Legal aspects of the Group’s activities

Legal aspects of the Upstream segment’s activities

TOTAL’s Upstream segment conducts activities in various countries that are subject to a broad range of regulations. These cover virtually all aspects of exploration and production operations, including leasehold rights, production rates, royalties, environmental protection, exports, taxes and foreign exchange rates.

Licenses, permits and contracts governing the Group’s ownership of oil and gas interests have terms that vary from country to country and are generally granted by or entered into with a government entity or a state-owned company and are sometimes entered into with private owners. These arrangements usually take the form of concessions or production sharing contracts.

In the framework of oil concession agreements, 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 relevant host country, usually the owner of the subsoil resources, a production-based royalty, income tax, and possibly other taxes that may apply under local tax legislation.

The production sharing contract (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 in possession of the license and the host country, which is generally represented by a state-owned company. The latter can thus be involved in operating decisions, cost accounting and production allocation.

The consortium agrees to undertake and finance all exploration, development and production activities at its own risk. In exchange, it is entitled to a portion of the production, known as “cost oil”, the sale of which is intended to cover its incurred expenses (capital and operating costs). The balance of production, known as “profit oil”, is then shared in varying proportions, between the company or consortium, on the one hand, and the host country or state-owned company, on the other hand.

In some instances, concession agreements and PSCs coexist, sometimes in the same country or even on the same block. Even though there are other contractual models, TOTAL’s license portfolio is comprised mainly of concession agreements.

On most licenses, the partners and / or the authorities of the host country, often assisted by international accounting firms, perform joint venture and PSC cost audits and ensure the observance of contractual obligations.

In some countries, TOTAL has also signed contracts called “risked service contracts”, which are similar to PSCs. However, the profit oil is replaced by a defined cash monetary remuneration, agreed by contract, which depends notably on field performance parameters such as the amount of barrels produced.

Oil and gas exploration and production activities are subject to authorization granted by public authorities (licenses), which are granted for specific and limited periods of time and include an obligation to relinquish a large portion, or the entire portion in case of failure, of the area covered by the license at the end of the exploration period.

TOTAL pays taxes on income generated from its oil and gas production and sales activities under its concessions, PSCs and risked service contracts, as provided for by local regulations. In addition, depending on the country, TOTAL’s production and sales activities may be subject to a number of other taxes, fees and withholdings, including special petroleum taxes and fees. The taxes imposed on oil and gas production and sales activities is generally substantially higher than those imposed on other industrial or
commercial businesses.

The legal framework of TOTAL’s exploration and production activities, established through concessions, licenses, permits and contracts granted by or entered into with a government entity, a state-owned company or, sometimes, private owners, is subject to certain risks that, in certain cases, can reduce or challenge the protections offered by this legal framework. In addition to the uncertainties surrounding enforcement of contractual rights, new regulations requiring detailed disclosure of payments made by the Group’s companies to public entities in connection with its mining operations (including hydrocarbons) may adversely impact the activities of the Group, its results or its reputation.

Legal aspects of the Group’s other activities

The activities of the Group’s Refining & Chemicals and Marketing & Services segments are also subject to a wide range of regulations.

In European countries and in the United States, sites and products are subject to regulations concerning the protection of the environment (water, air, soil, noise, protection of biodiversity, waste management, impact studies, etc.), health (on-the-job safety, chemical product risks) and safety (safety of personnel and residents, major risk facilities). Product quality and consumer protection are also subject to regulations. Within the European Union, EU regulations must be transposed into Member States’ national laws or directly enforced. In such Member States, EU legislation and regulations may be in addition to national and local government regulations. In addition, in all Member States, industrial facilities operate pursuant to licenses issued by competent local authorities that are based on national laws and EU regulations. The United States features the same complex regulatory environment, where local state rules must be considered in addition to federal rules.

In other countries where the Group operates, legislation is often modeled after EU and U.S. regulations, with certain regulations being more fully developed depending on the country (e.g., regulations pertaining to the protection of water, nature and health).TOTAL has developed standards inspired by best practices existing in countries with strong regulations. These standards are being progressively deployed by the relevant entities of the Group depending on the context. In addition, depending on the country where the Group operates, its other activities are subject to specific sector requirements that impose constraints with respect to, for example, strategic oil reserves holding requirements and shipping capacities owned
or chartered.

Competition law

Competition laws apply to the Group’s companies in the vast majority of countries in which it does business. Violations of competition laws carry fines and expose the Group and its employees to criminal sanctions and civil suits. Furthermore, it is now common for persons or corporations allegedly injured by violations of competition laws to sue for damages.

Some of the Group’s business segments have already been implementing competition law conformity plans for a long time. In 2012, a Group policy for compliance with competition law and prevention of violations in this area was adopted (refer to point 1.10. of chapter 5). Its implementation is based on a dedicated organization, the involvement of hierarchies and staff, and an alert procedure.