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Financial Times: Total defends profits after outcry by unions

By Peggy Hollinger in Paris
Published: February 15 2006 10:49 | Last updated: February 15 2006 21:50
Total, the world’s fourth largest oil group by income, on Wednesday reignited the debate about corporate profitability in France as it posted a record €12.6bn ($15bn) annual net profit on the back of last year’s high oil prices.
Thierry Desmarest, executive chairman, hit out at the latest wave of criticism over the oil company’s 31 per cent increase in net profits. He said France would have to decide whether it wanted strong independent companies or takeover targets.
“For a company to survive it has to make profits,” he said.
“If we want companies that can resist being taken over, you have to be the size of Total. If you want all oil companies to be based elsewhere, it only has to be said. Or else we want performing companies of a global scale that can remain independent and based in France.”
Mr Desmarest’s outburst came after Total’s profits were attacked by consumer groups and unions as excessive, and is likely to revive the debate over whether the basis on which companies are taxed should be re-examined. UFC-Que Choisir, the consumer lobby group, yesterday called for a €5bn tax to be imposed on Total profits to fund transport investment.
The outcry also echoes political concerns in the UK and US about oil company profitability in a climate of high oil prices.
Mr Desmarest said that clearly the group’s profitability in 2005 had been helped by high oil prices – Brent crude was 42 per cent higher than last year at $54.50 a barrel – as well as an improvement in refining margins. Oil and gas production net operating profit rose 37 per cent from €5.9bn to €8bn, while refining and marketing operations delivered a 25 per cent improvement to €2.9bn from €2.3bn.
However high oil prices, strikes and hurricanes had an adverse effect on the group’s production in 2005, which fell 4 per cent.
Mr Desmarest reiterated his forecast of a 4 per cent annual rise in production between 2005 and 2010, with significant growth expected in Africa.
He refused to be drawn on expectations for the oil price in 2006, although the production forecast was based on a price of $40 a barrel, significantly below the average for 2005.
Total had a reserve replacement rate of 120 per cent, he said, with proven and probable reserves of 20bn barrels of oil equivalent at the end of 2005.
Mr Desmarest also said the group expected to step up its capital expenditure from an annual $11bn to roughly $13.5bn a year to 2010.
The dividend was increased 20 per cent to €6.48 per share.

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