	(7)
	Net income(4)		7,690		6,103		6,264		5,271			5,638			2,201
	Basic earnings per Share		12.36		9.81		9.60		7.73			8.07			7.26
	Diluted earnings per Share		12.31		9.77		9.53		7.68			8.00			7.22
CASH FLOW STATEMENT DATA(5)
Amounts in accordance with French GAAP
	Cash flows provided by operating activities	$	15,734	€	12,487	€	11,006	€	12,303		€	13,389		€	3,395
	Investments(6)		9,737		7,728		8,657		10,566			8,339			4,950
Amounts in accordance with U.S. GAAP(3)
	Cash flows provided by operating activities	$	15,301	€	12,144	€	10,574	€	11,782		€	12,935		€	2,451
	Investments(6)		9,305		7,385		8,225		10,045			7,885			4,220
BALANCE SHEET DATA
Amounts in accordance with French GAAP (including Elf Aquitaine for 1999)
	Total assets	$	100,753	€	79,963	€	85,329	€	88,600		€	85,174		€	79,254
	Long-term debt		12,327		9,783		10,157		11,165			11,509			10,172
	Minority interest		837		664		724		898			755			1,481
	Shareholders’ equity		38,312		30,406		32,146		33,932			32,401			27,669
Amounts in accordance with U.S. GAAP(3)
	Total assets	$	151,390		120,151		124,873		128,596			129,234			92,980
	Long-term debt		13,713		10,883		9,533		10,860			11,509			5,888
	Minority interest		839		666		731		782			684			310
	Shareholders’ equity		83,824		66,527		69,096		71,260			73,355			67,944
DIVIDENDS
	Dividend per share	$	5.92	€	4.70		4.10		3.80			3.30			2.35


(1)	Translated solely for convenience into dollars at the Noon Buying Rate on December 31, 2003 of $1.26 per € 1.00.

(2)	Earnings per share were computed based on the fully-diluted weighted average number of shares of 635,126,885 in 2003, 666,067,982 in 2002, 693,180,285 in 2001, 707,121,871 in 2000 and 351,447,045 in 1999.

(3)	For information concerning the differences between French GAAP and U.S. GAAP, see Note 3 of the Notes to the Consolidated Financial Statements included elsewhere herein.


(4)	Results of operations of PetroFina have been included under the equity method from April 1, 1999 to June 30, 1999 and under full consolidation from July 1, 1999 onwards; results of operations of Elf Aquitaine have been included from January 1, 2000.

(5)	See Consolidated Statements of Cash Flow included in the Consolidated Financial Statements included elsewhere herein.

(6)	Consists of capital expenditures, exploration costs and subsidiaries acquired.

(7)	Sales under U.S. GAAP not restated for EITF 02-3 adjustments, see Note 3 paragraph J of the Notes to the Consolidated Financial Statements included elsewhere herein.

EXCHANGE RATE INFORMATION

For information regarding the effects of currency fluctuations on TOTAL’s results, see “Item 5. Operating and Financial Review and Prospects.”

Most currency amounts in this Annual Report on Form 20-F are expressed in euro (“euro” or “€”) or in U.S. dollars (“dollars” or “$”). For the convenience of the reader, this Annual Report on Form 20-F presents certain translations into dollars of certain euro amounts. Unless otherwise stated, the translation of euro to dollars has been made at the noon buying rate in New York City for cable transfers in euro as certified for customs purposes by The Federal Reserve Bank of New York (the “Noon Buying Rate”) for December 31, 2003, of $1.26 per € 1.00 (or € 0.79 per $1.00).

The following tables set out the average euro/ dollar exchange rate for 1999 through 2003, based on the Noon Buying Rate expressed in dollars per € 1.00. Such rates are not used by TOTAL in preparation of its Consolidated Financial Statements included elsewhere herein. No representation is made that the euro could have been converted into dollars at the rates shown or at any other rates for such periods or at such dates.

EURO/DOLLAR EXCHANGE RATES


Year	Average Rate(1)

1999	$	1.06
2000		0.92
2001		0.89
2002		0.95
2003		1.13


(1)	The average of the Noon Buying Rate expressed in dollars per euro on the last business day of each full month during the relevant year.

The table below shows the high and low euro/ dollar exchange rates for the previous six months based on the Noon Buying Rate expressed in dollars per euro.

EURO/DOLLAR EXCHANGE RATES


Period	High		Low

December 2003		1.26		1.20
January 2004		1.29		1.24
February 2004		1.28		1.24
March 2004		1.24		1.21
April 2004		1.24		1.18
May 2004		1.23		1.18

The Noon Buying Rate on June 3, 2004 for the dollar against the euro was $1.22 per € 1.00.

RISK FACTORS

The Group and its businesses are subject to various risks relating to changing competitive, economic, political, legal, social, industry, business and financial conditions. These conditions are described below and discussed in greater detail elsewhere, along with the Company’s approaches to managing certain of these risks, in this Annual Report, particularly under the heading “Item 4. Information on the Company — Business Overview — Other Matters” and under the heading “Item 11. Quantitative and Qualitative Disclosures about Market Risk”.

Industry and Company Risks

A substantial or extended decline in oil or natural gas prices would have a material adverse effect on our results of operations.

Prices for oil and natural gas historically have fluctuated widely due to many factors over which we have no control. These factors include:


	•	global and regional economic and political developments in resource-producing regions, particularly in the Middle East;

	•	global and regional supply and demand;

	•	the ability of the Organization of Petroleum Exporting Countries (OPEC) and other producing nations to influence global production levels and prices;

	•	prices of alternative fuels which affect our realized prices under our long-term gas sales contracts;

	•	governmental regulations and actions;

	•	global economic conditions;

	•	cost and availability of new technology; and

	•	weather conditions.

Substantial or extended declines in oil and natural gas prices will adversely affect our results of operations by reducing our profits. For the year 2004, we estimate that a decrease of $1 per barrel in the price of Brent crude would have the effect of reducing our annual net income by approximately 260 M€. Lower oil and natural gas prices over prolonged periods may also reduce the economic viability of projects planned or in development, causing us to cancel or postpone capital expansion projects, and may reduce liquidity, thereby potentially decreasing our ability to finance capital expenditures. If we are unable to follow through with capital expansion projects, our opportunities for future revenue and profitability growth would be reduced, which could materially impact our financial condition.

We face foreign exchange risks that could adversely affect our results of operations.

Our business faces foreign exchange risks because a large percentage of our revenues and cash receipts are denominated in U.S. dollars, the international currency of petroleum sales, while a significant portion of our operating expenses and income taxes accrue in euro and other currencies. Movements between the U.S. dollar and euro or other currencies may adversely affect our business by negatively impacting our booked revenues and income. For the year 2004, we estimate that a decrease in the euro-dollar exchange rate of $0.10 per € 1 would have, without the use of hedging techniques, a corresponding negative effect on our annual net income of approximately 540 M€.

Our long-term profitability depends on cost effective discovery and development of new reserves; if we are unsuccessful, our results of operations and financial condition will be materially and adversely affected.

A significant portion of our revenues and the majority of our operating income are derived from the sale of crude oil and natural gas which we extract from underground reserves discovered and developed as part of our Upstream business. In order for this business to continue to be profitable, we continuously need to replace

depleted reserves with new proved reserves. Furthermore, we need to accomplish such replacement in a manner that allows subsequent production to be economically viable. However, our ability to discover and develop new reserves successfully is uncertain and can be negatively affected by a number of factors, including:


	•	unexpected drilling conditions, including pressure or irregularities in geological formations;

	•	equipment failures or accidents;

	•	our inability to develop new technologies that permit access to previously inaccessible fields;

	•	adverse weather conditions;

	•	compliance with unanticipated governmental requirements;

	•	shortages or delays in the availability or delivery of appropriate equipment;

	•	industrial action; and

	•	problems with legal title.

Any of these factors could lead to cost overruns and impair our ability to make discoveries or complete a development project, or to make production economical. If we fail to discover and develop new reserves cost-effectively on a consistent basis, our results of operations, including profits, and our financial condition would be materially and adversely affected.

Our crude oil and natural gas reserve data are only estimates, and subsequent downward adjustments are possible. If actual production from such reserves is lower than current estimates indicate, our results of operations and financial condition will be negatively impacted.

Our proved reserves figures are estimates reflecting applicable reporting regulations. Proved reserves are estimated using geological and engineering data to determine with reasonable certainty whether the crude oil or natural gas in known reservoirs is recoverable under existing economic and operating conditions. This process involves making subjective judgments. Consequently, measures of reserves are not precise and are subject to revision. They may be negatively impacted by a variety of factors which could cause such estimates to be adjusted downward in the future, or cause our actual production to be lower than our currently reported proved reserves indicate. The factors which may cause our proved reserves estimates to be adjusted downward, or actual production to be lower than the amounts implied by our currently reported proved reserves, include:


	•	a decline in the price of oil or gas, making reserves no longer economically viable to exploit and therefore not classifiable as proved;

	•	changes in tax rules and other government regulations that make reserves no longer economically viable to exploit;

	•	the quality and quantity of our geological, technical and economic data, which may prove to be inaccurate;

	•	the actual production performance of our reservoirs; and

	•	engineering judgments.

Many of the factors, assumptions and variables involved in estimating reserves are beyond our control and may prove to be incorrect over time. Results of drilling, testing and production after the date of the estimates may require substantial downward revisions in our reserve data. Any downward adjustment would indicate lower future production amounts and may adversely affect our results of operations, including profits as well as our financial condition.

We have significant production and reserves located in politically, economically and socially unstable areas, where the likelihood of material disruption of our operations is relatively high.

A significant portion of our oil and gas production occurs in unstable regions around the world, most significantly Africa, but also the Middle East, South America and Asia. Approximately 28%, 17%, 8% and 9% of our 2003 production came from these four regions respectively. In recent years, a number of the countries in these regions have experienced varying degrees of one or more of the following: economic instability, political volatility, civil war, violent conflict and social unrest. In sub-Saharan Africa, each of the countries in which we have production has recently suffered at least four out of five of these conditions. The Middle East in general has recently suffered increased political volatility in connection with violent conflict and social unrest. A number of countries in South America where we have production and other facilities, including Argentina and Venezuela, have suffered from economic instability and social unrest and related problems. In the Far East, Indonesia has suffered the majority of these conditions. Any of these conditions alone or in combination could disrupt our operations in any of these regions, causing substantial declines in production. Furthermore, in addition to current production, we are also exploring for and developing new reserves in other regions of the world that are historically characterized by political, social and economic instability, such as the Caspian Sea region where we have a number of large projects currently underway. The occurrence and magnitude of incidents related to economic, social and political instability are unpredictable. It is possible that they could have a material adverse impact on our production and operations in the future.

We are subject to stringent environmental, health and safety laws in numerous jurisdictions around the world and may incur material costs to comply with these laws and regulations.

We incur, and expect to continue to incur, substantial capital and operating expenditures to comply with increasingly complex laws and regulations covering the protection of the natural environment and the promotion of worker health and safety, including:


	•	costs to prevent, control, eliminate or reduce certain types of air and water emissions,

	•	remedial measures related to environmental contamination or accidents at various sites, including those owned by third parties,

	•	compensation of persons claiming damages caused by our activities or accidents, and

	•	costs in connection with the dismantling of drilling platforms.

If our established financial reserves prove not to be adequate, environmental costs could have a material effect on our results of operations and our financial position. Furthermore, in the countries where we operate or expect to operate in the near future, new laws and regulations, the imposition of tougher license requirements, increasingly strict enforcement or new interpretations of existing laws and regulations or the discovery of previously unknown contamination may also cause us to incur material costs resulting from actions taken to comply with such laws and regulations, including:


	•	modifying operations,

	•	installing pollution control equipment,

	•	implementing additional safety measures, and

	•	performing site clean-ups.

As a further result of any new laws and regulations or other factors, we may also have to curtail or cease certain operations, which could diminish our productivity and materially and adversely impact our results of operations, including profits.

Our operations throughout the developing world are subject to intervention by various governments, which could have an adverse effect on our results of operations.

We have significant exploration and production, and in some cases refining, marketing or chemicals operations, in developing countries whose governmental and regulatory framework is subject to unexpected change and where the enforcement of contractual rights is uncertain. In addition, our exploration and production activity in such countries is often done in conjunction with state-owned entities, for example as part of a joint venture, where the state has a significant degree of control. Potential intervention by governments in such countries can take a wide variety of forms, including:


	•	the award or denial of exploration and production interests;

	•	the imposition of specific drilling obligations;

	•	price and/or production quota controls;

	•	nationalization or expropriation of our assets;

	•	cancellation of our license or contract rights;

	•	increases in taxes and royalties;

	•	the establishment of production and export limits;

	•	the renegotiation of contracts;

	•	payment delays; and

	•	currency exchange restrictions.

Imposition of any of these factors by a host government in a developing country where we have substantial operations, including exploration, could cause us to incur material costs or cause our production to decrease, potentially having a material adverse effect on our results of operations, including profits.

Our activities in Iran and Libya could lead to sanctions under relevant U.S. legislation.

In 2001, the U.S. legislation implementing sanctions against Iran and Libya, referred to as ILSA, was extended until August 2006. ILSA authorizes the President of the United States to impose sanctions (from a list that includes denial of financing by the U.S. export-import bank and limitations on the amount of loans or credits available from U.S. financial institutions) against persons found by the President to have knowingly made investments in Iran or Libya of $20 million or more in any twelve-month period. In May 1998 the U.S. government waived the application of sanctions for our investment in the South Pars gas field in Iran. This waiver, which has not been modified since it was granted, does not address our other activities in Iran and Libya, although we have not been notified of any related sanctions. At the end of 1996, the Council of the European Union adopted Council Regulation No. 2271/ 96 which prohibits us from complying with any requirement or prohibition based on or resulting directly or indirectly from certain enumerated legislation, including ILSA. It also prohibits us from extending our waiver for South Pars to other activities. In each of the years since the passage of ILSA, we have made investments in each of Libya and Iran (excluding South Pars) in excess of $20 million, sometimes substantially exceeding this figure. In 2003, our average daily production in Libya and Iran amounted to 92 kboe/ d, approximately 4% of our average daily worldwide production. In February 2004, we entered into a shareholders’ agreement with the National Iranian Oil Company and Petronas to create the Pars LNG joint venture. This project is still in its early stages and no major financial commitments are expected to be made in the near future. We expect to continue to invest amounts significantly in excess of $20 million per year in each of Libya and Iran in the foreseeable future. We cannot predict interpretations of or the implementation policy of the U.S. government under ILSA with respect to our current or future activities in Iran or Libya. It is possible that the United States may determine that these or other activities will constitute activity prohibited by ILSA and will subject us to sanctions. We do not believe that enforcement of ILSA, including the imposition on us of the maximum sanctions under the current law and regulations, would have a material negative effect on our

results of operations or financial condition. On April 23, 2004, the President of the United States terminated the application of ILSA with respect to Libya.

ITEM 4. INFORMATION ON THE COMPANY

HISTORY AND DEVELOPMENT OF THE COMPANY

TOTAL, a French société anonyme incorporated on March 28, 1924, together with its subsidiaries and affiliates, is the fourth largest publicly-traded integrated oil and gas company in the world, based on market capitalization, with operations in more than 130 countries. TOTAL engages in all aspects of the petroleum industry, including upstream operations (oil and gas exploration, development and production, LNG) and downstream operations (refining, marketing and the trading and shipping of crude oil and petroleum products). TOTAL also produces base chemicals and polymers, intermediates and performance polymers and specialty chemicals for industrial and consumer use. In addition, TOTAL has interests in coal mining and in the cogeneration and electricity sectors.

The Company began its upstream operations in the Middle East in 1924. Since that time, the Company has grown and expanded its operations worldwide. Most notably, in early 1999 the Company acquired control of PetroFina S.A. (“PetroFina” or “Fina”) and in early 2000, the Company acquired control of Elf Aquitaine S.A. (“Elf Aquitaine” or “Elf”). The Company currently owns 99.5% of Elf Aquitaine shares and, since early 2002, 100% of PetroFina shares. The Group, which operated under the name TotalFina from June 1999 to March 2000, and then under the name TotalFinaElf, now operates once again under the name TOTAL, as the Shareholders’ Meeting on May 6, 2003 approved the change of the Company’s legal name to TOTAL S.A.

The Company’s strategy is to develop its Upstream segment, including reinforcing its position as one of the leaders in the worldwide natural gas and LNG markets, to consolidate its position in the Downstream segment in Europe, while developing its interests in rapidly growing markets (such as the Mediterranean Basin, Africa and Asia), and to rationalize its Chemicals segment by giving priority to improving profitability and expanding its Base chemicals operations and by creating a new decentralized pole encompassing the chlorochemicals, intermediates and performance polymers businesses, destined to be a competitive and independent entity.

The Company’s principal address is 2, place de la Coupole, La Défense 6, 92400 Courbevoie, France; its telephone number is 33.1.47.44.45.46 and its website address is www.total.com.

The Company has appointed CT Corp, 111 Eighth Avenue, New York, NY 10011, as agent for service of process under its most recent registration statement filed with the U.S. Securities and Exchange Commission.

Basis of Presentation of Financial Information

BUSINESS OVERVIEW

TOTAL’s worldwide operations are conducted through three business segments:


	•	Upstream,

	•	Downstream, and

	•	Chemicals.

The Upstream segment includes exploration, development and production activities, as well as TOTAL’s coal and Gas & Power operations. The Downstream segment sells substantially all of the crude oil produced by TOTAL, purchases most of the crude oil required to supply TOTAL’s refineries, operates refineries and markets petroleum products worldwide through both retail and non-retail activities, and conducts TOTAL’s bulk crude oil and gas trading. The Chemicals segment includes the Base Chemicals & Polymers sector, which is linked to

TOTAL’s refining activities, the Intermediates & Performance Polymers sector, as well as the Specialties sector, which includes rubber processing, resins, adhesives and electroplating activities.

The table below gives information on the geographic breakdown of TOTAL’s activities and is taken from Note 5 of the Notes to the Consolidated Financial Statements included in this Annual Report.


									Far East
			Rest		North				and rest
	France		of Europe		America		Africa		of the world		Total


	(in millions of euro)
YEAR ENDED DECEMBER 31, 2003
Total sales (excluding sales to other segments)		20,739		36,682		13,968		4,352		28,911		104,652
Intangible assets and property, plant, and equipment, net		4,987		14,288		3,676		7,108		8,244		38,303
Total expenditures		1,160		1,645		580		2,012		2,331		7,728
YEAR ENDED DECEMBER 31, 2002
Total sales (excluding sales to other segments)		20,649		35,531		12,013		4,240		30,107		102,540
Intangible assets and property, plant, and equipment, net		4,815		16,317		4,447		7,416		8,349		41,344
Total expenditures		1,251		2,118		921		2,086		2,281		8,657
YEAR ENDED DECEMBER 31, 2001
Total sales (excluding sales to other segments)		22,053		36,520		8,885		4,276		33,584		105,318
Intangible assets and property, plant, and equipment, net		4,798		16,639		5,144		8,409		9,480		44,470
Total expenditures		1,415		2,524		1,178		2,094		3,355		10,566

UPSTREAM

Overview of Upstream Activities

TOTAL’s Upstream segment conducts all of the Company’s exploration and production, also known as “E&P”, activities. In 2003, this segment conducted exploration and production activities in 43 countries and produced hydrocarbons in 27 countries. (See “Presentation of Activities by Geographic Area” below.)

The Upstream segment also includes the Company’s Gas & Power activities and the management of the Company’s interests in LNG and LPG processing plants. With the Upstream segment’s Gas & Power business activities, the Group can conduct its natural gas activities along the entire value chain, both in the more traditional E&P field development and production activities and in newer businesses such as gas liquefaction, transportation, marketing and power generation.

The table below presents non-Group segment sales and operating income (adjusted for special items) for TOTAL’s Upstream segment for the last three years.

UPSTREAM SEGMENT FINANCIAL DATA(1)



	For the Year Ended December 31,

	2003		2002		2001


	(in millions of euro)
Total segment sales (excluding sales to other segments)		18,704		16,225		14,365
Operating income (adjusted for special items)		10,476		9,309		9,022


(1)	See Notes 4 and 5 of the Notes to the Consolidated Financial Statements included in this Annual Report for more detailed information on the Upstream segment and a geographical breakdown of sales, together with a breakdown of special items.

Exploration and Development

TOTAL evaluates exploration opportunities based on a variety of geological, technical, political and economic factors (including taxes and concession terms), as well as on projected oil and gas prices. Discoveries and extensions of existing discoveries accounted for approximately 56% of the 3,090 Mboe added to the Upstream segment’s proved reserves during the three-year period ended December 31, 2003 (before deducting production and acquisitions/ sales of reserves in place during this period).

TOTAL continued to follow an active exploration program in 2003, with exploration expenditures amounting to 606 M€. The principal exploration expenditures were made in Nigeria, Kazakhstan, the United States, Libya, Angola, the United Kingdom, the Netherlands, Norway, Bolivia, Algeria, Congo, Brunei, Brazil and Venezuela.

The Upstream segment’s development expenditures amounted to 3.8 B€ in 2003. The principal development projects for 2003 were carried out in Norway, Angola, Nigeria, Indonesia, the United States, Iran, the United Kingdom, Gabon, Azerbaijan, Qatar, Congo and Venezuela.

Reserves

The definitions used for proved, proved developed and proved undeveloped oil and gas reserves are in accordance with the applicable U.S. Securities and Exchange Commission regulation, Rule 4-10 of Regulation S-X. Proved reserves are estimated using geological and engineering data to determine with reasonable certainty whether the crude oil or natural gas in known reservoirs is recoverable under existing economic and operating conditions. This process involves making subjective judgments. Consequently, measures of reserves are not precise and are subject to revision. TOTAL’s oil and gas reserves are reviewed annually to take into account, among other things, production levels, field reassessments, the addition of new reserves from discoveries and acquisitions, dispositions of reserves and other economic factors. Unless otherwise indicated, references to TOTAL’s proved reserves, proved developed reserves, proved undeveloped reserves and production reflect the entire Group’s consolidated net share of such reserves or production. TOTAL’s worldwide proved reserves include the proved reserves of its consolidated subsidiaries as well as its proportionate share of the proved reserves of equity affiliates and of two companies (Oman LNG and Abu Dhabi Liquefication Company) accounted for by the cost method. For further information concerning changes in TOTAL’s proved reserves as of December 31, 2003, 2002, and 2001, see “Supplemental Oil and Gas Information (Unaudited) — Estimated proved reserves of crude oil and natural gas” included elsewhere herein.

As of December 31, 2003, TOTAL’s combined proved reserves of crude oil and natural gas were 11,401 Mboe (of which 52% were proved developed reserves and 48% proved undeveloped reserves) compared to 11,203 Mboe of combined proved reserves as of December 31, 2002. Liquids represented approximately 64% of these reserves and natural gas the remaining 36%. These reserves are located principally in Europe (Norway, United Kingdom, the Netherlands, France, and Italy), Africa (Nigeria, Angola, Algeria, Congo, Gabon, Libya, and Cameroon), Asia (Indonesia, Thailand, Myanmar and Brunei), North America (United States and Canada), the Middle East (United Arab Emirates, Oman, Iran, Qatar, Syria, and Yemen), South America (Venezuela, Argentina, Bolivia, Colombia, Trinidad and Tobago) and CIS (Kazakhstan, Azerbaijan and Russia).

The table below sets forth the amount of TOTAL’s worldwide proved reserves as of the dates indicated (including both developed and undeveloped reserves).

TOTAL’S PROVED RESERVES(1)


	Liquids			Natural Gas			Combined
	(Mb)			(Bcf)			(Mboe)

December 31, 2001		6,961			21,929			10,978
Percent change from December 31, 2000		0	%		5.9	%		2.0	%
December 31, 2002		7,231			21,575			11,203
Percent change from December 31, 2001		3.9	%		-1.6	%		2.0	%
December 31, 2003		7,323			22,267			11,401
Percent change from December 31, 2002		1.3	%		3.2	%		1.8	%


(1)	Includes TOTAL’s proportionate share of the proved reserves of equity affiliates and of two companies (Oman LNG and Abu Dhabi Liquefaction Company) accounted for by the cost method. See “Supplemental Oil and Gas Information (Unaudited)” included elsewhere herein.

Production

The Upstream segment’s average daily production of liquids and natural gas was 2,539 kboe/d in 2003, up 5.1% from 2,416 kboe/d in 2002. Liquids accounted for approximately 65% and natural gas accounted for approximately 35% of the segment’s combined liquids and natural gas production in 2003 on an oil equivalent basis.

The table below sets forth by geographic area the Upstream segment’s average daily production of crude oil and natural gas for each of the last three years.

PRODUCTION BY GEOGRAPHIC AREA



		2003						2002						2001

		Liquids		Natural Gas		Total		Liquids		Natural Gas		Total		Liquids		Natural Gas		Total
Consolidated subsidiaries		(kb/d)		(Mcf/d)		kboe/d		(kb/d)		(Mcf/d)		kboe/d		(kb/d)		(Mcf/d)		kboe/d

Europe			460		2,286		880		464		2,230		873		417		1,852		759
	France		10		153		38		11		176		43		11		181		43
	Italy		—		—		—		1		—		1		1		3		1
	Netherlands		1		324		58		1		351		62		1		402		71
	Norway		276		703		405		280		651		400		257		508		352
	United Kingdom		173		1,106		379		171		1,052		367		147		758		292

Africa			612		404		689		589		374		661		540		369		611

	Algeria		48		194		85		52		205		92		49		208		89
	Angola		156		—		156		158		—		158		96		—		96
	Cameroon		14		—		14		15		—		15		16		—		16
	Congo		91		—		91		103		—		103		110		—		110
	Gabon		104		9		105		100		8		101		105		8		106
	Libya		42		—		42		36		—		36		20		—		20
	Nigeria		157		201		196		125		161		156		144		153		174

North America			4		294		59		5		214		45		7		221		49

	United States		4		294		59		5		214		45		7		221		49

Asia			25		1,156		232		23		1,122		220		24		1,114		219

	Brunei		2		61		14		1		52		11		1		51		10
	Indonesia		18		791		168		17		731		154		18		739		155
	Myanmar		—		132		16		—		150		18		—		129		16
	Thailand		5		172		34		5		189		37		5		195		38



		2003						2002						2001

		Liquids		Natural Gas		Total		Liquids		Natural Gas		Total		Liquids		Natural Gas		Total
Consolidated subsidiaries		(kb/d)		(Mcf/d)		kboe/d		(kb/d)		(Mcf/d)		kboe/d		(kb/d)		(Mcf/d)		kboe/d

Middle East			140		37		146		152		62		163		100		—		100

	Iran		50		—		50		38		—		38		22		—		22
	Qatar		29		1		29		34		4		35		17		—		17
	Syria		34		36		40		54		58		64		32		—		32
	U.A.E.		19		—		19		18		—		18		19		—		19
	Yemen		8		—		8		8		—		8		10		—		10

South America			130		363		196		116		297		170		102		283		153

	Argentina		12		284		64		14		249		59		15		243		59
	Bolivia		2		51		11		—		24		5		—		15		3
	Colombia		32		28		37		39		24		43		54		25		58
	Venezuela		84		—		84		63		—		63		33		—		33

Others			8		—		8		5		—		5		6		—		6

	Russia		8		—		8		5		—		5		6		—		6

Total consolidated production			1,379		4,540		2,210		1,354		4,299		2,137		1,196		3,839		1,897

Equity and non-consolidated affiliates
	Africa		34		—		34		10		—		10		9		—		9
	Middle East		248		246		295		225		233		269		249		222		291
	Rest of the world		—		—		—		—		—		—		—		—		—

Total equity and non-consolidated affiliates			282		246		329		235		233		279		258		222		300

Worldwide production			1,661		4,786		2,539		1,589		4,532		2,416		1,454		4,061		2,197

Consistent with industry practice, TOTAL often holds a percentage interest in its acreage rather than a 100% stake, with the balance being held by joint venture partners (which may include other oil companies, state oil companies or government entities). TOTAL frequently acts as operator (the party responsible for technical operation of production) on acreage in which it holds an interest. See “Presentation of Activities by Geographic Area” below for descriptions of the principal producing fields of the Upstream segment.

Substantially all of the crude oil production of the Upstream segment is sold to the Downstream segment which in turn uses a portion in downstream operations and markets a portion of the production to customers throughout the world. See “Downstream — Trading and Supply”.

The majority of TOTAL’s natural gas production is sold under long-term contracts. However, its North American production is sold on a spot basis as is part of its United Kingdom, Norwegian and Argentine production. The long-term contracts under which TOTAL sells its natural gas and LNG production usually provide for a price related to, among other factors, average crude oil and other petroleum product prices as well as, in some cases, a cost of living index. Although the price of natural gas and LNG tends to fluctuate in line with crude oil prices, there is a delay before changes in crude oil prices are reflected in long-term natural gas prices. Because of the relation of the contract price of natural gas and crude oil prices, contract prices are not generally affected by short-term market fluctuations in the spot price of natural gas. See “Supplemental Oil and Gas Information (Unaudited)” included elsewhere herein.

Presentation of Production Activities by Geographic Area

The table below sets forth by geographic area TOTAL’s principal producing fields, the year in which TOTAL’s activities commenced, the type of production and whether TOTAL is operator of the field.

MAIN PRODUCING FIELDS AT DECEMBER 31, 2003

Main

Main Group-operated

non-Group-operated

Year of entry

producing fields

Liquids (L)

into the country

(Group share %)(1)

(Group share %)

or Gas (G)

Europe

France

1939

Lacq (100.00%)

L, G

Netherlands

1964

F15a (32.47%)

J3a (30.00%)

K1a (40.10%)

K4a (50.00%)

K4b/K5a (26.06%)

K5b (25.00%)

K6/L7 (56.16%)

L4a (55.66%)

Leeuwarden (92.78%)

Zuidwal (42.21%)

Markham unitized field (14.75%)

Norway

1965

Frigg (37.79%)

Aasgard (7.65%)

L, G

Ekofisk (39.90%)

L, G

Eldfisk (39.90%)

L, G

Embla (39.90%)

L, G

Glitne (21.80%)

Heimdal (26.33%)

Hod (25.00%)

Huldra (24.33%)

L, G

Oseberg (10.00%)

L, G

Sleipner East (10.00%)

L, G

Sleipner West (9.41%)

L, G

Snorre (5.95%)

Statfjord East (2.80%)

Sygna (2.52%)

Tor (48.20%)

L, G

Tordis (5.60%)

Troll (3.69%)

L, G

Tune (20.00%)

Vale (24.24%)

L, G

Valhall (15.72%)

Vigdis (5.60%)

Visund (7.65%)

L, G

United Kingdom

1962

Alwyn North, Dunbar, Ellon, Grant, Nuggets (100.00%)

L, G

Elgin-Franklin

L, G

(EFOG 46.17%)(2)

Frigg (39.18%)

Main

Main Group-operated

non-Group-operated

Year of entry

producing fields

Liquids (L)

into the country

(Group share %)(1)

(Group share %)

or Gas (G)

Otter (54.30%)

Alba (12.65%)

Armada (12.53%)

Bruce (43.25%)

L, G

Caledonia (12.65%)

ETAP (Mungo,

L, G

Monan) (12.43%)

Keith (25.00%)

L, G

Markham unitized field (7.35%)

Nelson (11.53%)

SW Seymour (25.00%)

Africa

Algeria

1952

Hamra (100%)

Ourhoud (18.00%)(3)

RKF (45.28%)(3)

Tin Fouye

L, G

Tabankort (35.00%)

Angola

1953

Blocks 3-80 (37.50%), 3-85 and 3-91 (50.00%)

Girassol, Jasmim (Block 17) (40.00%)

Block 2-85 (27.50%)

Cabinda (Block 0) (10.00%)

Kuito (Block 14) (20.00%)

Cameroon

1951

Ekoundou (25.50%)

Kombo (25.50%)

Mokoko (10.00%)

Congo

1928

Nkossa (51.00%)

Sendji (55.25%)

Tchendo (65.00%)

Tchibeli (65.00%)

Tchibouela (65.00%)

Yanga (55.25%)

Loango (50.00%)

Zatchi (35.00%)

Gabon

1928

Anguille, Torpille (100.00%)

Atora (40.00%)

Avocette, Coucal (57.50%)

Baudroie Marine (50.00%)

Gonelle (100.00%)

Hylia, Vanneau (75.00%)

Rabi (47.50%)

Main

Main Group-operated

non-Group-operated

Year of entry

producing fields

Liquids (L)

into the country

(Group share %)(1)

(Group share %)

or Gas (G)

Libya

1959

Al Jurf (37.50%)

Mabruk (75.00%)

El Sharara (7.50%)

Nigeria

1962

OML 57 (40.00%)

OML 58 (40.00%)

L, G

OML 99 (Amenam- Kpono 30.40%)

OML 100 (40.00%)

OML 102 (40.00%)

Shell Petroleum Development Company fields (SPDC 10.00%)

L, G

North America

United States

1964

Aconcagua (50.00%)

Bethany (94.86%)

Blue (75.00%)

Maben (54.07%)

MacAllen-Pharr (93.90%)

Matterhorn (100.00%)

L, G

Slick Ranch (91.37%)

Virgo (64.00%)

Camden Hills (16.67%)

MacAllen-Ranch (20.02%)

Canada

2000

Surmont (43.50%)

Asia

Brunei

1987

Maharaja Lela Jamalulalam (37.50%)

L, G

Indonesia

1968

Bekapai (50.00%)

L, G

Handil (50.00%)

L, G

Peciko (50.00%)

L, G

Tambora/Tunu (50.00%)

L, G

Nilam (9.29%)

Nilam (10.58%)

Myanmar

1992

Yadana (31.24%)

Thailand

1990

Bongkot (33.33%)

L, G

Main

Main Group-operated

non-Group-operated

Year of entry

producing fields

Liquids (L)

into the country

(Group share %)(1)

(Group share %)

or Gas (G)

Middle East

Abu Dhabi

1939

Abu Al BuKhoosh (75.00%)

Abu Dhabi offshore (13.33%)(4)

Abu Dhabi onshore (9.50%)(5)

Dubai

1954

Dubai offshore (27.50%)(6)

Iran

1954

Dorood (55.00%)(7)

South Pars 2 & 3 (40.00%)(8)

L, G

Balal (46.75%)(9)

Sirri A & E (60.00%)(10)

Oman

1937

Various fields onshore (4.00%)(11)

Qatar

1938

Al Khalij (100.00%)

North Field (20.00%)

L, G

Syria

1988

Jafra/ Qahar (50.00%)

Deir Ez Zor (50.00%)

L, G

Yemen

1987

Kharir/Atuf (28.57%)

Jannah permit (Block 5) (15.00%)

South America

Argentina

1978

Aguada Pichana (27.27%)

L, G

Argo (37.50%)

Canadon Alfa (37.50%)

L, G

Hidra (37.50%)

San Roque (24.71%)

L, G

Bolivia

1995

San Alberto (15.00%)

L, G

San Antonio (15.00%)

L, G

Colombia

1973

Cupiagua (19.00%)

Cusiana (19.00%)

L, G

Venezuela

1981

Jusepin (55.00%)

Zuata (Sincor) (47.00%)

Others

Russia

1989

Kharyaga (50.00%)


(1)	The Group’s financial interest in the local entity is approximately 100% in all cases except TOTAL Gabon (57.9%), TOTAL E&P Cameroun (75.8%), Abu Dhabi and Oman (see notes 2 through 11 below).

(2)	TOTAL has a 35.8% indirect interest in Elgin Franklin via its participation in EFOG.

(3)	TOTAL has a 18% indirect interest in the Ourhoud field and a 45.3% indirect interest in the RKF field via its participation in CEPSA (equity affiliate).

(4)	Via ADMA (equity affiliate), TOTAL has a 13.3% interest and participates in the operating company, Abu Dhabi Marine Operating Company.

(5)	Via ADPC (equity affiliate), TOTAL has a 9.5% interest and participates in the operating company, Abu Dhabi Company for Onshore Oil Operation.

(6)	TOTAL has a 25% indirect interest via Dubai Marine Areas (equity affiliate) plus a 2.5% direct interest via Total E&P Dubai.

(7)	TOTAL is the operator of the development of Dorood field with a 55.0% interest in the foreign consortium.


(8)	TOTAL is the operator for phases 2 & 3 of the South Pars field. The Group has a 40.0% interest in the foreign consortium.

(9)	TOTAL has transferred operatorship to NIOC (National Iranian Oil Company) for the Balal field. The Group has a 46.8% interest in the foreign consortium.

(10)	TOTAL has transferred operatorship to NIOC for the Sirri A & E fields. The Group has a 60.0% interest in the foreign consortium.

(11)	Via POHOL (equity affiliate), TOTAL has a 4.0% interest in the operator, Petroleum Development Oman LLC. TOTAL also has a 5.5% interest in the Oman LNG facility.

Principal Activities

Europe

TOTAL’s average production in Europe was 880 kboe/d in 2003, up 1% from 873 kboe/d in 2002, representing 35% of its 2003 production.

France

TOTAL’s principal gas fields in France, located in the Southwest and in particular at Lacq-Meillon (TOTAL-operated 100%), and several smaller gas and oil fields in the same region and in the Paris basin produced an average of 38 kboe/d in 2003, compared to 43 kboe/d in 2002. The “Lacq 2005” project which aims to reinforce industrial safety standards and optimize TOTAL’s existing exploitation processes at the Lacq-Meillon field regarding gas treatment was approved and is being implemented.

Italy

The development plan for the Tempa Rossa field in the Gorgoglione concession (TOTAL-operated 50%) has been finalized and submitted to the regional authorities for their final approval.

The Netherlands

TOTAL is the second-largest gas operator in the Netherlands with average operated production of 117 kboe/d and an average Group share of 58 kboe/d in 2003. Several development wells were drilled in 2003: K4BE3, F15A5, K6DN4 side track and K5D1 side track to improve their performances. The K5PK compression project was completed in September 2003. The first phase of the revamping activities on the platforms of the L7 area of production, replacing corroded items with new technology equipment, has been completed.

Norway

In Norway, the country with the largest contribution to the Group’s oil and gas production, production increased by 1% in 2003 compared with 2002, reaching an average of 405 kboe/d, of which 176 kboe/d originated from the Ekofisk area (TOTAL 39.9%). The extension to the Vigdis field in the Tampen Area (TOTAL 5.6%) started production in October 2003.

The plan to dismantle activities at the Frigg field (TOTAL-operated 77%) went successfully through the validation process under the OSPAR convention (The Convention for the Protection of the Marine Environment of the Northeast Atlantic signed by 14 countries) and has been approved by the Norwegian and British authorities.

The development project for the Skirne gas and condensate field (TOTAL-operated 40%) has been finalized and production started in early March 2004. The development of the Alpha North gas and condensate field in the Sleipner Area (TOTAL 9.4%), and the development of the Visund gas field (TOTAL 7.7%), both approved in 2002, as well as the development of the J structure at Oseberg South (TOTAL 10%), approved in 2003, are ongoing. Production at the Alpha North field and the J structure is planned to begin in 2004, while production at the Visund field is planned to begin in 2005.

The major onshore and offshore development and construction contracts for the Snøhvit natural gas and LNG project (TOTAL 18.4%) have been awarded. Construction on the LNG facilities is progressing and construction of the offshore installations is scheduled to begin in 2004.

The Norwegian authorities approved the Ekofisk Area Growth project (TOTAL 39.9%) in June 2003 and the Oseberg West Flank oil development (TOTAL 10%) in December 2003. Production for both of these projects is scheduled to start in 2005.

United Kingdom

TOTAL’s average production from the UK North Sea amounted to 379 kboe/d in 2003, a 3% increase when compared to 2002. The West Franklin exploration well (TOTAL-operated 46.2%), drilled from the Franklin platform, encountered gas-condensate in Jurassic reservoirs. The well was tested at 1.0 Mm3/d of gas and 2 kb/d of condensate. The Affleck appraisal well, drilled on block 30/19a (TOTAL 17.5%), confirmed the accumulation of oil. The evaluation of reserves is in progress. The SW Seymour exploration well (TOTAL 25.0%) was tied-in to the Armada platform and put into production in March 2003, less than five months after the discovery, and has produced an average of 7 kboe/d in 2003. The N4 field, the last of the four structures of the Nuggets complex to be developed in the Alwyn area, was put into production in October 2003 at a rate of 1.6 Mm3/d. The Elgin-Franklin high-pressure/high-temperature field (TOTAL-operated 46.2%) produced an average of 225 kboe/d in 2003.

Africa

TOTAL’s average production in Africa (including its share through equity affiliates) was 723 kboe/d in 2003, up 8% from 671 kboe/d in 2002, representing 28% of its total production in 2003. TOTAL has major exploration and production activities in North Africa and West Africa, primarily in the countries bordering on the Gulf of Guinea.

Algeria

TOTAL’s average production was 115 kboe/d in 2003, compared to 98 kboe/d in 2002, obtained from the Hamra and Tin Fouye Tabankort fields and from its 45.3% interest in its equity affiliate Cepsa, which is involved in the RKF and Ourhoud fields. The Ourhoud field (Cepsa 39.8%) reached its production plateau at a rate of 230 kb/d in 2003. Also, in 2003 TOTAL obtained the exploration rights for the Béchar block under the fourth round of permit awards, subject to ratification by the Algerian authorities. In December 2003, the first exploration well was started under the Rhourde El Sid permit in the Birkine basin. Exploration activities have continued in 2003 in the Timimoun Basin awarded to TOTAL in 2002.

Angola

TOTAL’s average production stabilized at 160 kboe/d in 2003, compared to 162 kboe/d in 2002 (including its share of equity affiliates), coming primarily from Block 17 (TOTAL-operated 40%), Block 0 (TOTAL 10%) and Block 3 (TOTAL-operated, with an interest of 37.5% in block 3/80 and of 50% in blocks 3/85-3/91).

The performance of the Girassol field and the start-up of production for the Jasmim field in early November 2003 led to an increase in the production rate to an average of 230 kb/d from the date of the Jasmim start-up reaching an average rate of 215 kb/d in 2003, compared to 193 kb/d in 2002. The Dalia development project, which relies on a development scheme similar to that for the Girassol field, was approved by the local authorities in April 2003, with production estimated to be 225 kb/d and expected to begin in the second half of 2006. In 2003, discoveries were made at the Hortensia and Acacia fields, bringing the total number of discoveries made on Block 17 to fifteen.

On Block 14 (TOTAL 20%), the start-up of phase 2A of the Kuito field increased the production level to 80 kb/d. The Benguela-Belize-Lobito-Tomboco project was approved by local authorities in March 2003. A discovery was made on the Negage-1 well in September 2003.

In Ultra Deep Offshore, the discoveries at the Canela-1 and Gindungo wells on Block 32 (TOTAL-operated 30%) and the Saturno-1 and Marte-1 wells on Block 31 (TOTAL 5%) confirmed the potential for exploration in these areas.

The Group has also worked with its partners on the Angola LNG project (TOTAL 13.6%) which aims to valorize gas resources in Angola through liquefaction facilities.

Cameroon

TOTAL’s average production in 2003 was 14 kboe/d compared to 15 kboe/d in 2002. TOTAL E & P Cameroun, a subsidiary which is 75.8% owned by the Group, 20% owned by the National Oil Company (SNH, or Société Nationale des Hydrocarbures) and 4.2% owned by minority shareholders, operates 65% of the overall production of the country and owns interests in the majority of the concessions of exploitation granted by the Republic of Cameroon.

Congo

TOTAL produced an average of 91 kboe/d in 2003, compared to 103 kboe/d in 2002, and owns interests ranging from 25.5% to 100% in exploration and production licenses located offshore, including the Nkossa field (TOTAL-operated 51%) and the Tchibouela field (TOTAL 65%), which are its main producers. Within the framework of an agreement signed in 2003 with the Republic of Congo, TOTAL has assigned its 65% interest in the Likouala concession. The MTPS (Mer Très Profonde Sud) exploration permit, which was initially to end in 2001, has been extended once again for an additional year up to the end of 2004. TOTAL (through its affiliates TOTAL E&P Congo and TOTAL E&P Angola) has a 35.5% interest in a joint development area (ZIC), which encompasses the southern portion of the former Haute Mer permit (Congo) and the northern portion of Block 14 (Angola). In 2003, TOTAL was awarded the Haute Mer C exploration permit (TOTAL-operated 100%). The related production sharing contract is in the process of final approval.

Gabon

TOTAL’s average production in 2003 was 105 kboe/d, an increase of 4% compared to 2002. TOTAL Gabon (which was formerly named Elf Gabon) operates about 30 concessions and exploration and production licenses. TOTAL’s major producing fields are the Rabi-Kounga (TOTAL 47.5%), Atora (TOTAL-operated 40%), Baudroie (TOTAL-operated 50%), Avocette (TOTAL-operated 57.5%), Anguille (TOTAL-operated 100%) and Torpille (TOTAL-operated 100%) fields. TOTAL Gabon’s shares, which are listed on Euronext Paris, are held by TOTAL (58%), the Republic of Gabon (25%) and the public (17%). In 2003, TOTAL Gabon signed a production sharing contract which extended the Rabi-Kounga field license until 2013 with the possibility of extensions for two additional five-year periods at the option of TOTAL.

Libya

TOTAL’s average production in 2003 was 42 kboe/d, compared to 36 kboe/d in 2002, coming mainly from the Mabruk (TOTAL-operated 75%) and the El Sharara onshore fields (TOTAL 7.5%) and the Al Jurf offshore field (Block NC 137, TOTAL-operated 37.5%), which started production in September 2003. The development of structure B on Block C 137 continued and is expected to have a production plateau of 40 kboe/d. Exploration in the Murzuk basin (Block NC 191, TOTAL-operated 100%) continued in 2003 and two wells are expected to be drilled in 2004. The A structure of El Sharara (Block NC 186, TOTAL 24.0%) began production in November 2003, with average production of 8 kb/d.

Morocco

In 2003, TOTAL continued its seismic studies in the Dakhla offshore zone.

Mauritania

In 2003, TOTAL signed a preliminary survey contract for two blocks in the Taoudeni basin.

Nigeria

TOTAL’s average production was 196 kboe/d in 2003, compared to 156 kboe/d in 2002. The fields operated by TOTAL, which include those operated in association with the Nigerian National Petroleum Corporation (NNPC 60%, TOTAL 40%) and the Amenam offshore field (TOTAL 30.4%), accounted for approximately 40% of TOTAL’s Nigerian production in 2003. The Amenam offshore field started production in July 2003 and should reach its production plateau of 125 kb/d in 2004. The remainder of TOTAL’s production is obtained from various concessions operated by the SPDC joint-venture (TOTAL 10% interest).

TOTAL has made a significant extension of the Usan field discovery in the deepwater Oil Prospecting License 222 (TOTAL-operated 20%) offshore southeastern Nigeria. Two zones were tested by the Usan-4 well which has confirmed the presence of commercial quantities of oil, as well as potential quantities in previously untested reservoirs. TOTAL is also a partner (12.5%) under a production sharing agreement in the deep offshore OML 118 permit on which the Bonga field is currently being developed and is expected to enter into production in 2005.

TOTAL owns a 15% interest in Nigeria LNG Company, a LNG plant with a capacity of 9 Mt/y produced by three liquefaction trains (trains are facilities for compressing, liquefying, storing and off-loading natural gas). Gross production was 8.9 Mt of LNG and 3.7 Mb of condensates in 2003. The construction of the fourth and fifth LNG trains has started and these trains are scheduled to be operational in 2005.

North America

TOTAL’s average production in North America was 59 kboe/d in 2003, up slightly from 45 kbep/d in 2002, representing 2% of its total 2003 production.

Canada

Since 1999, TOTAL has participated in a pilot plant for the Surmont permit (TOTAL 43.5%) in Athabasca, Alberta to test Steam Assisted Gravity Drainage technology to produce bitumen in tar sands. In December 2003, all the partners approved the first development phase, with production scheduled to begin in 2006 with the objective of obtaining a gross production plateau of 27 kboe/d.

United States

TOTAL’s average production in the United States was 59 kboe/d in 2003, compared to 45 kboe/d in 2002. Since September 2002, the Canyon Express system has delivered gas from the Aconcagua (TOTAL-operated 50%), Camden Hills (TOTAL 16.6%) and King’s Peak fields. The Matterhorn field (TOTAL-operated 100%) in deep-water Gulf of Mexico, whose development was launched in 2001, started production in November 2003, with a capacity of 40 kboe/d from a tension platform in 850 meters of water. In 2003, TOTAL finalized its exploration plan for the 20 blocks acquired in the NPRA (National Petroleum Reserve of Alaska) in 2001. Also during 2003, TOTAL acquired 21 new deep offshore blocks in the Gulf of Mexico, bringing its total number of offshore blocks in the Gulf of Mexico to 149, and continued streamlining its portfolio.

Asia (outside Middle East)

TOTAL’s average production in Asia was 232 kboe/d in 2003, up 5% from 220 kboe/d in 2002, representing 9% of its total 2003 production.

Brunei

On Block B in the deep offshore Brunei Darussalam area (TOTAL-operated 37.5%), production from the Maharaja Lela Jamalulalam field was an average of 14 kboe/d in 2003, compared to 11 kboe/d in 2002. Two new wells were put in production in 2003. The construction of an offshore compression project on one of the existing platforms was launched at the end of 2002, with start-up expected in 2006. The production sharing agreement for

the deep offshore Block J (TOTAL-operated 60%) was signed in March 2003. Exploration work on Block J (5,000 square kilometers) has been temporarily suspended due to a border dispute with Malaysia.

Indonesia

In 2003, TOTAL’s average production was 168 kboe/d, compared to 154 kboe/d in 2002. TOTAL Indonesia celebrated a gas production record of 2,640 Mcf/d on July 16, 2003 (average gas production was 2,340 Mcf/d in 2003). TOTAL’s operations in Indonesia are concentrated on the Mahakam permit (TOTAL-operated 50%), which contains several fields, particularly Peciko and Tunu, the largest gas fields in the East Kalimantan area. TOTAL’s natural gas production is delivered to PT BADAK, the Indonesian company which operates Bontang, the largest LNG plant in the world. This LNG is the subject of long-term contracts with customers in Japan, Korea and Taiwan, primarily for use in their power stations. The total capacity of the eight liquefaction trains at the Bontang plant is 22 Mt/y. Nearly all of Bontang’s capacity has been contracted until 2010. Currently, approximately 64% of the gas supplied to Bontang comes from TOTAL-operated production on the Mahakam permit. This contribution is expected to increase to 70% by 2010. The development of the Peciko field continued with the implementation of Phase 3 and Phase 4 (one additional platform was installed in 2003, a second platform was installed in early 2004, and onshore compression facilities will be installed in 2004). On the nearby Tunu field, a new phase of development (Phase 9) is in progress and planned to enter into operation in 2004.

Malaysia

TOTAL acquired a 42.5% interest in the deep offshore Block SKF in 2001. One exploration well is planned for 2004.

Myanmar

The Yadana field (TOTAL-operated 31.2%), located on Blocks M5 and M6, increased gas deliveries to PTT plc destined for power plants in Thailand to 586 Mcf/d in 2003. TOTAL also supplied 37 Mcf/d of gas to the domestic market compared to 25 Mcf/d in 2002). In 2003, TOTAL’s average production was 16 kboe/d, compared to 18 kboe/d in 2002.

Pakistan

TOTAL operates, with a share of 40%, two deep offshore (1,700-3,400 meters of water) exploration blocks of 7,500 square kilometers each in the Sea of Oman. Drilling of an exploration well is planned for 2004.

Thailand

In 2003, TOTAL’s average production from the Bongkot field was 34 kboe/d, compared to 37 kboe/d in 2002. Long-term contracts provide for the sale of all natural gas production from the Bongkot field (TOTAL 33.3%) to PTT plc, a state-owned Thai company. This gas is resold by PTT plc to several local users. PTT plc did not take delivery of the entire contractual quantity in 2003 due to a commercial discussion with TOTAL regarding the mercury content of the Bongkot gas, even though the existing gas facilities are equipped to handle the matter. This discussion has now been concluded, and an agreement in principle has been reached to deliver these quantities in 2004 and 2005. All of the condensate produced from Bongkot is also sold to PTT plc. Phase 3C of development continued, with the installation of one wellhead platform and its wells completed in 2003, and a desulphuration platform planned to be installed near the end of 2004. A new floating condensate storage facility was put into service in January 2003.

Middle East

TOTAL’s average production in the Middle East (including its share through equity affiliates) was 441 kboe/d in 2003, up 2% from 432 kboe/d in 2002, representing 17% of its total 2003 production.

Iran

TOTAL has four buy-back contracts in Iran, with average production of 50 kboe/d in 2003. The Sirri A&E fields (TOTAL 60.0% interest in the foreign consortium), are now operated by the state-owned National Iranian Oil Company (NIOC). Production on the offshore South Pars Phase 2 and 3 gas and condensate fields (TOTAL-operated 40% interest in the foreign consortium) continued at an average rate slightly over 2 Bcf/d and 85 kb/d of condensate. The hand-over of operations by TOTAL to NIOC is in progress. However, TOTAL will be providing technical operational and management assistance to NIOC after the hand-over. The development of the Balal offshore oil field (TOTAL-operated 55% interest in the foreign consortium) was completed and operations of the main facilities have been handed over to the NIOC. The drilling campaign is close to completion, and production is in line with expectations at 40 kboe/d. Development of the Dorood field (TOTAL-operated 55% interest in the foreign consortium) is progressing, and production of the first phase was steady at 15 kb/d during 2003. In February 2004, the Group signed a shareholders agreement among NIOC (50%), TOTAL (30%) and Petronas (20%) to create a new company known as Pars LNG, the first stage in the development of a long-term partnership to produce LNG.

Kuwait

In 2003, the Group continued its assistance to the Kuwait Oil Company (KOC) under the agreement between the two companies that calls for TOTAL to provide technical assistance and support for KOC’s upstream operations.

TOTAL has a 20% share in the consortium, led by ChevronTexaco, organized to participate in the bidding process, which was resumed in June 2003, for production activities at oil fields in northern Kuwait.

Oman

The Oman LNG liquefaction plant (TOTAL 5.5%) produced 7.0 Mt in 2003, compared to 6.6 Mt in 2002, which was principally marketed through long-term contracts in Korea and Japan supplemented by short-term contracts and spot sales. After debottlenecking in 2003, capacity is now at its maximum of 7 Mt/y. Oman LNG has taken an interest of 36.8% (corresponding to an effective 2.0% interest for TOTAL) in a new company, Qalhat LNG, created by the Government of Oman and the Spanish company Union Fenosa to construct a new liquefaction train with a planned capacity of 3.6 Mt/y. Studies to assess the hydrocarbon potential of exploration Block 34 (TOTAL 100%) are continuing. TOTAL owns a 4% interest in Petroleum Development Oman (PDO), which produced 28 kboe/d in 2003 (Group share).

Qatar

TOTAL produced an average of 54 kboe/d in Qatar in 2003, compared to 58 kboe/d in 2002. TOTAL holds a 20% interest in the upstream operations of Qatargas, which produces natural gas and condensates from one block of the offshore North Field, and a 10% interest in the Qatargas liquefaction facilities. The three LNG trains at this facility produced 8.2 Mt in 2003 compared to 7.6 Mt in 2002. A debottlenecking project is being implemented to increase plant capacity to 9.7 Mt/y by 2006. In December 2001, an agreement was signed with Qatar Petroleum to sell 2 Bcf/d of Qatari gas produced by the Dolphin Project (TOTAL 24.5%) for 25 years starting in 2006. The gas will be produced from the North Field in Qatar and transported to the United Arab Emirates through a 380 kilometer gas pipeline. In December 2003, the evaluation program for the production area was successfully completed and the Qatari authorities approved the Dolphin Project final development plan. The project is expected to cost $4 billion. Work is continuing on the third phase of development of the Al Khalij field (TOTAL-operated 100%), which is planned to increase production capacity by 20 kb/d.

Syria

In 2003, TOTAL’s average production was 40 kboe/d, obtained mainly from the Jafra and Qahar fields under the Deir Ez Zor permit (TOTAL 50%). The Deir Ez Zor gas and condensate project (TOTAL 50%), which has progressively been brought into operation since the end of 2001, collects, processes and transports approximately

175 Mcf/d of associated gas produced under the Deir Ez Zor permit. The project has achieved a significant reduction of associated gas flaring and has reduced the green house gas emissions in the region.

Saudi Arabia

On November 15, 2003, TOTAL signed an agreement with the government of the Kingdom of Saudi Arabia to form a joint venture with the national oil company, Saudi Aramco, for the exploration of gas in an area of 200,000 square kilometers in the southern part of the Rub Al-Khali. TOTAL will hold a 30% interest in the joint venture.

United Arab Emirates

TOTAL’s activities are located in Abu Dhabi and Dubai. TOTAL’s average production was 248 kboe/d in 2003, compared to 216 kboe/d in 2002. The Group’s fields are located onshore (Asab, Bab, Bu Hasa, Sahil and Shah) and offshore (Umm Shaif, Zakum, Abu Al Bu Khoosh, and Fateh). TOTAL has a 15% interest in Abu Dhabi Gas Industries (GASCO), which produces butane, propane and condensate from the associated gas produced from onshore fields. TOTAL also has a 5% interest in Abu Dhabi Gas Liquefaction Company (ADGAS), which produces LNG, LPG and condensate from natural gas coming from offshore fields, both gas associated with oil production and non-associated gas. In addition, TOTAL has a 30% interest in Ruwais Fertilizer Industries (FERTIL) which produces ammonia and urea from methane produced by the Abu Dhabi National Oil Company (ADNOC). TOTAL, acting as the leader of a consortium (50/50) formed with Tractebel, completed the extension of the Taweelah A1 power and desalination plant, which began operating in April 2003. TOTAL is a shareholder (24.5%) in Dolphin Energy Limited which will market the gas produced by the Dolphin Project in Qatar in the United Arab Emirates. The gas sale contracts for the project were signed in October 2003 and the Qatari authorities approved the final development plan in December 2003.

Yemen

The East Shabwa permit’s (TOTAL-operated 28.6%) average gross production was 23 kb/d and the Jannah permit’s (TOTAL 15%) average gross production was 43 kb/d in 2003. TOTAL is the main shareholder with a 42.9% stake in the Yemen LNG Company for which the Yemeni government has approved the export of 6 Mt/y LNG that is intended to be produced from the gas reserves in the Marib region.

South America

TOTAL’s average production in South America was 196 kb/d in 2003, up 15% from 170 kboe/d in 2002, representing 8% of its total 2003 production.

Argentina

TOTAL’s average production in 2003 was 64 kboe/d, compared to 59 kboe/d in 2002. In 2003, the Aguada Pichana field medium pressure compression plant (TOTAL-operated 27.3%) started-up and a new medium pressure compression project was launched at the San Roque field (TOTAL-operated 24.7%). These plants are intended to maintain gas production at its plateau for these fields. Also in 2003, construction continued on the offshore facilities for the Carina-Aries (TOTAL-operated 37.5%) gas development (offshore Terra del Fuego) launched in 2001. In 2002, the decision was taken to suspend offshore drilling and the construction of onshore facilities for this development due to the Argentine economic crisis. In 2003, it was decided to resume the development of the project with the goal of beginning production in 2005.

Bolivia

TOTAL owns seven permits in Bolivia. These include San Alberto and San Antonio, which have producing fields (TOTAL 15%), and five exploration permits (Blocks XX West, TOTAL-operated 41%; Bereti, TOTAL-operated 100%; Aquio and Ipati, both TOTAL-operated 80%; and Rio Hondo, TOTAL-operated 50%). An exploration well, Itau X3 in Block XX West, was completed mid-2003 without reaching the expected results. The

Sabalo field, whose development was launched in 2001 under the San Antonio permit, started production early in 2003. As development of the San Alberto field continues, the San Alberto 14 well was drilled in 2003. The results were taken into account and will contribute to future production. In 2003, the average production from the San Alberto and San Antonio fields was 11 kboe/d, compared to 5 kboe/d in 2002. However, Petrobras did not take the entire 2003 contractual quantities provided by the take or pay contract, and commercial discussions are in progress. The Transierra pipeline (“Gasyr” TOTAL 11%) started operating in April 2003.

Brazil

After analyzing the results from the drilling the Anambe well in deep-offshore block BC-2 (TOTAL-operated, 35%) in 2003, no further exploration activity is planned and, with the exception of the zone in which the Curio discovery was made, the exploration permit was released.

Colombia

TOTAL’s average production from the Cusiana and Cupiagua oil fields (TOTAL 19%) was 37 kboe/d in 2003, compared to 43 kboe/d in 2002. A “sparse” 3-D seismic survey conducted in 2002 on the Tangara permit (TOTAL 55%) was finalized and interpreted in 2003. An exploration well is scheduled in 2004. The Gaitanas exploration permit (TOTAL 70%) was relinquished in 2003.

Trinidad and Tobago

On Block 2c (TOTAL 30%) located in the shallow waters of Trinidad, the development of the Grand Angostura field was launched in March 2003. This development is progressing as planned and drilling has started on the first wellhead platform, with production expected to begin in 2005. On Block 3a (TOTAL 10%), exploration has started with the drilling of the Delaware (gas discovery), Bimurraburra (dry) and Puncheon (in progress) wells.

Venezuela

TOTAL’s average production was 84 kboe/d in 2003, compared to 63 kboe/d in 2002. In spite of the national strike at the beginning of 2003, Sincor (TOTAL 47%) had an average gross production of 160 kb/d of extra heavy oil over the year 2003. The capacity tests for the production of synthetic oil provided for under the contractual arrangements were successfully conducted. On the Jusepin oil field (TOTAL-operated 55%), two new wells were drilled in 2003 and the newly constructed water injection system was put in operation. The first phase of development of the Yucal Placer (TOTAL 69.5%) gas field was particularly affected by the national strike. The drilling program has now been completed and production commenced in April 2004.

Commonwealth of Independent States (CIS)

TOTAL’s average production in the Commonwealth of Independent States (CIS) was 8 kboe/d in 2003, up slightly from 5 kboe/d in 2002, representing less than 1% of its total 2003 production.

Azerbaijan

In February 2003, the Shah Deniz joint venture (TOTAL 10%) decided to proceed with phase one of development of the Shah Deniz gas field. At the end of 2003, the second development well of the Shah Deniz field was underway and the main contracts for construction were awarded. The South Caucasian Pipeline Company (SCPC, TOTAL 10%) started construction of a gas pipeline from Baku to the Turkish border. This pipeline will use the same route as the Baku-Tbilissi-Ceyhan (BTC) oil pipeline in Azerbaijan and Georgia. Construction of the BTC oil pipeline, which began in August 2002, is continuing. This pipeline, owned by the BTC Company (TOTAL 5%), will link Baku to the Mediterranean Sea. No further exploration activities are contemplated on the Lenkoran-Talysh permit (TOTAL-operated 35%) or on the Absheron permit (TOTAL 20%).

Kazakhstan

TOTAL increased its participation in the North Caspian Sea permit from 16.7% to 20.4%, on the occasion of the sale of British Gas’ interest (pending closing). Drilling activities on this permit continued in 2003, with four rigs in activity. Evaluation of the Kashagan field continued with the testing of the Kashagan East-4 and East-5 wells and the drilling of the Kashagan East-6 well. A total of five appraisal wells have now confirmed the Kashagan field discovery in addition to another two discovery wells, one on Kashagan East-1 and the other on Kashagan West-1. A development plan approved by the North Caspian Sea consortium was submitted to the Kazakhstan authorities in December 2002 who had agreed in June 2002 to the declaration of commerciality of the field, and TOTAL booked reserves in Kashagan for the first time at December 31, 2002. Although TOTAL had anticipated that the development plan would be approved by the Kazakhstan authorities early in 2003, approval was received on February 25, 2004. Preliminary infrastructure construction has started, engineering studies continuing and the front-end engineering and design for the first two phases of development have been completed. Elsewhere in the permit area, exploratory drilling yielded positive results, with hydrocarbons discoveries at each of the Kashagan South-West, Aktote and Kairan structures.

Russia

TOTAL’s average production was 8 kboe/d in 2003, compared to 5 kboe/d in 2002. Phase two of the development of the Kharyaga field (TOTAL-operated 50%) started at the beginning of 2003 with a production target of 30 kboe/d. The production sharing agreement between TOTAL and the Russian Federation is currently the subject of arbitration proceedings brought by TOTAL and its partners under the UNCITRAL (United Nations Commission on International Trade Law) arbitration rules in Stockholm. In 2003, TOTAL entered into two joint venture agreements in the Black Sea, each on a 50/50 basis, to explore deep-offshore permits in the Russian Black Sea. The first agreement with Yukos concerns the exploration of the Shatsky zone in 1,500 to 2,000 meters of water. A 2-D seismic evaluation of an area of over than 2,000 square kilometers has been completed and is currently being evaluated. The second agreement with Rosneft concerns the exploration of the Tuapse zone in the same area of the Black Sea than Shatsky. The exploration permit was obtained in August 2003 for water depths ranging from 500 to 2,000 meters and the first studies are underway.

Other Upstream Activities

Crude Oil and Natural Gas Pipelines

The table below sets forth TOTAL’s ownership interests in crude oil and natural gas pipelines.

TOTAL

Pipeline(s)

Origin

Destination

% interest

operator

Liquids

Gas

France

GSO

Network South West

70.00

CFM

Network Center West

45.00

Italy

SGM

Larino

Collefero

12.00

Netherlands

Nogat pipeline

F15A

Den Helder

23.19

West Gas Transport

K13A-K4K5

Den Helder

4.66

WGT Extension

Markham

K13-K4K5

23.00

Zuidwal pipeline

Zuidwal

Harlingen Terminal

42.20

Oldelamer pipeline

Oldelamer

Garijp Terminal

42.25

TOTAL

Pipeline(s)

Origin

Destination

% interest

operator

Liquids

Gas

Norway

Gassled(1)

9.04

Frostpipe (inhibited)

Lille-Frigg, Froy

Oseberg

36.25

Oseberg Transport System

Oseberg, Brage and Veslefrikk

Sture

8.65

Norpipe Oil

Ekofisk treatment center

Teeside (United Kingdom)

34.93

Troll Oil Pipeline I and II

Troll B and C

Vestprocess at Mongstad Refinery

3.70

Sleipner East Condensate Pipe

Sleipner East

Karsto

10.00

Kvitebjorn pipeline

Kvitebjorn

Mongstad

5.00

Heimdal to Brae Condensate line

Heimdal

Brae

16.76

United Kingdom

Frigg System: UK line

Frigg UK, Alwyn North, Bruce, and others

St. Fergus (Scotland)

100.00

Interconnector

Bacton

Zeebrugge (Belgium)

10.00

Central Graben Liquid Export Line (LEP)

Elgin Franklin

ETAP

46.17

Shearwater Elgin Area Line (SEAL)

Elgin Franklin, Shearwater

Bacton

25.73

Bruce Liquid Export Line

Bruce

Forties (Unity)

43.25

Central Area Transmission System (CATS)

Cats Riser Platform

Teesside

0.57

Gabon

Rabi Pipe

Rabi

Cap Lopez Terminal

100.00

United States

Canyon Express

Aconcagua

Willams Platform

25.80

Myanmar

Yadana

Ban-I Tong (Thai border)

31.20

Qatar

Dolphin (project)

Ras Laffan

Taweelah (U.A.E.)

24.50

Argentina

Gas Andes

Neuquen Basin

Santiago (Chili)

56.50

TGN

Network (North Argentina)

19.21

TGM

TGN

Uruguyana (Brazil)

32.68

Bolivia

Transierra

Yacuiba

Rio Grande

11.00

TBG

Bolivia-Brazil border

Porto Alegre via Sao Paulo

9.67

TSB (project)

TGM (Uruguay)

TBG (Porto Alegre)

25.00

TOTAL

Pipeline(s)

Origin

Destination

% interest

operator

Liquids

Gas

Colombia

Ocensa

Cusiana, Cupiagua

Covenas Terminal

15.20

Oleoducto de Colombia

Vasconia

Covenas

9.50

Oleoducto de Alta Magdalena

Magdalena media

Vasconia

1.00

Azerbaidjan

BTC (project)

Bakou

Ceylan (Turkey)

5.00

SCP (project)

Bakou

Erzurum (Turkey)

10.00


(1)	Gassled: unitization of Norwegian gas pipelines through a new joint-venture in which TOTAL has an interest of 9.038%. In addition to the direct share in Gassled, TOTAL E&P NORGE AS has a 14.4% interest in the joint-stock company Norsea Gas AS, which holds 3.018% in Gassled.

Gas & Power

TOTAL’s Gas & Power sector encompasses natural gas transport and storage and power generation (from combined cycle gas plants and renewable energies). It also includes marketing and trading activities for natural gas, electricity, LNG, LPG and coal. These activities are conducted mainly in Europe and the Americas, with a growing presence in Asia.

Natural gas

In 2003, TOTAL continued its consolidation strategy for its natural gas activities, which is designed to enhance the value of existing natural gas reserves and to make new natural gas resources commercially viable.

A large part of TOTAL’s natural gas production is sold under long-term contracts. However, its North American production and part of its United Kingdom, Norwegian and Argentine production are sold on a spot basis. The long-term contracts under which TOTAL sells its natural gas and LNG production usually provide for a price related to, among other factors, average crude oil and other petroleum product prices as well as, in some cases, a cost of living index. Although the price of natural gas and LNG tends to fluctuate in line with crude oil prices, there is a delay before changes in crude oil prices are reflected in long-term natural gas prices. Because of the relation of the contract price of natural gas and crude oil prices, contract prices are not generally affected by short-term market fluctuations in the spot price of natural gas.

The deregulation of gas markets is occurring in various places around the world. This trend may undermine the traditional methods of gas sales, which relied primarily on long-term contracts as described above, and increase the risks and opportunities for gas producers, such as TOTAL, who are responding by seeking to secure outlets for their production by developing their natural gas marketing and trading activities. As a result, TOTAL evaluates on a case by case basis whether to target a downstream position along the gas chain in order to secure favorable marketing opportunities for the Group’s current, and anticipated future, reserves and production.

Europe. In France, TOTAL has been active in the downstream segment of the gas chain for 60 years. Transport, marketing and storage were initially developed to facilitate the Group’s domestic production. The Group is pursuing its strategy of becoming a top-tier supplier of gas to industrial and commercial customers in France.

In November 2003, TOTAL and Gaz de France signed a protocol of intent to separate their cross-shareholdings in Gaz du Sud-Ouest (GSO) and Compagnie Française du Méthane (CFM), their jointly-owned gas transmission and supply subsidiaries in France. Gaz de France currently holds a 30% interest in GSO, which transports and sells approximately 7% of the gas consumed in France, with TOTAL holding the remaining 70%. TOTAL currently has a 45% interest in CFM, with Gaz de France holding the remaining 55%. Under the terms of the protocol of intent, TOTAL and Gaz de France will enter into a final agreement providing that TOTAL will become the sole shareholder of GSO, Gaz de France will become the sole shareholder of CFM, and TOTAL will directly acquire a part of CFM’s marketing operations. Once this restructuring has been completed, TOTAL will

have a market share of around 16% of the French natural gas sales. This protocol of intent reflects TOTAL and Gaz de France’s shared commitment to adapt to the structural changes in the French gas market, which will be opened to competition for industrial and non-residential customers in July 2004. In addition, the protocol of intent will permit TOTAL to acquire a 26.7% interest in the Fos II Cavaou re-gasification terminal project in southern France, which is expected to be commissioned in 2007. It will have an initial capacity of 6 Mt, which could subsequently be increased.

TOTAL operates two underground natural gas storage units in southwestern France, which account for approximately 18% of the overall gas storage capacity in France.

In the United Kingdom, Total Gas & Power Ltd. sells gas and power to the industrial and commercial markets and also owns a 10% stake in Interconnector UK Ltd., a 700 Bcf per year-capacity gas pipeline connecting Bacton in the United Kingdom to Zeebrugge, Belgium. In January 2003, Total Gas & Power Ltd. acquired the UK industrial and commercial gas portfolio of ExxonMobil, which represented sales of approximately 70 Bcf in 2003. In 2003, Total Gas & Power Ltd. marketed 180 Bcf of natural gas to industrial and commercial customers, representing a market share of 18%. Total Gas & Power Ltd. sold 0.8 TWh of electricity in 2003.

Total Gas & Power North Europe markets gas and power to eligible industrial and commercial consumers in the north of France, Benelux and Germany. It sold 21 Bcf of gas and 1.3 TWh of electricity in 2003, mainly in France and the Benelux countries. TOTAL continues to actively participate in Powernext, the first electricity trading hub in France, which was launched in 2002.

In Spain, TOTAL markets gas through its participation in Cepsa Gas Comercializadora, which was formed in June 2001. In 2003, the Algerian National Company Sonatrach acquired a 30% stake in Cepsa Gas Comercializadora, thereby reducing each of TOTAL and Cepsa’s interests from 50% to 35%. In 2003, Cepsa Gas Comercializadora sold 35 Bcf of natural gas. TOTAL also has a 12% interest in the Medgaz Project, a gas pipeline intended to directly connect Algeria and Spain.

The Americas. In North America, TOTAL sold 369 Bcf of natural gas in the United States in 2003. In October 2003, TOTAL signed an agreement to acquire a 25% share in the re-gasification terminal to be constructed in Altamira, Mexico. This terminal, which will have a capacity of 5 Mt of natural gas, is scheduled to begin production in 2006. TOTAL also holds a 25% interest in Gas del Litoral, a marketing company which signed a contract to supply 177 Bcf of natural gas per year for 15 years from the Altamira terminal with the Mexican Comisión Federal de Electricidad (CFE).

In South America, the Group owns interests in several natural gas transport companies in Argentina, Chile and Brazil. TOTAL’s interests include 19.2% of Transportadora de Gas del Norte (TGN), which operates a gas transport network covering the northern half of Argentina, 56.5% of the companies that own the GasAndes pipeline connecting the TGN network to Santiago, Chile, 32.7% of Transportadora de Gas del Mercosur (TGM), which operates a pipeline connecting the TGN network to the Brazilian border, 9.7% of the Brazilian section of the Bolivia-Brazil pipeline and 25% of TSB, a company which is developing a pipeline project to connect the TGM pipeline and the Bolivia-Brazil pipeline. These different assets represent a total integrated network of approximately 9,000 kilometers serving the Argentine, Chilean and Brazilian markets from gas producing basins in Bolivia and Argentina, where the Group owns substantial reserves. An extension of the GasAndes pipeline to the region south of Santiago, Chile commenced operations in July 2003. In the context of the economic crisis in Argentina, which has had a large impact on TOTAL’s Gas & Power subsidiaries, TOTAL has taken steps to preserve, to the extent possible, the value of its assets, including commencing an arbitration proceeding against Argentina in 2003 under the mutual protection agreement between Argentina and France.

Asia. TOTAL is mainly involved in Asia through its gas production in Indonesia, Thailand and Myanmar for which the Group looks for outlets throughout the area, especially in emerging markets such as India and China. TOTAL has continued its work on a joint project with Hindustan Petroleum (HPCL) to build an underground LPG storage unit on the East coast of India in the state of Andhra Pradesh. Actual construction for this project, in which TOTAL has a 50% stake, began in November 2003. The storage capacity of this project will be 60 kt, with an offtake capacity of 1.2 Mt a year. The commercial start up of the project is expected to occur

near the end of 2006. Also, negotiations that started in 2003 have led to TOTAL taking, in March 2004, a 26% interest in the Hazira re-gasification terminal on the western coast of the Gujarat state in India.

In Japan, TOTAL continued its project with nine Japanese corporate partners to develop a new DME (dimethyl-ether) fuel through its participation in two companies, DME Dev. and DME International. DME Dev. completed construction of a 100 t/d pilot plant in Kushiro on Hokkaido near the end of 2003. This pilot plant will be used to test this new technology prior to the construction of a 3 kt/d commercial plant, which is being studied by DME International as it assesses the potential market for DME as a fuel in Asia.

Electricity and cogeneration

TOTAL is participating in a number of natural gas-fired electricity generation projects in Europe, South America, the Middle East and Asia as part of its strategy of pursuing the potential of all levels of the gas value chain. TOTAL currently operates facilities with the capacity to generate more than 5,000 MW of electricity. Cogeneration is the process whereby the steam produced by heat from the gas turbines used to generate electricity is then used for industrial purposes, such as refining petrochemicals or water desalination. This process can have an energy efficiency from up to 60% or 85%.

In May 2003 production started up at the Taweelah A1 cogeneration plant in the United Arab Emirates. TOTAL has a 20% share in Gulf Total Tractebel Power Cy, the company that owns and operates this plant. The plant combines electric power generation, with a total capacity of 1,430 MW, and water desalination, with a capacity of 385,000 cubic meters per day, and is one of the largest gas-fired cogeneration plants in the world. It is designed to meet approximately one quarter of the Emirate of Abu Dhabi’s power and water needs.

In Thailand, in March 2003, EPEC Company, in which TOTAL owns a 28% stake, started commercial production at the Bang Bo combined cycle gas power plant, which has a capacity of 350 MW.

In Argentina, TOTAL owns 63.9% of Central Puerto SA and 70% of Hidroneuquen. Central Puerto SA owns and operates gas-fired power stations in Buenos Aires and in Neuquén, with a total capacity of 2,165 MW. Through its stake in Hidroneuquen, TOTAL owns 41.3% of Piedra del Aguila (HPDA), a 1,400 MW hydroelectric dam located in Neuquén.

In Great Britain, TOTAL holds a 40% share in Humber Power Ltd. which owns a 1,260 MW capacity gas-fired combined cycle power station located on the Humber estuary. In 2003, the Group provided 40% of the natural gas used by the plant (24 Bcf) and sold 3.1 TWh of electricity.

The table below summarizes TOTAL’s electricity generation capacities.


			Installed				Operated		Group
			capacity		%		capacity		Share


			(in MW except for percentages)
Electrical generation
	Humber Power			1,260		40.0%		0		504
	Bang Bo			350		28.0%		350		98
	Central Puerto			2,165		63.9%		2,165		1,383
Cogeneration
	Taweelah			1,430		20.0%		1,430		286
Hydroelectricity
	HPDA			1,400		41.3%		1,400		578
Wind power
	Mardyck			12		100.0%		12		12

		Total		6,617				5,357		2,861

LNG marketing and trading

In September 2003, TOTAL signed a commitment to acquire 42 Bcf of LNG a year beginning in 2007 for a 20 year period from Nigeria LNG Ltd. (in which TOTAL has a 15% interest), the company owning and operating the Bonny liquefaction plant. Early in 2004, this contract was increased to 53 Bcf of LNG a year. TOTAL plans on marketing this LNG on several long-term and spot gas markets in Europe and North America. TOTAL also has an engagement to market 35 Bcf of LNG per year to be produced by a gas liquefaction plant in Snøhvit, Norway.

LPG trading

In 2003, Total traded or sold 4.7 Mt of LPG (butane and propane) around the world; around 0.9 Mt in Middle East and Asia, 1 Mt in Europe through coastal trading and 2.8 Mt in the Atlantic and Mediterranean areas on large vessels. Approximately half of these quantities originated from the Company’s production from either fields or refineries. This LPG trading involved eight full-time charter vessels and 150 spot charters and represented 9% of worldwide seaborne LPG trade.

Coal

TOTAL sold approximately 11 Mt of coal globally in 2003. Of this amount, TOTAL sold 6 Mt of South African steam coal, approximately 80% of which was sold to European utility companies. Approximately 4 Mt of this South African coal came from TOTAL’s mining production and 2 Mt from TOTAL’s role as marketing agent in its 50/50 partnership with Tavistock/ Xstrata in the ATC mine. The coal was exported through the port of Richard’s Bay, the largest coal terminal in the world, 5.7% of which is owned by TOTAL through its wholly-owned South African subsidiary, Total Coal South Africa. Under the South African Black Economic Empowerment law, TOTAL has signed a memorandum of understanding to release a 25% share of the Dorstfontein mine to Mmakau Mining. This agreement is a significant step in the opening of the Group’s coal activities to historically disadvantaged investors in South Africa.

In addition to the coal produced and supplied by its South African operations, TOTAL is developing its coal trading business with a total of 2 Mt of coal sold in Asia and 2 Mt sold in Europe in 2003.

In France, TOTAL, through its wholly-owned subsidiary CDF Energie, is the leading distributor of steam coal to the industrial sector, with 2003 sales of 1.8 Mt of coal supplied by a combination of its own South African production and purchases from third parties.

Renewable energies

TOTAL has been active in solar-photovoltaic energy for more than 20 years and is also developing its wind power activities. The Group believes the importance of these renewable energies to the world energy supply will significantly increase in the future.

Wind Power. TOTAL’s first wind farm, on the site of its Dunkirk refinery in Mardyck, France, started commercial production in November 2003 with a capacity of 12 MW. This farm is designed to produce 30,000 MWh per year corresponding to the average domestic consumption of about 15,000 inhabitants. TOTAL selected five wind turbines from three different technologies in order to acquire as much experience as possible for its future onshore and offshore wind projects in Western Europe.

Solar-photovoltaic Power. TOTAL owns 35% of Total Energie, a company specialized in the creation, marketing and exploitation of solar-photovoltaic power systems. In 2003, Total Energie’s sales increased by about 15% to 72 M€, corresponding to an effective capacity of about 9 MWp. Total Energie plans to pursue opportunities related to the connection of rural electrification. In 2003, Total Energie obtained ISO 9001 (2000 version) certification. Total Energie will begin construction of a solar panel encapsulation plant in Toulouse, France in 2004 with an annual production capacity of 5 MWp, enough to equip the roofs of 2,500 European households.

TOTAL also owns 42.5% of Photovoltech, a company specialized in photovoltaic cell and solar panel encapsulation manufacturing and marketing. At the end of 2003, Photovoltech started production at its plant in

Tienen, Belgium, which is designed to produce 10 MW of photovoltaic cells annually using advanced technology developed by IMEC (Louvain University).

TOTAL has three Decentralized Rural Electrification projects in Mali, Morocco and South Africa. At the end of 2003, these projects provided power to 6,000 households and progress is being made on schedule towards the final goal of providing power to 32,000 households through these projects. TOTAL is looking for opportunities to develop similar projects, mainly in Africa.

DOWNSTREAM

Overview of Downstream Activities

The Downstream segment conducts TOTAL’s refining, marketing, trading and shipping activities. Trading activities include selling substantially all of the Group’s crude oil production, purchasing crude oil to supply its refineries, trading crude oil and refined petroleum products, and coordinating TOTAL’s shipping of crude oil and refined petroleum products.

In 2003, TOTAL’s worldwide refining capacity was 2,696 kb/d and its average refined products sales were 3,652 kb/d (including trading and equity affiliates). TOTAL is the largest refiner-marketer in Europe based on refining capacity and refined products sales*. TOTAL operates a network of almost 16,000 service stations worldwide mainly under the TOTAL and Elf banners, of which approximately 50% are company-owned. Refineries also contribute to producing a broad range of high value-added specialty products, such as LPG, jet fuel, petrochemical feedstock, special fluids, lubricants, bitumens and paraffins.

During the second quarter of 2003, TOTAL launched its new corporate identity program and started re-branding the network, storage facilities and production sites with the new TOTAL logo. By the end of 2003, approximately 4,000 stations were re-branded to the new TOTAL colors. The re-branding program is expected to be completed by the end of 2004.

Over the period from 1999-2003, the Downstream segment captured merger-related synergies and implemented ongoing productivity programs that contributed approximately 1.8 B€ to operating income, in a refining environment characterized by high volatility. In this context, TOTAL’s strategy is based on strengthening its capacity to withstand environmental fluctuations. The Downstream segment adheres to a policy of controlling capital employed and of strict allocation of investment resources. In Refining, investments are targeted to average $3 per ton of refining capacity per year over the medium term, including the investments required to meet new European product specifications and to adapt to demand for petroleum products. In Marketing, the selective investment policy for Downstream businesses was pursued in 2003 through dynamic asset management (such as asset swaps) in mature areas and an emphasis on value-added specialty products and expansion in growing markets such as the Mediterranean Basin, Africa and Asia.

The table below sets forth sales and operating income (adjusted for special items) for Total’s Downstream segment for each of the last three years. In 2003, TOTAL continued to implement safety programs and has a policy of emphasizing risk prevention throughout refining and marketing activities.

DOWNSTREAM SEGMENT FINANCIAL DATA(1)



	For the Year Ended December 31,

	2003		2002		2001


	(in millions of euro)
Total segment sales (excluding sales to other segments)		68,658		66,984		71,373
Operating income (adjusted for special items)		1,970		909		3,004


(1)	See Note 4 of the Notes to the Consolidated Financial Statements included in this Annual Report for more detailed information on the Downstream segment and a geographical breakdown of sales, together with a breakdown of special items.


*	Based on companies’ published figures.

Refining

TOTAL conducts its refining operations through 28 refineries in which it has interests (including 13 that it operates), located in France, Belgium, the United Kingdom, the Netherlands, Germany, Italy, the United States, the French West Indies, Africa and China. In Europe, TOTAL is the leader in Downstream operations, based on combined refining capacities and sales volumes.

Western Europe

Western Europe accounts for more than 80% of both TOTAL’s refined product sales and refining capacity (including its 45.3% interest in Cepsa). TOTAL operates 12 refineries in Western Europe. Six of the TOTAL-operated refineries in Western Europe are located in France, one in Belgium, one in Germany and two in the United Kingdom. TOTAL is also a major shareholder in one refinery in Italy, another in the Netherlands, and has minority interests in a German refinery (Schwedt) and in a fourth French refinery (Reichstett). In addition, the Company participates in four refineries in Spain through its 45.3% interest in Cepsa. In addition to exchanging and implementing best practices from each refinery, TOTAL has also implemented a refining-hub management concept (based on supply optimization, improved regional coverage and sites specificities enhancement) in Europe for improved performance and investment savings. In 2003, TOTAL pursued its integration strategy for its refining and petrochemical operations in order to capture maximum industrial synergies from growing intra-Group exchange of products and capital expenditure savings.

During 2003, TOTAL shut down five refineries for normal maintenance and upgrading to meet new product specifications. By the end of 2003, all of TOTAL’s European refineries were able to produce 50 ppm sulfur content fuel. In order to respond to new EU regulations that will require refineries to produce 10 ppm sulfur content fuel by the beginning of 2009, TOTAL is progressively making further upgrades to its European refineries.

In 2003, TOTAL completed studies to launch a 500 M€ investment for the construction of a hydrocracker unit and an associated steam methane reformer to supply hydrogen at the Normandy refinery. The hydrocracker will enable the Normandy refinery to reduce its production of heavy distillates and fuel oil and increase production of light distillates, in particular diesel and jet fuel. The unit will also produce high quality bases for lubricants and specialty fluids. The launch of these new facilities illustrates TOTAL’s strategy of responding to demand for light distillates and at the same time bolstering the competitiveness of the Normandy refinery. This investment was launched in February 2004.

United States

In the United States, TOTAL operates one refinery, the 176 kb/d Port Arthur facility on the Gulf of Mexico. The refinery benefits from continuing integration with petrochemical operations.

Rest of the world and other facilities

Outside of the principal refineries that TOTAL operates in Western Europe and the United States, TOTAL has interests in 15 other refineries (seven in Africa, four in Spain, one in France, one in Germany, one in the French West Indies and one in China). The aggregate capacity of the Company’s interests in these refineries is 409 kb/d.

The table below sets forth TOTAL’s share of the daily crude oil refining capacity of its refineries.

CRUDE OIL REFINING CAPACITY


		December 31,
		2003

		(kb/d)(1)
Refineries operated by the Company
	Normandy (France)		343
	Provence (France)		159
	Flandres (France)		160
	Donges (France)		231
	Feyzin (France)		117
	Grandpuits (France)		97
	Antwerp (Belgium)		352
	Leuna (Germany)		220
	Rome (Italia)(2)		52
	Immingham (UK)		223
	Milford Haven (UK)(3)		73
	Vlissingen (Netherlands)(4)		84
	Port Arthur U.S.		176
Other refineries in which the Company has an interest(5)			409

Total			2,696


(1)	In the case of refineries that are not wholly owned by TOTAL, the indicated capacity represents TOTAL’s proportionate share of the total refining capacity of the refinery.

(2)	TOTAL interest 57.5%.

(3)	TOTAL interest 70%.

(4)	TOTAL interest 55%.

(5)	15 refineries in which TOTAL has interests ranging from 16.7% to 55.6%.

The table below sets forth by product category TOTAL’s net share of the quantity produced at TOTAL’s refineries (including those in which it has a minority interest) for the years indicated.

PRODUCTION LEVELS


	2003			2002			2001

	(kb/d)			(kb/d)			(kb/d)
Motor gasoline		584			570			610
Avgas and jet fuel		177			179			191
Kerosene and diesel fuel		724			629			678
Fuel oils and heating oils		535			513			540
Other products		419			416			391

Total(1)		2,439			2,307			2,410

Capacity utilized		92	%		88	%		96	%


(1)	Includes net share of Cepsa, an integrated oil company based in Spain, in which TOTAL has a 45.3% interest.

TOTAL produces a wide range of refined petroleum products at its refineries and other facilities. In 2003, TOTAL pursued growth in both the production and marketing of specialty products (jet fuel, butane and propane, lubricants and greases, paraffins and waxes, bitumens and special fluids). Increased integration of specialty products with refining operations provides for a wider range of products, including new high-value added and technology-intensive products. TOTAL is a leader in the European specialty products market, notably for bitumens and lubricants. Worldwide, TOTAL markets lubricants in 140 countries and distributes aviation fuel at

550 airports. TOTAL is the second largest LPG marketer in France on the basis of sales, and its LPG business has expanded beyond the traditional core European market into Asia and South America.

TOTAL plays an active part in the promotion of renewable energies and alternative fuels and has strengthened its research and testing programs for fuel cell technologies and fuel reformulation. In this area, TOTAL has entered into cooperation agreements with Renault, Renault Trucks, Valeo and Delphi for automotive applications, and with Electrabel and Idatech for stationary applications such as furnaces.

TOTAL has teamed up with Berlin BVG, the largest public transport company in Germany, resulting in the opening of a hydrogen center of excellence and the first TOTAL hydrogen fueling station in Germany. The hydrogen capacity of this station was increased in March 2004. TOTAL is also an active participant in the Hydrogen Technology Platform Program launched by the European Commission near the end of 2003, which aims at promoting the development of this new technology across Europe.

Marketing

TOTAL markets refined petroleum products primarily in Europe and Africa. TOTAL is the leading refiner-marketer based on refining capacity and refined products sales across the combined six largest markets in Europe (France, Spain, Benelux, United Kingdom, Germany and Italy). In Africa, TOTAL’s sales were approximately 11 Mt of petroleum products in 2003.

The table below sets forth by geographic area TOTAL’s average daily volumes of sales of refined petroleum products for the years indicated.

SALES OF REFINED PRODUCTS


	2003		2002			2001

	(kb/d)		(kb/d)			(kb/d)
France		917		854	(2)		925	(2)
Rest of Europe(1)		1,509		1,477			1,471
United States		237		159			168
Africa		232		213			206
Rest of World		87		92			94

Total excluding Trading		2,982		2,795			2,864
Trading (Balancing and Export Sales)		670		585			570

Total including Trading		3,652		3,380			3,434


(1)	Includes the Group’s net share in Cepsa.

(2)	After correcting reporting disparity related to sales in France.

The table below sets forth by geographic area the number of retail stations in the TOTAL network for the years indicated as at December 31, 2003.

RETAIL STATIONS


	2003		2002		2001

France(1)		4,472		5,093		5,392
Rest of Europe		5,196		5,526		5,689
Cepsa(2)		1,710		1,603		1,553
Africa		3,324		3,383		3,270
Rest of World		1,137		1,071		1,018

Total		15,839		16,676		16,922


(1)	Stations under the TOTAL, Elf and Fina banners only.

(2)	Includes all the stations within Cepsa’s network, the Group’s 45.3%-owned company.

Western Europe

In 2003, the Company continued implementing its strategy of network unification under the TOTAL brand, coupled with the new corporate identity program. The higher visibility of the unified brand is aimed at improving the Company’s customer loyalty.

In France, TOTAL pursued the re-branding of its service stations network in 2003. The TOTAL-branded network provides extensive national coverage and offers a broader range of quality services, as well as a wider diversification, such as the “Bonjour” convenience shops and TOTAL’s customer loyalty programs. Elf-branded stations, with an updated design, offer quality fuels at particularly competitive prices, as well as pared-down services. At the end of 2003, the TOTAL-branded network consisted of 3,000 stations and the Elf-branded network included nearly 300 stations. TOTAL also markets fuels under the Elan brand in 1,200 stations located in rural areas and AS24 stations dedicated to professionals and heavyweight vehicles.

In Europe, TOTAL is pursuing a strategy of focusing on expanding markets in which it holds a significant market share. For example, in 2003 TOTAL announced a swap agreement with Shell-DEA under which it acquired 133 stations in Germany in exchange for seven highway service stations in France, 70 stations in Hungary and 33 in the Czech Republic, two countries where TOTAL had less attractive competitive positions. This agreement consolidates TOTAL’s marketing positions in Germany, while allowing TOTAL to concentrate on the specialties sector in the Czech Republic and Hungary. Also in 2003, TOTAL finalized its agreement with Agip Petroli and Galp for the exchange of its 186 TOTAL-branded service stations in Spain for 195 Agip Petroli service stations in Italy and 111 Galp service stations in Portugal. These operations have enabled TOTAL to gain an additional 1% market share in each of Italy and Germany and more than 4% in Portugal. In Spain, TOTAL is expanding through Cepsa. In the United Kingdom, a major restructuring program has been launched to improve the performance of TOTAL’s network by rationalizing the network portfolio, renovating high-output sites and developing diversification activities.

In 2003, TOTAL aimed to promote customer loyalty by targeting continued improvement in the quality of its services. TOTAL’s international private fuel card, the Eurotrafic card, which includes value-added features designed for the management of international haulers and company fleets, is accepted in approximately 13,000 service stations in 15 countries. These include ten countries where TOTAL operates a retail network (Germany, Belgium, France, Italy, Hungary, Luxembourg, the Netherlands, Portugal, the United Kingdom and — outside Europe — in Morocco), four other countries via partnership agreements negotiated by the Group (Austria, Denmark, Norway and Sweden) and in Spain, through Cepsa. TOTAL has the most popular retail fuel cards in Europe with three million cardholders.

Africa and Mediterranean Rim

TOTAL is a major petroleum products distributor on the African continent with activities in more than 40 countries and a market share of more than 10% in more than 30 countries. TOTAL’s refined products sales were approximately 11 Mt in 2003, mainly in South Africa, Nigeria, Kenya, Senegal and the Ivory Coast. In 2003, TOTAL started operations in Mayotte through a 100%-owned subsidiary and launched lubricants activities in Angola and Algeria. TOTAL is continuing to expand its marketing, lubricants and LPG operations around the Mediterranean Rim. In 2003, TOTAL proceeded with the merger of its two 100%-owned petroleum product marketing subsidiaries TOTAL Oil Turkiye and Tüpgas, the latter’s activity had been focussed on the LPG market.

Asia

In 2003, TOTAL continued to implement its selective development strategy in Asia. Under this strategy, TOTAL expanded its presence in the lubricants sector by strengthening its operations in Korea (partnership with ISU), Indonesia (100%-owned subsidiary, TOTAL Oil Indonesia), Australia and New-Zealand. At the end of 2003, approximately 15% of TOTAL’s worldwide lubricants sales were in Asia, in particular in China, India, Indonesia and Korea, under both the TOTAL brand and the Elf brand. In the LPG sector, TOTAL’s positions were strengthened in India, China, Vietnam, Cambodia and Bangladesh. In Pakistan in 2003, TOTAL continued to expand its network by adding 30 new service stations to its network of 23 existing stations. In the Philippines, 18

new service stations were opened, while the start up of the Manila depot (with 9,000 cubic meters of storage) strengthened TOTAL’s logistics in this country. TOTAL also holds a 22.4% interest in the WEPEC refinery in Dalian, China.

Trading & Shipping

TOTAL’s trading & shipping activities include selling oil produced by the Group, buying oil to supply the Group’s refineries, marketing the products produced from crude and refined oil and coordinating the Group’s shipping activities.

Trading

TOTAL is one of the world’s major traders of crude oil and refined petroleum products, on the basis of volumes traded, dealing extensively in physical, forward and futures markets. The division’s purchases and sales are spread among spot, term, exchange and other arrangements, such as swaps, and cover a variety of sources and customers in order to optimize revenues from TOTAL’s crude oil production and supplies to its refineries and to match the various markets in which TOTAL operates while seeking to ensure security of supply, flexibility and cost competitiveness. In connection with its trading activities, TOTAL, like most other oil companies, uses derivative contract strategies to adjust its exposure to expected fluctuations in the price of crude oil and related products. All of TOTAL’s trading activities in this area are subject to internal controls and trading limitations. For a discussion of risks related to its trading business, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk — Oil and Gas Market Related Risks”.

The table below sets forth selected information with respect to TOTAL’s worldwide sales and supply of crude oil for each of the last three years.

SALES AND SUPPLY OF CRUDE OIL



	For the Year Ended
	December 31,

	2003			2002			2001


	(kb/d, except percentages)
Sales of crude oil
Total sales		4,713			4,630			4,553
Sales to Downstream segment(1)		2,165			2,043			2,162
Sales to outside customers		2,548			2,587			2,391
Sales of crude oil to outside customers as a percentage of total sales		54	%		56	%		53	%
Supply of crude oil
Total supply		4,713			4,630			4,553
Produced by the Company(2)(3)		1,608			1,571			1,427
Purchased from outside suppliers		3,105			3,059			3,126
Production by the Company as a percentage of total supply		34	%		34	%		31	%


(1)	Excludes share of CEPSA.

(2)	Includes condensate and natural gas liquids.

(3)	Includes TOTAL’s proportionate share of the production of equity affiliates.

Following a weak year in 2002, growth in world oil demand increased in 2003 due to colder weather in the Atlantic basin, high natural gas prices worldwide and extensive outages affecting nuclear plants of TEPCO, the largest power utility in Japan. Furthermore, gasoline and fuel oil demand were supported by a healthy economic environment, due to the recovery in the United States, where annual GDP growth was approximately 3.0%, in China, where GDP grew approximately 8.6%, and in other Asian countries outside Japan, where GDP grew approximately 4.1%. Demand rose by 0.5% for gasoline, 4.4% for diesel fuel and 0.6% for jet fuel in OECD member countries. Fuel oil demand increased 10% in the United States and 17% in Japan, but fell 5.1% in Europe.

In contrast to near stagnation in 2001 and 2002, world oil production rose sharply in 2003. This was largely due to a production increase of about 0.9 Mb/d by the CIS countries and an increase of 1.6 Mb/d in OPEC crude supply, which more than offset the negative effects of labor strikes in Venezuela, internal troubles in Nigeria and the war in Iraq. In 2003, OPEC adapted to the loss of exports from Venezuela in the first quarter and then from Iraq in the second quarter through a series of quota adjustments, increasing quotas by 1.3 Mb/d from January 1, 2003, by 1.5 Mb/d from February 1, 2003 and again by 0.9 Mb/d from June 1, 2003. OPEC then decreased quotas by 0.9 Mb/d from November 1, 2003. These market tensions lifted the OPEC basket price to around $28.10/b throughout 2003 (compared to $24.36/b in 2002), and prevented a rebuilding of the oil reserves until the fourth quarter 2003 in the main markets, particularly in the United States.

Refining margins rose from $8.0/t in 2002 to $20.9/t in 2003 (TOTAL’s TRCV for western Europe, the aggregate margin for topping, reforming, cracking, visbreaking), supported by strong product demand and increased crude oil supply.

Throughout the year, TOTAL’s trading activities maintained good results and a high level of activity, trading physical volumes of crude oil and refined products amounting to roughly 5 Mb/d in 2003, approximately the same level as in 2002.

Shipping

The Shipping division of TOTAL arranges the transportation of crude oil for the supply of the Group’s refineries and provides a wide range of shipping and chartering services for Trading and all business segments in the Group, while seeking to ensure the best safety conditions.

In 2003, TOTAL chartered about 2,600 vessels to transport an estimated 107 Mt of oil. The Group sold two VLCC (Very Large Crude Carrier) tankers it owned, which were chartered back via long-term agreements. The Group utilizes a fleet made up of some 45 vessels which are chartered under medium- and long-term agreements. The fleet is relatively modern with an average age of eight years and is predominantly comprised of double-hulled vessels.

During 2003, world tanker tonnage increased by 4%. This increase only partially offset the decline in tonnage that occurred in 2000 and 2002. Tanker demand soared at several moments in 2003, especially during the first quarter and at the end of the year, boosted by the high level of oil demand. As a result, the world shipping market was very tight and volatile. Across all tanker classes and in all regions, freight rates were unusually high in 2003 as a result of several of factors, including:


	•	market tensions following the war in Iraq, as well as briefer disruptions in Nigeria and Venezuela;

	•	a particularly cold and difficult winter in the Baltic and Mediterranean Seas that increased delays and reduced the availability of tankers; and

	•	tighter transit regulations in the Bosporus Strait that led to increased shipping delays towards the end of the year.

The European Community and the International Maritime Organization also implemented new rules to heighten the safety of transporting crude oil and oil products. Beginning in 2003 in Europe, and progressively throughout the world by 2005, these new rules restrict the transportation of heavy fuel oils exclusively to double-hulled vessels. In addition, a new calendar was adopted for the phasing out of single-hull tankers.

CHEMICALS

Overview of Chemicals Activities

TOTAL is one of the world’s largest Chemical producers on the basis of sales. Following the combination of TOTAL, PetroFina and Elf Aquitaine in 1999 and 2000, TOTAL’s Chemicals segment was organized into three sectors: Base Chemicals & Polymers, Intermediates & Performance Polymers and Specialties.

TOTAL reported combined sales in Chemicals in 2003 of 17.26 B€. Europe accounted for 59% of sales, the United States for 26%, and remaining sales were generated predominantly in Asia and Latin America. Results in 2003 were adversely affected by weak demand, a strong euro and the increased cost of raw materials.

As part of its strategy to consolidate its position in the growing Asian market, TOTAL entered into a 50/50 joint venture on August 1, 2003, with Samsung General Chemicals, a Korean based manufacturer and marketer of a wide range of petrochemical and polymer products, with an integrated production site located at Daesan, Korea. The Chemicals segment’s position in Asia was further reinforced with the inauguration of a polystyrene unit at Sanshui in the Chinese province of Guangdong.

Additionally, the Chemicals segment pursued its program for the disposal of non-strategic assets by selling its paints business SigmaKalon in February 2003, its bromine and derivatives activity, and its minority interest in Mexichem, a Mexican chlorochemicals company, in December, 2003.

In 2003, the Industrial Safety Division of TOTAL’s Chemicals segment continued implementation of its action plan focused on three key areas: safety at work, safety management systems and major risk prevention.

In February 2004, TOTAL announced a proposed reorganization, subject to consultation with relevant labor representative bodies, of the Chemicals segment in order to streamline functional organizations and to create, alongside the Base Chemicals & Polymers and Specialties sectors, a separate decentralized entity to include the Chlorochemicals and the Intermediates & Performance Polymers sectors. This new organization is expected to be in a position to adapt to market trends with more flexibility through a structure which is closer to its customers more reactive in its decision-making processes and which is organized based on coherent industrial activities. The new company is being designed to become a competitive and independent entity.

The table below sets forth selected financial information for the Company’s Chemicals segment for each of the past three years.

CHEMICALS SEGMENT FINANCIAL DATA(1)



	For the Years Ended
	December 31,

	2003		2002		2001


	(in millions of euro)
Total segment sales (excluding sales to other segments)		17,260		19,317		19,560
Operating income (adjusted for special items)		558		777		1,095


(1)	See Note 4 of the Notes to the Consolidated Financial Statements included in this Annual Report for more detailed information on the Chemicals segment and a geographical breakdown, together with a breakdown of special items.

The table below shows the Chemical segment’s main products groups and their major applications:


Main product groups		Major applications

Base Chemicals & Polymers

Olefins
• Ethylene		Production of polyethylene, vinyl chloride monomer, styrene, functional polymers and copolymers
• Propylene		Production of polypropylene, acrylic acid, OXO-alcohols
• Butadiene		Production of lactame 12, polybutadiene, elastomers
Aromatics
• Benzene		Production of styrene, cyclohexane, chlorobenzenes
• Toluene		Production of chemical intermediates and solvents
• Xylenes		Production of phtalic anhydride, terephtalic acid (PTA), solvents
Polyethylene		Packaging and packaging films, cables, pipes and tubes, blow molded bottles, fuel tanks, automobile parts
Polypropylene		Packaging, containers, automobile parts, household and sanitary goods, electrical appliances and fibers


Main product groups		Major applications

Styrenics
• Styrene		Production of polystyrene, ABS, emulsions, resins, plastic additives
• Polystyrene		Packaging, audio-video, microcomputers, TV and electrical appliances
• Elastomers		Bitumen modification, footwear, plastic modification, adhesives
Chlorochemicals
• Vinyl chloride monomer		Production of polyvinylchloride
• Caustic soda		Chemicals, alumina, pulp and paper, detergents and soaps
• Polyvinylchloride (PVC)		Housing and decorative coatings, automotive industry, pipes, tubes and molding
• Chlorinated solvents and chloromethanes		Solvents and raw material in fluorinated products
Fertilizers		Nitrogen and complex fertilizers, urea, industrial products
Intermediates & Performance Polymers

Acrylics		Resins, emulsion resins for adhesives, paints and coatings, superabsorbents, methylmethacrylate (MMA) as well as PMMA (polymethylmethacrylate) itself, an acrylic glass used in construction, the automotive industry, advertising signs, decoration and the manufacture of sanitary sheets
Engineering polymers		Engineering polymers include polyamides used in the automotive industry, in the space, aviation and electronic industries and for the manufacture of hot-melts and of protective coatings for pipes and tubes and fluoropolymers used in construction, chemical engineering, protective paints and coatings and for the protective coatings of offshore pipes
Thiochemicals		Agrochemical and pharmaceutical intermediates, polymerization agents and additives, gas odorants
Fluorochemicals		Refrigeration, air conditioning, foam blowing agents, intermediates
Hydrogen peroxide		Pulp and paper bleaching, textile, electronics and water treatment
Plastic additives		Stabilizers and impact modifiers used in polymer conversion
Performance products		Gas and liquid separation, adsorption/ filtration, specialty surfactants
Organic peroxides		Polymerization catalysts for polyethylene, PVC, polystyrene, cross-linking agents
Agrochemicals		Pre-harvest pesticide market (fungicides, insecticides, herbicides) post-harvest products such as coatings, waxes, fungicides and cleaners; tin intermediates segments
Formaldehyde resins		Glues and resins and corresponding precursors such as formaldehyde
Specialties

Rubber processing		Rubber parts for the automobile, transportation and aviation industries (transmission systems, antivibration systems, fluid transfer parts, body sealings, precision sealings (O-rings,...) consumer products (gloves, sponges,...) (Hutchinson)
Resins		Polyester resins and gel coats for boats, truck parts, sanitary and leisure, UV/EB resins for coatings, resins and emulsions for paints, inks, varnishes and adhesives (Cray Valley, Sartomer and Cook Composites Polymers)


Main product groups		Major applications

Adhesives		Construction, timber, packaging, do-it-yourself, non-woven fabrics (BostikFindley)
Electroplating		Decoration and protection of metal and plastic parts, plating in the electronic industry (PCBs, chip carriers, etc.)(Atotech)
Paints*		Decorative paints, industrial coatings, protective coatings and marine paints (SigmaKalon)


*	TOTAL sold its Paints business (SigmaKalon) in February 2003.

Base Chemicals & Polymers

TOTAL’s Base Chemicals & Polymers sector includes the production of olefins, aromatics, polyethylene, polypropylene, styrenics, as well as fertilizers and various products in the chlorochemicals sector: chlorinated solvents and chloromethanes, caustic soda, vinyl chloride monomer, and polyvinyl chloride (PVC). The Group’s chlorochemicals operations are run mostly downstream from the Lavéra, and Feyzin, France, steam-crackers. Steam-crackers are plants used for cracking long hydrocarbon molecules into shorter ones. Their most important application is the conversion of naphta or natural gas into ethylene, propylene, butane and butadiene for manufacturing plastics and synthetic rubber.

Closely integrated with its refining activities, TOTAL’s main petrochemicals and chlorochemicals sites — adjacent or connected by pipeline — are located in Belgium (Antwerp, Feluy), France (Gonfreville, Carling, Feyzin, Lavéra, Fos, Balan, St Fons, Saint-Auban and Jarrie), the United States (Port Arthur, Houston, Bayport in Texas and Carville, Louisiana), Singapore and China (Sanshui). The Samsung-Atofina joint venture also has an integrated site in Daesan, Korea.

The following table lists the main production capacities in Europe and North America, Asia and the Middle East at the end of 2003 for TOTAL’s Base Chemicals & Polymers product groups.

CAPACITIES AS AT DECEMBER 31, 2003


			North		Asia and the
	Europe		America		Middle East(1)		Worldwide


	(in thousands of tons per year)
Olefins(2)		5,235		1,075		650		6,960
Aromatics		2,440		865		565		3,870
Polyethylene		1,500		410		276		2,186
Polypropylene		1,150		1,000		145		2,295
Styrenics(3)		1,390		1,205		515		3,110
Vinyl chloride monomer (VCM)		1,030		—		50		1,080
Polyvinyl chloride (PVC)		960		—		—		960


(1)	Including minority stakes in Qatar and 50% of Samsung-Atofina capacities in Daesan (Korea).

(2)	Including butadiene, which was included under Aromatics in 2002 and previous years.

(3)	Styrene, polystyrene and elastomers.

TOTAL’s objective is to reinforce its position among the petrochemicals leaders (olefins and aromatics, polyethylene, polypropylene and styrenics) by combining competitive growth and productivity improvements at its existing large sites with new world-scale projects to supply growing markets.

Sales reached 7.91 B€ in 2003, compared to 7.72 B€ in 2002, in a persistently difficult economic environment with little or no improvement in margins which were at historic lows in 2002.

Base Chemicals’ results declined significantly in 2003 due to a substantial rise in the price of naphtha in the first and third quarters. In a rather weak market, demand slowed during the second quarter but began to recover in

the third quarter, driven by a decrease in prices. The year was positive for aromatics, due to the growth in gasoline sales in the United States and polyester sales in Asia.

The Port Arthur, Texas, steam-cracker reached full design capacity after a start-up period. The Carling, France, steam-cracker experienced technical problems which have temporarily impaired its reliability following the 2002 debottlenecking project. In Antwerp, Belgium, the extension of the number two steam-cracker (+165 kt), in which the Group has a 65% share, was completed. The product group made progress in the field of safety and continued to implement its program to strengthen its control rooms.

Polyethylene sales and production volumes rose in 2003 by 6% and 8%, respectively, despite a difficult economic environment. In 2003, two production lines at the Antwerp, Belgium, site were converted to produce bimodal resins. This conversion, combined with the increased production of metallocene resins, strengthens the Group’s position as a provider of polyethylene grades with high added value on the market. In addition, the Samsung-Atofina joint venture should better position this business to market polyethylene in the expanding Asian market.

Polypropylene activities in 2003 were characterized by high volatility in terms of demand and prices, mainly because of the uncertainties associated with war in Iraq and the SARS virus. The situation began to return to normal in the middle of the year, particularly in the United States, where the effects of a general upturn in the economy started to materialize.

In this context, sales volumes increased by 7% in 2003 with the ramp up of the new Feluy, Belgium, production line which came on stream in 2002. Also, in Korea, polypropylene production capacity in the new Samsung-Atofina joint venture reached 270 kt/y after a successful 50 kt/y debottlenecking at the beginning of the year. In the United States, the decision was made to debottleneck the Laporte, Texas, site with the objective to increase capacity by 95 kt/y in 2005.

Styrenics are progressing, although growth lost some pace in 2003 as the economy went through a difficult period, characterised by a slowdown in demand and a rise in raw materials prices. The business grew in 2003, in particular in China due to the acquisition in January 2003 of a polystyrene production unit with a capacity of 100 kt/y in Sanshui, Guangdong province. The development and the creation of the Samsung-Atofina joint venture, which operates a 670 kt/y styrene unit in Korea, has reinforced TOTAL’s styrenics business in Asia, where the product group already operated an 80 kt/y polystyrene unit in Singapore.

Chlorochemicals pursued its efforts to improve productivity and cut costs (shut-down of emulsion PVC at Brignoud, France (first stage) and chlorobenzene activities at Jarrie, France) and maintained tight control over capital expenditures. Improved reliability at the plants pushed up PVC and caustic soda sales volumes, while demand slowed down very significantly in the second and third quarters with a negative impact on margins.

Vinyl compounds activities suffered for most of 2003 from an excess of supply, weak demand, highly volatile PVC prices, customer relocations out of Europe and the weakness of the dollar.

Pipes and profiles (downstream PVC processing activity) continued its efforts to restructure the tube business in a sluggish market. The profiles business enjoyed continued growth driven by the quality of solutions developed by Alphacan.

Fertilizers, through TOTAL’s subsidiary Grande Paroisse, continued to deal with the consequences of the explosion that occurred at its Toulouse plant on September 21, 2001. Payments made by Grande Paroisse under the presumption of responsibility, over and above the compensation paid by insurance companies, were continued in 2003, reaching a cumulative amount of 749 M€.

The Group raised its stake in Grande Paroisse to 99.7%. For further information on Grande Paroisse, see “Item 8. Financial Information — Consolidated Statements and Other Supplemental Information — Litigation — Grande Paroisse”.

Intermediates & Performance Polymers

The Intermediates & Performance Polymers sector includes TOTAL’s acrylics, engineering polymers, thiochemicals, fluorinated industrial gases, hydrogen peroxide, plastic additives, performance products, organic peroxides, agrochemistry and formaldehyde resins product groups. These activities share many of the same requirements of chemical expertise and process know-how. Based in Europe, North America and Asia, they serve diversified markets.

This sector has a portfolio of well-known trade names, including Rilsan® polyamides, Kynar® fluorinated polymers, AItuglas® and Plexiglas® clear resins and sheet material, Forane® fluorinated gas and Norsocryl® acrylic monomers. The Group’s strategy for these activities is to pursue selective growth by focusing on developing markets where it has a leading competitive position, while pursuing selective disposals. In 2003, sales in this sector reached 3.60 B€, down 5% when compared to 2002 (3.77 B€), principally because of an unfavourable economic context aggravated by the weak dollar.

Acrylics’ acrylic acid and acrylates sales in 2003 grew in North America and Asia when compared to 2002. The Bayport, Texas, unit, which started up in September 2002, operated satisfactorily in 2003. The methylmethacrylate activity experienced strong growth in Asia Pacific and an improvement of demand in the United States and Europe. The production capacity acquired from Rohm and Haas in 2002 at the Deer Park site in the United States was utilized in full in 2003. Demand for PMMA was weak in 2003, and margins were negatively affected by the higher cost of raw materials and energy. The exception was Asia, where the Group continued to expand its presence and announced an increase in polymer capacity to 40 kt in South Korea (expected to take effect in May 2004).

Engineering polymers’ sales of Polyvinylidenedifluoride (PVDF) and polyamides grew in 2003, principally due to sustained demand in Asia and the improved performance of the lactame 12 unit. The new PVDF line at Pierre-Bénite, France, was put on stream. Functional polyolefin sales decreased mainly as a result of an incident on one of the production lines at Carling, France.

Thiochemicals suffered from reduced demand, particularly in Europe, and the weakness of the dollar. Methyl Mercaptan sales were affected by the decision of one key customer to produce internally, rather than buy, this intermediate. The Group continued to implement its productivity program, including a plan launched at the Riverview, Michigan site at the beginning of the year, the closure of a sulphonyl production unit at Mourenx, France, in September 2003 and the preparation of the partial closure of the Rotterdam, Netherlands site announced in 2002 and scheduled for mid-2004. The Japanese joint venture JTC, in which TOTAL had a 40% stake, ceased Mercaptan manufacturing in May and was wound up. The bromine derivatives activity was sold to Albemarle in December 2003.

The construction of new acroleine and MMP (methylthiopropionaldehyde) units in Beaumont, Texas, started as part of a joint project with Novus International. The units are expected to come on stream in 2005. MMP is an intermediate used by Novus in the manufacture of methionine (animal feed ingredient). This project is being pursued to strengthen the Group’s position in this growing market. The Vultac® range was reinforced by the acquisition of Ferro’s rubber additive business.

Fluorinated industrial gases are used primarily in refrigeration and expanded foam applications. On the basis of production capacity, TOTAL is among the worldwide leaders for this product group. The substitution of Montreal Protocol regulated CFCs (chlorofluorocarbons) and HCFCs (hydrochlorofluorocarbons) with more environmentally friendly HFCs was accelerated in 2003 by a ban on several products and the imposition of quotas, especially in the United States.

Also, in 2003 TOTAL assisted a number of its customers with no immediate alternative technology for building up provisional stocks, gave priority to producing refrigerants in the summer to withstand the unusual heat in Europe during the summer of 2003, marketed new formulations of HFCs and hydrocarbons that help reduce the flammability and gas emission potential of foam insulation for construction, participated in an ongoing European project on the greenhouse effect and energy efficiency, recyclability and proper use of HFCs, and decided to double capacity at its plant in Changshu, China, to supply new local polymer production.

Hydrogen peroxide activities place the Group among the world’s leading producers (based on production capacity) and are conducted through units in three major consumer regions. The Shanghai, China plant was successfully debottlenecked and was equipped to manufacture food grade hydrogen peroxide. The plant reached full capacity in the spring of 2003 and was used to manufacture antiseptics that were used to combat the SARS virus.

Plastics additives suffered from significant erosion of margins in 2003 because of substantial increases in raw material prices, which could not be recovered downstream due to weak demand. Also in 2003, the consolidation of S21 productions (polyethelyne terephtalate catalysts) at the Guangzhou, China, platform was completed successfully.

Performance products experienced a slight decrease in revenue in 2003, principally due to the appreciation of the euro against the dollar and the yen. The disposal of the vaselines and bentonites activities was also completed, and a blending facility was set up in Saudi Arabia.

Organic peroxides launched the construction of a new plant in the Shanghai region with a capacity of 3 kt/y, which is scheduled to come on stream in the first half of 2005. Together with Korean and Japanese sites, the new platform will enable the Group to better meet growing demand in Asia.

The integration of the Indian organic peroxide subsidiary, Atopil, continued after TOTAL purchased its local partner’s interest at the end of 2002. Its debottlenecking to 2 kt/y was successfully concluded in September 2003. In 2003 TOTAL acquired GICSA’s 49% stake in Atofina Peroxidos to become the sole shareholder of this Mexican subsidiary.

Agrochemistry sales experienced significant growth in 2003 compared with 2002, in spite of a stagnant economic environment. In January 2003, TOTAL developed its partnership with Nippon Soda, obtained the distribution rights for the United States of a new insecticide, Assail® (Acetamiprid) and launched this product on the market.

Formaldehyde resins 2003 particleboard production (the main application) declined in Western Europe. The flooring market remained satisfactory, although it failed to compensate for the downturn in the particleboard market. The market situation together with higher raw materials prices (methanol and urea) adversely impacted margins. TOTAL sold the Brazilian activities of this product group (the Jundïai and Belem sites) on October 13, 2003.

Specialties

TOTAL’s Specialties sector includes rubber processing (Hutchinson), resins (Cray Valley, Sartomer and Cook Composites & Polymers), adhesives (Bostik Findley) and electroplating (Atotech). These activities cover consumer and industrial markets for which customer-oriented marketing and service are key drivers.

The Group markets specialty products in more than 55 countries. Its strategy is to continue international expansion by combining internal growth and targeted acquisitions while concentrating on expanding markets and focusing on the distribution of new products with high added value. In 2003, the sales for these activities reached 5.74 B€, below the 2002 level mainly as a result of the sale of the Paints division, which was completed on February 28, 2003. Specialties showed resistance to the more difficult economic environment in 2003.

Wholly-owned Group subsidiary Hutchinson manufactures and markets products obtained from rubber processing for the automotive and aerospace industries and for consumer markets. Sales declined by around 5% in 2003, due to euro/dollar exchange rate adjustments. At comparable euro/dollar exchange rates, sales increased slightly in 2003 compared to 2002. Despite a difficult industrial climate and a decline in automobile production, automotive industry sales grew approximately 1.5%. Consumer sales were down due to a weak market. In 2003, Hutchinson continued to expand in countries where it believed there was a high potential for growth, mainly in South America and China.

TOTAL produces and markets resins for adhesives, inks, paints, coatings and structural materials through its three subsidiaries Cray Valley, Sartomer and Cook Composites & Polymers. In 2003, Cray Valley completed the main part of its program to restructure its coating resins and emulsions business in Europe. The Brignoud, France

emulsions plant was closed in October 2003 and the Machen, United Kingdom site ceased production in April 2004, their activities having been transferred to other Cray Valley sites. Additionally, the Group increased its production capacities in Malaysia and South Africa, where it also consolidated its distribution activity through the acquisition of the assets of Harvey’s. Cook Composites & Polymers reinforced its position as a major supplier on the coating resins market by becoming the leading distributor of these products on the U.S. market after acquiring control of Peninsula Polymers LLC. Sartomer put on stream and at full capacity a new oligomer production unit at Villers-Saint-Paul, France, in July 2003. A monomer production unit also came on stream in April 2004.

TOTAL’s adhesives subsidiary, Bostik Findley, has leading positions in the industrial, hygiene, construction, consumer and professional distribution sectors. 2003 sales, on a constant dollar basis, remained in line with 2002. The business made significant progress in the Asia-Pacific zone and in construction and distribution. The rationalization program introduced after the Bostik/Ato-Findley merger continued in 2003 with the closure of the manufacturing sites at Center Street and Scranton in the United States, and Gambolo and Aulnay in Europe. On the acquisitions side, Bostik Findley acquired MEM, a German company specialised in consumer sealants, and took control over the joint venture with Nitta Gelatin in Japan, to increase its presence in the Asian hygiene sector.

TOTAL’s electroplating subsidiary, Atotech, reinforced its Asian teams in 2003 by opening a technical support center in China, Taiwan and Korea. At the same time, restructuring efforts in Europe and North America were intensified in a drive to adapt the two regions to the new industrial landscape.

OTHER MATTERS

Various factors, including certain events or circumstances discussed below, have affected or may affect our business and results.

Political and Economic Factors Which May Affect Business

The oil sector is subject to domestic regulations and the intervention of governments in such areas as:


	•	the award of exploration and production interests,

	•	the imposition of specific drilling obligations,

	•	environmental protection controls,

	•	control over the development and abandonment of a field causing restrictions on production, and

	•	possible, though exceptional, nationalization, expropriation or cancellation of contract rights.

The oil industry is also subject to the payment of royalties and taxes, which may be high compared with those imposed in respect of other commercial activities. In addition, substantial portions of TOTAL’s oil and gas reserves are located in countries outside the European Union and North America, certain of which may individually be considered politically and economically unstable. These reserves and the related operations are subject to certain risks, including:


	•	increases in taxes and royalties,

	•	the establishment of production and export limits,

	•	the renegotiation of contracts,

	•	the expropriation or nationalization of assets,

	•	risks relating to changes of local governments and resulting changes in business customs and practices,

	•	payment delays,

	•	currency exchange restrictions, and

	•	losses and impairment of operations by armed conflicts and actions of terrorist groups.

TOTAL, like other major international oil companies, attempts to conduct its business and financial affairs so as to protect against such political and economic risks. However, there can be no assurances that such events will not adversely affect TOTAL.

Iran Libya Sanctions Act

In 2001, the U.S. legislation implementing sanctions against Iran and Libya, referred to as ILSA, was extended until August 2006. ILSA authorizes the President of the United States to impose sanctions (from a list that includes denial of financing by the U.S. export-import bank and limitations on the amount of loans or credits available from U.S. financial institutions) against persons found by the President to have knowingly made investments in Iran or Libya of $20 million or more in any twelve-month period. In May 1998 the U.S. government waived the application of sanctions for TOTAL’s investment in the South Pars gas field in Iran. This waiver, which has not been modified since it was granted, does not address TOTAL’s other activities in Iran and Libya, although TOTAL has not been notified of any related sanctions. At the end of 1996, the Council of the European Union adopted Council Regulation No. 2271/96 which prohibits TOTAL from complying with any requirement or prohibition based on or resulting directly or indirectly from certain enumerated legislation, including ILSA. It also prohibits TOTAL from extending its waiver for South Pars to other activities. In each of the years since the passage of ILSA, TOTAL has made investments in each of Libya and Iran (excluding South Pars) in excess of $20 million, sometimes substantially exceeding this figure. In 2003, TOTAL’s average daily production in Libya and Iran amounted to 92 kboe/d, approximately 4% of our average daily worldwide production. In February 2004, TOTAL entered into a shareholders’ agreement with the National Iranian Oil Company and Petronas to create the Pars LNG joint venture. This project is still in its early stages and no major financial commitments are expected to be made in the near future. TOTAL expects to continue to invest amounts significantly in excess of $20 million per year in each of Libya and Iran in the foreseeable future. TOTAL cannot predict interpretations of or the implementation policy of the U.S. government under ILSA with respect to its current or future activities in Iran or Libya. It is possible that the United States may determine that these or other activities will constitute activity prohibited by ILSA and will subject TOTAL to sanctions. TOTAL does not believe that enforcement of ILSA, including the imposition of the maximum sanctions under the current law and regulations, would have a material negative effect on its results of operations or financial condition. On April 23, 2004 the President of the United States terminated the application of ILSA with respect to Libya.

The Argentine Financial Crisis

During 2002 the Argentine economy suffered further deterioration of the recessive cycle, which began in the fourth quarter of 1998. As a result of this depressed environment, and in particular due to the unilateral measures taken by the Argentine government pursuant to an emergency law enacted in 2002 which substantially reduced electricity prices, the Group considered that the economic context significantly modified the prospects of certain of its assets. In 2002, the Group recorded an asset impairment charge related to the effects of the Argentine financial crisis which had a negative impact on 2002 net income (Group share) of 310 M€. TOTAL continues to follow the evolution of the economic and financial situation in Argentina and its consequences on the Group’s operations in this country, which are limited relative to the overall size of the Group.

The Political Situation in Venezuela

In 2003, Venezuela represented 3.3% of the Group’s oil and gas production. TOTAL cannot predict the developments related to the political situation in Venezuela and its potential consequences on the Group’s activities in this country.

The Geo-political Situation in the Middle East

In 2003, the entire Middle East represented 17% of the Group’s production of oil and gas and 9% of the net income from operations of the operating segments, adjusted for special items. The Group produces in the United Arab Emirates, Iran, Oman, Qatar, Syria and Yemen. TOTAL cannot predict developments of the geo-political situation in the Middle East and its potential consequences on the Group’s activities in this area.

Oil and Gas Exploration and Production Considerations

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 at all, or in amounts that would be sufficient to allow for economic development. Even if an economic analysis of estimated hydrocarbon reserves justify the development of a discovery, the reserves can prove lower than the estimates during the production process, thus adversely affecting the development economics.

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 invested.

The development of oil 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 predictions 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, weather conditions, shortages of or late delivery of equipment.

Regulation

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, pricing, environmental protection, export taxes and foreign exchange. The terms of the concessions, licenses, permits and contracts governing the Group’s ownership of gas and oil 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 company and are sometimes entered into with private owners. These arrangements usually take the form of licenses 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, or “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 that holds the production license and the host state, which is generally represented by a state company. The latter can thus be involved in decisions relating to operations, cost accounting and allocation of production. The consortium agrees to undertake and finance all exploration and, in certain cases, production activities at its sole 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 supported by international accounting firms, continually audit the accounts of oil companies and the observance of their contractual obligations.

In some countries, TOTAL has also signed contracts called “contracts for risk services” which are similar to the production-sharing contracts, but with the main difference that the repayment of expenses and the compensation for services are established on a monetary basis. In other countries, the contracts for risk services

are backed by a compensation agreement (“buy-back”), which allows TOTAL to receive a part of the production equal to the cash value of its expenses and compensation.

Hydrocarbon exploration and production activities are subject to permits, which can be different for each of these activities; they 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 surface 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 area, 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.

French Regulation

TOTAL S.A., the parent holding company of the Group, is a French société anonyme with principal offices in France where a large number of the Company’s top management lives and works. The Group is therefore subject to a wide range of French regulations. Certain matters related to our regulation under French corporate law are described under “Item 6. Directors, Senior Management and Employees — Board Practices — Corporate Governance” and “Item 10. Additional Information — Memorandum and Articles of Association”. In accordance with French law, the Group participates in employee benefit plans offering retirement, death and disability, health and special termination benefits. The Group is also subject to French taxation through a consolidated income tax treatment approved by the French Ministry of Finance.

With respect to carrying on operations in France, the Group’s exploration activities must be conducted under permits granted by the Minister of Industry. These permits are granted for a maximum of five years, with the possibility of renewing each permit twice (each renewal also for a maximum of five years). Development and production activities in France must be carried out under a concession granted by decree of the French Conseil d’Etat for a period of up to 25 years. When the holder of a French exploration permit makes a discovery, he is entitled to receive a concession for that discovery. In addition to normal corporate income tax, exploration and production activities in France are subject to royalties. For refining operations in France, the Group is required to give one month’s prior notice of its intention to acquire, construct or shut-down refining plants. These projects are then subject to regulatory approvals. Retail service stations in France must obtain and renew certain operating permits to perform their business. In particular, highway stations must obtain a license to operate designated sites through a bidding process organized by the relevant highway operators, most of which are wholly or partially owned by the French State. The Group’s business activities are also subject to a wide range of French regulations relating to health, safety and the environment. These include a number of directives of the European Commission which have been enacted into French law. Such regulations are discussed below in some detail under “Health, Safety and Environment Regulations”.

Health, Safety and Environment Regulations

TOTAL is subject in general to extensive and increasingly strict environmental regulation in the European Union. Significant directives which apply to its operations and products, particularly refining and marketing, but also its chemicals and, to a lesser extent, its upstream business, are:


	•	The Directive for a system of Integrated Pollution Prevention and Control (IPPC), a cost/benefit framework used to assess environmental quality standards of, and place potential emissions limits on, large industrial plants, including our refineries and chemical sites.

	•	Air Quality Framework Directive and related directives on ambient air quality assessment and management, which, among other things, limit emissions for sulfur dioxide, oxides of nitrogen, particulate matter, lead, carbon monoxide, benzene and ozone.

	•	The Sulfur Content Directive, under which sulfur in diesel fuel is limited to 0.2% beginning July 2000, and 0.1% beginning January 2008. Beginning January 2003, sulfur in heavy fuel oil is limited to 1%, with certain exceptions for combustion plants provided that local air quality standards are met.


	•	The Large Combustion Plant Directive, a directive which limits certain emissions from large combustion plants, including sulfur dioxide, nitrogen oxides and particulates; this directive will become effective in 2008.

	•	Automobile emission directives which control and limit exhaust emissions from cars and other motor vehicles. Under these directives, emission controls will continue to become more stringent over time. After 2004, maximum sulfur levels for gasoline and diesel fuels will be 50 parts per million (ppm) and, from 2009, a maximum sulfur content of 10 ppm will be mandatory throughout the EU.

	•	The Directive, adopted in September 2003, implementing the Kyoto Protocol within the European Union by establishing a system for greenhouse gas emissions quotas. This system, which will enter into effect in January 2005, requires the Member States of the European Union to prepare quotas for industrial activities, in particular the energy sector, and to deliver carbon dioxide emissions permits based on these quotas.

	•	The Major Hazards Directive, which requires emergency planning, public disclosure of emergency plans and ensuring that hazards are assessed, and effective emergency management systems.

	•	The Framework Directive on Waste, intended to ensure that waste is recovered or disposed without endangering human health and without using processes or methods which could unduly harm the environment.

	•	Maritime oil spill directives, a number of which were passed in the wake of the Erika spill. The regulations coming into effect in the next few years require that tankers have double hulls and mandate improvements to navigation practices in the English channel.

	•	Numerous water directives impose water quality standards based on the various uses of surface and coastal waters, including ground water, by setting limits on the discharges of many dangerous substances and by imposing information gathering and reporting requirements.

	•	Beginning in 2000, a comprehensive framework water directive has begun progressively replacing the numerous existing directives with a comprehensive set of requirements, including additional regulation obliging member countries to classify all water courses according to their biological, chemical and ecological quality; and to completely ban the discharges of approximately 30 toxic substances by 2017.

	•	Numerous directives regulating the classification, labeling and packaging of chemical substances and their preparation as well as restricting and banning the use of certain chemical substances and products. At the end of 2003, the European Commission was in the process of adopting a new system for Registration, Evaluation and Authorization of Chemicals (REACH) which will partially replace or complement the existing rules in this area. REACH is expected to require the registration of up to 100,000 chemicals, including intermediaries and polymers. In depth economic studies are currently underway to evaluate the costs to the chemicals industry of implementing this new system.

In March 2004, the European Commission adopted a Directive on Environmental Liability. Member States have three years from the time of adoption to transpose the directive into their national legislation. The directive seeks to implement a strict liability approach for damage to biodiversity from high-risk operations. Citizens’ right to know about activities which potentially harm the environment is ensured through a 1990 directive regarding access to environmental information. In January 2003, this directive was replaced by a subsequent right to know directive which goes beyond the previous directive in setting the timescale in which information must be provided and imposing fines for non-compliance. The directive also increases public disclosure of emissions to the environment.

A directive implementing the Aarhus Convention concerning certain public participation rights in a variety of activities affecting the environment was adopted in May 2003. Member States have a period of two years to implement the new procedural rules in their national systems.

In the United States, where TOTAL’s operations are much smaller than in Europe, it is also subject to significant environmental and safety regulation. Of particular relevance to TOTAL’s lines of business there are:


	•	The Comprehensive Environmental Response, Compensation, and Liability Act (also known as CERCLA or Superfund), under which waste generators, site owners, facility operators and certain other parties can be strictly liable for the entire cost of remediating sites contaminated by spills or waste disposal regardless of fault or the amount of waste sent to the site. Additionally, each state has laws similar to CERCLA.

	•	Maritime oil spill laws and regulations, particularly the Oil Pollution Act of 1990 which was passed in the wake of the Exxon Valdez spill and which significantly increases oil spill prevention requirements, spill response planning obligations and spill liability for tankers and barges transporting oil, offshore oil platform facilities and onshore terminals.

	•	The Clean Air Act and its regulations, which require, among other things, new fuel specifications and sulphur reductions, enhanced monitoring of major sources of specified pollutants; stringent air emission limits and new operating permits for chemical plants, refineries, marine and distribution terminals; and risk management plans for the storage of hazardous substances.

	•	The Clean Water Act, which regulates the discharge of wastewater and other pollutants from both onshore and offshore operations and, among other things, requires industrial facilities to obtain permits for most surface water discharges, install control equipment, implement operational controls and preventative measures, including spill prevention and control plans and control stormwater runoff.

	•	The Resource Conservation and Recovery Act (RCRA) regulates the storage, handling, treatment, transportation and disposal of hazardous and non-hazardous wastes and imposes corrective action requirements on regulated activities which mandate the investigation and remediation of potentially contaminated areas at these facilities.

Other significant U.S. environmental legislation includes the Toxic Substances Control Act which regulates the development, testing, import, export and introduction of new chemical products into commerce; the Occupational Safety and Health Act which imposes workplace safety and health, training and process standards to reduce the risks of chemical exposure and injury to employees; the Emergency Planning and Community Right-to-Know Act which requires emergency planning and spill notification as well as public disclosure of chemical usage and emissions.

Proceedings instituted by governmental authorities are pending or known to be contemplated against TOTAL and certain of its subsidiaries under applicable environmental laws which could result in monetary sanctions in excess of $100,000. No individual proceeding is, nor are the proceedings as a group, expected to have a material adverse effect on TOTAL’s consolidated financial position or profitability.

Operational Risks Related to the Environment and Safety

TOTAL’s activities present industrial and environmental risks which are inherent in the production of products that are flammable, explosive or toxic. Its activities are therefore subject to extensive government regulations concerning environmental protection and industrial security in most countries. For example, in Europe, TOTAL operates 102 sites in France and an additional 54 sites in other countries that are required to meet the criteria of the European Union Seveso directive for classification as high risk sites. Under the directive, TOTAL is obligated to implement additional safety and reporting procedures for these sites. Other sites operated by TOTAL in other parts of the world involve similar risks.

The broad scope of TOTAL’s activities, which include drilling, oil and gas production, on site processing, transportation, refining, petrochemicals activities, storage and distribution of petroleum products, production of intermediary chemical products and specialty chemicals, involve a wide range of operational risks. Among these risks are those of explosion, fire or leakage of toxic products. In the transportation area, the type of risks depends not only on the hazardous character of the products transported, but also on the transportation methods used (mainly pipelines, maritime, river-maritime, rail, road) and the volumes involved.

Most of these activities involve environmental risks related to air or water emissions and the creation of waste, and also require environmental site restoration after production is discontinued.

Certain branches or activities face specific risks. In oil and gas exploration and production, there are risks related to the physical characteristics of an oil or gas field. These include eruptions of crude oil or of natural gas, discovery of hydrocarbon pockets with abnormal pressure, crumbling of well openings, hydrocarbon leaks generating toxic risks (H2S) and risks of fire or explosion. All these events could possibly damage or even destroy crude oil or natural gas wells as well as related equipment and other property, cause injury or even death, lead to an interruption of activity or cause environmental damage. In addition, since exploration and production activities may take place on sites that are ecologically sensitive (tropical forest, marine environment, etc.), each site requires a specific approach to minimize the impact on the related ecosystem, biodiversity and human health.

TOTAL’s activities in the Chemicals segment and, to a lesser extent, the Downstream segment also have related health, safety and environmental risks. These risks can arise from the intrinsic characteristics of the products involved, which may, for example, be flammable, toxic, or be linked to the greenhouse effect. Risks of facility contamination and off-site impacts may also arise from emissions and discharges resulting from processing or refining, and from recycling or the disposal of materials or wastes at the end of their useful life.

Risk Evaluation and Management

Prior to developing their activities and then on a regular basis during the operations, business units evaluate through specific procedures the related industrial and environmental risks in addition to taking into account the regulatory requirements of the countries where these activities are located.

Risk analyses are performed according to recognized methods (for instance HAZID studies for “hazard identification”, HAZAN for “hazard analysis”, HAZOP for “hazard and operability” and “hazard studies” in France for the Seveso sites) by multi-disciplinary teams. These analyses are initially performed for new developments and then updated if necessary for significant modifications of existing equipment, generally no more than every five years. Similarly, environmental impact studies are done prior to any industrial development with a specific, thorough initial site analysis taking into account any special sensitivities. These studies also take into account the impact of the activities on the health of the neighboring population.

For new products, risk characterizations and evaluations are performed. Furthermore, Life Cycle Analyses (ACV) for related risks are performed to study all the stages of a product’s existence.

TOTAL actively monitors regulatory developments so as to continue complying with local and international rules and standards for the evaluation and management of industrial and environmental risks.

The Group’s commitment to meet its environmental and safety obligations is reflected in its Environmental contingencies and Asset retirement obligations (see Note 16 to the Consolidated Financial Statements).

As indicated in Note 1 paragraph L of the Notes to the Consolidated Financial Statements, Asset retirement obligations were determined in accordance with FAS No. 143 (“Accounting for Asset Retirement Obligations”).

Risk evaluations lead to establishment of management measures that are designed to minimize the probability that accidents or damages will occur. These measures may be put into place through equipment design itself, reinforcing protection devices, designs of structures to be built and even compensation for the consequences of any unavoidable environmental impact. Risk evaluations may be accompanied, on a case by case basis, by an evaluation of the cost of risk control and impact reduction measures.

TOTAL is working to minimize industrial and environmental risks inherent to its activities by putting in place performance procedures and quality, security and environmental management systems, as well as by moving towards obtaining certification for its management systems (International Safety Rating System, ISO 14001, European Management and Audit Scheme), by performing strict inspections and audits, training staff and heightening awareness of all the parties involved, and by an active investment policy.

More specifically, since 2002, an action plan has been implemented in order to reach a new level of safety. The plan includes concrete steps related to organization and procedures, as well as an investment of 500 M€ over

four years. In addition to the normal security budget, the plan carries out measures to minimize risks and increase safety for people and equipment. Investments are directed according to priorities defined in risk studies. For example, the Downstream and Chemicals segments have invested 46 M€ and 70 M€, respectively, in 2003, for protection of units, reinforcement of control rooms and security of logistics (stored volumes, transportation chains).

Although the Group believes that, according to its current estimates, commitments or liabilities related to health, safety and environmental concerns would not have a material impact on its consolidated financial situation, its cash flow or its income, due to the nature of such concerns it is impossible to predict if in the future these types of commitments or liabilities could have a material adverse effect on the Group’s activities.

Insurance and Risk Management

Organization

TOTAL has its own insurance and reinsurance company, Omnium Insurance and Reinsurance Company (OIRC). OIRC is totally integrated into the Group’s insurance management and acts as a centralized global operations tool for covering the Group’s risks. It allows the Group to implement its insurance program, notwithstanding the varying regulatory environments in the range of countries where the Group is present.

Certain countries require the purchase of insurance from a local insurance company. When a subsidiary company of the Group is subject to these constraints and is able to obtain insurance from a local company meeting Group standards, OIRC attempts to obtain a retrocession of the covered risks. As a result, OIRC negotiates reinsurance contracts with the subsidiaries’ local insurance companies which transfer almost all of the risk (between 97.5% and 100%) to OIRC. When a local insurer covers the risks at a lower level than that defined by the Group, OIRC will provide additional coverage in an attempt to standardize coverage Group-wide. On the other hand, certain countries require insurance in excess of what the Group may deem necessary under Group-wide standards. In these cases, OIRC also provides the additional coverage necessary to satisfy these legal obligations and the Group does not need to turn to an outside insurer.

At the same time, OIRC negotiates a global reinsurance program with mutual insurance companies for the oil industry and commercial reinsurers. OIRC permits the Group to manage price variations in the insurance market, by taking on a greater or lesser amount of risk corresponding to the price trends in the insurance market.

In 2003, the amount of risk kept by OIRC after reinsurance was $10 million per incident.

Risk and Insurance Management Policy

In this context, the Group risk and insurance management policy is to work with the relevant internal department of each subsidiary to:


	•	Define scenarios of major disaster risks by analyzing those events whose consequences would be the most significant for third parties, for employees and for the Group;

	•	Assess the potential financial impact on the Group in case these disasters occur;

	•	Implement measures to limit the possibility such events occur and the scope of damage in case of their occurrence; and

	•	Manage the level of risk from such events that is covered internally by the Group and that which is transferred to the insurance market.

With respect to insurance:


	•	The Group has worldwide tort and property insurance coverage for all its subsidiaries, and, for the Downstream and Chemicals segments, for loss of operations.

	•	These programs are contracted with first-class insurers (or reinsurers and mutual insurance companies of the oil industry through OIRC).


	•	The insurance amounts depend on the financial risks defined in the disaster scenarios discussed above and the coverage terms offered by the market (available capacities and price conditions).

More specifically, for:


	•	Tort liability: since the maximum financial risk cannot be evaluated using a systemic approach, the amounts insured are based on market conditions and industry practice, in particular, the oil industry. The insurance cap in 2003 for general tort and product liability was $840 million compared to $740 million in 2002.

	•	Property: the amounts insured by sector and by site are based on estimated costs and reconstruction scenarios under the identified worst-case disaster scenarios and on insurance market conditions.

	•	Loss of operations: provided for the Refining and Chemicals sectors for a compensation period of 3 years (Refining) or 2 years (Chemicals), also based on the identified worst-case disaster scenarios and on insurance market conditions. The Group negotiates combined limits for property and loss of operations.

For example, for the highest estimated risk of the Group (the Alwyn field in the UK), the insurance cap was $1.3 billion in 2003.

Moreover, deductibles for material damages fluctuate between $0.1 and $5 million depending on the level of risk, and are carried by the subsidiary.

The policy described above is given as an example of past practice over a certain period of time and cannot be considered to represent future conditions. The Group’s insurance policy may be changed at any time depending on the market conditions, specific circumstances and on management’s assessment of risks and the adequacy of their coverage. The Group cannot guarantee that it will not suffer any uninsured loss.

Competition

The Company is subject to intense competition within the oil sector and in other related sectors in its activities related to satisfying the energy needs of the industry and of individuals. TOTAL is subject to competition from other oil companies in the acquisition of assets and licenses for the exploration and production of oil and natural gas. Competition is particularly strong with respect to the acquisition of undeveloped resources of oil and natural gas, which are in great demand. Competition is also intense in the sale of manufactured products based on crude and refined oil.

In this respect, the main competitors of TOTAL are ExxonMobil, the Royal Dutch Shell Group, BP and ChevronTexaco. At the end of 2003, TOTAL ranked fourth among international oil companies in terms of market capitalization and daily production of oil and gas, and fifth in terms of oil and gas reserves.

E-Commerce

In mid-2000, TOTAL initiated a pilot e-commerce project in which most transactions are conducted on the Trade-Ranger electronic marketplace, for its purchases of goods and services in energy and chemicals. That project came into being late in the year 2000. The Group is among the 16 founding shareholders of Trade-Ranger, in which it is one of the main players. Trade-Ranger is the largest on-line marketplace in the oil, gas and chemical products industry. Systems for catalogue based transaction management of surplus production, sales by auction or tender offer and invoice administration have been successfully launched via this platform, which is in the process of implementation for procurement and quotations within the Group. New pilot systems have been launched in more emerging areas such as management of equipment or product transport, invoice management with suppliers or on-line sales.

The Group has conducted approximately 50,000 automated transactions on line for some of its Upstream, Downstream and Chemicals activities. It has also conducted electronic reverse auctions or electronic requests for bids in its Upstream and Downstream sectors, involving a total of nearly 1 B€. While the Group’s procurement expenses total nearly 15 B€ per year, TOTAL foresees that nearly half of that type of transaction could ultimately

be conducted on-line. More generally, after the pilot phase of the project in 2001, which provided proof of the real benefits of using such tools and services at TOTAL, the expanded use of these services was successfully begun in 2002. Each segment is preparing a plan for gradual deployment of those new solutions within its own entities.

ORGANIZATIONAL STRUCTURE

TOTAL S.A. is the parent company of the TOTAL Group. As of December 31, 2003, there were 772 consolidated subsidiaries of which 667 were fully consolidated, 10 were proportionately consolidated, and 95 were accounted for under the equity method. For a list of the Principal Subsidiaries of the Company, see Note 31 of the Notes to the Consolidated Financial Statements.

PROPERTY, PLANTS AND EQUIPMENT

TOTAL has freehold and leasehold interests in numerous countries throughout the world, none of which is material to TOTAL. See “Business Overview — Upstream” for a description of the TOTAL’s reserves and sources of crude oil and natural gas.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Management’s Discussion and Analysis is the Company’s analysis of its financial performance and of significant trends that may affect its future performance. It should be read in conjunction with the Consolidated Financial Statements included elsewhere in this Annual Report. The Consolidated Financial Statements are prepared in accordance with French GAAP, which differ in certain respects from U.S. GAAP, and contain a reconciliation of net income and shareholders’ equity to U.S. GAAP. See Note 3 of the Notes to the Consolidated Financial Statements.

This section contains forward-looking statements which are subject to risks and uncertainties. For a list of important factors that could cause actual results to differ materially from those expressed in the forward-looking statements, see “Cautionary Statement Concerning Forward-Looking Statements” on page iv.

Overview

TOTAL’s operating results are generally affected by a variety of factors, including movements in crude oil prices and refining margins, which are both generally denominated in dollars, and in exchange rates, particularly the value of the euro against the dollar. Higher crude oil prices generally have a positive effect on operating income of TOTAL, as its Upstream oil and gas business benefits from the resulting increase in prices realized from production. Lower crude oil prices generally have a corresponding negative effect. The effect of changes in crude oil prices on TOTAL’s Downstream activities depends upon the speed at which the prices of refined petroleum products adjust to reflect such changes. TOTAL’s operating results are also affected by general economic and political conditions and changes in governmental laws and regulations. For more information, see “Item 4. Information on the Company — Other Matters”.

2001-2003

In 2003, TOTAL’s operating income was 12,770 M€ compared to 10,126 M€ in 2002 and 12,777 M€ in 2001. The 2.6 B€, or 26%, increase in operating income in 2003 compared to 2002 was mainly due to the net positive impact of higher oil prices, higher European refining margins, and the weaker dollar. In addition to these market factors, operating income in 2003 benefited from the positive impact of ongoing volume growth, productivity improvement and merger synergy benefits resulting from self-help programs which the Company launched in 2000 following completion of the acquisition of control of PetroFina and Elf Aquitaine in order to increase organic growth, synergies and productivity and from a lower level of special items than in 2002⁽¹⁾. The


(1)	Special items are items which, because of their particular nature or significance, are monitored at the Group level and excluded from the business segment figures. For more information on special items, see “— Results by Business Segment 2003-2001” below.

2.7 B€, or 21%, decrease in operating income in 2002 compared to 2001 was mainly due to the net negative impact of lower European refining margins, the weaker dollar and lower natural gas prices. In addition, operating income was negatively affected by a higher level of special items than in 2001. The negative effect of these factors was only partially offset by a positive impact resulting from the Company’s self-help programs.

TOTAL’s net income was 7,025 M€ in 2003 compared to 5,941 M€ in 2002 and 7,658 M€ in 2001⁽¹⁾. The 18% increase in net income in 2003 compared to 2002 was mainly due to the increase in operating income, partially offset by a net decrease in other income (expense), primarily as a result of lower gains on sales of assets. The 22% decrease in net income in 2002 compared to 2001 mainly reflects the decline in operating income and the higher level of negative special items than in 2001.

The Company’s self-help programs were successfully completed in 2003, with a cumulative hydrocarbon production increase of 23% from 2.07 Mboe/d in 1999 to 2.54 Mboe/d in 2003 and a cumulative 4.8 B€ positive impact on operating income in the four-year period from 1999 to 2003 from growth and synergies/ productivity programs.

The Company’s total expenditures⁽²⁾ were 7,728 M€ in 2003, 8,657 M€ in 2002 and 10,566 M€ in 2001. The decline in expenditures of 11% in 2003 compared to 2002 mainly reflects the weaker dollar which is the main currency for oil and gas investments. The 18% decrease in 2002 compared to 2001 was mainly due to the decrease in investments in Gas & Power and Chemicals.

In all three years, the main source of funding for expenditures was cash from operating activities.

Outlook

Since the beginning of 2004, the oil market environment has remained favorable with oil prices at a high level and satisfactory refining margins, while the dollar has been relatively weak against the euro and the environment for Chemicals has remained persistently difficult.

For the years 2004 to 2008, TOTAL has set new performance targets, consisting of a 4% average annual growth rate for hydrocarbon production and a return on average capital employed (ROACE)⁽³⁾ target of 15.5% for the Group, 17% for Upstream, 15% for Downstream and 12% for Chemicals, each by 2008 and in a constant reference environment.⁽⁴⁾ In establishing its ROACE targets, the Company has taken into account changes in the market by adjusting certain of its reference environment assumptions: the Brent oil price was increased to $20 per barrel from $17 per barrel, the euro/dollar exchange rate was revised to 1.1 dollars per euro from parity and the mid-cycle for the Chemicals was revised downward, while the European refining margin (TRCV) has remained unchanged at $12 per ton.

TOTAL’s strategy for growth over the 2004-2008 period is based on a sustained investment program of $9 to $10 billion per year of expenditures with priority given to the Upstream segment, which is expected to account for approximately 75% of total expenditures on average. The 2004 investment budget has been set at approximately $10 billion. While the actual amount of future expenditures will depend on a number of factors that cannot currently be foreseen, the Company’s planned expenditures in the normal course of business, excluding acquisitions, are expected to be financed from cash flow from operating activities. The Company will also continue to pursue its policy of disposing of non-core assets, including further divestment of TOTAL’s

(1)

Net income under U.S. GAAP was 6,103 M€ in 2003 compared to 6,264 M€ in 2002 and 5,271 M€ in 2001. For all periods presented, the difference in net income under French GAAP and under U.S. GAAP reflected the difference in accounting treatment primarily of crude oil and refined products inventories, derivative instruments and hedging activities, goodwill and purchase accounting with respect to the acquisition of control of Elf Aquitaine and PetroFina. See Note 3 of the Notes to the Consolidated Financial Statements for additional information on these differences.


(2)	Total expenditures includes intangible assets and property, plant and equipment additions; exploration costs directly charged to expenses; acquisitions of subsidiaries, net of cash acquired; investments in equity affiliates and other securities; and increase in long-term loans.


(3)	For more information on ROACE, see “— Results by Business Segment 2003-2001”.


(4)	For a discussion of the risks and uncertainties related to these targets and expectations, see “Cautionary Statement Concerning Forward-Looking Statements”.

interest in Sanofi-Synthélabo. Concerning the proposed combination of Sanofi-Synthélabo and Aventis, TOTAL announced its support for the increased friendly offer that was recommended by the Supervisory Board of Aventis. TOTAL confirms its intention to divest its interest in Sanofi-Synthélabo over the medium-term.

Strategically, the Company’s priority is to increase its hydrocarbon production, notably through the development of large projects, while maintaining high profitability in the Upstream segment.

In Downstream, the Company will pursue the strategy of strengthening its positions in Europe and Africa while improving returns through capital discipline and productivity gains.

In the Chemicals segment, the Company is targeting growth in high potential areas such as Asia while implementing productivity programs. The Company has announced a strategic reorganization aiming at the creation of an entity including Chlorochemicals and Intermediates & Performance Polymers activities which had combined sales of approximately 5 B€ in 2003. This entity will primarily focus on improving its performance and the Company intends it to be eventually a strongly competitive, solidly financed, independent player.

TOTAL intends to pursue a dynamic dividend policy with a targeted pay-out ratio of 50% for the years 2004 to 2008. Future dividends will, however, depend on the Company’s earnings, financial condition and other factors.⁽¹⁾ At the shareholders’ meeting held on May 14, 2004, TOTAL announced that, beginning in 2004, it intends to pay an interim dividend in the fall.

Critical Accounting Policies

A summary of the Group accounting policies is included in Note 1 of the Notes to the Consolidated Financial Statements. Management believes that the application of these policies on a consistent basis enables the Group to report useful and reliable information about the Group’s financial condition and results of operations.

Inherent in the application of many of these accounting policies is the need for management to make estimates and judgments in the determination of certain revenues, expenses, assets and liabilities and in the disclosure of contingent assets and liabilities in conformity with generally accepted accounting principles.

The following summary provides further information about the critical accounting policies which could have a significant impact for the results of the Group and should be read in conjunction with Note 1 of the Notes to the Consolidated Financial Statements.

Estimates and judgments are used in the Group’s oil and gas accounting for reserves, assets and depreciation in application of the successful efforts method, valuation of long-lived assets, environmental remediation and restoration of sites estimations, accounting for pensions and post-retirement benefits and in the context of the computation of income taxes.

The assessment of critical accounting policies below is not meant to be an all-inclusive discussion of the uncertainties of financial results that can occur from the application of the full range of the Company’s accounting policies. Materially different financial results could occur in the application of other accounting policies as well. Likewise, materially different results can occur upon the adoption of new accounting standards promulgated by the various rule-making bodies. For a discussion of the Company’s change to International Financial Reporting Standards (IFRS) in 2005, see “— International Financial Reporting Standards” below.

Successful efforts method of oil and gas accounting

The Group follows the successful efforts method of accounting for its oil and gas activities.

The Group’s oil and gas reserves are estimated by the Group’s petroleum engineers in accordance with industry standards and SEC regulations. Proved oil and gas reserves are the estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty


(1)	The payment and amount of dividends are subject to the recommendation of the Board of Directors and resolution by the Company’s shareholders at an annual ordinary general shareholders’ meeting. For more information, see “Item 8. Financial Information — Dividend Policy”.

to be recoverable in future years from known reservoirs under existing economic and operating conditions. Accordingly, these estimates do not include probable or possible reserves. Estimated oil and gas reserves are based on available reservoir data and prices and costs in the accounting period during which the estimate is made and are subject to future revision. The Group reassesses its oil and gas reserves at least once a year on all its properties.

Exploration leasehold acquisition costs are capitalized when acquired. During the exploration phase, management exercises judgment on the probability that prospects ultimately would partially or fully fail to find proved oil and gas reserves. Based on this judgmental approach, a leasehold impairment charge may be determined. This position is assessed and adjusted throughout the contractual period of the leasehold based in particular on the results of exploratory activity and the impairment is adjusted prospectively.

For exploratory wells, drilling costs are temporarily capitalized pending determination of whether potentially economic oil and gas reserves have been discovered by the drilling effort. This determination usually is made within one year after well completion and can take longer depending on the specific technical or economic difficulties in assessing the economic and technical recoverability of the reserves. If a determination is made that the well did not encounter oil and gas in economically viable quantities, the well costs are expensed and are reported in exploration expense.

The successful efforts method, among other things, requires that the capitalized costs for proved oil and gas properties (which include the costs of drilling successful wells) be amortized on the basis of reserves that are produced in a period as a percentage of the total estimated proved reserves. The impact of changes in estimated proved reserves are dealt with prospectively by amortizing the remaining book value of the asset over the expected future production. If proved reserve estimates are revised downward, earnings could be affected by higher depreciation expense or an immediate write-down of the property’s book value. Conversely, if the oil and gas quantities were revised upwards, future per-barrel depreciation and depletion expense would be lower.

Valuation of long-lived assets

In addition to oil and gas assets that could become impaired under the application of successful efforts accounting, other assets could become impaired and require write-down if circumstances warrant. Conditions that could cause an asset to become impaired include lower-than-forecasted commodity sales prices, changes in the Group’s business plans or a significant adverse change in the local or national business climate. The amount of an impairment charge would be based on estimates of an asset’s fair value compared with its book value. The fair value usually is based on the present values of expected future cash flows using assumptions commensurate with the risks involved in the asset group. The expected future cash flows used for impairment reviews are based on judgmental assessments of future production volumes, prices and costs, considering available information at the date of review.

Dismantling, asset retirement obligations and environmental remediation

When legal and contractual obligations require it, the Group, upon application of FAS No. 143, records provisions for the future decommissioning of production facilities at the end of their economic lives. Management makes judgments and estimates in recording liabilities. Most of these removal obligations are many years in the future and the precise requirements that will have to be met when the removal event actually occurs are uncertain. Asset removal technologies and costs are constantly changing, as well as political, environmental, safety and public expectations.

The Group also makes judgments and estimates in recording costs and establishing provisions for environmental clean-up and remediation costs which are based on current information on costs and expected plans for remediation. For environmental provisions, actual costs can differ from estimates because of changes in laws and regulations, public expectations, discovery and analysis of site conditions and changes in clean-up technology. For more information with respect to the impact of adopting FAS No. 143 see Note 1 paragraph L and Note 16 of the Notes to the Consolidated Financial Statements.

Pensions and post-retirement benefits

Accounting for pensions and other post-retirement benefits involves judgments about uncertain events, including estimated retirement dates, salary levels at retirement, mortality rates, rates of return on plan assets, determination of discount rates for measuring plan obligations, health care cost-trend rates and rates of utilization of health care services by retirees. These assumptions are based on the environment in each country. The assumptions used are reviewed at the end of each year and may vary from year-to-year, based on the evolution of the situation, which will affect future results of operations. Any differences between these assumptions and the actual outcome will also impact future results of operations.

The significant assumptions used to account for pensions and other post-retirement benefits are determined as follows:

Discount and inflation rates reflect the rates at which the benefits could be effectively settled, taking into account the duration of the obligation. Indications used in selecting the discount rate include rates of annuity contracts and rates of return on high-quality fixed-income investments (such as government bonds). The inflation rates reflect market conditions observed country by country.

Salary increase assumptions (when relevant) are determined by each entity. They reflect an estimate of the actual future salary levels of the individual employees involved, including future changes attributed to general price levels (consistent with inflation rate assumptions), productivity, seniority, promotion and other factors.

Health care cost trend assumptions (when relevant) reflect an estimate of the actual future changes in the cost of the health care related benefits provided to the plan participants and are based on past and current health care cost trends including health care inflation, changes in healthcare utilization, and changes in health status of the participants.

Demographic assumptions such as mortality, disability and turnover reflect the best estimate of these future events for the individual employees involved, based principally on available actuarial data.

Determination of expected rates of return on assets is made through compound averaging. For each plan, there are taken into account the distribution of investments among bonds, equities and cash and the expected rates of return on bonds, equities and cash. A weighted-average rate is then calculated.

The effect pensions had on results of operations, cash flow and liquidity is fully set out in Note 15 of our Consolidated Financial Statements. Net periodic benefit charge in 2003 amounted to 420 M€ and the Company’s contributions to pension plans were 337 M€.

Differences between projected and actual costs and between the projected return and the actual return on plan assets routinely occur and are called actuarial gains and losses. Generally, the actuarial gains and losses are amortized and included in the net periodic benefit charge using the straight-line method based on the estimated remaining length of service of the plan participants involved.

The unrecognized actuarial losses of pension benefits as at December 31, 2003 were 1,897 M€ compared to 2,225 M€ for 2002. This decrease is principally due to the amortization of unrecognized losses and to the foreign currency translation adjustment for the year. Beginning in 2001, financial markets worldwide suffered significant decreases in the values of assets. This trend was reversed in 2003 driven by U.S. and Asian economic growth. Nevertheless, the positive effect on the Company’s plans’ assets leading to an actuarial gain of 162 M€ as of December 31, 2003 was offset by an actuarial loss on the Company’s plans’ liabilities of 151 M€, coming from a further decrease in discount rates in 2003. As explained above, pension accounting principles require that such actuarial losses be deferred and amortized over future periods, in the Company’s case 15 years.

While the Company has not completed its calculations for 2004, it is considering a stable weighted average return for the year (6.96% compared to the 2003 rate of 6.99%). The Company does not believe that it will be modifying significantly its discount rate in the near future.

The Company’s estimates indicate that a 1% increase or decrease in the expected rate of return on pension plan assets would have caused a 46 M€ decrease or increase, respectively, in the 2003 net periodic pension cost.

The estimated impact on benefit charge of the amortization of the unrecognized actuarial losses of 1,897 M€ as at December 31, 2003, is 90 M€ for 2004, compared to 105 M€ in 2003.

Income tax computation

The computation of the Group’s income tax expense requires the interpretation of complex tax laws and regulations in many taxing jurisdictions around the world, the determination of expected outcomes from pending litigation, and the assessment of audit findings that are performed by numerous taxing authorities. Actual income tax expense may differ from management’s estimates.

International Financial Reporting Standards

TOTAL will adopt International Financial Reporting Standards (IFRS) with effect from January 1, 2005. During the year 2003, the Group studied the potential impact of the adoption of IFRS. The theoretical comparison of IFRS standards with the standards presently used by the Group has been completed. The main areas where the Group’s current accounting policies differ from IFRS are inventories, tangible and intangible assets, provisions for major turnarounds of refineries and plants, and, to a lesser extent, financial derivative instruments, treasury shares, advantages linked to stock-options, and shares in non-consolidated companies.

TOTAL is currently in the process of evaluating the impact of the change to IFRS on its consolidated accounts. On the basis of its preliminary evaluation, taking into account the present wording of the standards as well as the operations in progress and the current market environment, TOTAL believes that these standards should not have a significant effect on its results of operations and financial position, with the possible exception of the valuation of petroleum products inventories.

The review conducted by the Group has not uncovered any major needs in terms of information technology. Moreover, due to the restatement and harmonization work undertaken in connection with the Company’s business combination operations and the resulting expanded knowledge of accounting policies, the Group considers that it will be able to meet the January 1, 2005 deadline for implementation of the change to IFRS without difficulties.

Inventories

IFRS excludes the “Last-in-First-Out” (LIFO) method of valuation for oil product inventories. The Group is currently evaluating the consequences of this exclusion for the replacement cost method used by the Group, which is similar to the LIFO method. As there is no specific rule regarding oil product inventories in the IFRS standards, the Group is exploring alternatives to ensure the continuing comparability of its accounts with its major competitors.

Tangible and intangible assets

The main difference identified so far is the replacement of the amortization of goodwill by an impairment test. In addition, IAS 36 provides for an impairment test of tangible and intangible assets using a comparison with discounted future cash flows, whereas the standard currently applied by the Company refers to undiscounted cash flows.

The Group is currently reviewing its assets. Based on the current state of this review and applying the impairment calculation described above, only minor adjustments would be required.

Major turnarounds

As discussed in Note 1 paragraph E of the Notes to the Consolidated Financial Statements, major turnaround costs in refineries and major petrochemical plants are currently provisioned in the period between the last turnaround performed and the next planned turnaround. Under IFRS, major turnaround costs are accounted for as an asset when incurred and amortized over the period between two major turnarounds.

Other impacts

The other major impacts of the adoption of IFRS are the accounting at market value of the financial derivative instruments of the Group’s treasury, the expensing of the estimated cost of stock options as well as the deduction from shareholders’ equity of the treasury shares held in order to cover those stock options, and eventually, the revaluation at market value of shares in non-consolidated companies in the shareholders’ equity.

This discussion is based on the Group’s operations in progress and the current market environment. The evolution of the operations and/or the market environment in 2004 and 2005 could lead to materially different impacts. Also, the evolution of the standards, in particular adoption of IAS 32 and 39 relating to derivative instruments, could have an impact which is currently not quantifiable.

Results by Business Segment 2003-2001

The tables below set forth the respective contribution of each of TOTAL’s business segments to TOTAL’s total sales, operating income, total expenditures and ROACE (return on average capital employed), for the years ended December 31, 2003, 2002 and 2001. Due to their particular nature or significance, certain transactions qualified as “special items” are monitored at the group level and excluded from the business segment figures. Special items affecting Operating Income include restructuring charges, asset impairment charges, gains or losses on sales of assets and other items. As indicated in Note 4 of the Notes to the Consolidated Financial Statements, the business segment information is presented in accordance with the group internal reporting system and is used by the chief operating decision maker to measure performance and to allocate resources internally. For a discussion of the manner of calculating ROACE, see Note 1 paragraph R (“Main accounting and financial indicators — information by business segment”) of the Notes to the Consolidated Financial Statements.


														Special
		Upstream			Downstream			Chemicals			Corporate			Items			Total


		(in millions of euro)
2003
	Total sales		18,704	(1)		68,658	(1)		17,260	(1)		30	(1)					104,652	(2)
	Operating Income		10,476	(3)		1,970	(3)		558	(3)		(209	)(3)		(25	)		12,770
	Total Expenditures		5,302			1,235			1,115			76						7,728
2002
	Total Sales		16,225	(1)		66,984	(1)		19,317	(1)		14	(1)					102,540	(2)
	Operating Income		9,309	(3)		909	(3)		777	(3)		(210	)(3)		(659	)		10,126
	Total Expenditures		6,122			1,112			1,237			186						8,657
2001
	Total Sales		14,365	(1)		71,373	(1)		19,560	(1)		20	(1)					105,318	(2)
	Operating Income		9,022	(3)		3,004	(3)		1,095	(3)		(252	)(3)		(92	)		12,777
	Total Expenditures		7,496			1,180			1,611			279						10,566


(1)	Total segment sales excluding sales to other segments.

(2)	Total sales excluding intersegment sales.

(3)	Adjusted for special items.


ROACE	Upstream		Downstream		Chemicals			Group

2003		29%		15%		4%	(1)		19%
2002		23%		8%		5%	(1)		15%
2001		24%		21%		7%	(1)		18%


(1)	Excluding amortization of goodwill in the Chemicals segment for amounts of 107 M€ in 2003, 131 M€ in 2002 and 145 M€ in 2001.

Special Items Affecting Operating Income

There was no significant impact from special items on operating income in 2003. In 2002, special items (comprised mainly of impairments of Argentine gas and power assets and LPG marketing activities) had a negative impact on operating income of 659 M€. In 2001, special items (primarily impairment charges and restructuring charges in the Chemicals segment) had a negative impact of 92 M€ on operating income. For further information on the special items affecting operating income, and for a reconciliation of segment figures to figures reported in the Company’s audited consolidated financial statements, see Note 4 of the Notes to the Consolidated Financial Statements. For further information on the impairment charges, including facts and circumstances giving rise to certain of them, please see Note 3 paragraph M(iv) of the Notes to the Consolidated Financial Statements.

Special Items Affecting Net Income

In 2003, the Group’s consolidated net income includes special items that had a net negative impact of 319 M€. The 2003 special items were comprised primarily of restructuring charges and early retirement plans of 144 M€ plus an allowance of 155 M€ for litigation reserves in the Chemicals segment, following investigations of the European Commission into alleged anticompetitive practices. Special items had a net negative effect of 319 M€ in 2002, being comprised primarily of gains on asset sales (notably shares of Sanofi-Synthélabo), impairments of Argentine gas and power assets and LPG marketing activities, and recognition of the impact on deferred taxes from a change in the UK tax law affecting oil companies. In 2001, special items had a net positive impact of 140 M€ on consolidated net income due to gains of 1.4 B€, essentially from sales of Sanofi-Synthélabo shares, which more than offset provisions of approximately 600 M€ related to potential liabilities for the explosion at Grande Paroisse, restructuring charges in the Downstream and Chemicals segments and impairments in the Chemicals segment. For further information on the special items affecting net income, and on reconciling segment figures to figures reported in the Company’s audited consolidated financial statements, see Note 4 of the Notes to the Consolidated Financial Statements.

Company Results 2003 vs. 2002

Group Results

The 2003 oil environment was more favorable than in 2002. The Brent oil price increased by 15% to $28.8 per barrel in 2003 from $25.0 per barrel in 2002 and the European refining margin (TRCV) increased strongly to $20.9 per ton from $8.0 per ton in 2002. On the other hand, the overall environment for Chemicals was more difficult than in 2002 due to the persistent unfavorable economic context and resulting weak demand in Europe and the weak dollar. The weakening of the dollar by 16% in 2003 relative to the euro, with the average exchange rate increasing to 1.13 from 0.95 in 2002, negatively affected the Company’s euro-denominated results in all business segments, as most of the Company’s sales, particularly crude oil, are denominated in dollars.

TOTAL’s sales increased by 2.1 B€, or 2%, to 104,652 M€ in 2003 from 102,540 M€ in 2002.

Operating income increased to 12,770 M€ in 2003 from 10,126 M€ in 2002.

The 2.6 B€, or 26%, increase in operating income reflects the positive impact of higher hydrocarbon prices (+1.9 B€), higher refining margins (+1.3 B€), ongoing volume growth (+0.6 B€), productivity improvement and merger synergy benefits (+0.5 B€), a lower level of refinery turnaround operations (temporary shutdowns of refinery facilities for maintenance, overhaul and upgrading) (+0.2 B€), and a lower level of special items (+0.6 B€), all of which were partially offset by the negative impact of a weaker dollar (-2.0 B€), a weaker chemical environment (-0.4 B€), and changes in the Chemicals segment portfolio (-0.1 B€).

TOTAL’s net income was 7,025 M€ in 2003 compared to 5,941 M€ in 2002⁽¹⁾. The 18% increase in net income in 2003 compared to 2002 was mainly due to the increase in operating income, partially offset by a net decrease in other income (expense), primarily as a result of lower gains on sales of assets.

Upstream

Upstream segment sales (excluding sales to other segments) were 18,704 M€ in 2003 compared to 16,225 M€ in 2002, reflecting the positive impact of increased hydrocarbon prices and the 5% increase in production volumes only partially offset by the weaker dollar compared to the euro.

Operating income adjusted for special items increased to 10,476 M€ in 2003 compared to operating income adjusted for special items of 9,309 M€ in 2002. This 13% increase was mainly due to the positive effects of production growth and higher hydrocarbon prices, partially offset by the negative impact of a weaker dollar against the euro.

Upstream ROACE was 29% in 2003 compared to 23% in 2002, reflecting primarily the increase in operating income.

Oil and gas production rose by 5% to 2.54 Mboe/d in 2003 from 2.42 Mboe/d in 2002. Liquids production increased by 5% in 2003 due to the contribution of Sincor in Venezuela, Cepsa’s production in Algeria, Balal and South Pars in Iran, and Amenam in Nigeria. Gas production increased by 6% in 2003, mainly due to the Company’s fields in the Gulf of Mexico, Indonesia and the North Sea. In 2003, the Upstream segment’s liquids production represented 65% of its production on an oil equivalent basis and gas represented 35% of production. The Upstream segment’s combined proved reserves of oil and gas increased by 2% to 11.4 Bboe at December 31, 2003 from 11.2 Bboe at December 31, 2002. See “Item 4. Information on the Company — Business Overview — Upstream — Reserves — Proved Reserves” for a table showing changes in proved reserves by year and “Supplemental Oil and Gas Information (Unaudited)” contained elsewhere herein for additional information on proved reserves, including tables showing changes in proved reserves by region.

Total expenditures of the Upstream segment decreased to 5,302 M€ in 2003 from 6,122 M€ in 2002. This 13% decline in total expenditures primarily reflects the weakness of the dollar, which is the dominant currency for oil and gas investments. In 2003, expenditures were made mainly in Angola, Kazakhstan, Nigeria, Norway, the United States and Venezuela, whereas in 2002, expenditures were made mainly in Angola, Iran, Kazakhstan, Nigeria, Norway, the United Kingdom, the United States and Venezuela.

Strategically, the Company plans to increase the contribution of the Upstream segment to its overall activities. The Company’s priority is to increase its hydrocarbon production, notably through the development of large projects, including conventional oil and gas, midstream gas, LNG, and enhanced recovery projects, while maintaining high profitability by stabilizing average unit costs.

Downstream

Downstream segment sales (excluding sales to other segments) increased to 68,658 M€ in 2003 from 66,984 M€ in 2002. Refinery throughput increased by 6% to 2,481 kb/d in 2003 compared to 2,349 kb/d in 2002 and the refinery utilization rate rose to 92% in 2003 from 88% in 2002. Refined product sales were 3,652 kb/d in 2003 compared to 3,380 kb/d in 2002 (after correcting a reporting disparity related to sales in France).

Downstream segment operating income adjusted for special items increased to 1,970 M€ in 2003 from 909 M€ in 2002. This 117% increase was mainly due to the sharp rebound in European refining margins, averaging $20.9/ton in 2003 compared to $8.0/ton in 2002, and steady marketing margins in Europe combined with the positive impact of self-help programs, only partially offset by the negative impact of the depreciation of the dollar relative to the euro.

(1)

Net income under U.S. GAAP decreased to 6,103 M€ in 2003 from 6,264 M€ in 2002. The difference in net income under French GAAP and under U.S. GAAP reflected the difference in accounting treatment primarily of crude oil and refined products inventories, derivative instruments and hedging activities, goodwill and purchase accounting with respect to the acquisition of control of Elf Aquitaine and PetroFina. See Note 3 of the Notes to the Consolidated Financial Statements for additional information on these differences.

Downstream ROACE was 15% in 2003 compared to 8% in 2002 reflecting primarily the increase in operating income.

Total expenditures by the Downstream segment were 1,235 M€ in 2003, mainly in Europe and Africa, compared to 1,112 M€ in 2002, mainly in Europe and Africa. TOTAL will pursue the strategy of strengthening its positions in Europe and Africa and selectively growing in Asia while improving returns through capital discipline and productivity gains.

Chemicals

Chemicals segment sales (excluding sales to other segments) decreased by 11% to 17,260 in 2003 from 19,317 M€ in 2002, primarily as a result of the divestment in February 2003 of the SigmaKalon paints business and a weaker dollar. Excluding sales of the paints business in both years, sales would have decreased by 2% in 2003 compared to 2002.

Operating income adjusted for special items decreased to 558 M€ in 2003 from 777 M€ in 2002. This 28% decrease reflects the impact of the disposal of the paints business and the impact of the more difficult overall market environment for Chemicals in 2003, which was only partially offset by the positive impact of productivity programs. Within the Chemicals segment, operating income for the Base Chemicals & Polymers sector was negatively affected in 2003 by the persistently very low petrochemical margins in Europe (which only temporarily rebounded in the second quarter), but nevertheless increased due to a significant productivity increase. Operating income in the Intermediates sector was affected by an unfavorable general economic environment and the weak dollar resulting in lower demand, while the Specialties sector showed good resistance despite the weaker dollar.

Chemicals ROACE was 4% in 2003 compared to 5% in 2002 reflecting primarily the decrease in operating income.

Total expenditures by the Chemicals segment decreased to 1,115 M€ in 2003 from 1,237 M€ in 2002. Expenditures in both years were made mainly in Europe, in the United States and in Asia. In 2003, TOTAL entered into a joint venture involving petrochemical assets in South Korea. For additional details on the joint venture, see “Item 4. Information on the Company — Business Overview — Chemicals — Base chemicals and polymers”. With the sale of the SigmaKalon paints business in February 2003, the Company achieved its divestment target of 1.5 B€ for the 2000-2003 divestiture program.

In the Chemicals segment, the Company is targeting growth in high potential areas such as Asia while implementing productivity programs. The Company has announced a strategic reorganization aiming at the creation of an entity including the Chlorochemicals and Intermediates & Performance Polymers activities which had combined sales of approximately 5 B€ in 2003. This entity will primarily focus on improving its performance and the Company intends it to be eventually a strongly competitive, solidly financed, independent player.

Company Results 2002 vs. 2001

Group Results

The 2002 economic and market environment was generally weaker than in 2001 and was characterized by a decline in the U.S. dollar versus the euro, sharp declines in European refining and petrochemicalmargins and crude oil prices that rose slightly to $25.0 per barrel in 2002 from $24.4 per barrel in 2001 and remained at relatively high levels. The benefit from higher crude oil prices, however, was more than offset by lower natural gas prices realized by the Company. The Company launched turnaround operations at a majority of its European refineries in the second half of 2002 that had a negative impact on operating income of approximately 300 M€. In 2002, continued growth, productivity improvements and merger synergies resulting from the self-help programs had a positive impact of approximately 1.3 B€ on operating income.

TOTAL’s sales declined by 2.8 B€, or 3%, to 102,540 M€ in 2002 from 105,318 M€ in 2001.

Operating income decreased to 10,126 M€ in 2002 from 12,777 M€ in 2001.

This 2.7 B€, or 21%, decrease mainly reflects the negative impact of a weaker dollar (-0.7 B€), lower natural gas prices (-0.5 B€), lower European refining margins (-1.1 B€), lower petrochemical margins (-0.4 B€), a higher level of special items (-0.6 B€) and an unusually high level of refinery turnaround operations (temporary shutdowns of refinery facilities for maintenance, overhaul and upgrading) (-0.3 B€), which were partially offset by the positive impact of higher crude oil prices (+0.3 B€), ongoing volume growth (+0.9 B€), productivity improvement and merger synergy benefits (+0.4 B€).

Net income decreased to 5,941 M€ in 2002 from 7,658 M€ in 2001.

This 22% decrease mainly reflects the decline in operating income and the higher level of negative special items than in 2001.

Upstream

Upstream segment sales (excluding sales to other segments) were 16,225 M€ in 2002 compared to 14,365 M€ in 2001, reflecting the impact of increased production volumes.

Operating income adjusted for special items increased to 9,309 M€ in 2002 from 9,022 M€ in 2001. This 3% increase is due to a slight increase in the average price of Brent crude oil in 2002, from $24.4/b to $25.0/b, partially offset by a decline in realized natural gas prices (while in certain cases, contracts for the sale of natural gas determine the gas price by reference to, among other factors, crude oil prices, there is a lag effect of one to several months before the Company realizes a price increase under such contracts).

Upstream ROACE was 23% in 2002, compared to 24% in 2001.

Gas and power assets in Argentina were the subject of a 431 M€ impairment charge in 2002.

Oil and gas production rose in 2002 by 10% to 2.42 Mboe/d from 2.20 Mboe/d in 2001, primarily due to production from large new fields, such as Elgin-Franklin in the UK North Sea, Sincor in Venezuela and Girassol in Angola. In 2002, the Upstream segment’s liquids production represented 66% of its production on an oil equivalent basis and gas represented 34% of production. The Upstream segment’s combined proved reserves of oil and gas increased to 11.20 Bboe at December 31, 2002 from 10.98 Bboe at December 31, 2001. See “Item 4. Information on the Company — Business Overview — Upstream — Reserves — Proved Reserves” for a table showing changes in proved reserves by year and “Supplemental Oil and Gas Information (Unaudited)” contained elsewhere herein for additional information on proved reserves, including tables showing changes in proved reserves by region.

Total expenditures by the Upstream segment decreased to 6,122 M€ in 2002 from 7,496 M€ in 2001, primarily reflecting the 989 M€ investment for acquisitions in 2001 of gas and power assets in South America. Expenditures in both years were made mainly in Angola, Nigeria, Iran, Norway, United Kingdom, Kazakhstan, Venezuela, Bolivia (only 2001) and the United States.

Downstream

Downstream segment sales (excluding sales to other segments) decreased to 66,984 M€ in 2002 from 71,373 M€ in 2001, mainly due to the decrease in refinery throughputs reflecting lower demand.

Downstream segment operating income adjusted for special items decreased to 909 M€ in 2002 from 3,004 M€ in 2001. This 70% decrease was mainly due to the sharp decrease in refining margins averaging $8.0/ton in 2002 versus $15.4/ton in 2001, and declines in both marketing and shipping operating income and a negative impact of approximately 300 M€ of refinery turnaround operations affecting seven of the Company’s twelve European refineries, partially offset by productivity improvements and merger-related synergies which contributed approximately 200 M€ to the Downstream segment’s 2002 operating income.

Downstream ROACE was 8% in 2002 compared to 21% in 2001 reflecting the decrease in operating income.

Total expenditures by the Downstream segment were 1,112 M€ in 2002 compared to 1,180 M€ in 2001, mainly in Europe, Africa and the Mediterranean Rim in both years.

Chemicals

Chemicals segment sales (excluding sales to other segments) were 19,317 M€ in 2002 compared to 19,560 M€ in 2001.

Operating income adjusted for special items decreased to 777 M€ in 2002 from 1,095 M€ in 2001. This 29% decrease was mainly due to the continued decline of petrochemical margins in 2002 as expanding product supply outpaced weak demand. The Base Chemicals & Polymers sector, which contributed approximately 7.72 B€ in sales, was hardest hit with an operating loss of approximately 30 M€, while the Intermediates sector resisted the weaker environment better, with operating income decreasing only moderately, and the Specialties sector improved results year over year.

Chemicals ROACE was 5% in 2002 compared to 7% in 2001 reflecting the decrease in operating income.

Total expenditures by the Chemicals segment decreased to 1,237 M€ in 2002 from 1,611 M€ in 2001, reflecting higher spending in 2001 for certain large-scale projects, such as the steam-cracker at Port Arthur and the plant expansion at Carling. Expenditures were made mainly in Europe and the United States in both years.

Liquidity and Capital Resources

TOTAL’s cash requirements for working capital, share buy-backs, capital expenditures and acquisitions over the past three years were financed primarily by a combination of funds generated from operations, borrowings and divestments of non-core assets. The Company continually monitors the balance between cash flow from operating activities and net expenditures. In the Company’s opinion, its working capital is sufficient for its present requirements.

The largest part (between 70% and 85%) of TOTAL’s capital expenditures are made up of additions to intangible assets and property, plant and equipment, with the remainder attributable to investments in financial assets. In the Upstream segment, as described in more detail under “Supplemental Oil and Gas Information — Costs incurred”, capital expenditures are principally (approximately 80%) development costs (mainly for construction of new production facilities), exploration expenditures (successful or unsuccessful) for about 15% and acquisitions of proved and unproved properties. In the Downstream segment, about 30% of capital expenditures are related to refining activities (essentially 65% for upgrading units and 35% for new construction), the rest being used in marketing/ retail activities and for information systems. In the Chemicals segment, capital expenditures are mainly in the petrochemicals businesses and in rubber production activities.

For detailed information on expenditures per business segment, please refer to the discussion of Company Results for each segment above.

TOTAL’s capital expenditures amounted to 7,728 M€, 8,657 M€ and 10,566 M€, in 2003, 2002 and 2001, respectively. Such expenditures represented a decrease of 11% in 2003 from 2002, and a decrease of 18% in 2002 from 2001. During 2003, 69% of the expenditures were made by the Upstream segment, 16% by the Downstream segment and 14% by the Chemicals segment. During 2002, 71% of the expenditures were made by the Upstream segment, 13% by the Downstream segment, 14% by the Chemicals segment and 2% by Corporate. During 2001, 71% of the expenditures were made by the Upstream segment, 11% by the Downstream segment and 15% by the Chemicals segment. The main source of funding for such expenditures has been cash from operating activities.

Cash flow from operating activities was 12,487 M€ in 2003, compared to 11,006 M€ in 2002 and 12,303 M€ in 2001. TOTAL’s long-term debt amounted to 9,783 M€ at year-end 2003, 10,157 M€ at year-end 2002, and 11,165 M€ at year-end 2001. For further information on the Company’s level of borrowing and the type of financial instruments, including maturity profile of debt and currency and interest rate structure, see Note 17 of the Notes to the Consolidated Financial Statements included in this Annual Report. For further information on the Company’s treasury policies, including the use of instruments for hedging purposes and the currencies in which

cash and cash equivalents are held, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk”. Total divestitures, based on selling price and net of cash sold, were 1,878 M€ in 2003 (including the sale of the SigmaKalon paints business in early 2003), 2,313 M€ in 2002 and 7,004 M€ in 2001.

Proceeds from assets sales amounted to 533 M€, 1,636 M€ and 5,043 M€ in 2003, 2002 and 2001, respectively. In 2003, TOTAL sold certain financial assets and certain non-strategic assets in the Upstream, Downstream and Chemicals segments. In 2002, TOTAL sold certain financial assets, including a portion of its shares in Sanofi-Synthélabo and certain non-strategic assets in the Upstream, Downstream and Chemicals segments. In 2001, TOTAL sold certain financial assets, including a portion of its shares in Sanofi-Synthélabo and most of its stake in Cogema, a company involved in the nuclear power industry, Downstream assets in France as required by the EU Commission following its approval of the acquisition of Elf Aquitaine, and certain non-strategic assets in the Chemicals and Upstream segments.

Shareholders’ equity decreased by 1,740 M€ in 2003 and 1,786 M€ during 2002, and increased by 1,531 M€ in 2001. Changes to shareholders’ equity in 2003, 2002 and 2001 were due primarily to increases in net income, partially offset by the cancellation of treasury shares, the payment of the annual dividend and translation adjustments. During 2003, TOTAL repurchased 31.23 million of its own shares for approximately 4.0 B€. During 2002, TOTAL repurchased 24.03 million of its own shares for approximately 3.4 B€. During 2001, TOTAL repurchased 39.0 million of its own shares for approximately 6.1 B€.

As of December 31, 2003, TOTAL’s net-debt-to-equity ratio, which is the sum of its short term borrowings and bank overdrafts and its long-term debt, net of cash and cash equivalents and short-term investments, divided by the sum of shareholders’ equity, redeemable preferred shares issued by consolidated subsidiaries and minority interest after expected dividends, was 26% compared to 29% at year-end 2002 and 31% at year-end 2001. Over the 2001-2003 period, TOTAL used its net cash flow (cash flow from operating activities less total expenditures plus total divestitures) to slightly reduce this ratio primarily by decreasing net debt (financial short-term debt plus long-term debt less cash and cash equivalents), while higher net income increased shareholders’ equity and repurchases and cancellations of shares decreased shareholders’ equity. As of December 31, 2003, TOTAL S.A. had $7,920 million of long-term confirmed lines of credit, of which $6,487 million were unused.

In 2004, the Company expects to use net cash flow after dividends to maintain its net debt-to-equity ratio in the vicinity of 25% to 30% and to continue to repurchase shares of the Company depending on the environment and the level of divestments.

Off-Balance Sheet Arrangements

Neither TOTAL S.A. or any other members of the Group has any off-balance sheet arrangements that currently have or are reasonably likely to have a material future effect on the Group’s financial condition, changes in financial condition, revenues or expenses, results of operation, liquidity, capital expenditure or capital resources. See Note 24 of the Notes to the Consolidated Financial Statements for information on the Company’s commitments and contingencies.

Contractual Obligations



	Payment due by period

	Less than						More than
	1 year		1-3 years		3-5 years		5 years		Total


	(in millions of euro)
Long-term debt obligations(1)		—		2,853		3,650		2,920		9,423
Current portion of long-term debt(2)		1,630		—		—		—		1,630
Capital (finance) lease obligations(3)		52		96		91		277		516
Operating lease obligations		161		212		103		106		582
Purchase obligations(4)		1,017		781		268		660		2,726

Total		2,860		3,942		4,112		3,963		14,877


(1)	Long-term debt obligations excluding capital lease obligations of 360 M€.


(2)	Current portion of long-term debt excluding capital lease obligations of 27 M€. This amount of 1,630 M€ is included in the item “Short-term borrowings and bank overdrafts” of the balance sheet.

(3)	Capital (finance) lease obligations & operating lease obligations. The Group leases real estate, service stations, ships and other equipment through non-cancelable capital and operating leases. These amounts represent the future minimum lease payments on non-cancelable leases to which the Group is committed as of December 31, 2003.

(4)	Purchase obligations are obligations under contractual agreements to purchase goods or services, including capital projects, that are enforceable and legally binding on the Company, and that specify all significant terms, including the amount and the timing of the payments. These obligations include mainly unconditional hydrocarbon purchase contracts, booking of transport capacities in pipelines, unconditional exploration works and development works in Upstream, and contracts for capital investments projects in Downstream. This disclosure does not include contractual exploration obligations with host states where a monetary value is not attributed, purchase of booking capacities in pipelines where the Group has a participation superior to the capacity used and purchase obligation commitments on fields where the Group is not the operator.

The Group has other obligations in connection with asset retirements, detailed in Note 16 of the Notes to Consolidated Financial Statements, and pension plans, detailed in Note 15 of the Notes to Consolidated Financial Statements. Other long-term liabilities, detailed in Note 16 of the Notes to Consolidated Financial Statements, are liabilities related to risks that are probable and amounts that can be reasonably estimated.

Research and Development

The Group strategy for research and development is focused on its three business segments, principally in the following areas:


	•	Exploration and Production technology to allow access, at acceptable costs, to new energy resources (high pressure/high temperature, deep offshore, heavy crude oils, polyphasic transportation of acidic gas) as well as environmental-friendly technologies such as reduction of greenhouse gas emissions, containment of acidic gas emissions and efficient use of water in the upstream industrial process.

	•	Refining technology to allow the identification, anticipation and the reduction of constraints linked to the operation of facilities, the evolution of specifications and the control of environmental emissions, and marketing technology allowing the creation of innovative products representing sales opportunities.

	•	Chemical processes to increase competitiveness, quality, safety and respect of the environment, in particular on the following themes: new catalysis technology, new polymerization technologies, new products (polymers, elastomers, anti-vibrating systems, new coatings) as well as nano-technology.

Research and development costs amounted to 667 M€ in 2003, 662 M€ in 2002 and 695 M€ in 2001, corresponding to 0.6% of the total sales of the last three years.

Approximately 5,500 employees are dedicated to these research and development activities.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

In accordance with French law governing a société anonyme, the Company’s affairs are managed by its Board of Directors and by its Chairman, President and Chief Executive Officer, who has full executive authority to manage the affairs of the Company.

DIRECTORS AND SENIOR MANAGEMENT

Board of Directors

As of May 31, 2004, the Company’s Board of Directors was comprised of 15 members. The Company’s statuts provide that the number of members of TOTAL’s Board of Directors may be within an unspecified range permitted by French law. French law was amended in May 2001 to reduce the maximum number of directors from 24 to 18. The members are elected by the shareholders of the Company entitled to vote at ordinary general shareholders’ meetings.

The Company’s statuts currently provide that each director elected by the shareholders may serve for a term not to exceed three years. In addition to reviewing and monitoring the Company’s business, the powers generally held by the Board of Directors include the preparation of the Company’s year-end accounts, the presentation of the accounts to the shareholders and the convening of general shareholders’ meetings. Under French law, directors elected by the Company’s shareholders are responsible for actions taken by them that are contrary to the Company’s interests and may be held liable for such actions both individually and jointly with the other directors elected by the shareholders.

The table below sets forth with respect to each director of the Company as of May 31, 2004 the following information: name, year of initial appointment, year of expiration of term, age, principal business activities outside of the Company, and number of shares owned. The Board of Directors considers that all of the directors of the Company are independent with the exception of Mr. Desmarest and Mr. Boeuf. See “— Board Practices — Corporate Governance” below.


								Number of
	Director		Term				Principal Business Activities Outside	Shares
Name	Since		Expires		Age		of the Company	Owned

Thierry Desmarest, Chairman		1995		2007		58	Chairman and Chief Executive Officer of TOTAL S.A.(5)(6). Director of Sanofi-Synthélabo(5)(6) (pharmaceuticals). Member of the Supervisory Board of Air Liquide(5) (industrial and medical gases and related services) and of Areva(5) (nuclear power and connectors). Chairman and Chief Executive Officer of Elf Aquitaine (integrated oil company) since February 15, 2000.		43,300
Daniel Boeuf		2004		2007		56	Director of Training and Skills Management, Specialties sector, TOTAL France. Chairman of the Supervisory Board of the Total Actionnariat France Employee Savings Plan.		1,179	(7)
Daniel Bouton(1)		1997		2006		53	Chairman and Chief Executive Officer of Société Genérale(5) (retail, corporate and investment bank). Director of Schneider Electric S.A.(5) (electrical distribution, industrial control and automation), Arcelor(5) (steel production, distribution, transformation and trading), and of Veolia Environnement(5)(6) (environmental services).		800


								Number of
	Director		Term				Principal Business Activities Outside	Shares
Name	Since		Expires		Age		of the Company	Owned

Bertrand Collomb		2000		2006		61	Chairman of the Board of Lafarge(5)(6) (construction materials). Director of Vivendi Universal(5)(6) (media and telecommunications). Member of the Supervisory Board of Allianz(5)(6) (financial services provider).		1,233
Paul Desmarais Jr.(2)		2002		2005		49	Chairman of the Board and Co-chief Executive Officer of Power Corporation of Canada(6) (management and holding company, financial services and communications sectors). Vice-President and Acting Managing Director of Pargesa Holding (holding company, media, energy, water, waste services and specialty minerals sectors). Member of the Board of Directors and Management Committee of Great West(6) (Canada) (financial services holding company, life and health insurance, investment and retirement savings and reinsurance businesses), Groupe Bruxelles Lambert(5) (Belgium) (holding company, industrial companies of diversified sectors), and of the London Insurance Group Inc. (insurance). Director of Suez(5)(6) (energy, environment, water and waste services).		500
Jacques Friedmann(3)		2000		2006		71	Director of BNP Paribas(5) (retail, corporate and investment banking) and of LVMH(5) (luxury goods).		1,519
Bertrand Jacquillat		1996		2005		59	University Professor. Co-founder and Chairman and Chief Executive Officer of Associés en Finance (financial analysis and valuation).		900


								Number of
	Director		Term				Principal Business Activities Outside	Shares
Name	Since		Expires		Age		of the Company	Owned

Antoine Jeancourt-Galignani		1994		2006		66	Former Chairman of Assurances Générales de France(5) (insurance). Chairman of the Board of Gecina(5) (real estate) and of the Supervisory Board of Euro Disney SCA(5) (operator of Disneyland Resort Paris). Director of Société Générale(5) (retail, corporate and investment banking) and of Kaufman & Broad(5) (residential and commercial development and construction).		865
Anne Lauvergeon(4)		2000		2006		44	Chairman of the Management Board of Areva(5) (nuclear power and connectors). Director of Suez(5)(6) (energy, environment, water and waste services) and of Sagem(5) (communications).		500
Maurice Lippens		2003		2005		60	President of Fortis(5) (banking, insurance and investment services). Director of Suez-Tractebel (energy and power) and of Groupe Bruxelles Lambert(5) (holding company for industrial companies in diversified sectors).		800
Michel Pébereau(3)		2000		2006		61	Chairman and Chief Executive Officer of BNP Paribas(5) (retail, corporate and investment banking). Director of Lafarge(5)(6) (construction materials) and of Saint-Gobain(5) (producer, processor and distributor of materials). Member of the Supervisory Board of AXA(5)(6) (insurance, asset management and financial services). President of the French Banking Federation (professional organization).		589
Thierry de Rudder(2)		1999		2007		54	Acting Managing Director of Groupe Bruxelles Lambert(5) (holding company for industrial companies in diversified sectors). Director of Suez-Tractebel (energy and power).		989
Jürgen Sarrazin		2000		2006		67	Former Chairman of the Management Board of Dresdner Bank (commercial and investment banking).		1,477

Number of

Director

Term

Principal Business Activities Outside

Shares

Name

Since

Expires

Age

of the Company

Owned

Serge Tchuruk(1)

1989

2007

Chairman and Chief Executive Officer of Alcatel(5)(6) (communications). Director of Thales(5) (defense, aerospace and information technology) and of Société Genérale(5) (retail, corporate and investment banking).

25,509

Pierre Vaillaud

2000

2006

Former Chairman and Chief Executive Officer of Elf Aquitaine (integrated oil company) and Technip. Director of Technip(5)(6) (engineering, technological and construction services in the oil and gas and petrochemical sectors) and of Egis (infrastructure services). Member of the Supervisory Board of Cegelec (energy and electrical power, automation, instrumentation and control systems, information and communication technologies) and of Oddo Pinatton (independent brokerage company).

500


(1)	Messrs. Bouton and Tchuruk are Chairman and Chief Executive Officer, and Director, respectively, of Société Générale, which, to the Company’s knowledge, owns 0.1% of the Company’s shares and 0.1% of the voting rights. Messrs. Bouton and Tchuruk disclaim beneficial ownership of such shares.

(2)	Messrs. de Rudder and Desmarais Jr are Managing Director and Director, respectively, of Bruxelles Lambert Group (Belgium), which, to the Company’s knowledge, owns 3.6% of the Company’s shares and 6.7% of the voting rights. Messrs. de Rudder and Desmarais Jr disclaim beneficial ownership of such shares.

(3)	Messrs. Pébereau and Friedmann are Chairman and Chief Executive Officer, and Director, respectively, of BNP Paribas, which, to the Company’s knowledge, owns 0.2% of the Company’s shares and 0.4% of the voting rights. Messrs. Pébereau and Friedmann disclaim beneficial ownership of such shares.

(4)	Ms. Lauvergeon is Chairman of the Managing Board of Areva, which, to the Company’s knowledge, owns 0.3% of the Company’s shares and 0.6% of the voting rights. Ms. Lauvergeon disclaims beneficial ownership of such shares.

(5)	Listed on Euronext.

(6)	Listed on the New York Stock Exchange.

(7)	Held via the TOTAL Actionnariat France Employee Savings Plan.

Executive Officers

Pursuant to the Company’s statuts, general management of the Company is performed under the responsibility of either the Chairman of the Board of Directors (Président du Conseil d’Administration), or by another person appointed by the Board of Directors and bearing the title President and Chief Executive Officer (Directeur Général). The Board of Directors selects one of these methods of exercising general management and once the determination is made, it remains in effect until a contrary decision is made.

Under French law, the President has full executive authority to manage the affairs of the Company. Pursuant to the Company’s statuts, he or she has broad powers to act on behalf of the Company and to represent the Company in dealings with third parties, subject only to those powers expressly reserved to the Board of Directors or the shareholders. The President determines, and is responsible for the implementation of, the goals, strategies and budgets for the Company’s different businesses, which are reviewed and monitored by the Board of Directors.

When general management of the Company is assumed by the Chairman, the legal, regulatory or statutory provisions relative to the President are applicable to him or her, and he or she takes the title of Chairman of the Board, President and Chief Executive Officer (Président-directeur général). When the Board of Directors determines the separate functions of Chairman of the Board of Directors and President-Chief Executive Officer of the Company, the Board appoints a President-Chief Executive Officer, who need not be a member of the Board of Directors, sets the term for his or her appointment, and the degree of his or her powers. Neither the Chairman nor the President-Chief Executive Officer may continue in office beyond his or her sixty-fifth birthday.

The Board of Directors is authorized to appoint up to two Vice Chairman (Vice Président du Conseil d’Administration). On the basis of a proposal by the Company’s President and Chief Executive Officer, the Board of Directors may also appoint Executive Vice Presidents (Directeur Général Délégué) to assist the President. In 2003, TOTAL amended its Articles of Incorporation to provide for the election of one Director to represent employee shareholders. Mr. Daniel Boeuf was appointed as this director at the shareholders meeting held on May 14, 2004.

The management of the Company is carried out by the Executive Committee and the Management Committee. The Executive Committee is the primary decision-making body, defining Company strategy and authorizing related investments. It also prepares decisions that fall within the purview of the Board of Directors. The Executive Committee meets twice monthly, or as often as necessary. The Management Committee facilitates coordination between the various units of the Company, monitors the results of the operational divisions and reviews the activity reports of the functional divisions. It includes all members of the Executive Committee (seven persons) as well as 20 senior managers from the various operational and functional divisions.

The table below sets forth the name of each executive officer (collectively, the “Executive Officers”) of the Company as of May 31, 2004, his position with the Company and the year as of which he served as an executive officer of the Company. Each executive officer devotes 100% of his business activities to the Company:


Name	Position	Officer Since

Thierry Desmarest	Chairman and Chief Executive Officer of TOTAL		1989
François Cornélis*	Executive Vice-President of TOTAL, and President of Chemicals		1999
Robert Castaigne	Executive Vice-President of TOTAL, and Chief Financial Officer		1990
Yves-Louis Darricarrère	Executive Vice-President of TOTAL, and President of Gas and Power		2000
Christophe de Margerie	Executive Vice-President of TOTAL, and President of Exploration and Production		1992
Jean-Paul Vettier	Executive Vice-President of TOTAL, and President of Refining and Marketing		1990
Bruno Weymuller	Executive Vice-President of TOTAL, and President of Strategy and Risk Assessment		2000
Michel Bénézit	Senior Vice-President, Northern Europe, Exploration and Production Division		1995
Michel Bonnet	Senior Vice-President, Executive Career Management		2000
Alain Champeaux	Senior Vice-President, Overseas, Refining and Marketing Division		1999
Pierre-Christian Clout	Senior Vice-President, Hutchinson, Engineering Polymers, Chemicals Division		2002
Jean-Claude Company	Senior Vice-President, Refining, Refining and Marketing Division		1995
Jean-Michel Gires	Senior Vice-President, Sustainable Development and Environment		2003
Philippe Goebel	Senior Vice-President, Acrylics, PMMA Chlorochemicals, Chemicals Division		2002
François Groh	Senior Vice-President, President of Trading and Shipping		2002
Jean-Jacques Guilbaud	Senior Vice-President, Human Resources and Corporate Communications		1998


Name	Position	Officer Since

Pierre Guyonnet	Senior Vice-President, Industrial Safety		2002
Ian Howat	Senior Vice-President, Strategy, Strategy and Risk Assessment Division		1995
Pierre Klein	Senior Vice-President, Administration, Refining and Marketing Division		2002
Jean-Bernard Lartigue	Senior Vice-President, Petrochemicals, Chemicals Division		2000
Jean-Marie Masset	Senior Vice-President, Geosciences, Exploration and Production Division		2002
Charles Mattenet	Senior Vice-President, Strategy, Business Development, Research, Exploration and Production Division		2002
Eric de Menten	Senior Vice-President, Marketing Europe, Refining and Marketing Division		2002
Jean Privey	Senior Vice-President, Africa, Exploration and Production Division		2002
Jean-Pierre Seeuws	Senior Vice-President, North America, Organic Peroxides, Additives, Chemicals Division		1990
André Tricoire	Senior Vice-President, Marketing France, Refining and Marketing Division		2000
Hugues Woestelandt	Senior Vice-President, Resins, Paints and Adhesives, Performance Polymers, Chemicals Division		1998
Charles Paris de Bollardière	Treasurer		1999


*	Vice-Chairman of the Executive Committee

There are no family relationships between any director and Executive Officer. No director or Executive Officer was elected or appointed as a result of any arrangement or understanding with any third party.

COMPENSATION

The aggregate amount paid directly or indirectly by the French and foreign affiliates of the Company as compensation to the Executive Officers as a group was 14.6 M€ in 2003 (28 Executive Officers), which is equal to the amount paid in 2002 (29 Executive Officers). For the seven members of the Executive Committee, compensation amounted to 6.94 M€ in 2003. Variable compensation accounted for 35.5% of the aggregate amount in 2003. Executive Officers who are directors of affiliates of the Company are not entitled to retain any directors’ fees.

Mr. Thierry Desmarest’s total gross compensation including benefits in kind paid in 2003 amounted to 2,528,076 euro. This compensation, set by the Board of Directors, is composed of a fixed base salary of 1,297,051 euro in 2003, the same amount as in 2002, and a variable portion, which is computed using the previous year’s fixed base salary as the basis, which amounted to 1,231,025 euro in 2003. The variable portion is calculated by taking into account the Group’s return on equity during the relevant fiscal year, as well as comparing the results to those of the other major international oil companies. The variable portion that will be paid to Mr. Thierry Desmarest in 2004, based on the Group’s results for fiscal year 2003, amounts to 1,490,188 euro. Mr. Thierry Desmarest’s total gross compensation was 2,409,952 euro in 2002 and 2,225,070 euro in 2001. There is no specific pension scheme for the Chairman, who instead is eligible for the same complementary pension scheme as the Group’s other officers.

The amount paid to the members of the Board of Directors as directors’ fees was 0.67 M€ in 2003 in accordance with the decision of the Ordinary Shareholders’ Meeting held on March 22, 2000. There were 14 directors as of December 31, 2003 compared with 16 as of December 31, 2002.

The aggregate amount of 0.67 M€ paid as directors’ fees in 2003 was distributed as follows:


	•	a fixed amount of € 15,000 per director (paid prorata temporis in case of a change during the period);

	•	an amount of € 4,500 per director for each meeting of the Board of Directors, of the Audit Committee or of the Nomination and Remuneration Committee attended.

For information on stock option grants to directors and Executive Officers in 2003, see “— Share Ownership — Options held by Directors and Executive Officers” below.

BOARD PRACTICES

Corporate Governance

TOTAL actively examines corporate governance matters. In particular, the Group maintains a policy of transparency regarding the compensation of and the allocation of stock purchase and subscription options to its corporate officers.

As early as 1995, the Group established two special committees: a Nomination and Remuneration Committee and an Audit Committee.

At its meeting on February 19, 2003, the Board of Directors amended the corporate governance policies initially adopted in 1995 and in 2001 to take into account recent developments in this area and made a determination regarding each director’s independence. The basic principles are summarized below.

In early 2003, a Disclosure Committee composed of members of management of the Company was formed in order to examine disclosure to the financial community and to assist management in creating and monitoring disclosure controls and procedures.

At its meeting on February 18, 2004, the Board of Directors adopted a code of ethics that applies to its chief executive officer, chief financial officer, chief accounting officer and the financial and accounting officers for its principal activities. A copy of this code of ethics is included as an exhibit to this annual report. See “Item 16B. Code of Ethics”.

Directors charter

The Directors Charter specifies the obligations of each director and establishes the mission and operating rules and regulations of the Board of Directors. Each director undertakes to maintain his independence of judgment and participate actively in the work of the Board, specifically on the basis of information communicated to him by the Company. Each director must inform the Board of conflicts of interest that may arise, including the nature and terms of any proposed transactions that could give rise to such situations. When such occasions arise, he is required to clearly express the conflict as it pertains to the plans and projects discussed by the Board. He is required to own at least 500 registered company shares (with the exception of the director representing employee shareholders, who is required to own either at least one share or the equivalent of one share via an employee savings plan) and comply strictly with provisions regarding the use of material non-public information.

In addition to stipulating that all director’s shares and ADRs of TOTAL S.A. and its publicly traded subsidiaries are to be held in registered form, the Directors Charter places a prohibition on buying on margin or short selling in those same securities, and a prohibition on trading shares of TOTAL S.A. for fifteen calendar days preceding the announcement of the Company’s periodic earnings and on the day of the announcement.

The mission of the Board of Directors consists of determining the overall strategic direction of the Company’s operations and supervising the implementation of these strategies. With the exception of the powers and authority expressly attributed to shareholders and within the limits of the company’s stated purpose, the Board addresses any issues related to the proper operation of the Company and takes decisions concerning the matters falling within its purview. Within this framework, and among other matters, the Board:


	•	Appoints the corporate officers responsible for managing the Company and supervising its operations;

	•	Defines TOTAL’s strategy;

	•	Discusses and debates major transactions considered by the Group, and may impose terms and conditions;

	•	Is kept informed of any significant event pertaining to the operations of the Company;

	•	Oversees the quality of the information supplied to shareholders and the financial markets through the financial statements that it approves and the annual report, or when major transactions are conducted;


	•	Calls and sets the agenda of Shareholders’ Meetings;

	•	Each year prepares a list of directors it deems to be independent under generally accepted corporate governance criteria; and

	•	Performs audits and inspections as it deems appropriate.

Specifically, with the assistance of its specialized committees, it ensures the following:


	•	Proper delegation of powers and authority within the Company as well as proper exercise of the respective powers and responsibilities of the Company’s governing bodies;

	•	That no person has the power to commit the Company without proper supervision and control;

	•	The proper functioning of internal audit bodies and that the external auditors’ satisfactorily perform their mission; and

	•	The proper functioning of the committees that it has created.

The Board of Directors meets at least four times a year and whenever circumstances so require.

The directors are present, represented, or participate in meetings via video conferences that satisfy the technical requirements set by applicable regulations. The Board establishes specialized committees, whether permanent or temporary, which are required by applicable legislation or which it deems appropriate. The Board allocates directors’ fees to the directors and may allocate additional directors’ fees to directors who participate on specialized Committees, within the total amount established for that purpose by the Shareholders. The Board performs an assessment of its own functioning and operations at regular intervals not to exceed three years. In addition, it holds an annual discussion of its functioning and operations.

The Company does not have any service contracts with its directors providing for benefits upon termination of employment.

The Audit Committee

The mission of this committee is to assist the Board of Directors so that the latter can ensure the quality of internal auditing and oversight and the reliability of the information provided to shareholders as well as to financial markets. The Audit Committee performs the following specific tasks:


	•	Recommends the appointment of auditors and their compensation, and ensures their independence;

	•	Establishes the rules for the use of auditors for work other than auditing accounts;

	•	Examines the assumptions employed in preparing financial reports, studies the financial statements of the holding company and the consolidated annual, semi-annual, and quarterly financial statements prior to their examination and review by the Board, having regularly reviewed the financial situation, cash flow situation, and the obligations of the Group;

	•	Evaluates internal audit procedures and ensures the establishment and proper operation of a committee to review and verify the data to be published, review its conclusions;

	•	Approves the annual audit scope of internal auditors and external auditors’ audit scope;

	•	Examines internal audit reports and other reports (external auditors, annual report, etc.), supervises the application of the code of ethics for financial officers;

	•	Evaluates the organization of the delegation of authority and the appropriateness of risk monitoring and oversight procedures;

	•	Evaluates and assesses the appropriateness of the selection of accounting principles and methodologies;

	•	Examines the conditions for the use of derivatives products;

	•	Issues an opinion regarding major transactions contemplated by the Group; and


	•	Reviews significant litigation annually.

The committee is made up of at least three directors designated by the Board of Directors. Independent directors must constitute at least two-thirds of the members. The Board of Directors considers that all of the members of the Audit Committee are independent. In selecting the members of the committee, the Board is to pay particular attention to their financial and accounting qualifications. Members of the Audit Committee may receive from the Company and its subsidiaries only (i) the directors fees due on the basis of their positions as Directors and as members of the Audit Committee and (ii) compensation and pensions due for previous work for the Company which are not dependant upon future work or activities. The committee appoints its own Chairman. The Group Chief Financial Officer serves as the committee secretary. At the minimum, the committee meets four times a year to examine the consolidated annual and quarterly financial statements.

The Audit Committee may meet with the Chief Executive Officer and perform visits or hold meetings with the managers of operating or functional entities that are appropriate to the accomplishment of its mission. The committee is required to interview the Auditors and examine their work. It may meet with them without any Company representatives being present. If it deems it necessary for the accomplishment of its mission, the committee may request from the Board the means and resources to make use of outside assistance. The committee is required to submit a written report to the Board of Directors regarding its work.

The committee members are Messrs. Jacques Friedmann, Bertrand Jacquillat and Thierry de Rudder. Committee members’ length of service as TOTAL directors is, as of December 31, 2003, three years, seven years, and four years, respectively. At its meeting on February 18, 2004, the Board of Directors confirmed the appointment of Mr. Jacques Friedmann, Inspector General of Finance, former chairman and chief executive officer of Union des Assurances de Paris, director of BNP Paribas, as audit committee financial expert. See “Item 16A. Audit Committee Financial Expert”.

Audit Committee activity in 2003

The Audit Committee met on six occasions in 2003, with an attendance rate of 100%. The actions taken at the meetings included:


	•	examining the consolidated financial statements of the Group and the financial statements of TOTAL S.A.;

	•	examining the accounting and outsourcing of company commitments;

	•	examining the methods of implementing the accounting standard FAS 143, which modifies the rules for calculating the provisions for asset retirement obligations used in the Group’s consolidated financial statements;

	•	examining the May 2004 expiration of the appointments of the independent auditors and the conditions for extending their appointments;

	•	examining the conditions under which the independent auditors may be retained for non-audit services;

	•	examining the consequences for the Group of the French Financial Security Act (Loi de Sécurité Financière) of August 1, 2003;

	•	examining the Group’s internal audit framework; and

	•	reviewing the Group’s commitments under the French law of August 21, 2003 concerning pensions.

Every quarter, the Audit Committee examined the Group’s financial condition and the work conducted by the internal audit department.

The Nomination and Remuneration Committee

The principal objectives of this committee are to:


	•	Recommend to the Board of Directors the persons that are qualified to be appointed as directors or corporate officers and to prepare the corporate governance rules and regulations that are applicable to the Company; and

	•	Review and examine the executive compensation policies implemented in the Group and the compensation of members of the Executive Committee, recommend the compensation of the Chief Executive Officer, and prepare any report that the Company must submit on these subjects.

It performs the following specific tasks:


	•	With respect to nomination:


	•	Assists the Board in the selection of directors, corporate officers, and directors as committee members.

	•	Recommends annually to the Board the list of directors who may be considered as “independent directors” of the Company.


	•	With respect to remuneration:


	•	Makes recommendations and proposals to the Board regarding:


	•	Compensation, the retirement and pension system, in-kind benefits, and other financial benefits of the corporate officers of TOTAL S.A., including retirement.

	•	Allocations of stock subscription or purchase options and specifically allocations to corporate officers by name.


	•	Examines the compensation of members of the Executive Committee, including stock option plans and plans based on movements in share price (“equity-based plans”), retirement and pension systems, and benefits in-kind.

The committee is made up of at least three Directors designated by the Board of Directors. Independent directors must represent a majority of the members. Members of the Nomination and Remuneration Committee may receive from the Company and its subsidiaries only (i) the directors’ fees due on the basis of their positions as Directors and as members of the Nomination and Remuneration Committee and (ii) compensation and pensions due for previous work for the Company which are not dependent upon future work or activities. The committee appoints its Chairman and its secretary. The latter must be a senior executive of the Company. The committee meets at least twice a year.

The committee invites corporate officers to submit recommendations and proposals. No corporate officer directly concerned may not be present for deliberations regarding his own situation. While appropriately maintaining the confidentiality of discussions, the committee may request the assistance of any executive manager of the Company whose skills and qualifications could facilitate the handling of an agenda item. If it deems it necessary to accomplish its mission, the committee may request from the Board the means and resources to make use of outside assistance. The committee submits reports to the Board of Directors regarding its work.

The Committee met twice in 2003 with 100% attendance. Its members are Messrs. Bertrand Collomb, Michel Pebereau and Serge Tchuruk, all of whom are independent directors. The committee is chaired by Mr. Michel Pébereau.

The committee proposed to the Board of Directors the list of independent directors according to generally recognized criteria for corporate governance who did not have any significant relationship with TOTAL S.A. At its meeting on February 19, 2003, the Board recognized the following persons as independent directors of the Company: Messrs. Barsalou, Bouton, Collomb, Desmarais, Dupont, Friedmann, Jacquillat, Jeancourt-Galignani, Ms. Lauvergeon, Messrs. Lippens, Pébereau, de Rudder, Sarrazin, Studer, Tchuruk and Vaillaud. On February 18, 2004, the Board confirmed that Messrs. Bouton, Collomb, Desmarais, Friedman, Jacquillat, Jeancourt-Galignani,

Ms. Lauvergeon, Messrs. Lippens, Pébereau, de Rudder, Sarrazin, Tchuruk, and Vaillaud were independent directors.

Pursuant to the recommendations of the AFEP-MEDEF report of September 2002, a formal evaluation of the functioning and operations of the Board of Directors was undertaken by an outside firm in November and December 2003.

Summary of Significant Differences Between French Corporate Governance Practices and the NYSE’s Corporate Governance Standards

Overview

The following paragraphs provide a brief, general summary of significant differences between the corporate governance standards followed by TOTAL under French law and guidelines and those required by the listing standards of the New York Stock Exchange (the “NYSE”) for U.S. companies that have common stock listed on the NYSE.

The principal sources of corporate governance standards in France are the French Commercial Code (Code de Commerce) and the French Financial and Monetary Code (Code monétaire et financier), both as amended in August 2003 by the French Financial Security Act (Loi de sécurité financière), as well as a number of general recommendations and guidelines on corporate governance, most notably the AFEP-MEDEF Report (a consolidated version of reports issued in 1995, 1998 and 2002 published in October 2003). The AFEP-MEDEF Report includes, among others, recommendations relating to the role and operation of the board of directors (creation, composition and evaluation of the board of directors and the audit, compensation and nominating committees) and the independence criteria for board members. The French Financial Security Act prohibits statutory auditors from providing certain non-audit services and defines certain criteria for the independence of auditors. In France, the independence of statutory auditors is also monitored by an independent body, the High Council for Statutory Auditors (Haut Conseil du commissariat aux comptes).

The NYSE listing standards are available on the NYSE’s website at http://www.nyse.com.

Composition of Board of Directors; Independence.

The NYSE listing standards provide that the board of directors of a U.S. listed company must consist of a majority of independent directors and that certain committees must consist solely of independent directors. A director qualifies as independent only if the board affirmatively determines that the director has no material relationship with the company, either directly or indirectly. In addition, the listing standards enumerate a number of relationships that preclude independence.

French law does not contain any independence requirement for the members of the board of directors of a French company and the functions of board chairman and chief executive officer are frequently performed by the same person. The AFEP-MEDEF Report recommends, however, that at least half of the members of the board of directors be independent in companies that have a dispersed ownership structure and no controlling shareholder. The report states that a director is independent when “he or she has no relationship of any kind whatsoever with the corporation, its group or the management of either that is such as to color his or her judgment.” The report also enumerates specific criteria for determining independence, which are on the whole consistent with the goals of the NYSE’s rules although the specific tests under the two standards may vary on some points.

Based on the proposal of the Nomination and Remuneration Committee, the Board of Directors of TOTAL considers that all of the directors of the Company are independent with the exceptions of Mr. Desmarest, Chairman and Chief Executive Officer of the Company, and Mr. Boeuf, the director representing employee shareholders.

Board committees

Overview. The NYSE listing standards require that a U.S. listed company have an audit committee, a nominating/ corporate governance committee and a compensation committee. Each of these committees must

consist solely of independent directors and must have a written charter that addresses certain matters specified in the listing standards.

French law requires neither the establishment of board committees nor the adoption of written charters. The AFEP-MEDEF Report recommends, however, that the board of directors set up an audit committee, a nominating committee and a compensation committee, indicating that the nominating and compensation committees may form one committee. The report also recommends that at least two-thirds of the audit committee members and a majority of the members of each of the compensation committee and the nominating committee be independent directors.

TOTAL has established an Audit Committee and a combined nominating and compensation committee called the Nomination and Remuneration Committee and considers all of the members of these committees to be independent. For the membership of each committee, see “— Corporate Governance” above. Each of these committees has a charter that defines the scope of its activity.

Audit committee. The NYSE listing standards contain detailed requirements for the audit committees of U.S. listed companies. Starting on July 31, 2005, some, but not all, of these requirements will also apply to non-U.S. listed companies, such as TOTAL. For the time being, however, the NYSE listing standards do not require that non-U.S. listed companies, such as TOTAL, have an audit committee.

The AFEP-MEDEF Report recommends that French public companies establish an audit committee that is responsible for, among other things, examining the company’s risk exposures and material off-balance sheet commitments and the scope of consolidation, reviewing the financial statements, managing the process of selecting the statutory auditors, expressing an opinion on the amount of their fees and monitoring compliance with the rules designated to ensure auditor independence, regularly interviewing statutory auditors without executive management present and which may call outside experts if necessary.

Although the audit committee recommendations of the AFEP-MEDEF Report are less detailed than those contained in the NYSE listing standards, the NYSE listing standards and the AFEP-MEDEF Report share the goal of establishing a system for overseeing the company’s accounting that is independent from management and of ensuring the auditor’s independence. As a result, they address similar topics, and there is some overlap.

For the specific tasks performed by the Audit Committee of TOTAL, which exceed those recommended by the AFEP-MEDEF Report, see “— Corporate Governance — The Audit Committee” above.

One structural difference between the legal status of the audit committee of a U.S. listed company and that of a French listed company concerns the degree of the committee’s involvement in managing the relationship between the company and the auditor. French law requires French companies that publish consolidated financial statements, such as TOTAL, to have two co-auditors. While the NYSE listing standards require that the audit committee of a U.S. listed company have direct responsibility for the appointment, compensation, retention, and oversight of the work of the auditor, French law provides that the election of the co-auditors is the sole responsibility of the shareholders’ meeting. In making its decision, the shareholders’ meeting may rely on proposals submitted to it by by the board of directors, the decision of the latter being taken upon consultation with the audit committee. The shareholders’ meeting elects the auditors for an audit period of six fiscal years. The auditors may only be dismissed by a court and only on grounds of professional negligence or the incapacity to perform their mission.

Disclosure

The NYSE listing standards require U.S. listed companies to adopt, and post on their websites, a set of corporate governance guidelines. The guidelines must address, among other things: director qualification standards, director responsibilities, director access to management and independent advisers, director compensation, director orientation and continuing education, management succession, and an annual performance evaluation. In addition, the chief executive officer of a U.S. listed company must certify to the NYSE annually that he or she is not aware of any violations by the company of the NYSE’s corporate governance listing standards. The certification must be disclosed in the company’s annual report to shareholders.

French law requires neither the adoption of such guidelines nor the publication of such certifications. The AFEP-MEDEF Report recommends, however, that the board of directors of a French public company perform annual self-evaluations and that a formal evaluation by an outside consultant be undertaken every three years, which for TOTAL took place in November and December 2003, and that shareholders be informed each year in the annual report of the evaluations.

Code of business conduct and ethics

The NYSE listing standards require each U.S. listed company to adopt, and post on its website, a code of business conduct and ethics for its directors, officers and employees. There is no similar requirement or recommendation under French law. However, under the SEC’s rules and regulations, all companies required to submit periodic reports to the SEC, including TOTAL, must disclose in their annual reports whether they have adopted a code of ethics for their principal executive officer and senior financial officers. In addition, they must file a copy of the code with the SEC, post the text of the code on their website or undertake to provide a copy upon request to any person without charge. There is significant, though not complete, overlap between the code of ethics required by the NYSE listing standards and the code of ethics for senior financial officers required by the SEC’s rules. For a discussion of the code of ethics adopted by TOTAL, see “— Corporate Governance” above.

EMPLOYEES

At December 31, 2003, TOTAL employed 110,783 people worldwide, primarily in Europe, compared with 121,469 at December 31, 2002 and 122,025 at December 31, 2001. The sale of the SigmaKalon Paints activity effective in February 2003 resulted in a reduction of about 10,000 employees in the Chemicals segment. The tables below set forth the segments and geographic location in which employees worked at December 31, 2003, 2002 and 2001.


	Upstream		Downstream		Chemicals		Corporate		Total

2003		14,017		34,410		61,212		1,144		110,783
2002		14,019		35,054		71,268		1,128		121,469
2001		13,870		35,743		71,312		1,100		122,025


			Rest of		Rest of
	France		Europe		the World		Total

2003		49,637		30,128		31,018		110,783
2002		52,915		37,584		30,970		121,469
2001		52,988		38,570		30,467		122,025

TOTAL believes that the relationship between its management and labor unions is in general satisfactory.

SHARE OWNERSHIP

Shares held by Directors and Executive Officers

Each director elected by the shareholders of the Company at an ordinary general shareholders’ meeting must own beneficially at least 500 shares (with the exception of the director representing employee shareholders, who is required to own either at least one share or the equivalent of one share via an employee savings plan) during his or her term of office (see table presenting the Board of Directors).

None of the directors or Executive Officers beneficially owned, or held options to purchase, 1% or more of the shares of the Company.

At May 31, 2003, based on registered shares held (and including, in the case of Mr. Boeuf, shares held via the TOTAL Actionnariat France Employee Savings Plan), the members of the Board of Directors including the Chairman held 80,660 shares and the Executive Officers held 263,271 shares.

Options Held by Directors and Officers

TOTAL SHARE SUBSCRIPTION AND PURCHASE OPTIONS GRANTED TO

DIRECTORS(1) AND EXECUTIVE OFFICERS AS A GROUP AS OF APRIL 30, 2004:


	1998		1999		2000		2001		2002		2003
	Purchase		Purchase		Purchase		Purchase		Purchase		Subscription
	Plan		Plan		Plan		Plan		Plan		Plan		Total

Exercise price (in euro)		93.76		113.00		162.70		168.20		158.30		133.20
Expiration date		03/17/2006		06/15/2007		07/11/2008		07/10/2009		07/09/2010		07/16/2011
Options granted prior to January 1, 2003		135,200		213,500		248,800		308,650		334,300		—		1,240,450
Outstanding options as of January 1, 2003		135,200		213,500		248,800		308,650		334,300		—		1,240,450
Options granted in fiscal year 2003		—		—		—		—		—		356,500		356,500
Options exercised in fiscal year 2003		35,000		15,000		0		0		0		0		50,000
Outstanding options as of December 31, 2003		100,200		198,500		248,800		308,650		334,300		356,500		1,546,950
Options exercised between January 1 and April 30, 2004		13,050		0		0		0		0		0		13,050
Outstanding options as of April 30, 2004		87,150		198,500		248,800		308,650		334,300		356,500		1,533,900


(1)	As of April 30, 2004, Mr. Desmarest was the sole director holding options.

TOTAL SHARE SUBSCRIPTION AND PURCHASE OPTIONS GRANTED TO

MR. THIERRY DESMAREST, CHAIRMAN OF THE BOARD, PRESIDENT AND

CHIEF EXECUTIVE OFFICER OF TOTAL S.A.

1998

1999

2000

2001

2002

2003

Purchase

Subscription

Plan

Total

Exercise price (in euro)

93.76

113.00

162.70

168.20

158.30

133.20

Expiration date

03/17/2006

06/15/2007

07/11/2008

07/10/2009

07/09/2010

07/16/2011

Options granted prior to January 1, 2003

30,000

40,000

50,000

75,000