Unfortunately, 2001 was also the year in which we had to deal with our most serious industrial disaster. On September 21, an explosion at the AZF Grande Paroisse factory in Toulouse took the lives of 30 people and wounded 2,500 others, causing extensive personal injury and material damage. This tragedy dealt a serious blow to the entire Group. While the cause of the explosion remains unknown, we are committed to providing relief and assistance to the victims of this disaster.

Risk is an integral part of our business. It is therefore our responsibility to ensure that we manage it ever more rigorously, so that our activities can be beneficial to the community without exposing it to unacceptable risks. We are conscious of our responsibilities. TotalFinaElf will continue to give absolute priority to human safety, respect for the environment, and the search for excellence in the running of its facilities.

To this end, we have made improvements to our organization as regards safety, the environment and sustainable development, notably by appointing a Senior Vice President in charge of Industrial Safety, with extensive powers. Sharing expertise and analyzing best practice, in France and elsewhere, have become the rule. At the same time, the Group is setting up new tools that will allow the public at large to measure its performance in terms of safety and respect for the environment and to track that performance over time.

In the Upstream sector, we achieved our 2001 production target of 2.2 million barrels of oil equivalent (boe) per day. Our reserves were up 2% to nearly 11 billion boe, or more than 13 years of production at 2001 levels. Unlike some of our competitors, TotalFinaElf has always maintained a high rate of investment, even in periods when crude oil prices were low. Projects launched under those conditions, all operated by the Group - Elgin-Franklin in the North Sea, Girassol in Angola, Sincor in Venezuela, and South Pars in Iran - are generating today's growth. These projects will give a strong boost to production growth which is expected to hit 10% between 2001 and 2002.

Other large-scale projects with low development costs are already under way and will dovetail with these projects. They fall within the scope of our strategy of continued growth in hydrocarbon production at a higher-than-average rate for international oil companies. Year after year, this strengthens our position in terms of reserves and production. The Group is confident that it will be able to achieve a production rate of 2.8 million boe per day (boe/d) by 2005 and to maintain a high level of growth in subsequent years.

To make the most of its reserves, TotalFinaElf is continuing to integrate with the downstream side of the gas industry. In 2001, this policy involved acquiring equity interests in gas transportation systems and in electric power plants in Latin America and Europe.

In the Downstream sector, the European oil refining industry suffered a drop in margins compared with 2000. Given this situation, continuing reductions in the breakeven point of the Group's refineries from 20 dollars per ton ten years ago to 9 dollars today enable TotalFinaElf's refining activities to maintain profitability even in a mediocre environment and to contribute income to the Group despite difficult economic conditions. Ongoing synergies and productivity plans in this sector contributed approximately 700 million euros to operating income in 2001, significantly offsetting the adverse effect of the downturn in market indicators.

The good performance of the Downstream sector, which posted operating income of 3 billion euros, excluding non-recurring items in 2001, is also generated by our strong positions. TotalFinaElf is Europe's number one refiner and marketer and it shares the top position in Africa. Our European refineries are among the most efficient, thanks to optimized management and enhanced specialization. Our network of nearly 17,000 service stations is one of the most successful with our widely appreciated brands, Total, Fina and Elf.

In 2001, TotalFinaElf's Chemicals segment faced strongly deteriorated market conditions in all its business lines: Petrochemicals and plastics, Intermediates and performance polymers, and Specialty chemicals. Operating income for the Chemicals segment, excluding non-recurring items, was down 33% compared with the previous year. Our main competitors recorded even sharper drops. The base chemicals business is a cyclical one. Through rigorous management and expansion programs at major sites, we will be able to achieve significant improvements as soon as the chemical products market turns around.

The Group's net income for 2001, excluding non-recurring items, comes to 7.52 billion euros, down 2% compared with 2000, a year in which economic conditions were much more favorable.

In a highly volatile oil industry environment, TotalFinaElf is well positioned to maintain a solid financial position. This translates in particular into a lower net debt-to-equity ratio of 31% at year-end 2001, compared with 33% at year-end 2000 and 50% at year-end 1999. This will help the Group withstand the fluctuating environment while pursuing growth. In 2001, cash flow generated by operations was boosted by a major asset disposal program. Divestitures, calculated at sales price, amounted to 7 billion euros. Most notable were the sales of part of the Group's stakes in Sanofi-Synthélabo and Cogema, the sale of all its Ultramar Diamond Shamrock holdings and the sale of Downstream assets in France, pursuant to commitments made to the European Commission.

In 2001, the Group's free cash flow enabled it to buy back 39 million of its own shares for a total of 6.1 billion euros. Taking these purchases into account, net earnings per share, excluding non-recurring items, stood at 10.85 euros, exceeding the record high achieved the previous year.
TotalFinaElf pursued an investment program in 2001, which, in proportion to its size, was one of the largest in the industry. Gross investments amounted to 10.6 billion euros, up 27% in comparison with 2000. In 2002, investments should remain close to 10 billion euros, with the main priority being growth of the Upstream sector.

In 2001, the start of major and highly innovative projects highlighted our teams' ability to carry ambitious projects through to successful completion. Less than two years after the formation of TotalFinaElf, the cultural cohesion of the men and women who make up the Group throughout the world is a major asset for the future.

On the basis of these strengths, a large portfolio of projects, solid financials and the confidence of its shareholders, TotalFinaElf is poised to pursue steady and well-balanced growth, and to assert its global calling. We seek to achieve this growth within the context of our goals to preserve natural spaces and the quality of life to which everyone in the world has a legitimate aspiration - for themselves as well as for future generations.

Thierry Desmarest

Questions to Thierry Desmarest

What do you think of TotalFinaElf's performance in 2001?
"The Group demonstrated its ability to withstand the downturn in the oil market that occurred in the second half of 2001 better than some of its major competitors. Increased oil and gas production, cost reductions and implementation of our synergy and productivity programs ahead of schedule resulted in an enhanced intrinsic performance of TotalFinaElf and greater overall robustness."

Does the sharp drop in the price of crude oil in the second half of 2001 threaten new projects in the Upstream sector?
"Generally speaking, our major projects are spread out over construction periods of three or four years. Those now coming on-stream, like Elgin-Franklin in the UK, Girassol in Angola and Sincor in Venezuela, were launched in 1997-1998. Because of their very high quality, we didn't have to postpone them when oil prices were low. The portfolio of new projects that we are currently launching is also showing good resistance to the lower price of oil with an average profitability of 17% at a price of 17 dollars a barrel. The Group is thus able to continue its oil and gas exploration and production projects."

The major share buy-back program implemented in 2001 kept earnings per share at its record level in 2000. Will this program be as extensive this year?
"Our share buy-back program will indeed continue in 2002, helping to improve our earnings per share. As in the previous year, the program will be financed mainly by proceeds from the disposal of assets. Asset disposals should represent around 2 billion euros in 2002 compared with 7 billion in 2001, so the buy-back program is bound to be less extensive this year."

How do the four major Upstream projects launched recently differ from more conventional developments?
"The Elgin-Franklin oil field development in the North Sea is the largest conducted in the U.K. sector in over twenty years. Its implementation required numerous technological innovations. In Angola, the start of production at Girassol, at a depth of 1,350 m and 150 km from the coast, is the world's largest deep-sea development. The Sincor project in Venezuela, which will produce high-quality synthetic oil from heavy crude extracted from the Orinoco, is an event of prime importance: it confirms the economic and technical feasibility of projects to recover these oils, the reserves of which are very large. In Iran, the South Pars development stands out through the sheer size of the gas field and the capacity simultaneously to transport gas and condensates over a long distance. All of these developments, operated by TotalFinaElf, were rolled out in line with objectives."

Have you drawn any lessons, in terms of safety, from the Toulouse disaster?
"Improving industrial safety has always been one of our priority concerns. Following the tragic explosion at the AZF factory in Toulouse, we are more concerned than ever about improving personnel safety and intent on ensuring the safety of our sites. This is an ongoing quest and we must remain forever vigilant. Our safety performance is comparable to that of our main industrial competitors. Our objective is to step up to a higher level, hoisting ourselves to the top ranks. This means reinforcing our procedures and practices, like reducing our stocks of hazardous materials at sites close to population centers. As of now, 25 to 30% of capital spending budgets for existing sites are already allocated to safety measures."