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THE WALL STREET JOURNAL: Total's Net Profit Declines 37% Despite Jump in Energy Prices

By ANNE-SYLVAINE CHASSANY
February 16, 2006; Page A2
PARIS — French oil company Total SA said the impact of the Sanofi-Aventis merger and a switch in accounting for inventory led to a 37% drop in quarterly earnings, despite a surge in global energy prices.
However, high oil prices and solid refining margins led to a 13% rise in full-year profit and Total said it would boost its dividend by 20%.
Fourth-quarter net profit for Total, the world's fourth-largest oil company by market capitalization, slipped to €2.34 billion ($2.79 billion) from €3.73 billion a year earlier. Its latest results include a new inventory accounting method, while year-earlier results included a gain related to the merger that created Sanofi-Aventis, in which Total holds a stake.
Fourth-quarter revenue rose 19% to €39.9 billion.
Total reported a record full-year net profit of €12.3 billion, 13% higher than the year before. The company said it would return some of the money to shareholders by increasing its dividend to €6.48 a share.
Total's shares ended at €214.40 ($255.51), off 90 European cents, in Paris.
Total's closely watched estimated reserves-replacement ratio for the year was 95% using rules set by the Securities and Exchange Commission. Companies typically try to achieve a replacement rate of 100% to satisfy investors worried about future production growth. Royal Dutch Shell PLC and BP PLC each reported a ratio below 100% earlier this month. Total's ratio means that it didn't replace all the energy it pumped out of the ground last year.
Total said its reserve-replacement rate would have been 120%, exceeding what it pumped out of the ground, excluding the impact of changing oil prices and assuming an oil price of $40 a barrel.
Probable hydrocarbon reserves, the basis for Total's future output estimates and capital expenditure decisions, stood at 20 billion barrels of oil equivalent at the end of 2005, up from 18.4 billion a year earlier.
The exploration and production division was Total's main growth driver in 2005, benefiting from soaring oil prices. Total's hydrocarbon output fell 6% in the fourth quarter, leading to a 4% drop for the whole year to 2.49 million barrels of oil equivalent per day, mainly because of the effect of oil-price climbs on some production-sharing contracts, the company said. Oil prices jumped around 40% last year, reaching $70 a barrel at one point.
Its refining operations were hit by outages after the hurricanes in the U.S. Gulf of Mexico, especially in the fourth quarter. But robust margins throughout the year more than offset the storms' impact.
Write to Anne-Sylvaine Chassany at [email protected]

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