"Our accomplishments in 2000 were exceptional"
The year 2000 was a milestone in the history of the TotalFinaElf Group. After obtaining the approval of the European Commission on February 9, we merged Totalfina and Elf Aquitaine to create TotalFinaElf, one of the world's foremost oil companies.
The new organizations were put in place in just a few months, and the initial synergies generated have confirmed the potential of the combination of the two companies.
Drawing on the skills and hard work of TotalFinaElf's employees, the support of shareholders and the loyalty of our customers, we have created an efficient and profitable Group with global scale and unrivaled growth prospects. More than ever, now that we are a leading player in the oil and natural gas industry, the values and methods that ensured our success are our key assets. In keeping with its industrial responsibilities, TotalFinaElf is committed to efficient energy use and energy conservation, taking into account the needs of current consumers and the interests of future generations. The Group's paramount operating priorities are safety, environmental protection and excellence in facilities and product quality.
In this respect, I wanted the new Group to immediately set out formal guidelines governing actions and behavior in a Code of Conduct and a new Health, Safety, Environment and Quality Charter.
In addition, by creating a Sustainable Development Task Force reporting to senior management, I also wanted to encourage all TotalFinaElf operating segments to incorporate the social, economic and environmental responsibilities of sustainable development into their operations and long-term goals.
To demonstrate how we shared the public's concern with regard to the impact of the Erika wreck, the Group has made significant commitments through the Atlantic Coast Task Force to contribute to the coastline remediation, pump out the tanker's remaining cargo - which was done during the summer of 2000 -, remove waste and restore the coastal region's ecological balance. The task force has a budget of more than FRF 1 billion, entirely funded by the Group, and is continuing to process waste and finish the coastline cleanup. The task force will continue to work until all its commitments have been fulfilled. In its first financial year, TotalFinaElf enjoyed a favorable economic environment that buoyed our results. The average price of Brent crude oil rose sharply, to $28.5 per barrel in 2000 from $18 per barrel in 1999. The dollar gained 16% against the euro, while European refining margins climbed to $23.8 per metric ton from $9.7 per metric ton. These market parameters combined to contribute 7.3 billion euros to operating income.
Net attributable income from business segments in 2000, excluding non-recurring items, was 7.6 billion euros, an increase of 128% over the pro forma 1999 figure.
"I wanted TotalFinaElf's three businesses to incorporate the social, economic and environmental responsibilities of sustainable development into their operations and long-term goals."
The exceptional oil industry environment in 2000 should not, however, overshadow the success of initiatives undertaken by the Group and its teams to increase production, improve productivity and generate synergies from the mergers. These initiatives added 1.2 billion euros to operating income, in line with the target of increasing operating income by 4.4 billion euros a year by 2003.
Operating income from the upstream business rose 146% to 10.1 billion euros. Exploration results were impressive, in particular in Bolivia, Nigeria, Kazakhstan and Angola. Proved reserves increased by 3%; production by 6%, excluding price and scope effects. Development spending was sustained, especially for major projects such as Sincor in Venezuela, Elgin and Franklin in the United Kingdom, South Pars in Iran and Girassol in Angola. Lastly, technical costs were reduced to $7.2 per barrel.
At year-end 2000, all Totalfina and Elf Aquitaine teams in countries where both companies already operated had been combined. In light of the reorganizations stemming from this merger, the synergy objectives set for 2003 have been confirmed.
The Group's priority is to grow its upstream business by developing large, low-cost oil and gas projects. Special mention should be made of the deep offshore, in which TotalFinaElf is a world leader with recognized assets such as high-tech expertise and first-class acreage in the Gulf of Guinea and the Gulf of Mexico. In addition, the Group aims to leverage the value of its gas reserves, as illustrated by the acquisition of interests in gas transmission systems and power generation projects in South America.
Operating income from the downstream business tripled to 3.1 billion euros in 2000. The segment's significant contribution to earnings stemmed from improved market parameters, productivity gains and synergies resulting from the mergers.
Synergy and productivity programs added around 600 million euros to operating income in 2000, or 35% of the target announced for 2003. Disciplined investment continues to be a key component of our strategy. TotalFinaElf is continuing the productivity programs introduced by all operating units and pursuing selective growth of downstream operations in Africa and Asia and of high value-added specialty products.
TotalFinaElf's Chemicals business reported improved performance across the spectrum, from Petrochemicals and Plastics to Intermediates and Performance Polymers to Specialties. Operating income increased 37% to 1.6 billion euros. A number of major projects aimed at strengthening chemicals, either through organic growth or targeted acquisitions, were initiated or continued. After completing a review of the chemicals portfolio, the Group divested its oleochemicals, mineral fluorides, metal and aviation operations, along with certain plastics distribution activities, all within the framework of an asset disposal program targeting 1.5 billion euros of Chemicals segment divestments by 2003. TotalFinaElf will continue to expand and improve the performance of its Chemicals business through self-financed, selective growth based on assets with good rates of return.
Overall, our strategy is to balance the major investment necessary to enjoy continued strong growth with a return on capital employed in line with that of our main competitors over the coming years.
Strict financial discipline reduced our net debt-to-equity ratio from 50% at year-end 1999 to 33% at year-end 2000. This financial strength, which will be further reinforced by a program to dispose of some 2.5 billion euros per year of non-strategic assets through 2003, provides the Group with significant financial flexibility. Between September and December 2000, TotalFinaElf bought back 11.9 million of its shares at a cost of 1.9 billion euros. Investments will be maintained at a level among the highest in the industry. In 2001, they should increase by 13% to 9.4 billion euros. Expenditures will focus mainly on the upstream, which is expected to account for half of TotalFinaElf's capital employed in 2005.
This investment choice reflects the Group's confidence that oil and natural gas will continue to play a central role in meeting the planet's growing energy needs over the next two decades. It is anticipated that the transportation and petrochemicals industries will account for an increasing share of oil consumption, while power generation will spur gas demand. These trends should ensure that hydrocarbons remain competitive in relation to other sources of energy in the years to come.
"The Group is confident that oil and natural gas will continue to play a central role in meeting the planet's growing energy needs."
Against this background, which is favorable to the development of its oil and gas operations, TotalFinaElf most important assets are:
 Production growth from a diversified portfolio of properties of approximately 6% per year to 2005, which is higher than the average for international oil companies and which strengthens our reserves and production positions year after year.
Technological expertise, demonstrated in 2000 with the commissioning of the Sincor project to upgrade heavy crude in Venezuela, deep offshore drilling in Angola and the Gulf of Mexico, as well as the development of the high pressure, high temperature Elgin and Franklin fields in the UK sector of the North Sea.
Skilled teams with a proven ability to adapt to change and to successfully carry out ambitious projects.
A solid financial position and strong potential to improve performances in all sectors.
TotalFinaElf has the human, technical and financial resources required to pursue sustainable, profitable growth. For my part, I am fully confident of the future.
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Thierry Desmarest
Chairman and CEO
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