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Main items related to operating activities

12 Months Ended

Dec. 31, 2020

NOTE 5 Main items related to operating activities

Items related to the statement of income

5.1 Net sales

Accounting principles

IFRS 15 requires identification of the performance obligations for the transfer of goods and services in each contract with customers. Revenue is recognized upon satisfaction of the performance obligations for the amounts that reflect the consideration to which the Group expects to be entitled in exchange for those goods and services.

Sales of goods

Revenues from sales are recognized when the control has been transferred to the buyer and the amount can be reasonably measured. Revenues from sales of crude oil and natural gas are recorded upon transfer of title, according to the terms of the sales contracts.

Revenues from the production of crude oil and natural gas properties, in which the Group has an interest with other producers, are recognized based on actual entitlement volumes sold over the period. Any difference between entitlement volumes and volumes sold, based on the Group net working interest, are recognized in the “Under-lifting” and “Over-lifting” accounts in the balance sheet and in operating expenses in the profit and loss.

Quantities delivered that represent production royalties and taxes, when paid in cash, are included in oil and gas revenues, except for the United States and Canada.

Certain transactions within the trading activities (contracts involving quantities that are purchased from third parties then resold to third parties) are shown at their net value in purchases, net of inventory variation. These transactions relate in particular to crude oil, petroleum products, gas, power and LNG.

Exchanges of crude oil and petroleum products realized within trading activities are shown at their net value in both the statement of income and the balance sheet.

Sales of services

Revenues from services are recognized when the services have been rendered.

Revenues from gas transport are recognized when services are rendered. These revenues are based on the quantities transported and measured according to procedures defined in each service contract.

Shipping revenues and expenses from time-charter activities are recognized on a pro rata basis over a period that commences upon the unloading of the previous voyage and terminates upon the unloading of the current voyage. Shipping revenue recognition starts only when a charter has been agreed to by both the Group and the customer.

Income related to the distribution of electricity and gas is not recognized in revenues in some countries because the Group acts as an agent in this transaction. In these countries, the Group is not responsible for the delivery and does not set the price of the service, because it can only pass on to the customer the amounts invoiced to it by the distributors.

Excise taxes

Excise taxes are rights or taxes which amount is calculated based on the quantity of oil and gas products put on the market. Excise taxes are determined by the states. They are paid directly to the customs and tax authorities and then invoiced to final customers by being included in the sales price.

The analysis of the criteria set by IFRS 15 led the Group to determine that it was acting as principal in these transactions. Therefore, sales include excise taxes collected by the Group within the course of its oil distribution operations. Excise taxes are deducted from sales in order to obtain the “Revenues from sales” indicator.

5.2 Operating expenses and research and development

Accounting principles

The Group applies IFRS 6 “Exploration for and Evaluation of Mineral Resources”. Oil and gas exploration and production properties and assets are accounted for in accordance with the Successful Efforts method.

Geological and geophysical costs, including seismic surveys for exploration purposes are expensed as incurred in exploration costs.

Costs of dry wells and wells that have not found proved reserves are charged to expense in exploration costs.

5.2.1 Operating expenses


For the year ended December 31,
(M$)	2020	2019	2018
Purchases, net of inventory variation ^(a) ^(b)	(77,486)	(116,221)	(125,816)
Exploration costs	(731)	(785)	(797)
Other operating expenses ^(c)	(25,538)	(27,255)	(27,484)
of which non-current operating liabilities (allowances) reversals	778	1,152	1,068
of which current operating liabilities (allowances) reversals	(77)	(157)	(202)
OPERATING EXPENSES	(103,755)	(144,261)	(154,097)

(a)	Includes taxes paid on oil and gas production in the Exploration & Production segment, amongst others royalties.

(b)	The Group values under / over lifting at market value.

(c)	Principally composed of production and administrative costs (see in particular the payroll costs as detailed in Note 10 to the Consolidated Financial Statements “Payroll, staff and employee benefits obligations").

5.2.2 Research and development costs

Accounting principles

Research costs are charged to expense as incurred.

Development expenses are capitalized when the criteria of IAS38 are met.

Research and development costs incurred by the Group in 2020 and booked in operating expenses amount to $895 million ($968 million in 2019 and $986 million in 2018), corresponding to 0.64% of the sales.

The staff dedicated in 2020 to these research and development activities are estimated at 4,088 people (4,339 in 2019 and 4,288 in 2018).

5.3 Amortization, depreciation and impairment of tangible assets and mineral interests

The amortization, depreciation and impairment of tangible assets and mineral interests are detailed as follows:


For the year ended December 31,
(M$)	2020	2019	2018
Depreciation and impairment of tangible assets	(21,188)	(14,640)	(13,364)
Amortization and impairment of mineral assets	(1,076)	(1,091)	(628)
TOTAL	(22,264)	(15,731)	(13,992)

Items related to balance sheet

5.4 Working capital

5.4.1 Inventories

Accounting principles

Inventories are measured in the Consolidated Financial Statements at the lower of historical cost or market value. Costs for petroleum and petrochemical products are determined according to the FIFO (First-In, First-Out) method or weighted-average cost method and other inventories are measured using the weighted-average cost method.

In addition stocks held for trading are measured at fair value less cost to sell.

Refining & Chemicals

Petroleum product inventories are mainly comprised of crude oil and refined products. Refined products principally consist of gasoline, distillate and fuel produced by the Group's refineries. The turnover of petroleum products does not exceed two months on average.

Crude oil costs include raw material and receiving costs. Refining costs principally include crude oil costs, production costs (energy, labor, depreciation of producing assets) and an allocation of production overheads (taxes, maintenance, insurance, etc.).

Costs of chemical product inventories consist of raw material costs, direct labor costs and an allocation of production overheads. Start-up costs, general administrative costs and financing costs are excluded from the costs of refined and chemicals products.

Marketing & Services

The costs of products refined by the Group’s entities include mainly raw materials costs, production costs (energy, labor, depreciation of producing assets), primary costs of transport and an allocation of production overheads (taxes, maintenance, insurance, etc.).

General administrative costs and financing costs are excluded from the cost price of refined products.

Product inventories purchased from entities external to the Group are valued at their purchase cost plus primary costs of transport.

Carbon dioxide emission rights generated as part of the EU Emission Trading scheme (EU ETS)

In the absence of a current IFRS standard or interpretation on accounting for emission rights of carbon dioxide generated as part of the EU Emission Trading scheme (EU ETS), the following principles are applied:

- Emission rights are managed as a cost of production and as such are recognized in inventories:

-Emission rights allocated for free are booked in inventories with a nil carrying amount;

-Purchased emission rights are booked at acquisition cost;

-Sales or annual surrender of emission rights result in decreases in inventories valued at weighted average cost;

-If the carrying amount of inventories at closing date is higher than the market value, an impairment loss is recorded.

- At each closing, a provision is recorded in order to materialize the obligation to surrender emission rights related to the emissions of the period. This provision is calculated based on estimated emissions of the period, valued at weighted average cost of the inventories at the end of the period. It is reversed when the emission rights are surrendered;

- If emission rights to be surrendered at the end of the compliance period are higher than emission rights recorded in inventories, the shortage is accounted for as a liability at market value;

- Forward transactions are recognized at their fair market value in the balance sheet. Changes in the fair value of such forward transactions are recognized in the statement of income.

Energy savings certificates

In the absence of current IFRS standards or interpretations on accounting for energy savings certificates (ESC), the following principles are applied:

- If the obligations linked to the sales of energy are greater than the number of ESC’s held then a liability is recorded. These liabilities are valued based on the price of the last transactions;

- In the event that the number of ESC’s held exceeds the obligation at the balance sheet date this is accounted for as inventory. Otherwise a valuation allowance is recorded ;

- ESC inventories are valued at weighted average cost (acquisition cost for those ESC’s acquired or cost incurred for those ESC’s generated internally).

If the carrying value of the inventory of certificates at the balance sheet date is higher than the market value, an impairment loss is recorded.


As of December 31, 2020		Valuation
(M$)	Gross value	allowance	Net value
Crude oil and natural gas	1,818	(1)	1,817
Refined products	3,913	(68)	3,845
Chemicals products	1,330	(102)	1,228
Trading inventories	5,130	—	5,130
Other inventories	3,824	(1,114)	2,710
TOTAL	16,015	(1,285)	14,730


As of December 31, 2019		Valuation
(M$)	Gross value	allowance	Net value
Crude oil and natural gas	2,381	(14)	2,367
Refined products	5,326	(45)	5,281
Chemicals products	1,448	(91)	1,357
Trading inventories	5,500	–	5,500
Other inventories	3,651	(1,024)	2,627
TOTAL	18,306	(1,174)	17,132


As of December 31, 2018		Valuation
(M$)	Gross value	allowance	Net value
Crude oil and natural gas	2,382	(110)	2,272
Refined products	5,464	(242)	5,222
Chemicals products	1,087	(54)	1,033
Trading inventories	3,918	–	3,918
Other inventories	3,372	(937)	2,435
TOTAL	16,223	(1,343)	14,880

Changes in the valuation allowance on inventories are as follows:


			Currency
	Valuation		translation	Valuation
	allowance as of		adjustment and	allowance as of
For the year ended December 31, (M$)	January 1,	Increase (net)	other variations	December 31,
2020	(1,174)	(85)	(26)	(1,285)
2019	(1,343)	205	(36)	(1,174)
2018	(1,007)	(359)	23	(1,343)

5.4.2 Accounts receivable and other current assets


As of December 31, 2020		Valuation
(M$)	Gross value	allowance	Net value
Accounts receivable	14,899	(831)	14,068
Recoverable taxes	3,598	(67)	3,531
Other operating receivables	8,251	(208)	8,043
Prepaid expenses	1,801	—	1,801
Other current assets	53	—	53
Other current assets	13,703	(275)	13,428


As of December 31, 2019		Valuation
(M$)	Gross value	allowance	Net value
Accounts receivable	19,162	(674)	18,488
Recoverable taxes	4,209	(95)	4,114
Other operating receivables	11,746	(240)	11,506
Prepaid expenses	1,336	—	1,336
Other current assets	57	—	57
Other current assets	17,348	(335)	17,013


As of December 31, 2018		Valuation
(M$)	Gross value	allowance	Net value
Accounts receivable	17,894	(624)	17,270
Recoverable taxes	4,090	–	4,090
Other operating receivables	10,306	(573)	9,733
Prepaid expenses	837	–	837
Other current assets	64	–	64
Other current assets	15,297	(573)	14,724

Changes in the valuation allowance on “Accounts receivable” and “Other current assets” are as follows:


			Currency
	Valuation		translation	Valuation
	allowance as of		adjustments and	allowance as of
For the year ended December 31, (M$)	January 1,	Increase (net)	other variations	December 31,
Accounts receivable
2020	(674)	(107)	(50)	(831)
2019	(624)	(89)	39	(674)
2018	(576)	(62)	14	(624)
Other current assets
2020	(335)	37	23	(275)
2019	(573)	(46)	284	(335)
2018	(461)	(148)	36	(573)

As of December 31, 2020, the net portion of the overdue receivables included in “Accounts receivable” and “Other current assets” was $4,197 million, of which $2,140 million was due in less than 90 days, $239 million was due between 90 days and 6 months, $553 million was due between 6 and 12 months and $1,265 million was due after 12 months.

As of December 31, 2019, the net portion of the overdue receivables included in “Accounts receivable” and “Other current assets” was $3,760 million, of which $2,089 million was due in less than 90 days, $357 million was due between 90 days and 6 months, $402 million was due between 6 and 12 months and $912 million was due after 12 months.

As of December 31, 2018, the net portion of the overdue receivables included in “Accounts receivable” and “Other current assets” was $3,767 million, of which $1,993 million was due in less than 90 days, $273 million was due between 90 days and 6 months, $450 million was due between 6 and 12 months and $1,051 million was due after 12 months.

5.4.3 Other creditors and accrued liabilities



As of December 31, (M$)	2020	2019	2018
Accruals and deferred income	842	522	546
Payable to States (including taxes and duties)	5,734	7,438	6,861
Payroll	1,587	1,527	1,553
Other operating liabilities	14,302	16,262	13,286
TOTAL	22,465	25,749	22,246

As of December 31, 2020, the heading “Other operating liabilities” includes mainly the second quarterly interim dividend for the fiscal year 2020 for $2,129 million, which was paid in January 2021 and the third quarterly interim dividend for the fiscal year 2020 for $2,149 million, which will be paid in April 2021.

As of December 31, 2019, the heading "Other operating liabilities" included mainly the second quarterly interim dividend for the fiscal year 2019 for $1,918 million, which was paid in January 2020 and the third quarterly interim dividend for the fiscal year 2019 for $2,038 million, which was paid in April 2020.

As of December 31, 2018, the heading “Other operating liabilities” included mainly the second quarterly interim dividend for the fiscal year 2018 for $1,911 million, which was paid in January 2019 and the third quarterly interim dividend for the fiscal year 2018 for $1,912 million, which was paid in April 2019.

Items related to the cash flow statement

5.5 Cash flow from operating activities

Accounting principles

The Consolidated Statement of Cash Flows prepared in currencies other than dollar has been translated into dollars using the exchange rate on the transaction date or the average exchange rate for the period. Currency translation differences arising from the translation of monetary assets and liabilities denominated in foreign currency into dollars using the closing exchange rates are shown in the Consolidated Statement of Cash Flows under “Effect of exchange rates”. Therefore, the Consolidated Statement of Cash Flows will not agree with the figures derived from the Consolidated Balance Sheet.

The following table gives additional information on cash paid or received in the cash flow from operating activities.

Detail of interest, taxes and dividends



For the year ended December 31, (M$)	2020	2019	2018
Interests paid	(2,145)	(2,181)	(1,818)
Interests received	197	210	164
Income tax paid^(a)	(2,858)	(5,293)	(5,024)
Dividends received	1,444	1,988	2,456

(a)	These amounts include taxes paid in kind under production-sharing contracts in exploration and production activities.

Detail of changes in working capital



For the year ended December 31, (M$)	2020	2019	2018
Inventories	2,274	(2,071)	1,430
Accounts receivable	4,818	(933)	(1,461)
Other current assets	3,374	(2,001)	(364)
Accounts payable	(5,355)	1,998	(822)
Other creditors and accrued liabilities	(3,242)	1,289	1,986
NET AMOUNT, DECREASE (INCREASE)	1,869	(1,718)	769

Detail of changes in provisions and deferred taxes



As of December 31, (M$)	2020	2019	2018
Accruals	350	403	(432)
Deferred taxes	(2,132)	(461)	(455)
TOTAL	(1,782)	(58)	(887)