Business areas

44 45

Brazil

Repsol worldwide

Surinam

United States

Canada

Puerto Rico

Singapore

Chile

Argentina

Peru

Portugal

Morocco

Mauritania

SierraLeone

Ecuador

Colombia

Mexico

Bolivia

Guyana

Spain

LibyaAlgeria

France

Saudi Arabia

Iran

Norway

Kazakhstan

Russia

Italy

Cuba

Venezuela Liberia

EquatorialGuinea

Trinidad and Tobago

Angola

Upstream

LNG

Downstream

YPF

Gas Natural SDG

46 47

IncomeOperating income from theUpstream division in 2008 was¤2.258 billion, 20% higher incomparison with the 1.882 billionobtained a year earlier. EBITDAamounted to ¤2.864 billion incomparison with 2.631 billionin 2007. The improved resultswere mainly due to the increasein income as a result of higheraverage selling prices.

The average retail price of theRepsol liquids was US$87.3/barrel(¤59.3/barrel) against US$61.5/barrel (¤44.8/barrel) in 2007. Theaverage price of gas was US$4.2 perthousand cubic feet, an increase of37% on 2007. These increases weredriven by higher oil prices on theinternational markets. Oil played amajor role in the 2008 economicscenario: after starting the yearstrongly, the price of oil continued

to climb, reaching a record US$147/barrel in July. It then suffered asharp fall to below US$40/barrel inDecember.

Extraction lifting cost wasUS$2.24/barrel, an increase of1.8% compared to the US$2.20/barrel of 2007. This trend isattributed to the decrease inproduction largely due to thedeconsolidation of Andina inBolivia and the end of operationsin Dubai. Finding costs of provedreserves averaged US$10.9/barrelin the 2003-2008 period.

Activities by countriesIn 2008 major strides were madein the consolidation process of theUpstream business in key regionsfor the company, such as theGulf of Mexico (United States),Brazil, Peru, North Africa andTrinidad and Tobago. To reinforce

the strategy of diversification andgrowth in OECD countries definedby Repsol, the first stepswere taken in 2008 towardscommencing operations inCanada and Norway. The objectiveis to ensure organic growth bymaximizing asset profitability andboosting production and reservesover the 2008–2012 period.

United StatesOver the past three years, Repsolhas significantly enhanced itspresence in deep waters of the USGulf of Mexico, participating inthe major Shenzi oil developmentproject and securing a largenumber of exploration blocks.This region is considered oneof the most profitable with thegreatest deepwater potential inthe world.

The company holds a 28%

Upstream Explorationand Production

Oil extracted from a Repsol well in Libya.

48

UPSTREAM

49

AfricaRepsol has a significant presencein North Africa, centred on Libyaand Algeria, countries in whichit has major ongoing projectswhich guarantee sustainable andprofitable growth over the comingyears.

In June 2008 productioncommenced in Libya at theI/R field situated in the prolificMurzuq basin in Blocks NC-186and NC-115. Repsol participates inboth of these blocks. Discoveredin 2006, the I/R field is one ofthe most important explorationdiscoveries made in the historyof the company and the largestin Libya in the last decade. Witha production potential of 90,000barrels/day, development ofthis field will give a major boostto the company’s reserves andproduction in this country. This

field is one of the ten key growthprojects defined by Repsol in its2008–2012 Strategic Plan.

At the end of 2008, the LibyanNational Oil Company NOCapproved the development planssubmitted for the “J” and “K”fields in block NC-186 (Repsol,Total, OMV and StatoilHydro).The development plan for field“E” in block NC-200 (Repsol andOMV) should be approved in thefirst half of 2009, thereby enablingproduction to commence inthese three new fields. A newexploration discovery was alsomade in 2008 in block NC-186with the Y1 well.

On 17 July, Repsol and NOCsigned a new agreementextending the term of the oilexploration and productioncontracts in this country. The newagreement extends the term

of the contracts for blocks NC-115and NC-186 until the year 2032,which represents an additional15 years for the block NC-115contract and another five to nineyears, depending on the fields,for the block NC-186 contract.The agreement ensuresthat Repsol will be able toexploit the abundant resourcesdiscovered in both blocks,for which the exploration licenseswere also extended foran additional five years.

In Algeria, 2008 saw two newgas discoveries in the Regganebasin in block 351c-352c operatedby Repsol. These finds are inaddition to those made in thesame block in previous years. Itis expected that Reggane will bedeclared commercially viable bySonatrach in 2009, which willenable development of this major

interest in the Shenzi field, one ofthe largest deepwater discoveriesmade to date in the Gulf ofMexico. Repsol commencedproduction of oil and gas in thisfield in March 2009. Developmentof the first phase of the projectwas completed ahead of scheduleand on budget.

In Exploration Round 206 carriedout in early 2008, Repsol obtained32 new exploration blocks in theGulf of Mexico which, togetherwith others achieved in recentyears, comprise a very soundexploration project portfolio. Thecompany’s participation in theserounds forms part of its strategyfor diversification and growth inOECD countries. In March 2009Repsol obtained a further 20exploration blocks in Round 208.

Repsol is one of the leading companiesin offshore mineral exploration acreagein the Santos, Campos and EspirituSanto basins in Brazil, an area withan enormous potential at a world level

A Repsol installation in Libya.

50

UPSTREAM

51

ownership of the company bpTT.The firm, in which Repsol holds a30% stake, is the operator of anextensive offshore hydrocarbonproduction area in the country,which in 2008 reached an averageproduction of more than 460,000barrels of oil equivalent.

The Teak Blow Down gascompression project for domesticsales was completed in the fourthquarter of 2008, boosting gasproduction by 700,000m3/day asof January 2009.

The bbTT Mango and Cashminafields, which commencedproduction in the fourth quarterof 2007, contributed to increasingproduction in 2008 as well asavailability of gas for Train 4 at theAtlantic LNG liquefaction plant inwhich Repsol holds a 22.22% stake.

In Peru, work continued in 2008

towards complete development ofthe Camisea field (blocks 56 and88), in which Repsol holds a 10%interest. These blocks will supplynatural gas to the future liquefiednatural gas plant, part of the PeruLNG project, which is due to beoperational in 2010 and in whichRepsol holds a 20% stake. Twofields are being developed in block88, San Martin (in productionsince 2004) and Cashiriari(currently under development),and in block 56 production in thePagoreni field commenced inSeptember 2008.

Also in Peru, in January 2008Repsol made a major discoverywith the Kinteroni well in block 57,which is located in the Ucayali-Madre de Dios basin in thecountry’s central jungle, 50 kmfrom the Camisea gas-condensatefield. The presence of gas

and condensate in the Kinteronifield was confirmed witha significant resource potentialthat is currently being appraised.Repsol, with a 53.84% stake, is theoperating company.

In Colombia, the CapachosSur field in the Capachos blockcommenced production in April2008. Repsol owns 100% of this259 km2 block situated in theLlanos basin.

Alaska and CanadaIn the first quarter of 2008 Repsolwas awarded 93 blocks in Alaskain Exploration Round 93. Theseoffshore blocks are located in theChukchi Sea and cover a totalarea of 2,139 km2. The company’sobjective is to create a largeproject portfolio in this almostunexplored area which offers ahigh potential

gas project to commence. Twoother exploration discoveries werealso made in this country in theM’Sari Akabli block, also operatedby Repsol.

Latin America

Brazil is one of the principal areasfor the future growth of Repsol,one of the leading companiesin offshore exploration miningacreages in the Santos, Camposand Espiritu Santo basins witha total of 21 exploration blocks(the company is an operatorin 11 of these).

Repsol holds a 10% interest inthe Albacora Leste field (Santosbasin), which has been inproduction since April 2006.Output in this major Braziliandeepwater field was approximately140,000 barrels/day in 2008. Ithas over 400 million barrels

of proved and probable crudeoil reserves.

A new major discovery was madein the second quarter of 2008 inBrazilian deep waters in block BM-S-9 in the Santos basin with theGuara well. This find is in additionto the Carioca field, situated in thesame block, discovered at the endof 2007. Preliminary appraisalsindicate that both fields offer agreat potential of high-quality oilresources. The Brazilian offshoreregion is proving to be one ofthe world’s most high potentialdeepwater areas.

The exploration discoveriesin block BM-S-9 reinforce thecompany’s strategy in theBrazilian offshore region andrepresent one of the key growthprojects in the Upstream area.In 2009 two additional wells areto be drilled in this block. One

of these, the Iguazu well, provedpositive in April 2009.

In Bolivia, an agreement wassigned in May 2008 with theBolivian company YPFB for thesale of a 1.08% share of thecompany Andina. Following thistransaction, the shareholderstructure of Andina is YPFB(51.08%) and Repsol E&PBolivia (48.92%). Similarly, theShareholders Agreement wassigned in October 2008 whichwill regulate the administration,operations and management ofthis company. This agreementcame into force in November2008. Repsol also discovered theHuacaya gas well in Bolivia.

In Trinidad and Tobago, Repsolis one of the leading privatecompanies in terms of oil and gasproduction and reserves, togetherwith BP, with which it shares

In January 2008 Repsolmade an importantdiscovery in Peruwith the Kinteroni well

52 53

confirm this basin as one of thedeepwater areas with the greatestpotential worldwide.

The presence of light oil with adensity of approximately 28ºAPIwas found in the new Guara field,discovered by the consortiumformed by Petrobras (45% and theoperator), BG (30%) and Repsol(25%), 310 km off the coast of theState of Sao Paulo, at a depth of5,000 metres beneath over 2,000metres of water.

In 2009 Repsol and its partnersin the block will continue to carryout the activities and investmentsnecessary in order to moreaccurately determine the exactsize of the Carioca and Guarafields and to define the futuredevelopment plan. Two additionalwells are to be drilled in 2009(one of these proved positive inApril 2009) and a production

test will be conducted in theGuara well. Development of thesedeepwater projects in the Santosbasin is one of the ten key growthinitiatives included by Repsol in its2008–2012 Strategic Plan.

Two other major discoverieswere also made in Brazil atthe beginning of 2009 in deepwaters of the Santos basin in thePiracuca and Panoramix fields.

In Peru, a significant explorationdiscovery was made in January2008 in block 57, located in theCuzco province at the Kinteroniexploration well. Repsol, witha 53.84% stake, is the operatorof the consortium that will exploitthe field (Petrobras holdsthe remaining 46.16%).Preliminary production testsregistered flows of one millioncubic metres of gas per day (0.365bcm/year) and 198 cubic metres

per day of associated hydrocarbonliquids (72,270 m3/year).

In order to define a commercialand development plan for thisdiscovery, a 3D seismic survey willbe conducted on the Kinteronistructure and several delineationand exploration wells will bedrilled in the block.

All these activities will enable amore accurate assessment of theresources discovered, which areinitially estimated at around 2 TCF(56 bcm).

Kinteroni, next to the Camiseagas field in blocks 56 and 88in which Repsol holds a 10%stake, will supply gas to one ofthe company’s major LiquefiedNatural Gas (LNG) projects:Peru LNG.

In Algeria, two new explorationdiscoveries were made with the

of undiscovered resources.In July 2007 Repsol reachedan agreement with Shell OffshoreInc. and Eni Petroleum US LLCto explore 71 adjacent offshoreblocks in the Beaufort Sea, northof the prolific Prudhoe Bay andthe Kuparuk oil fields. Repsolholds a 20% stake in these blocks.

In Canada, at the end of 2008Repsol won exploration rights forthree blocks in the Newfoundland(Terranova) and Labrador offshoreareas. Two of these blocks aresituated in the Central Ridge/Flemish Pass area and the otheris in the Jeanne d’Arc basin.Repsol’s partners in these blocks,which have a combined area of4,000 km2, are the Canadiancompanies Husky Oil and Petro-Canada. The awarded explorationrights represent a further stepforward in the company’s plans

to increase its presence in oil andgas exploration and productionactivities in OECD countries.

EuropeIn Norway, and again in line withthe strategy of diversificationand growth in OECD countries,an agreement was signedin September 2008 with theNorwegian company Det NorskeOljeselskap ASA (Det Norske)for the joint study of the areasavailable in Exploration Round 20.Repsol holds a 40% stake in thisproject, with Det Norske holdingthe remaining 60%. In November,a joint bid was submitted for fourblocks. Repsol also presented abid for 100% of another threeblocks. The result of this roundis expected to be announced in2009.

Also in Norway, in October

2008 Repsol, jointly with DetNorske, Bayerngas and Svenska,presented a bid for four blockssituated between the Njord andDraugen (Norwegian Sea) blocks,in the APA Round 2008 (Awardof Predefined Areas). Repsolobtained one exploration area.

DiscoveriesIn 2008 Repsol made a total of10 new exploration discoveries inBrazil, Peru, Algeria and Libya.

In Brazil, Repsol discovereda second oil field in June 2008in block BM-S-9, in deep watersof the Santos basin in Brazil.The new field, known as Guara,is adjacent to the Carioca fielddiscovered at the end of 2007in the same block. Preliminaryappraisals indicate that bothfields contain a high potentialof high-quality oil resources and

In 2008 Repsol made a total of ten newexploration discoveries in Brazil, Peru,Algeria, Colombia and Libya, in additionto six further discoveries made by YPF

The Stena Drillmax drill ship in the Gulf of Mexico,

where exploration tasks have been

carried out.

54 55

the operator with a 100% stake.

In Libya, a new explorationdiscovery was made at thebeginning of 2008 in the prolificNC-186 block with the Y1 well.With a 32% stake, Repsol is theoperator of this 4,295 km2 block inthe Murzuq basin.

In the deep waters of the US Gulfof Mexico, a major oil discoverywas made at the beginningof 2009 at the Buckskin welllocated in the Keathley Canyonarea, 300 kilometres off thecoast of Houston. Repsol isthe exploration operator of theconsortium which discovered thisnew field, in which a hydrocarboncolumn of around 100 metres hasbeen discovered. The new wellis 10,000 metres deep beneath2,000 metres of water.

ProductionRepsol’s hydrocarbon productionin 2008 stood at 332,721 barrelsof oil equivalent per day, 14.6%less than in 2007. Excludingcontractual variations in Dubai(5,000 boepd), Venezuela (3,200boepd) and Bolivia (47,600boepd), production levelswere similar to those of theprevious year. Productionincreased, particularly in theUnited States (1,200 boepd),thanks to the start of productionof new wells in the Shenzi field;in Trinidad and Tobago (3,900boepd); and in Peru (1,900boepd), where the Pagorenifield in block 56 commencedproduction.

InvestmentsIn 2008 the Upstream businessarea invested a total of ¤1.184billion, 18% less than the 1.439billion invested in 2007.These expenditures were mainlyallocated to development of theShenzi field in the United Statesand exploration activities inNorth Africa, Brazil and the Gulfof Mexico.

AZSE-2 (Azrafil SE) and KLS-1(Kahlouche S) wells in block351c-352c (Reggane Nord), locatedin the Reggane basin. Repsol, witha 33.75% stake, is the operatorof the consortium, togetherwith the Algerian state companySonatrach (25%), Germany’sRWE Dea (22.5%) and Italy’sEdison (18.75%). Situated in thesouth-central part of the AlgerianSahara desert, the block covers anextensive area of 4,682 km2. Thisdiscovery is in addition to anotherfour made in the same block, thefirst in 2005 (Reggane 5 well),another two in 2006 (with the Sali1 and Kahlouche-2 wells) and thelast in 2007 (with the Reggane6 well).

Another two explorationdiscoveries were made in thisNorth African country in the

M’Sari Akabli block with theTGFO-1 and OTLH-2 (OuedTalha) wells. Repsol holds a33.75% stake and is the operatorof this block, which covers a totalsurface area of 8,103 km2.

At the beginning of 2009, adiscovery was announced in theGassi Chergui area with the AL-2well in the Berkine basin.

In Colombia, three newdiscoveries were made. Two ofthem were with the Cosecha Zand Cosecha Y Norte wells inthe Cosecha block in the LlanosOrientales basin, in which Repsolholds a 25% stake and Oxy, theoperator, holds the remaining75%. The Cosecha block has asurface area of 2,856 km2. Thethird discovery was made withthe Capachos Sur 1 well, in theCapachos block in which Repsol is

During 2008,there wasan increasein hydrocarbonsproductionmainly in Peru,Trinidad andTobago and theUnited States.

View of a Repsol production

filed in Libya

56 57

The Upstream area of the2008–2012 Strategic Plan includesall Repsol’s oil and natural gasexploration and productionactivities outside YPF.Management of the assetportfolio focuses on profitable,diversified, sustainable growthcommitted to safety and

the environment. This strategyis based on growth in productionand reserves, geographicaldiversification of the business,operative excellence andprofitability, with an increasein average unit margins.

In coming years Repsol’sUpstream business area willfocus on organic growth in threemain areas: deep waters of theGulf of Mexico, in the UnitedStates, and Brazil; North Africa;and northern Latin America andTrinidad and Tobago. Majorstrides were made in 2008 andthe first months of 2009 in theconsolidation process of theUpstream business in these keyregions for the company. Repsolwas awarded 32 new explorationblocks in the Gulf of Mexico in

2008 and a further 20 in 2009.An important discovery wasmade in the Santos basin (Brazil)with the Guara well in 2008 andIguazu in 2009, while productioncommenced at the I/R field(Libya) and, in 2009, in Shenzi(United States), among othermilestones. In 2008 the companyparticipated in three of theworld’s five largest hydrocarbondiscoveries and, to reinforcethe objective of geographicaldiversification and growth inOECD countries, the first stepswere taken towards commencingoperations in Canada and Norway.In the first quarter of 2009, Repsolhad already announced eightdiscoveries in the five key regionsidentified for exploration in the2008–2012 Strategic Plan.

AdditionalUpstreaminformation

UPSTREAM

Repsol extracts hydrocarbons in harsh environments, such as deserts and deep waters.

58 59

UPSTREAM

At the close of the year, Repsol’sUpstream area was participating,either directly or through itssubsidiaries, in oil and gasexploration and productionblocks in 23 countries and wasthe operator in 19 of theseblocks. Repsol holds a stakein the Russian exploration andproduction company WestSiberian Resources (WSR)and commenced explorationoperations in Norway and Canada,taking the Upstream area’spresence to 26 countries.

ReservesAs of 31 December 2008,the Repsol Group’s provedreserves amounted to 2.21 billionbarrels of oil equivalent, 60%of which correspond to proveddeveloped reserves.

Proved reserves of liquids totalled902 million barrels, 41% of thetotal of reserves. Gas reservesamounted to 7.34 trillion cubicfeet and represent 59% of RepsolYPF’s proved reserves.

The Repsol Group added 154million boe in 2008. The additionsof Argentina (75 million boe),Bolivia (21 million boe), Algeria (19million boe) and Libya (18 millionboe) were particularly significant.

The Group’s reserves are mainlylocated in Argentina (25%)and Trinidad and Tobago (22%).17% is located in the rest ofthe South American countries(Venezuela, Peru, Bolivia, Brazil,Ecuador and Colombia), 7% inNorth Africa (Algeria and Libya)and the remaining 2% in theGulf of Mexico.

2007 2008

1 q 2 q 3 q 4 q total 1 q 2 q 3 q 4 q total

Operating income 1,132 1,090 1,053 1,199 4,474 1,238 1,485 1,361 830 4,914

North America and Brazil 121 116 49 88 374 101 129 63 60 353

North Africa 284 409 465 511 1,669 518 616 538 235 1,907

Rest of the world 739 567 549 622 2,477 627 753 778 593 2,751

Adjustments (12) (2) (10) (22) (46) (8) (13) (18) (58) (97)

Ebitda 586 585 725 735 2,631 753 913 759 439 2,864

North America and Brazil 2 19 13 (14) 20 52 55 32 (5) 134

North Africa 242 364 375 438 1,419 356 473 384 158 1,371

Rest of the world 342 202 337 311 1,192 345 385 343 286 1,359

Operating revenue 459 428 529 466 1,882 576 751 672 259 2,258

North America and Brazil 39 (19) 13 (58) (25) – 32 24 (16) 40

North Africa 217 333 349 335 1,234 338 446 335 83 1,202

Rest of the world 203 114 167 189 673 238 273 313 192 1,016

Inversiones 564 255 297 323 1,439 242 240 376 326 1,184 North America and Brazil 362 54 117 77 610 110 116 123 129 478

North Africa 28 65 44 62 199 44 53 182 97 376

Rest of the world 174 136 136 184 630 88 71 71 100 330

Millions of euros

upstream

Repsol exploration work in Libya.

Repsol’sUpstream area iscurrently presentin 26 countries onfour continents

60 61

In January 2008 an important gas discovery was made in Peru in block 57 with the Kinteroni well.

In February 2008 exploration well Y1 in block NC-186 in Libya’s Murzuq basin was completed with a positive result.

February also saw an exploration discovery with the Capachos Sur 1 well in Colombia.

Repsol was awarded 32 new exploration blocks in Exploration Round 206 carried out in the Gulf of Mexico at the beginning of 2008.

In February 2008 production commenced at the second production well of the Shenzi-Genghis Khan (Manifold K, K1-2) megafield, an extension of Shenzi, through the neighbouring Marco Polo platform.

In the first quarter of 2008, Repsol obtained 93 exploration blocks in Alaska in the Chukchi Sea, in an area with a high potential of resources to be discovered.

In the second quarter of 2008 an important discovery was made in Brazilian deep waters, in block BM-S-9, in the Santos basin, with the Guara well.

The I/R well in Libya commenced production on 3 June 2008. Eleven wells were already in production in this area at 31 December 2008.

On 17 July, Repsol and the Libyan national oil company NOC signed a new agreement extending the oil exploration and production contracts in blocks NC-115 and NC-186 in Libya until 2032.

Production at block 56 (Pagoreni field) in Peru commenced on 10 September. This block, together with block 88, in production since 2004

and in which Repsol also holds a 10% stake, make up the Camisea field, which forms part of the Peru LNG project. This will enable natural gas to be supplied to the future Pampa Melchorita liquefaction plant.

Also in September 2008, the agreement for the sale of Repsol YPF Ecuador S.A.’s 25% stake in block 14 was signed with the company PetroOriental S.A. (CNPC).

On 23 September 2008 an AMI (Area of Mutual Interest Agreement) was signed with the Norwegian company Det Norske Oljeselskap ASA (“Det Norske”) for the joint study of the areas available in Exploration Round 20 in Norway. On 7 November a joint bid was submitted for four blocks and another for 100% of another three blocks. At the end of 2008, Repsol obtained an exploration area in Norway.

In the fourth quarter of 2008, Repsol was awarded exploration rights for three blocks in the offshore area of Newfoundland (Terranova) and Labrador, in Canada.

The Teak Blow Down gas compression project for domestic sales was completed at the end of 2008, boosting gas production by 700,000 m3/day as of January 2009.

At the end of 2008, the national Libyan company NOC approved the development plans submitted for the “J” and “K” fields in block NC-186 (Repsol, Total, OMV and StatoilHydro), which will enable production to commence.

At the beginning of 2009 three exploration discoveries were announced in Algeria, in the Reggane block (KLS-1), in the adjacent Ahnet basin (OTLH-2) and in the Gassi Chergui area (AL-2).

At the beginning of 2009, the Panoramix and Piracuca wells, in the Brazilian Santos basin, were completed with a positive result.

In February 2009 Repsol successfully commenced its operated drilling campaign in the deep waters of the Gulf of Mexico with the announcement of a discovery with the Buckskin well.

In March 2009, Repsol reached a preliminary agreement with the Government of Ecuador on the terms of the company’s presence in the country which will enable it to increase the value of its assets and provides for a reduction in the tax on excess profits from 99% to 70%.

In March 2009 Repsol commenced production of oil and gas in the Shenzi field in deep waters of the US Gulf of Mexico, on a platform located in the Green Canyon 653 block.

At the end of March 2009, Repsol discovered gas in the Tangiers-Larache exploration zone, 40 kilometres off the coast of Morocco.

On 1 April 2009 a new gas discovery in Algeria was announced, the second find in the Ahnet basin and Repsol’s eighth discovery in 2009.

The third discovery in block BM-S-9, in the Brazilian Santos basin with the Iguazu well, was announced on 15 April 2009.

On 21 April 2009, Repsol announced a new discovery of hydrocarbons in Libyan waters.

Upstream milestones

UPSTREAM

63

Brazil

Surinam

Exploration

Production

United States

Canada

Peru

Morocco

Mauritania

Norway

SierraLeone

Ecuador

Mexico

Bolivia

Guyana

LibyaAlgeria

Saudi Arabia

Iran

Cuba

Venezuela

Liberia Equatorial Guinea

Trinidadand Tobago

Colombia

Kazakhstan

Russia

Argentina

Spain

UPSTREAM

Operationsby countries

At the close of 2008, Repsol heldmineral rights on 32 blocks inSpain: 20 exploration blocks, witha net area of 9,722 km2, and 12exploitation blocks totalling a netarea of 929 km2.

In 2008, Repsol produced atotal of 0.7 Mboe (around 1,968boepd) through its facilitiesin Casablanca, Rodaballo andBoqueron (Mediterranean Sea)and Gaviota (Cantabrian Sea).Proved net oil reserves at year-endwere estimated at 2.4 Mboe.

The Royal Decree on theAwarding of Research Permitsfor Canary Island permits 1-9remains suspended as a resultof a Supreme Court ruling on anerror in the wording of the text

of this decree. A new decree hasbeen drafted by the Ministry forIndustry to correct this error andis currently being processed. Thefirst exploratory drilling, locatedat water depths of between1,000-1,500 m, is ready to beginpreparation for drilling operationsas soon as the correspondingauthorization is received.

No exploratory drillings werecarried out in Spain in 2008,although 1,023 km2 of 3D seismicwere acquired.

SpainAt the close of 2008, theUpstream area held mineral rightson 393 blocks, with a net surfacearea of 243,113 km2. 327 of theseblocks are exploration blocks,totalling a net surface area of231,251 km2.

In 2008, Repsol completed 38exploration drillings, ten of whichproved positive. At the end of theyear, ten exploration wells were inthe drilling phase.

the upstream area worldwide

Exploration block

Development/exploitation block

Ballena 1 – 5GaviotaGaviota IGaviota IIAlbatros

Montanazo D, RodaballoBoquerón, Angula

Lubina I and II

Siroco A, B, C and DPoseidón

Norte and Sur

Canarias 1 – 9

Casablanca

64 65

TGFO-1 and OTLH-2).

The contract for the Gassi TouilIntegrated Project was unilaterallyterminated by Sonatrach, thestate Algerian company, on 13August 2007. Sonatrach andRepsol are currently in a processof arbitration.

In 2008 197 km of 2D seismicand 870 km2 of 3D seismic wereacquired in Algeria.

2008 Milestones• Two new exploration discoverieswere made in block 351c-352c(Reggane Nord) in the Regganebasin with the AZSE-2 (Azrafil SE)and KLS-1 (Kahlouche S) wells, thesecond of which was announcedin 2009. With a 33.75% stake,Repsol is the operator of theconsortium, together with thenational Algerian company

As of 31 December 2008, RepsolYPF held mineral rights to anexploration block (block C) in thecountry’s Rub Al’Khali basin, witha net area of 15,420 km2.

On 7 March 2004, Repsol signeda contract with Saudi Arabia’sMinistry of Petroleum and MineralResources granting explorationof non-associated natural gas inblock C to the consortium formedby Repsol (30%), Eni (50% andthe operator) and Saudi Aramco(20%). In 2007 the drilling of theUbaylah 2 well was completed.In 2008 drilling of two wells wasconcluded with a negative resultand the remainder of the wells willbe completed in 2009.

In November 2008, the partnersdecided to carry out a 3,000km2 3D seismic survey in orderto reevaluate the exploratory

potential of the northernsector of the block and definethe conditions for the fourthexploration well to be performedin block C. To completethis campaign an 18-monthextension of the contract hasbeen requested.

UPSTREAM

Area C

Exploration block

Gassi CherguiOeste

Tin-FouyeTabankort (TFT)

Issaouane(BEQ, TIM, TFR)

Reggane351c, 352c

M’Sari Akabli332a, 341a3,339a1, 337a1

Exploration block

Development/exploitation block

Saudi Arabia AlgeriaAt the close of 2008, Repsolheld mineral rights on 5 blocksin Algeria: 3 exploration blocks,with a net area of 7,789 km2, and2 development blocks with a netarea of 581 km2.

The year’s net production was 1.8Mbbl of liquids and 21.2 bscf ofnatural gas, with an equivalentnet production of 5.5 Mboe (15,138boepd), originating mainly fromthe TFT block (operated jointlyby Sonatrach and Total) and, to alesser extent, from the Issaouaneblock operated by Repsol. Netproved reserves of liquids andnatural gas were estimated at 42.3Mboe at the end of the year.

Over the year 8 exploration wellswere completed, 4 of which gavepositive results (2 in the Regganeblock, AZSE-2 and KLS-1, and twoothers in the M’Sari Akabli block,

TGFO-1 and OTLH-2 wells (OuedTalha), announced in 2009.Repsol holds a 33.75% stake andis the operator of this block whichhas a surface area of 8,103 km2.

At the beginning of 2009 threeexploration discoveries wereannounced in Algeria, in theReggane block (KLS-1), theadjacent Ahnet basin (OTLH-2)and in the Gassi Chergui area(AL-2).

A new gas discovery in Algeriawas announced on 1 April 2009,the second find in the Ahnet basinand Repsol’s eighth discoveryin 2009.

Sonatrach (25%), Germany’s RWEDea (22.5%) and Italy’s Edison(18.75%). Located in the central-southern part of the AlgerianSahara, the block covers an areaof 4,682 km2. This discovery is inaddition to four other discoveriesmade in the same block, thefirst in 2005 (Reggane 5 well),another two in 2006 (Sali 1 andKahlouche-2) and the fourth in2007 (Reggane 6 well). Sonatrachis expected to declare Regganecommercially viable in 2009,which will enable developmentof this important gas projectto commence, a project whichis included in the 2008-2012Strategic Plan as one of thecompany’s key initiatives.

• Two further explorationdiscoveries were made in theM’Sari Akabli block with the

66 67

(37.5%) and PAE (25%), came intoeffect on 2 May 2007 and is for aterm of 24 years.

2008 Milestones• In May 2008 an agreementwas signed with the Boliviancompany YPFB for the sale of a1.08% stake in Andina. Followingthis transaction, the shareholderstructure of Andina is brokendown into YPFB (51.08%) andRepsol E&P Bolivia (48.92%).In addition, the ShareholdersAgreement was signed in October2008 which will regulate theadministration, operation andgovernment of the company. Thisagreement came into force inNovember 2008.

Huacaya discovery commencedin 2008 in order to select the besttechnical-economic alternativefor assessing the discoveryand establishing the futuredevelopment plan. The HuacayaX-1 exploratory discovery wasmade at the end of 2007. Thedeclaration of commercial viabilityfor the area corresponding to thestructure discovered has alreadybeen presented to the competentbody. The remaining explorationarea was returned to YPFB.

Work continued in 2008 on fulldevelopment of the importantMargarita gas and condensatefield, located in the Caipipendiblock, to the north of the Tarijaprovince. The contract for thisblock, which is operated by aconsortium formed by Repsol(37.5% and the operator), BG

At the close of 2008, Repsolheld mineral rights on 22 blocksin Brazil: 21 exploration blocks(net area of 3,925 km2) and onedevelopment block (51 km2),located in the Santos, EspirituSanto and Campos basins. Repsolis the operator in 11 of these blocks.

The year’s net productionwas 4.8 Mbbl of liquids and 1.2bscf of natural gas, with a total netequivalent production of 5 Mboe(13,732 boepd), from the AlbacoraLeste block. Net proved reservesfor this block were estimated at26.3 Mboe at 31 December 2008.During the year, 3 explorationsurveys were completed, oneof which produced a positiveresult (Guara).

Repsol is one of the leadingprivate companies in offshoreexploration mineral areas in the

UPSTREAM

BrasilBoliviaAs of 31 December 2008, Repsolheld mineral rights on 31 blocks inBolivia: 6 exploration blocks, witha net area of 7,022 km2, and 25exploitation blocks, with a net areaof 1,489 km2, located in the Beni,Pie de Monte, Subandino Sur andSubandino Norte basins.

The year’s net production was 2.4Mbbl of oil, including condensatesand liquids separated fromnatural gas, and 53.4 bscf ofnatural gas. Total equivalentnet production was 11.9 Mboe(32,425 boepd), concentratedmainly in the fields operated byAndina and in the Mamore block.Proved hydrocarbon reservescorresponding to Repsol at theclose of the year were 91.8 Mboe.

Analysis of the data andinformation generated during thedrilling and formation tests of the

Santos, Campos and EspirituSanto basins. It also holds a 10%stake in the Albacora Leste field,which commenced production inApril 2006 in the Campos basin.In 2008 this important Braziliandeepwater oil field producedaround 140,000 bopd, a figurewhich is expected to increase to180,000 bopd. The field’s totalproved and probable reserveswere estimated at 423.3 Mbbl atthe close of the year.

2008 Milestones• In June 2008 Repsol discovereda second oil field in deep watersof the Santos basin. The newwell, called Guara, is located inblock BM-S-9 and is adjacent tothe Carioca field discoveredat theend of 2007 in the same block.Preliminary evaluations indicate

SurubiTuichi

Other blocks

Caipipendi

Sábalo

San Alberto

Other blocks

Exploration block

Development/exploitation block

that both offer a high potentialof high-quality oil resources andconfirm this basin as one of theworld’s deepwater areas with thegreatest potential. In 2009, Repsoland its partners in the block willcontinue to carry out the activitiesand investments necessary in orderto more accurately determine thesize of the Carioca and Guara fieldsand define the future developmentplan. In 2009 two additionaldrillings will be completed (oneof which is the Iguazu well) and aproduction test will be carried outat the Guara well.

• Three important discoverieswere made at the beginningof 2009 in the Santos basinwith the Piracuca, Panoramixand Iguazu wells.

bm-s-44bm-c-33Albacora Leste

bm-es-21bm-es-29bm-es-30

Exploration block

Development/exploitation block

bm-s-50bm-s-9

bm-s-55

bm-s-51bm-s-48

bm-s-47bm-s-7

68 69

At the end of 2008, Repsol heldmineral rights on an offshoreexploration block off Cuba thatcovers six exploration areas (N25/26/27/28/29/36), plus area 35,awarded at the beginning of 2005.The areas total a net area of 4,512km2 and are all included under thesame contract.

No exploration wells were drilledin Cuba in 2008.

Cuba

Exploration block

n25, n26, n27, n28, n29, n35 and n36 blocks

extends the exploitation periodof block 16 by six years, from2012 to 2018 and establishesa transitory period of one yearduring which the Governmentof Ecuador will reduce the tax onexcess profits from 99% to 70%.During this one-year period bothparties will negotiate a long-termservices provision contract whichwill govern Repsol’s activitiesin this country.

2008 Milestones• On 10 September 2008 theagreement for the sale of RepsolYPF Ecuador S.A.’s 25% stake inblock 14 was signed withthe company PetroOrientalS.A. (CNPC).

At the close of 2008, Repsol heldmineral rights on 2 developmentblocks in Ecuador witha net area of 770 km2. The year’snet production was 5.2 Mbbl(14,135 bopd) of oil, the majorityobtained from block 16. Netproved oil reserves at the endof the year were estimatedat 11.2 Mbbl.No exploration wells werecompleted in Ecuador in 2007.On 4 October 2007, PresidentRafael Correa signed an ExecutiveDecree whereby the state’s sharein excess revenues was increasedfrom 50% to 99%.In March 2009 Repsol reacheda significant agreement with theGovernment of Ecuador which willenable the company to establisha stable contractual frameworkwithin a year. This agreement

Ecuador

Bloque 16Tivacuno

Development/exploitation block

At the end of 2008, Repsolsuccessfully bid for explorationrights in three blocks in Canadalocated in the offshore area ofNewfoundland (Terranova) andLabrador. Two of these blocksare located in the Central Ridge/Flemish Pass area and the otheris in the Jeanne d’Arc Basin.Repsol’s partners in these blocks,which have a total area of 4,000km2, are the Canadian companiesHusky Oil and Petro-Canada.The awarded exploration rightsrepresent a further step forwardin the company’s plans toincrease its presence in oil andgas exploration and productionactivities in OECD countries.

CanadaNorte wells, in the Cosecha blockin the Llanos Orientales basin,in which Repsol has a 25% stakeand Oxy, the operator, holds theremaining 75%. The Cosechablock has a surface area of 2,856km2. The third discovery wasmade with the Capachos Sur 1well, in the Capachos block inwhich, with a 100% stake, Repsolis the operator.

• In April 2008, the CapachosSur field in the Capachos blockcommenced production. Repsolowns 100% of this 259 km2 blocksituated in the Llanos basin.

At the end of 2008, Repsol heldmineral rights on 9 blocks inColombia: 7 exploration blocks,with a net area of 4,278 km2,and 2 exploitation blocks(Capachos and Cravo Norte), witha net area of 268 km2. The year’snet production was 2.6 Mbbl(7,218 bopd) of oil. Net provedreserves of this hydrocarbon at theclose of the year were estimatedat 4.4 Mbbl.

8 exploration wells werecompleted in 2008: 5 provednegative and 3 positive (CapachosSur-1, Cosecha Z and CosechaY Norte). 200 km of 2D seismicwere also acquired.

2008 Milestones

• In 2008 three new discoverieswere made in Colombia, two withthe Cosecha Z and Cosecha Y

Colombia

Orquídea

El Queso

Tingua

CapachosCravo Norte

Caporal

Catleya

Cosecha

Chipirón

uídea

o

Exploration block

Development/exploitation block

alha

70 71

which will be of great help inenhancing its presence in the Gulfof Mexico.

In July 2007 Repsol reached anagreement in Alaska with thecompanies Shell Offshore Inc. andEni Petroleum US LLC to explore71 adjacent offshore blocks in theBeaufort Sea, just to the north ofthe prolific Prudhoe Bay and theKuparuk oil fields. Repsol holds a20% stake in these blocks.

2008 Milestones• The second production wellin the western area of theShenzi field (previously knownas Genghis Khan) commencedproduction in February 2008through the neighbouring MarcoPolo platform. Shenzi is one of

As of 31 December 2008, Repsol’sUpstream area held mineralrights on 236 blocks in the UnitedStates in the Green Canyon,Atwater Valley, Beechey Point,Harrison Bay, Karo, KeathleyCanyon, Mississippi Canyon,Posey, Unnamed and WalkerRidge areas. 230 of these areexploration blocks, with a net areaof 3,505 km2, and the other 6 areexploitation blocks (39 km2) andcorrespond to Shenzi. The year’snet total production was 0.6Mboe. Net proved reserves at theclose of the year were estimated at48.9 Mboe.

An exploration well wascompleted in 2008 with a negativeresult, 205 km2 of 3D seismicwere carried out and 122 km of

2D seismic and 14,061 km2 of 3Dseismic were purchased.

In recent years Repsol hassignificantly enhanced itspresence in deep waters of the USGulf of Mexico, participating inthe major Shenzi oil developmentproject and securing a largenumber of new exploration blocks.This region is considered oneof the world’s most profitabledeepwater areas with a highexploratory potential.

In 2007 Repsol launchedthe Kaleidoscope project,an ambitious research anddevelopment programme whichhas enabled the company todevelop its own cutting edgetechnology for interpretingseismic data, providing Repsolwith a competitive advantage

United States

Mississippi CanyonAtwater ValleyKeathley CanyonWalker Ridge

Green Canyon

Beechey PointHarrison Bay

Karo, PoseyUnnamed

Shenzi

Exploration block

an area of 2,139 km2. Thecompany’s objective is to createan extensive project portfolioin this almost unexplored areawith a high potentialof undiscovered resources.

• A major oil discovery was madein early 2009 in deep waters of theGulf of Mexico with the Buckskinwell in the Keathley Canyonarea, 300 kilometres off thecoast of Houston. Repsol is theexploration operator of this newfield where a hydrocarbon columnof around 100 metres has beendiscovered which it is estimatedcould be even greater at the top ofthe structure. The new well is at adepth of 10,000 metres beneath2,000 metres of water.

• In March 2009, ahead ofschedule, Repsol commenced oil

the largest discoveries to date inthis region’s deep waters.

• In Exploration Round 206,carried out in the Gulf of Mexicoat the beginning of 2008, Repsolobtained 32 new explorationblocks which, together with thoseachieved in recent years, createa sound portfolio of explorationprojects. The company’sparticipation in these roundsforms part of its strategy ofdiversification and growth inOECD countries.

• In the first quarter of 2008,Repsol obtained 93 blocks inAlaska in Exploration Round 193.These blocks are locatedin the Chukchi Sea and cover

and gas production at the Shenzifield with its own platform. Thecompany holds a 28% share inthis unified field. The productionplatform was installed in thesummer of 2008.

• Repsol obtained 20 newexploration blocks in ExplorationRound 208, held in March 2009.

72 73

UPSTREAM

At the close of 2008, Repsol heldmineral rights on an offshoreexploration block off Guyana witha net area of 8,625 km2.

No exploration wells were drilledin 2008, but 1,715 km2 of 3Dseismic were acquired.

In September 2007, theInternational Court of MaritimeLaws issued its ruling on thelitigation regarding the borderissue of the Georgetown block (inwhich Repsol holds a 75% share)between Guyana and Surinam.According to the ruling, 100% ofthis block is located in territorialwaters of Guyana.

As of 31 December 2008, Repsolheld mineral rights on2 exploration blocks totallinga net area of 14,638 km2.

An exploration well in the offshoreMehr block was completedin 2008 with a negative result(BKH-4N).

In 2004, Repsol and Shell signedan agreement with the NationalIranian Oil Company (NIOC)to develop the integrated LNGproject, Persian LNG. The finaldecision regarding investment

in the liquefaction plant andcommencement of explorationand development operations hasnot yet been taken.

With regards to the Band EKarkhek-2 well, located in theonshore Mehr block discoveredin 2005, NIOC announced itscommercial viability in January2007. This was officially confirmedin June 2007. The viability ofdeveloping the field is currentlybeing analysed.

Guyana Iran

Georgetown

Exploration block Exploration block

Forooz

Mehr

Equatorial Guinea

Exploration block

Bloque C

As of 31 December 2008, Repsolheld mineral rights on oneexploration block in this countrywith a net area of 689 km2.

In 2007 the Langosta-1 explorationwell was drilled in block C, whereRepsol holds a 35% stake, and wascompleted on 3 December 2007.The results obtained are currentlyin the evaluation process.

In the last quarter of 2006 Repsolacquired a 25% stake in thecompany Zhambay LLP, whichowns the Zhambay explorationblock, from KazMunaiGaz, thecountry’s state hydrocarboncompany. The block is located inthe Caspian Sea near the borderwith Russia and the mouth of theRiver Volga. Repsol’s partnersin this project are KazMunaiGaz(50%) and the Russian oilcompany Lukoil (25%). Theagreement for participation inthe Zhambay block, which is ofgreat exploration interest due toits location and the high potentialdetected, was signed in 2005.

In the second half of 2007 thereprocessing of the 1,100 kmof 2D seismic acquired in theblock between 2002 and 2005started. A geological surveyof the block and the adjacent areain the north of the Caspian Seawas also commenced.

In 2008 the project partnersrequested a new extensionof the contract for a two-yearperiod. Drilling of the first well isexpected to be carried out in 2010or 2011. In 2009 a decision will betaken regarding the most suitablesite and drilling equipment forthis operation.

Kazakhstan

74 75

UPSTREAM

At the end of 2008 Repsol heldmineral rights on 15 blocks inLibya. 14 of these are explorationblocks (including block NC-186 which, although officiallyclassified as an exploration block,has fields in production) with anet area of 58,224 km2. The onlyexploitation block (NC-115) hasa net area of 874 km2. The year’snet production was 18.4 Mbblof oil (50,197 bopd), obtainedfrom blocks NC-115 (El-Shararafield) and NC-186, in the Murzuqbasin. In 2008 total productionof the two blocks in productionin Libya amounted to 302,000bopd. Net proved reserves ofoil at the close of the year wereestimated at 115.9 Mbbl.

11 exploration wells werecompleted in the country (one,Y1 NC-186, proved positive) and

3,976 km of 2D seismic and 2,563km2 of 3D seismic were acquired.

In 2007, Repsol and its partnersin Libya began a revision processof contractual conditions withthe national company NOC. Thisprocess finalized in July 2008.

2008 Milestones• At the beginning of 2008 anew discovery was made in theprolific NC-186 block with the Y-1well. With a surface area of 4,295km2, this block is located in theMurzuq basin and is operated byRepsol through the company’s32% stake.

• In June 2008 productioncommenced in blocks NC-186and NC-115 in the I/R field, alsolocated in the Murzuq basin.Repsol holds stakes in bothof these blocks. Discovered in

2006, this field is one of themost important oil finds inthe company’s history and themost important in Libya in thelast decade. With a productionpotential of 90,000 barrels perday, development of this fieldwill enable the company tosignificantly increase reservesand production in this country.The I/R field is one of the 10key projects defined in Repsol’s2008-2012 Strategic Plan.

• On 17 July, Repsol and NOC,Libya’s national oil company,signed a new agreementextending the oil exploration andproduction contracts for blocksNC-115 and NC-186 until 2032.The new agreement extends theterm of the contracts for theseblocks in the Murzuq basin,with 15 additional years in the

Libya

Exploration block

Development/exploitation block

nc-202nc-201

nc-209nc-208nc-199

nc-210nc-186

nc-206nc-207nc-203nc-204

nc-200nc-115

nc-137

nc-205

LiberiaAs of 31 December 2008 Repsolheld mineral rights in Liberiaon 3 exploration blocks (LB 15,LB 16 and LB 17) with a net areaof 1,711 km2.

In the first international biddingprocess carried out by the Liberiangovernment in 2005, Repsol wasawarded the exploration anddevelopment rights on block 16,located in this African country’sterritorial waters. In the summerof 2004 the company had alreadyobtained the rights to block 17through direct negotiation. Thisblock is adjacent to block 16 andborders the blocks previouslysigned in territorial waters ofSierra Leone (blocks 6 and 7).

contract for the first block and5 or 9 years, depending on thefields, for the second block. Theagreement guarantees Repsolexploitation of the numerousresources discovered in bothblocks. Repsol and its partnersalso extended their explorationlicenses for these blocks by 5years, which may increase oilproduction and reserves.

• At the end of 2008 NOCapproved the development planssubmitted for the “J” and “K”fields in block NC-186 (Repsol,Total, OMV and StatoilHydro).The development plan for field“E” in block NC-200 (Repsoland OMV) is expected to beapproved in the first half of 2009,thereby enabling production tocommence in these three fields.

Morocco

Exploration block

Tanger-Larache 1, 2, 3

At the close of 2008 Repsol heldmineral rights on 3 explorationblocks in Morocco located in theRharb basin and totalling a netarea of 4,396 km2.

No exploration wells were drilledin 2008.

2008 Milestones• At the end of March 2009,Repsol discovered gas in theTangiers-Larache exploration area,40 kilometres off the coast ofMorocco, with the Anchois well.Repsol has a 48% interest andis the operator of the Tangiers-Laroche 1-2-3 exploration blocks. In2008 preparations were made forthis well, which was commenced inJanuary 2009.

76 77

UPSTREAM

As of 31 December 2008 Repsolheld mineral rights in Mauritaniaon 2 exploration blocks with a netarea of 45,439 km2.

In 2005 the Mauritanianauthorities awarded Repsolexploration blocks TA-9 and TA-10located in the Taoudenni basin.The company is the operator ofthese blocks and controls a 70%share, with RWE Dea holding theremaining 30%.

No exploration wells were drilledin 2008, but 1,194 km of 2Dseismic were acquired.

At the close of 2008 Repsolheld a multiple services contractfor the Reynosa-Monterreydevelopment block located inthe Burgos basin in the north ofthe country. The company tookcharge of this operation in March2004. The area already had 16 gasfields that had been discoveredand were in production, andthe aim was to substantiallyincrease output of these fieldsthrough additional developmentinvestment. The contract wasawarded in 2003 as part of thefirst international tender held by

the Mexican national companyPemex for participation in gasfield development and productionactivities in the country. Withthis contract Repsol becamethe first international companyto participate in hydrocarbondevelopment and exploitationactivities in Mexico.

When Repsol took over theoperation, production was 10.5Mscfd. At the end of 2004 a levelof 18.2 Mscfd was reached anda year later production of 39.6Mscfd was achieved. In 2006the average was 37.8 Mscfd

Mauritania Mexico

Exploration block

ta-9ta-10

Development/exploitation block

ReynosaMonterrey

and in 2008 the figure stood at44.6 Mscfd. In January 2008 amaximum production of 55 Mscfdwas obtained, five times theamount recorded for 2004.

In five years of activity in thisregion, Repsol has drilled 57 gaswells with an average depth of2,900 metres, acquired 754 km2

of 3D seismic and 137 km ofpipelines and constructed 44 kmof access roads.

In September 2008, in linewith the company’s strategy ofdiversification and growth inOECD countries, an AMI (Areaof Mutual Interest) was signedwith the Norwegian companyDet Norske Oljeselskap ASA (DetNorske) for the joint study of theareas available in ExplorationRound 20. Repsol holds a 40%interest in this project, with DetNorske holding the remaining60%. In November a joint bid wassubmitted for four blocks. Repsolalso presented a bid for 100% ofanother three blocks. The resultof this round is expected to beannounced by mid 2009.

NorwayAlso in Norway, in October2008 Repsol, together with DetNorske, Bayerngas and Svenska,submitted a bid for four blockslocated between the Njord andDraugen fields (NorwegianSea), in the 2008 APA (Award ofPredefined Areas) Round. Repsolobtained one exploration area.

78 79

UPSTREAM

At 31 December 2008, Repsolheld mineral rights on 8 blocks inPeru: 6 exploration blocks, witha net area of 31,395 km2, and 2development blocks, with a netarea of 202 km2. Net productionof hydrocarbons in 2008 was3.2 Mboe (8,722 boepd), fromblock 88 (Camisea field). Netproduction of crude oil, includingcondensates and liquids, was 1.5Mbbl and natural gas 9.3 bscf. Netproved reserves of crude oil andgas were estimated at 113.5 Mboeat the close of the year.

589 km of 2D seismic wereacquired in 2008.

In 2008 work continuedon schedule for completedevelopment of the Camisea oilfield (blocks 56 and 88) in whichRepsol holds a 10% stake. Theseblocks will supply natural gas to

the future Pampa Melchorita LNGplant which forms part of the PeruLNG project. This facility, in whichRepsol holds a 20% interest, isexpected to be operative in 2010.There are two fields in block 88,San Martin (in production since2004) and Cashiriari (currently inproduction) and the Pagoreni fieldin block 56 which commencedproduction in September 2008.

2008 Milestones• In January 2008 a significantexploration discovery was madein Peru in block 57, located in theCuzco province, with the Kinteroniexploration well. Repsol is theoperator of the consortium whichwill exploit this field, and holds astake of 53.84%. The remaining46.16% is owned by Petrobras.Preliminary production tests

showed flows of one million cubicmetres of gas per day (0.365 bcm/year) and 198 cubic meters per dayof associated liquid hydrocarbons(72,270 cubic metres/year). Inorder to define a commercialand development plan for thisdiscovery, a 3D seismic campaignwill be conducted at the Kinteronistructure and several delineationand exploration wells will be drilledin the block. All these activitieswill enable a more accurateassessment of the resourcesdiscovered, which are initiallyestimated at around 2 TCF(56 bcm).

• On 10 September productioncommenced at block 56(Pagoreni). Together, this blockand block 88, in which Repsolalso controls 10%, make up theCamisea field.

Peru

Exploration block

Development/exploitation block

Bloque 39

Bloque 109Bloque 103

Bloque 76

Bloque 57Bloque 90

Bloque 88

Bloque 56

In February 2006 Repsol reacheda strategic agreement withWest Siberian Resources (WSR)through which it acquired a10% stake in the company. Theagreement includes an industrialalliance for joint developmentof hydrocarbon exploration andproduction projects in Russia,where WSR holds a significantportfolio of assets. The alliancewith this company enabled Repsolto enter the hydrocarbon sector inRussia and represents an excellentopportunity to gain presence inthis region.

RussiaIn December 2007 WSR signedan MOU (Memorandum ofUnderstanding) to merge withthe Russian company AllianceOil, whose main assets are theKhavarosk refinery, which hasa capacity of 4 Mta, 156 servicestations in the Russian FarEast, storage terminals and twoproduction licenses in Kazakhstanand Tatarstan, with 100 Mbbl ofproved and probable reserves. Themerger process was completedin 2008. During the year theintegrated company produced48,000 bopd and refined around66,500 bopd. Total proved andprobable reserves amounted to489 Mbbl at the close of 2008.

At the end of 2008, Repsol heldmineral rights in Sierra Leoneon 2 offshore exploration blockstotalling a net area of 2,625 km2.The company was awardedthese blocks (SL-6 and SL-7), inwhich it holds a 25% stake, inJanuary 2003 following a biddinground. Its partners are Anadarko(50%) and Woodside (25%). Thewater depth of the blocks rangesfrom 100 to 3,800 metres. Noexploration wells were drilledin 2008.

Sierra Leone

Exploration block

sl-6sl-7

80 81

UPSTREAM

At the end of 2008 Repsol heldmineral rights in this country onone exploration block with a netarea of 5,574 km2.

Repsol YPF Surinam is theoperator of the block with a 40%stake. Its partners are NobleEnergy Suriname (30%), NobleEnergy Caribbean (15%) and PetroHunt Suriname (15%). In 2008the West Tapir-1 well was drilled,where findings showedthe amounts of hydrocarbonsto be insufficient to be commer-cially viable.

Suriname

Bloque 30

Exploration block

At the close of 2008 Repsol heldmineral rights on 7 offshoreexploitation blocks with a netarea of 2,363 km2, including 30%of the company bpTT’s offshoreexploration and production assetsin Trinidad and Tobago, throughits stake in the company BPRY.The year’s net production was 6.5Mbbl of liquids and 274.9 bscf ofnatural gas, with net equivalentproduction of 55.4 Mboe (151,436boepd). Net proved reserves of oiland natural gas were estimated at488 Mboe at 31 December 2008.No exploration wells were drilledin the country in 2008.

Repsol is one of the two largestprivate companies in the countryin terms of oil and gas productionand reserves together with BP withwhich it shares ownership of thecompany bpTT. This company, in

Trinidad and Tobago

ManakinIbis

Bloque Este

Samaan,Teak and Poui

Bloque Oeste

Development/exploitation block

which Repsol holds a 30% stake,operates an extensive offshorehydrocarbon production areaoff Trinidad and Tobago and in2008 reached an average dailyproduction of over 460,000barrels of oil equivalent.

In the fourth quarter of 2007bbTT’s Mango and Cashminafields commenced production,providing increased productionin 2008 and availability of gasfor train 4 of the Atlantic LNGliquefaction plant, in which Repsolholds a 22.22% share.

2008 Milestones• The Teak Blow Down gascompression project for domesticsales was completed in the fourthquarter of 2008, increasing gasproduction by 700,000 cubicmetres per day as of January 2009.

of migrating from operativeagreements to joint ventures.This agreement reflects the newstakes – PDVSA (60%) andRepsol (40%) – for the MeneGrande and Quiriquire Somerocrude oil fields, and for theQuiriquire Profundo gas field –Repsol (60%) and PDVSA (40%).The agreement also establishes a20-year extension of the Quiriquireand Mene Grande concessions,and establishes an increasein sale prices and the possibilityof accessing new business inthe country.

In May 2007 Repsol signeda Memorandum of Understanding(MOU) with PDVSA, with theconditions for including the Baruaand Motatan fields within

the Petroquiriquire joint venture,in which Repsol YPF holds a 40%stake. At the end of 2008the agreement was pendingapproval by the NationalAssembly of Venezuela.

Work continued in 2008 onsecuring Repsol’s participationin one of the new heavy crudeoil projects in the Orinoco Stripand the company continuedto collaborate with PDVSA onevaluation of the Junin 7 block.

At 31 December 2008 Repsolheld mineral rights in Venezuelaon 7 blocks: 2 exploration blocks,with a net area of 669 km2, and5 exploitation blocks, with a netarea of 757 km2. The year’s netproduction was 2.7 Mbbl of oiland liquids separated from naturalgas, and 60.1 bscf of gas, withan equivalent total of 13.4 Mboe(36,542 boepd), mainly obtainedfrom the Quiriquire, Barrancas,Mene Grande and Yucal Placerblocks. Net proved reserves ofliquids and natural gas wereestimated at 122.9 Mboe at theclose of the year. No explorationwells were drilled in 2008.

On 1 April 2008 Repsol andPDVSA agreed on the finalconditions for the process

Venezuela

Mene Grande

Cardón IVQuiriquire

Barrancas

Yucal Placer NorteYucal Placer Sur

Exploration block

Development/exploitation block

82 83

Liquefied Natural Gas (LNG)

RevenuesOperating revenue from the LNGactivity in 2008 was ¤125 millionagainst the previous year’s ¤107million, an increase of 17%.EBITDA increased to ¤173 millionin comparison with ¤146 millionin 20007.

Prices of the main commoditiessaw an upward trend in thefirst half of 2008, followed by adecline in the second half of theyear. Throughout 2007 and thefirst part of 2008 natural gasprices increased in all marketsdue to record crude oil prices,growing demand in both newand established markets, andsignificant delays in investments.Despite steep prices during thisperiod, demand in large importingmarkets, such as Spain andAsian countries, did not decline,showing a sharp upward trend

in the first half of the year. In thesecond half of the year, however,the global financial crisis andshrinking demand contributed toreversing this trend with pricesfalling back to the levels of someyears ago.

In the first half of 2008, theaverage price of Henry Hub, themain reference index for naturalgas, was $10.1/MBtu, 36.5%higher than for the same periodin 2007. The average for the yearas a whole was lower, $8.9/MBtu,an increase of 25.3% overthe previous year. It should alsobe noted that in addition tothe high prices in the first halfof the year, Asian markets, unlikethe European and NorthAmerican markets, were payinga premium, with prices linkedto oil product prices. As a result,the industry diverted shipments

from the Pacific and Atlanticbasins to this market since it wasmore profitable.

With regards to the electricitygeneration market, the averageaccumulated price of the Spanishelectricity pool in 2008 was ¤64.4/MWh, 63.9% higher than in 2007.This increase is attributable,among other factors, to increaseddemand, the rise in internationalcommodity prices, and the highercost of CO2 emission rights. Thetrading volume in the Spanish Quarry used in the Peru LNG project.

84 85

construction of a second dock anda fourth LNG storage tank.

CanaportRepsol, together with Irving Oil,holds a stake in the Canaportproject for the constructionand operation of the first LNGregasification plant on Canada’seast coast. Located in Saint John(New Brunswick) and withan initial supply capacity of 10bcm/year (1 billion cubic feetper day, which could be extendedto 2 billion cubic feet per day),the Canaport terminal is one ofthe largest in North America andwill supply markets on the eastcoast of Canada and north-easternUnited States. Repsol, with a 75%stake, will operate the plant andsupply the LNG for the terminal,and will be entitled to the entireregasification capacity. The plant

is scheduled to commenceoperations in the firsthalf of 2009.

Construction work at the plantin 2008 continued with slightdelays to the planned schedule.The onshore part of the projectfor the two tanks included in theinitial project is 92% complete.Work on the third tank, which wasapproved subsequently by theconsortium and which will makeit possible to receive suppliesfrom the largest LNG tankersbuilt to date, is 72% complete.Construction of the offshoreterminal is practically finished.In addition, the New Brunswick(Canada) and Maine (UnitedStates) gas pipelines are ready totransport natural gas delivered tothe Canaport plant to markets inthe north-eastern United States.

In 2008, Repsol began marketing

activities in New England andother parts of the north-easternUnited States. These markets willsee a significant expansion in2009 when the Canaport terminalcommences operations. Gasfrom Repsol’s exploration andproduction activities in the Gulfof Mexico will also be marketed.

In Peru, the integrated liquefiednatural gas project, Peru LNG,is currently being developed.Together with the Canaportproject, Peru LNG is one of the

electricity system daily marketwas much higher: 232 TWh in2008 in comparison with 200TWh in 2007.

On the other hand, income fromthe businesses within the LNGarea is generally in US dollars.The year-on-year 7.4%depreciation of this currencyagainst the euro had a negativeimpact on 2008 earnings.

ProjectsIn the LNG sector, Repsol iscarrying out a policy aimed atstrengthening its competitiveposition in this business, whichplays a key role in its medium andlong term growth.

Repsol is involved in an integratedLNG project in Trinidad andTobago, where together withBP and BG, as well as othercompanies, it holds a stake in

the Atlantic LNG liquefactionplant. The strategic geographicallocation of this plant enablesit to supply markets in theAtlantic Basin (Europe, UnitedStates and the Caribbean) athighly advantageous economicconditions.

This plant has four operationalliquefaction trains with acombined capacity of 15 milliontonnes per year. Repsol holds a20% stake in Train 1, 25% in trains2 and 3 and 22.22% in Train 4.Production capacity of Train 4,one of the largest in the world,is 5.4 million tonnes per year. Inaddition to its participation in theliquefaction trains, Repsol is aleading player in gas supply andone of the main purchasers ofLNG (approximately 3.2 milliontonnes per year).

Commencement of operations in Trinidad and TobagoThis plant commencedproduction operations in April1999. On 1 January 2000, Repsolacquired 10% of bpTT, a companywith production assets in Trinidadand Tobago, from BP. In January2003, the company exercised apurchase option for an additional20%, taking its stake to 30%.

Most of the natural gas for thetrains comes from the bpTTmarine fields. Train 2 commencedoperations in 2002 and Train 3 in2003. Their combined capacityamounts to 7 million tonnes/year.Repsol has long-term contracts for2.7 bcm per year for these trains.

On 15 December 2005, a fewmonths ahead of schedule, thefourth liquefaction train of theAtlantic LNG plant commencedoperations. This project included

The Canaport (Canada) plant willcommence operations in mid 2009,enabling a significant increase in thevolumes of gas marketed in Canadaand north-eastern United States

LIQUEFIEDNATURAL GAS

Repsol LNG installations in Trinidad and Tobago.

86 87

The first financing instalment wasmade in November 2008.

Regasification plantIn Spain, Repsol holds a 25%stake in Bahia Bizkaia Gas, S.L.(BBG). This company owns aregasification plant with unloadingfacilities for LNG tankers of up to140,000 m3, two 150,000 m3 LNGstorage tanks, and a vaporizationcapacity of 800,000 Nm3/hour.BBG is the operator of thisplant which has a regasificationcapacity of 7 bcma, forms partof the Spanish gas system, andis remunerated by the NationalEnergy Commission (ComisiónNacional de la Energía, CNE)by means of tariffs, tolls andfees. The plant is located in theharbour of Bilbao and has threeother partners (BP, EVE and

Iberdrola) each holding a 25%stake. Expansion of this facility iscurrently being appraised. Thiswould involve the construction ofa third tank, also with a 150,000m3 capacity, and the additionof a further 400,000 Nm3/hourregasification capacity. In 2008,the regasification plant had anavailability rate of 96% and a loadfactor of over 68%, both figureshigher than those for 2007 andthe average in Spain, where theaverage load factor is 52%.

Repsol also holds a 25% stake inBahia de Bizkaia Electricidad, S.L.(BBE), a company which ownsa combined cycle power plantwith an installed capacity of 800MWe. The plant uses natural gasdelivered by BBG as its main fuel.Electricity generated at this plantis fed to the grid for residential,

major initiatives envisioned inthe 2008-2012 Strategic Plan anda key project for the company’sgrowth. Repsol has been involvedin this project, in which it holdsa 20% stake, since 2005, inpartnership with Hunt Oil (50%),SK (20%) and Marubeni (10%).

Other key initiativesThe Peru LNG project entailsthe construction and operationof a liquefaction plant in PampaMelchorita, in which Repsol holds

a 20% stake, and a gas pipelinethat will connect with the existingpipeline in Ayacucho. Natural gaswill be supplied to the plant bythe Camisea consortium, in whichRepsol also has a stake.

The project also includesexclusive marketing by Repsolof the liquefaction plant’s entireproduction, estimated at over 4.5million tonnes per year. The termof the gas purchase agreementsigned with Peru LNG is 18years from commencement ofcommercial operations. In termsof volume, this is the largest LNGacquisition ever made by Repsol.

In September 2007, Repsol wasawarded the international publictender offered by the FederalElectricity Commission (ComisiónFederal de Electricidad, CFE) tosupply LNG to the natural gas

terminal at the port of Manzanilloon Mexico’s Pacific coast. Thecontract envisages the supplyof over 67 bcm of LBG to theMexican plant for a 15-year period.The Manzanillo plant, which willsupply gas to CFE’s power plantsin the central-western region ofMexico, will be fed with gas fromthe LNG Peru project.

At the end of 2008, constructionwork on the onshore part ofthe liquefaction plant was 68%complete, after advancing 41%over the course of the year. Theoffshore installations were 72%complete, and the gas pipeline62% complete. The plant isexpected to commence operationsin mid-2010. The financeagreements for this project wereestablished in December 2007and concluded on 26 June 2008.

AngolaPeru

Trinidadand Tobago

Canada

Spain

2006 2007 2008 2008 / 2007

Net production of lng (*) (Bcma) Trinidad 3.0 3.3 3.5 4.7(*) Equity gas: does not include production of LNG bycompanies accounted for using the equity method

lng marketing Loads (n°) 42 66 65 (1)Volume marketed (Bcma) 3.2 4.5 4.7 4.2

variation %

operational magnitudes

Conversion factor: 1 Bcma (billion m3/year) = 39.68 TBtu.

The PampaMelchoritaplant (Peru)is expectedto commenceoperationsin 2010

i a

2007 2008

1 q 2 q 3 q 4 q total 1 q 2 q 3 q 4 q total

Operating income 266 221 291 145 923 308 393 472 371 1,544 ebitda 28 21 50 47 146 40 35 51 47 173 Operating profit 27 19 27 34 107 32 18 38 37 125 Investments 124 58 108 97 387 78 67 78 19 242

Millions of euros

liquefied natural gas (lng)

the lng area worldwide

88 89

had another fourth tanker, theSestao-Knutsen, which can carryup to 138,000 m3 of gas and isowned 50-50% by Repsol and GasNatural. At the beginning of thesecond half of 2009, the fleet willbe increased with the addition ofthe new Iberica Knutsen Tanker,which Repsol and Gas Natural willshare on a 50-50% basis.

Additionally, in early 2007, Repsolsigned time charter agreementsfor four new LNG transportvessels, one from Naviera Elcanoand three from Knutsen OAS.The four vessels are scheduledto commence operations in 2010and are equipped with the latesttechnology and have a nominalcapacity of 173,000 m3 of LNG.The vessels will be used mainly fortransporting supplies associatedwith the contract between Repsoland Peru LNG.

InvestmentsIn 2008 investments in theLNG business totalled ¤242million, 37% less than the¤387 million invested in 2007.These investments were mainlyapplied in the construction ofthe Canaport regasification plant(Canada) and the Peru LNGliquefaction project. This lastproject was financed with capitalcontributions from the partnersuntil November 2008, at whichtime the first external financingdisbursement was made.

commercial and industrialconsumption. Situated in theharbour of Bilbao, this facility hasthe same partners as BBG. In2008, the availability rate of theplant was 97% and the load factorover 66%, both figures higherthan those for 2007.

In Iran, Repsol and Shell, togetherwith NIOC, are continuing workon the integrated Persian LNGproject. The final investmentdecision on the liquefaction planthas not yet been taken.

In December 2007, Repsol andGas Natural signed a shareholdersagreement with Sonangol GasNatural (SONAGAS) to carryout initial development of anintegrated gas project in Angola.This initiative involves entailsevaluation of gas reserves todetermine the investments thatwould be required for developing

and, if appropriate, exportingthese reserves in the form ofliquefied natural gas. The servicescontract and the decree lawfor concession of the areas ofinterest, approved by Angola’sCouncil of Ministers in July 2008,are pending ratification by theNational Assembly. Seismic testsand other procedures were carriedout in 2008 and a well is expectedto be drilled in 2009.

LNG transport and marketingThe Repsol-Gas Natural LNG(Stream) joint venture, in whichboth companies hold a 50%share, is one of the world’sleading companies in LNGmarketing and transport andone of the largest operators inthe Atlantic Basin. One of thiscompany’s missions is to ensureoptimized management of bothpartners’ fleet, which comprisesa total of 11 LNG tankers. In2008 Repsol, with managementsupport from Stream, marketed4.7 bcm of LNG and handled 65cargoes, mostly from Trinidad andTobago with Spain as the maindestination.

At the close of 2008, Repsol’sfleet consisted of three LNGtankers under time charteragreements, with a total capacityof 416,700 m3. The company also

LNGMilestones

In 2008 the final construction work on the Canaport regasification plant, which will supply the north-eastern coast of North America, was carried out.

In 2008 Repsol commenced marketing activities in the New England area and the north-eastern United States. These markets will expand significantly in 2009 when the Canaport terminal commences operations.

At the end of 2008, construction work on the onshore part of the Peru LNG liquefaction plant was 68% complete, after advancing 41% over the course of the year.

The Trinidad and Tobago liquefaction trains increased production in comparison with 2007. Both the volume of LNG marketed and the unit margin also increased.

The Repsol-Gas Natural LNG (Stream)joint venture, in which both companieshold a 50% stake, is one of the world’sleading companies in marketingand transport of LNG

LIQUEFIEDNATURAL GAS

90 91

Pampilla refinery (Peru), in whichRepsol holds a 51.03% stake and isthe operator, is 102,000 bbl/day.

In 2008, Repsol sold its 31.13%stake in the Brazilian Manguinhosrefinery, maintaining its 30%holding in the Refap refinery, alsoin Brazil.

In 2008, the Repsol refinerieswithin the Downstream divisionprocessed 39 million tonnes ofcrude oil, slightly less than thefigure for 2007.

The refining margin in Spain in2008 was $7.4/bbl, 15% higherthan in 2007, thanks to thestrength of middle distillates andfuel oil and despite weaker petrolperformance. The higher dollar/euro exchange rate reduced thisadvantage and, consequently, theeuro/barrel margin in 2008 wasfairly similar to the 2007 margin.

The new European specifications

on automotive petrols and dieselscame into force on 1 January2009 by which the sulphurcontent is reduced from 50 ppmto 10 ppm. Repsol’s Spanishrefineries completed the necessaryinvestments and are prepared tomanufacture according to thesenew specifications.

With the aim of consolidatingits leadership in Spain, Repsolis currently implementing anambitious investment plan toincrease the refining capacityand conversion level, while alsoenhancing safety, environmentalprotection and the efficiencyof its facilities. The project forexpanding the Cartagena refineryand for conversion at the Petronorrefinery in Bilbao are key aspectsof this plan. Progress was madein 2008 towards developing theseprojects according to plan.

MarketingRepsol markets its range ofproducts through an extensivenetwork of service stations undera multi-brand strategy: Repsol,Campsa and Petronor in Spain,and Repsol in other countrieswhere the Downstream businessoperates. The marketing activityalso includes other sales channelsand the marketing of a wide rangeof products such as lubricants,asphalts, coke and derivatives.

Total oil product sales (excludingLPG) amounted to 42.86 milliontonnes, 7.75 less than in theprevious year. This drop was dueto weaker demand and to thesale of the marketing businessin Ecuador and Brazil and of themarketing business in Chile in2007. Sales in Europe were down2.4% and 29.3% in the rest ofthe world. With regards to sales

Downstream RefiningMarketingLPGTradingChemicals

RevenuesOperating revenue in theDownstream business area was¤1.111 billion, down 49.6% incomparison with 2.204 billion in2007. This drop was mainly dueto the following factors:

a) Lower non-recurring income,for a value of ¤329 million,mostly due to capital gains (¤315million) on the sale of a 10%stake in CLH in 2007.

b)The negative trend of theaccounting effect of inventories

of raw materials and products(-¤495 million) in comparisonwith the positive effect recordedin 2007 (¤234 million).

c) Lower income from theChemical business (-352million) in comparison with2007 (¤100 million). This dropwas mainly the result of a fallin sales (16.4%) due to fallingdemand and a reduction instock in the manufacturing anddistribution chain; and becauseof narrower margins, affectedby high naphtha prices in thefirst half of the year and the saleand depreciation of stocks in thesecond half of the year.

Excluding the effects of non-recurring income and inventoryvaluations in the last two years,the drop would have been 2.1%,from ¤1.657 billion in 2007 to1.622 billion in 2008.

If the contribution of the chemicalbusiness in both years is alsoexcluded, income would haveincreased by 22.7%, from ¤1.565 billion in 2007 to 1.92billion in 2008, reflecting thepositive performance of theother Downstream businesses(Refining, Marketing, LPG andTrading) in comparison with 2007(on a like-for-like basis, excludingthe impact of non-recurring itemsand inventories).

RefiningThe capacity of Repsol’s fiverefineries in Spain (Cartagena, ACoruña, Petronor, Puertollano andTarragona) increased by 30,000bbl/day in 2008 thanks to theinvestments made to eliminatebottlenecks. This enabled installedcapacity in Spain to increase from740,000 bbl/day to 770,000 bbl/day. Installed capacity at the La

92 93

2007 2008 2008 / 2007

Processed materials (millions of tonnes) Crude 40.1 39.0 (2.7)Other loads and raw materials 6.5 5.1 (20.8)Total 46.6 44.1 (5.2)

Production (thousands of tonnes) Middle distillates 20,906 19,994 (4.4)Petrols 7,820 7,235 (7.5)Fuel oils 7,337 7,308 (0.4)LPG 1,017 1,013 (0.4)Asphalts 1,741 1,558 10.5)Lubricants 249 212 (14.8)Others (excluding petrochemical) 1,627 1,674 2.9Total 40,696 38,995 (4.2)

Sales of petrol products (thousands of tonnes) Gas oils/Kerosene 25,853 23,723 (8.2)Petrols 7,757 6,775 (12.7)Fuel oils 7,397 7,234 (2.2)LPG 3,405 3,223 (5.3)Rest 5,448 5,130 (5.8)Total 49,860 46,085 (7.6)

Sales by areas (thousands of tonnes) Europe 39,156 38,183 (2.5)Rest of the world 10,704 7,902 (26.2)Total 49,860 46,085 (7.6)

operational magnitudes (refining, marketing and lpg)stations, as well as the industrialsales business, commercial andlogistics infrastructure, and theaviation and lubricants activities.

In December 2008, Repsol alsosold its liquid fuel marketingbusiness in Brazil for $55million to the Brazilian groupAleSat. The sale included thenetwork of 327 service stationsas well as the commercial andlogistics infrastructure and othercomplementary business suchas the convenience stores, directsales and asphalts.

Throughout 2008, Repsolcontinued with its policy aimedat improving service quality,particularly in company managedservice stations. By the end ofthe year, 243 facilities had beenadapted to the new Sprint storeconcept, with over 60m2 ofcommercial floor space, more

than 1,300 product references,and annual sales per store of over¤300,000.

Customer loyalty programmesthrough the use of specific cardsare an essential part of Repsol’smarketing strategy. At the end of2007 the company launched a newcard, Solred MÁXIMA, offeringclients 5% discounts onall services and products in thestores and a 1% discount on fuels.This card can also be used forpayment at repair shopsand motorways and offers awide range of advantages. SolredMÁXIMA is accepted at morethan 4,000 Repsol, Campsa andPetronor service stations in Spainand Portugal.

Respect for the environmentforms part of the policy andstrategy of the company,which focuses all its efforts on

to the company’s own network,light product sales in Spain fellby 5.8% due to a fall in demand,and in other countries sales were22.7% lower mainly because of thepreviously mentioned divestments.

At the end of 2008, Repsolhad a network of 4,399 servicestations in countries in whichthe Downstream business areaoperates. The network in Spainconsists of 3,590 sales points, 75%of which have strong concessionarylinks to the company, and 946of which are company managed.Service stations in other countrieswere located in Portugal (441), Italy(133) and Peru (235).

In June 2008, as part of its non-core asset divestment strategy,Repsol sold its liquid fuelmarketing business in Ecuador toPrimax for $47 million. The saleincluded the network of 123 service

A projectwhich createswealth andemployment

The expansion of the Cartagena refinery is one of the key initiatives in the 2008–2012 Strategic Plan. An investment of ¤3.262 billion will make this complex one of the most modern in the world and will double its capacity to 220,000 bbl/day. The project includes, as the main units, a hydrocracker, a coker, atmospheric and vacuum distillation units and desulphurisation and hydrogen plants.

In 2008 the administrative permits necessary for the extension were obtained. This initiative has met with a highly favourable response from both the region and the administrations, as it will boost the economy of the Region of Murcia. Around 1,000 people are already employed in the works, which are forecast to be completed on schedule.

This project will enable production of clean transport fuels to be maximized and will provide employment to over 6,000 people during the construction phase. Once operative, it will create around 700 jobs. Over 50% of the products produced in the complex will be middle distillates, which will play a significant role in reducing the shortage of these products in Spain.

The capacity of Repsol’s five refineriesin Spain (Cartagena, A Coruña,Petronor, Puertollano and Tarragona)increased by 30,000 barrels per day

DOWNSTREAM

(1)

(1) Does not include Refap since July

Distillation tower at the Tarragona refinery (Spain),

Variation %

94 95

developing environmentally-friendly and advanced technologyproducts. Repsol sells a widerange of latest generation fuelsthat comply with the strictestquality standards: Efitec 95 and 98petrol, Diesel e+ and Diesel e +10.

In keeping with its commitmentto society, Repsol continuedto promote projects for theintegration of people withdisabilities, who at the end of2008 amounted to 230 employeesin the Marketing division, morethan 3% of its workforce.

Liquefied Petroleum GasRepsol is one of the world’sleading retail distributioncompanies of LPG and the marketleader in Spain and Latin America.The company is present in tencountries in Europe, North Africaand Latin America.

Total LPG sales in 2008 amountedto 3.22 million tonnes, a decreaseof 5.3% in comparison withthe previous year. In Peru, LPGsales increased 93% thanks todevelopment of the market. Salesin Spain fell 1.9% compared to theprevious year.

In Spain, Repsol distributesbottled, bulk and piped LPGthrough collective distributionnetworks and has more than 10million bottled LPG customerssupplied through a network of 522distribution agencies. Bulk LPGsales accounted for 39% of totalretail LPG sales in 2008.

To reinforce its leadership positionon the Spanish market, improveservice quality and guaranteesupply, the company implementedan efficiency plan for factories inSpain over the 2007-2009 period.

In Portugal, Repsol distributesbottled and bulk LPG to endcustomers and supplies otheroperators. Sales in 2008 reached184,199 tonnes, making thecompany the third operator, witha 21% market share.

In Latin America, Repsol isthe leading LPG distributor inArgentina, Ecuador, Peru and Chile.It markets bottled and bulk LPGon the Argentinean retail marketto the domestic, commercialand industrial sectors, with salestotalling 325,836 tonnes.

In November 2008, the companysold its 51% stake in Repsol YPFGas de Bolivia S.A., abandoningthe bottling and bulk marketingactivities in this country.

ChemicalsThe company’s chemicalbusiness, which forms part of

the Downstream area, incurredan operating loss of ¤352 millioncompared to an operating profitof ¤100 million in 2007. This wasmainly due to a decrease in salesas a result of shrinking globaldemand and the reduction instocks in the entire transformationand distribution chain, as wellas narrower margins due to highnaphtha prices in the first half ofthe year and depreciation of stocksin the second half of the year.

Sales to third parties in 2008 stoodat 2.60 million tonnes, 16.4%less than the 2007 figure of 3.11million tonnes.

The project for the extension ofthe Sines complex (Portugal),which aims to double outputand increase competitivenessthrough greater integration andenergy efficiency, was approvedin June 2008. The project

includes three new plants –onefor linear polyethylene, one forpolypropylene and a third forcogeneration– as well as extensionof cracker capacity by more than40%, to 570,000 tonnes/year.The new linear polyethylene andpolypropylene plants will be ina highly competitive positionthanks to both their size and latestgeneration technology.

Investments Investments in the Downstreamarea increased by 64%, totalling¤1.534 billion in comparisonwith ¤936 million the previousyear. Most of this amount wasallocated to ongoing refineryprojects, particularly in Spain,and to operation improvements,installations and fuel quality, aswell as safety and the environment.

Thousands of tonnes 2007 2008 2008 / 2007

Capacity Basic petrochemical 2,664 2,679 0.6Derivative petrochemical 2,937 2,927 (0.3)Total 5,601 5,606 0.1

Sales by products Basic petrochemical 772 629 (18.6)Derivative petrochemical 2,341 1,973 (15.7)Total 3,113 2,602 (16.4)

Sales by markets Europe 2,776 2,348 (15.4)Rest of the world 337 254 (24.6)Total 3,113 2,602 (16.4)

operational magnitudes (chemicals)

Investmentsin theDownstreamarea increasedby 64%in 2008

DOWNSTREAM

Variation %

96 97

AdditionalDownstreaminformation

DOWNSTREAM

The Downstream area comprisesthe following activities: refining,logistics, crude oil and producttrading and marketing of fuels,including liquefied petroleum gas(LPG) and chemicals, on boththe wholesale and retail markets.Repsol YPF is the largest oilrefiner in Spain and Peru and isalso present in Brazil.

With regards to marketingactivities, the Group marketsproducts through its servicestations distributed over fivecountries. It is the leader onthe Spanish and Argentineanmarkets and one of the referencecompanies in Peru.

Improvements in refiningExcluding YPF, Repsol operatesfive refineries in Spain andanother in Peru with a total

installed capacity of 872,000barrels per day. It also holds astake in the Refap refinery (Brazil).

The company has introduceda number of improvementsin recent years. In 2002 itinstalled a hydrocracking unitin the Tarragona refinery and inmid-2004 a mild hydrocrackercommenced production in thePuertollano refinery. In 2005 anew FCC hydrotreatment unitcommenced operations in the ACoruña refinery, an isomerisationunit in Tarragona and an FCCNaphtha desulphurization unitin Bilbao, where in mid-2006 amiddle distillates desulphurizationunit was installed. In 2008Repsol’s Spanish refineriesfinalized the investmentsnecessary for manufacturingautomotive fuels with the quality

specifications adopted in theEuropean Union.

Repsol’s international supplyand marketing activities arecentralized through the companyRepsol YPF Trading y Transporte(RYTTSA), which has offices inMadrid, Buenos Aires, Houstonand Singapore.

Logistics Most of the distribution ofproducts refined in Spain ishandled by the CompañiaLogistica de Hidrocarburos(CLH), in which Repsol holdsa 15% stake.

At 31 December 2008, thecompany’s transport networkconsisted of 3,835 km of oilpipelines and two tankers. CLHalso has 38 storage facilities –allconnected to the oil pipeline Liquefied petroleum gas tank at one of the Repsol industrial complexes.

98 99

DOWNSTREAM

network, with the exception ofGijon, Motril and the four facilitiesin the Balearic Islands– and28 airport installations which,together, represent a total capacityof approximately 6.6 million m3.

In Peru there is a contractedstorage capacity of 125,000 m3.

LPG MarketingThe Group supplies liquefiedpetroleum gases mainly through

the refineries in Spain andacquisitions from third partieson the international markets.Nearly a third of its requirementsare met with the group’s ownproduction. In Europe and North

Africa, Repsol is present in Spain,Portugal, the south of Franceand Morocco. The strategyfollowed in all these countriesconsists of offering clients a topquality product combined withexcellent service.

Repsol Butano is the largestbottled LPG distributioncompany in Europe, in termsof both revenues and volume.It also distributes bulk propanevia individual installations(Personalised Plan) or collectivedistribution networks (pipedpropane installations andtown pipelines) to domestic,commercial and industrial clients.These sales represent 34.3% oftotal sales.

In 2007 the Administrationliberalized maximum prices

In 2008 the administrative permits necessary for extension of the Cartagena refinery were obtained. The project, which is the largest industrial investment in the history of Spain (¤3.262 billion), will make this industrial complex one of the most modern in the world.

Within the framework of the strategy of divestment of non-strategic assets, Repsol sold its 31.13% stake in the Manguinhos refinery in Brazil. In December, the company sold the liquid fuel marketing activities in Brazil to the Brazilian group AleSat for 55 million dollars.

In February 2008 the company divested the polymethyl methacrylate (PMMA) business with the sale of the Bronderslev (Denmark) and Polivar (Italy) subsidiaries.

In June 2008 Repsol signed an agreement with the company Primax for the sale of the Ecuadorian companies Recesa and Oiltrader for a sum of $47 million (¤32 million). In the case of lubricants, Repsol will maintain a marketing and distribution contract with Primax and, in the case of aviation, a technical-commercial contract.

In September 2008 commencement of the extension works of the Sines petrochemical complex (Portugal) was announced. This project includes the construction of new linear polyethylene and polypropylene units which will triple the current capacity of this industrial complex.

Downstream Milestones

2007 2008

1 q 2 q 3 q 4 q total 1 q 2 q 3 q 4 q total

Operating income 9,114 9,955 10,457 11,272 40,798 11,556 12,245 11,502 7,144 42,447

Europe 8,287 9,034 9,393 10,334 37,048 10,848 11,431 10,971 6,653 39,903

Rest of the world 1,233 1,365 1,521 1,528 5,647 1,390 1,570 1,142 674 4,776

Adjustments (406) (444) (457) (590) (1,897) (682) (756) (611) (183) (2,232)

EBITDA 574 803 574 450 2.401 709 816 633 (383) 1,775

Europe 506 696 530 398 2.130 682 741 591 (268) 1,746

Rest of the world 68 107 44 52 271 27 75 42 (115) 29

Operating profit 515 633 393 663 2,204 482 643 415 (429) 1,111

Europe 466 552 378 599 1,995 482 594 396 (345) 1,127

Rest of the world 49 81 15 64 209 – 49 19 (84) (16)

Investments 198 170 220 348 936 315 315 309 595 1,534 Europe 152 152 212 328 844 299 293 296 581 1,469

Rest of the world 46 18 8 20 92 16 22 13 14 65

Millions of euros

downstream

downstream worldwide - repsol group

Brazil

Spain

Peru

Ecuador

Singapore

Bolivia

Chile

Morocco

France

Italy

Portugal

Marketing

Refining

LPG

Trading

ChemicalsArgentina

United States

Mexico

100 101

DOWNSTREAM

for LPG in the case of cylindersweighing over 20 kg and for useas a fuel. Only LPG in cylindersof between 8 and 20 kg is subjectto a maximum price, which stillrepresents 91% of total sales ofbottled LPG, as well as pipedLPG with quarterly and monthlyupdates. Prices for bulk suppliesare not fixed.

Repsol has been present inPortugal since 1993. The lasttwo years have seen the effective

integration of logistics anddistribution networks in thiscountry, while the brand imagehas been unified with the launchof cylinders in new coloursand a common valve for alltypes of bottles.

In France, where Repsoldistributes bottled and bulk LPG,sales in 2008 reached 16 kt, undera mixed distribution model ofcylinders at the sales point anda home delivery service. Thebulk business focuses on smallclients and domestic use withcommercial formulas similarto the Personalised Plan.

The French and Portuguesemarkets are totally liberalized andoperators establish the price freelybased on international prices ofraw materials, internal distributioncosts and the level of competition.

Repsol is present in Moroccothrough National Gaz, a bottledLPG distribution companywhich recorded sales of 40 ktin 2008. Distribution is sharedbetween direct sales and exclusivedistributors. The price of bottledLPG is subsidized and regulatedby the Administration, whichestablishes the margin of eachelement of the distributionchannel from the producer orimporter to the sales point.

Leader in Latin AmericaRepsol YPF is the leader in LPGdistribution in Argentina, Ecuador,Peru and Chile. This position,together with the productionsources located in Argentina,Bolivia and Peru, represents astrong competitive advantage, asit strengthens vertical integration.

Lipigas, a company in whichRepsol holds a 45% stake, is theleader on the Chilean market, witha 37.6% market share and sales in2008 of 430 kt.

In Peru, Repsol participates in theLPG market through the brandSolgas Repsol and is the leadingcompany in terms of prestige andquality, with a 38.5% market share.Sales in 2008 amounted to 408 kt.

The Chilean and Peruvian marketsare totally liberalized. Distributionof bottled LPG is carried outthrough distributors (bothexclusive and non-exclusive) whoin turn resell the product to thesales points.

In Ecuador, Repsol participatesthrough Duragas, the leadingLPG distribution company whichoperates nationwide with a market

share of 38.9%. In 2008, Duragasmarketed 390 kt of LPG. The saleprice of bottled LPG in Ecuadoris heavily subsidized by the state.Marketing is carried out through anetwork of exclusive distributors.

In Bolivia, since YPBF assumedcontrol of natural resources,pursuant to a decree law onnationalization of hydrocarbons,product availability has beendrastically reduced, resulting in adecrease in sales volume. Despite

Repsol Refineriesclh oil pipelinesRepsol crude oil pipeline

A CoruñaBilbao

Tarragona

Cartagena

Puertollano

VigoLeón

TorrejónVillaverde

Sevilla

Zaragoza

Valencia

Salamanca

Mérida

MálagaRota

Santovenia

Pamplona

Barcelona

Alicante

Alcázarde San Juan

Madrid

GironaLleidaBurgos

Rivabellosa

A CoruñaPuerto y Bens

Santiago

Asturias Santander

Vigo

Bilbao Lezo

Santurce

Tarragona

Mahón

Ibiza

Son BonetPorto PiSon BanyaPalma

ReusCastellón

Cartagena

Algeciras

Puertollano

CórdobaGranada

León

GijónSomorrostro

Torrejón

Villaverde

C.Vientos

Barajas

Sevilla

Zaragoza

Valencia

Salamanca

Mérida

Badajoz

MálagaMotril Almería

Santovenia

Pamplona

Barcelona

AlicanteAltetSan Javier

Alcázar Albuixech

Girona

LleidaBurgos Vitoria

Rivabellosa

Huelva

RotaJerez

Oil product pipelines (3,475 km)Repsol crude oil pipeline

Storage installations (38)Refineries connected to the clh network (8)

Airport installations (28)

Spain 3,590

Peru 235

Italy 133

Portugal 441

Argentina 1,678

repsol refineries in spain logistics in spain repsol group service station network

Repsol is theleader in LPGdistributionin Argentina,Ecuador, Peruand Chile.

102 103

DOWNSTREAM

this, sales in the retail segmentstood at 22 kt of LPG and marketshare was 6%.

Repsol commenced marketingLPG in Brazil in 2004 in thebulk segment and throughwholesale sales. In 2008 salesamounted to 21 kt.

High level of integrationThe Repsol Group produces,distributes and marketspetrochemical productsdirectly. This activity is mainlycarried out in Spain (Tarragonaand Puertollano), Argentina(Ensenada, Bahia Blanca andPlaza Huincul) and Portugal(Sines). The most importantmarkets are Europe and theMercosur countries.

Most of the units share theindustrial complex with the Repsolrefineries, thereby enabling a

high level of integration betweenboth activities.

The Group’s basic petrochemicalsproduction focuses on obtainingolefins and aromatics. Inderivatives, the three mainpetrochemical products arepolyolefins, intermediate productsand industrial products.

Chemicals in SpainRepsol is the market leader inbasic and derivative petrochemicalproducts in Spain, where its mainassets are located at the Tarragonaand Puertollano industrialcomplexes. These plants have anolefin cracker and polyolefin andintermediate product productionunits. This enables a high levelof integration between basic andderivative chemicals, as well as ahigh level of integration with therefining activities.

Through a joint venture withDynasol (50%), Repsol producessynthetic rubber at the Santanderplant. In Spain it also producesstyrene-derived plastics andpolyolefin compounds as well asspecialised chemical products(accelerants and agrochemicals,for example).

Other countriesIn Portugal, Repsol carriesout chemical activities at the

Sines complex, around 160 kmsouth of Lisbon. This complexhas production plants similarto those of the Puertollanoand Tarragona complexes andconsists of an olefin cracker, twopolyethylene plants and an energyplant which provides power tothe complex. The expansion ofthese installations will enableproduction to double and increasecompetitiveness thanks to greaterintegration and energy efficiency.

In Mexico, Repsol has a plant atAltamira which produces syntheticrubber through the previouslymentioned joint venture withDynasol (50%).

MarketingRepsol markets its chemicalproduction directly. Salesof derivative petrochemicalproducts are carried out througha commercial network dividedinto five regions: Atlantic,Mediterranean, NorthernEurope, Southern Europe andSouth America. The companyis also a charter member ofthe ChemConnect website, theleader in e-commerce of chemicalproducts.

Ecuador

SpainFrance

Portugal

Morocco

Peru

Bolivia

Brazil

Chile

Argentina

Mexico

Spain

Portugal

Argentina

chemicals - repsol grouplpg repsol group

The companyis the marketleader in basicand derivativepetrochemicalproductsin Spain

104 105

YPF

YPF operating revenue amountedto ¤1.159 billion in 2008, 5.6% lessthan in 2007. This drop was dueto the international crisis, whichintensified in the last few monthsof the year.

On 21 February 2008, Repsolconcluded the sale of a 14.9%stake in YPF to the Petersen Groupfor 2.235 billion dollars. Thistransaction, which values YPF at15 billion dollars, forms part of thecompany’s strategy of enhancingthe geographical distribution of itsassets and implementing globalmanagement with a local focus.The agreement also allows for thePetersen Group to increase itsYPF holding to 25% through anoption to purchase an additional10.1%. The Petersen Group hasalready exercised an option for anadditional 0.1% stake.

Extension of concessionsIn 2008, YPF investmentsamounted to ¤1.508 billioncompared with 1.374 billion theprevious year. Nearly 80% ofthese expenditures were allocatedto oil and gas development andexploration projects, includingthe agreement for extendingthe concession in the Neuquenprovince.

Average annual production inArgentina was 617,100 barrels ofoil equivalent per day (boepd)versus 649,200 in 2007, adecrease of 4.8%. Output wasaffected by labour strikes and a fallin demand for gas. Without takingthese effects into account, averageannual production would havereached 628,300 boepd.

Operating costs increased in2008, mainly because of taxes- which rose from ¤179 million

to ¤685 million in 2008 dueto the effect of withholdings -,amortization, purchases fromthird parties, environmental andlegal contingencies, and severancepay and compensation.

Although international priceswere higher than in 2007, they fellsharply in the last quarter of 2008.This affected both domestic andforeign market prices although inthe latter case this was curtailedby withholdings, which werehigher than in 2007 following theimplementation of Resolution394 which affects oil and crude oilproduct exports, and Resolution127, which affects natural gas andliquefied natural gas exports.

With the exception of petrol forthe internal market, 2008 saw afall in demand mainly as a resultof the international crisis andother factors, such as the farmers’

106

YPF

107

province of San Juan. In 2008 onlythe province of Chaco offered newmineral concessions.

With regards to field developmentactivities, 602 development wellswere drilled which, togetherwith secondary, repair andinfrastructure activities, involvedan investment of ¤868 million.

Within the framework of the 1.215billion-euro global investmentplan, ¤55 million were allocated tothe Asset Development Plan (Plande Desarrollo de Activos, PLDA)for rejuvenating mature fields.Launched in 2007, this initiativeforms part of the company’sstrategy aimed at progressingtowards a leadership position inthe exploitation of mature fieldsand basins. The objective is todefine integral development andrejuvenation plans for all YPF

fields based on current technologyand focusing efforts on enhancedsubsoil knowledge.

The work carried out in recentyears within the framework ofthe Asset Development Planenabled YPF to incorporateproved reserves, both within andoutside Argentina, totalling 75million barrels of oil equivalent in2008, mostly oil. In addition, themilestone of replacement of 120%of oil reserves was achieved in theChubut and Santa Cruz areas, inthe southern basin of Argentina.

We should also highlight theresults obtained in maturefields, such as Perales, BarrancaBaya and Manantiales Berth.Together with the activity in theMaurek area and particularly inthe Cañadon Yatel field, theseresults enabled reserves to be

incorporated in this region.

Pilot tests were conducted in theNeuquina basin to assess thetechnical and economic feasibilityof developing tight gas fields.The results of these studies arecurrently pending.

The 10-year extension (2017–2027) of the concessions inthe Neuquen province shouldalso be highlighted. Togetherwith the extension achievedin Loma la Lata in 2002, thisenabled the concessions of 50%of YPF’s reserves in Argentinato be extended.

Another significant event was theawarding of the Gold Prize to thecompany Mega in the “MediumPrivate Company” category by thejury of the 2008 Ibero-AmericanQuality awards.

strike and the drought.

On the internal market, thecompany collaborated with theGovernment of Argentina onthe Total Energy Plan (TEP),participating in programmes tosupply diesel and replace naturalgas with liquid fuels.

The contribution from YPFassociated companies was lowerthan in the previous year due tothe following factors:

• The company Mega was affectedby the impact of the resolutionson petrol and LPG export pricesand by the fall in the priceof ethane.

• The fall in the price of urea in thelast quarter, which had an impacton sale prices of the companyProfertil and devalued its stocks.

• The company Refinor saw its

profits reduced by the applicationof Resolution 394 which affectedthe price of its exports.

• YPF Holding’s earnings wereaffected by higher provisions forenvironmental contingencies,although this was partly offset bythe commencement of productionof Neptuno.

Operating profits from YPF’sExploration and Productionbusiness stood at ¤441 million,55% down on the previousyear due to higher costs in theindustry, the effect of regulated oilprices in the Argentinean marketand strikes.

In 2008, YPF’s hydrocarbonproduction was 226 millionbarrels of oil equivalent, 4.9% lessthan in 2007, 114 million of whichwere liquids and the remainder

gas. Labour disputes and weakerdemand for gas in the last thirdof the year reduced output by 4.8million barrels.

Investment in explorationIn 2008, YPF made five oildiscoveries and one gas discovery,out of a total of 17 wells drilled. Ofthe six positive wells, four are inthe Neuquina basin (El Orejanox-1, Borde Sur del Payun e-4,Puesto Cacho x-1 and Los ReyesNorte x-1), the fifth is located inthe Austral basin (Las Flechasx-2001) and the sixth in the Gulfof San Jorge (El Balcon x-1).Total investments in explorationamounted to ¤122 million.

Seismic activity focused onthe Rio Barrancas block in theprovince of Neuquen, and alsoon the Tamberias block in the

In 2008, YPF made five oil discoveriesand another gas discovery, out of a totalof 17 wells drilled

The Lujan de Cuyo refinery (Argentina), with the Andes in the background.

108 109

of the refineries’ installed capacitywas maintained thanks to theoperational reliability plans beingcarried out which enable the units’maintenance cycles to be extended,thus increasing effective processingcapacity and enabling maximumuse of assets to meet Argentina’sgrowing demand for fuel.

Petrol production for the domesticmarket amounted to 3 millioncubic metres, 14% higher than in2007 and a new record in recentyears. This was accompanied byenhanced quality of the petrolsproduced and made it possibleto meet the Argentinean market’sincreasing demand.

Record productionYPF completed the remodelling ofthe catalytic cracker (FCCB) at theLa Plata refinery, which enabledan increase in the production of

middle distillates and petrols, witha new record set in the productionof diesel and Jet A1 aviation fuelat this facility in October, reachingan average of 13,625 cubic metres/day. Middle distillate productionat this refinery thus surpassed, forthe second consecutive monthand the fourth time in its history,the threshold of 400,000 cubicmetres/month.

With regards to heavy products,the production of 2 million cubicmetres of fuel oil was noteworthy,similar to the figure for previousyear. Internal factory demand wasthus met and the requirements ofthe Total Energy Plan (TEP) werecomplied with, delivering over290,000 cubic metres of fuel oil.

The fleet contracted for river andmarine transport was renewedwith the incorporation of threenew vessels: the newly-built

Maria Victoria and Caleta Rosariodouble-hull vessels, and theArgentina V barge, all of whichcomply with the Group’s latestsafety standards. A sixth bargeis under construction and isscheduled for launch in 2009.

In 2008, YPF’s supply of liquidfuels was in line with the growthrecorded in Argentina, ensuringa permanent, high-quality supplyto all its clients. This supply,particularly in the case of petrol,a key supply for sustaininggrowth levels, was made fromthe company’s refineries, or wasimported to meet exceptionallevels of demand.

At the end of 2008, YPF had 1,642service stations, 1,642 of whichwere under own management. Thecompany has begun to update theimage of its sale outlets, seeking amore modern image and bringing

YPF’s natural gas sales in2008 totalled 16.4 billion m3,and increased above all in thedistribution, industrial andmanufacturing segments. YPF’smarket share in Argentina was40% and the average price of thenatural gas sold by the companyincreased by 32% in 2008,enabling the gradual alignment ofprices on the domestic market.

The first liquefied natural gas(LNG) regasification operationcommenced in June 2008 at theBahia Blanca harbour with theExcelsior regasification tankercontracted for this purpose inorder to meet the country’sdemand. This project wasdeveloped for the ArgentineanGovernment and was successfullycompleted in record time,incorporating an average ofapproximately 4 million cubic

metres/day in the winter seasonbetween June and September.This operation, the transfer ofLNG from one vessel to anotheranchored vessel, from theExcelsior to the Excelerate, wasthe first of its kind in the world.

Additionally, within the frameworkof the programme for supportingthe Government of Argentina, inthe winter of 2008 YPF constructedthe world’s largest propane-airplant in Buenos Aires. The plant,with a supply capacity of 1.5 millioncubic metres/day, will be used tomeet peak winter demand in thecapital of Argentina.

With regards to the Refining,Logistics and Marketing activity,YPF refineries processed 18.7million cubic metres of oil, 1%less than in 2007.

Over the course of 2008, full use

The extensionof theconcessionsin Neuquenenabled thepermits ofaround 50%ofYPF’s reservesto be extended

YPF

La Plata refinery (Argentina).

110 111

and also renewed its exemptionon customs duty for methanolexported to the United States.

YPF’s workforce at the end of 2008comprised 11,038 employees,a year-on-year decrease of 1.3%.271 new employees joined theExploration and Production area,an increase of 16% over 2007. Theworkforce of the company AstraEvangelista (AESA) was reducedby 540 workers.

The Repsol YPF Groupcommenced implementationof a teleworking pilot project.In Argentina, the project waslaunched with the collaborationof the Ministry of Labour. YPF isthe first company in the countryto implement this new workarrangement, which was adoptedby several of its employees, andwhich was recognised with the

awarding of the Meta 4 Prize forInnovation in Human Resources.

Three labour agreements governthe employment conditionsof YPF’s refinery, field, servicestation and LNG employees. In2008, several salary agreementswere reached with trade unionrepresentatives.

With regards to Research andDevelopment (R+D), withinthe framework of the AssetDevelopment Plan (PLADA), YPFbegan to evaluate and developtechnologies for the exploitationof heavy oil fields, enhancingthe recovery factor of maturefields, and recycling the waterused in production processesfor irrigation and other purposes.The Chemicals area launcheda new fertilizer made withliquid sulphur generated by

the hydrocarbons processedat the refinery. With regards toenvironmental protection, thecompany continued to developsoil recovery technologies.

it in line with the slogan “Let’sinvent the future”.

Prices in the domestic marketgradually adapted to internationalprices and those of borderingcountries.

At the close of 2008, YPF launcheda new fuel, YPF D. Eurodiesel,at low sulphur content fuel (lessthan 50 parts per million), whichis recommended for all high-performance EURO IV engines.

Increased marginsThe Refining, Logistics andMarketing areas obtained aprofit of ¤743 million in 2008.Investments in this areaamounted to ¤167 million.

With regards to YPF’s chemicalsbusiness, profits increased by20%, reaching an all-time highof ¤158 million thanks to an

increase in margins in all linesand the integration of the refining,exploration and productionactivities. This was achieveddespite the fall in internationalprices in the fourth quarter of2008 and declining demand forfertilizers due to the farmers’strike in Argentina. Theseenhanced financial results wereshored up by high internationalprices in the first three quarters ofthe year, the application of a costsavings and expense curtailmentplan, and a policy aligned to pricesin the local market which boostedthe Argentinean industry’s growth.Investments in the year amountedto ¤25 million.

In 2008, the company Profertil,in which YPF holds a stake,won the National Quality Prizein the large company category,

At the end of 2008, YPF had 1,678service stations, 1,642 of whichwere under own managementThe company has begun updatethe image of its sale outlets

YPF

112 113

Exploration and productionAt 31 December 2008, YPF heldmineral rights in Argentina on113 blocks covering a net area of76,722 km2: 21 exploration blocks(50,221 km2) and 92 exploitationblocks (26,501 km2), located inthe Neuqina, Cañadon Asfalto,Bolsones Intermontanos, Gulfof San Jorge, Austral, ColoradoMarina, Cuyana, Noroeste andMalvinas basins.

Average net daily productionsby areas were the following:Neuquina (420.03 kboepd), Gulfof San Jorge and Austral (108.57kboepd), Cuyana (25.31 kboepd),Noroeste (45.11 kboepd) and theoffshore basins (17.49 kboepd).

Net proved reserves of liquidsand natural gas in Argentina atthe close of 2008 were estimatedat 1,141 Mboe.

LogisticsIn Argentina there is no companyoperating primarily in thedistribution of oil products, andeach operator therefore carriesout their own distribution. YPFhas a network of 1,801 km of oilpipelines for distribution of itsrefined products which link up itstwo main refineries with the 16storage and supply installations,which can house up to 983,620m3 of products. It also has 53airport installations, 40 of which

are owned by the company(24,000 m3 of storage capacity),and 27 company-owned tankertrucks. The YPF refineries receivecrude oil through pipelines: theLujan de Cuyo refinery fromPuesto Hernandez through a 528km oil pipeline, and the La Platarefinery from Puerto Rosalesthrough a 585 km oil pipeline.

YPF also holds a 37% stake inOldelval, the company whichmanages the oil pipeline linkingthe Neuquina basin with PuertoRosales, and a shareholding of33.15% in Termap, an operatorwith two storage and portinstallations: Caleta Cordova,located in the southern province

AdditionalYPF information

2007 2008

1 q 2 q 3 q 4 q total 1 q 2 q 3 q 4 q total

Operating income 1,989 2,065 2,199 2,383 8,636 2,282 2,330 2,914 2,556 10,082Upstream 1,055 1,117 1,154 1,250 4,576 1,026 939 1,097 1,207 4,269

Downstream 1,639 1,719 1,815 2,100 7,273 1,882 1,789 2,448 2,034 8,153 Corporation 34 26 99 101 260 55 68 78 79 280

Adjustments (739) (797) (869) (1,068) (3,473) (681) (466) (709) (764) (2,620)

ebitda 715 730 668 851 2,964 756 618 855 573 2,802 Upstream 502 575 601 772 2,450 507 380 457 453 1,797

Downstream 241 159 69 77 546 259 258 419 138 1,074

Corporation (28) (4) (2) 2 (32) (10) (20) (21) (18) (69)

Operating profit 328 296 228 376 1,228 365 279 402 113 1,159 Upstream 139 211 235 394 979 167 130 68 76 441

Downstream 210 116 16 44 386 225 218 375 83 901 Corporation (21) (31) (23) (62) (137) (27) (69) (41) (46) (183)

Investments 303 287 349 435 1,374 250 316 346 596 1,508Upstream 234 247 297 309 1,087 223 247 259 486 1,215 Downstream 56 39 26 92 213 17 45 54 76 192 Corporation 13 1 26 34 74 10 24 33 34 101

Millions of euros

YPF

YPF

114 115

YPF Milestones In February Repsol concluded

the sale of 14.9% of YPF to the Petersen Group for 2.235 billion dollars. This operation forms part of the company’s strategy to enhance geographical distribution of its assets and apply global management with a local focus. The agreement allows for the Petersen Group, which has already exercised an option for 0.1%, to extend its stake in YPF to 25%.

The concessions in the province of Neuquen were extended for a ten-year period (2017-2027), which represents the extension of the concessions of almost half of YPF’s reserves in Argentina.

In June 2008 the first liquefied natural gas (LNG) regasification operation in South America com- menced in the port of Bahia Blanca.

YPF completed the remodelling of the catalytic cracker (FCCB) at the La Plata refinery, enabling production of middle distillates and petrols to increase.

YPF Refineries YPF Terminals Pipelines (light products) Pipelines (crude)

Lujánde Cuyo

PlazaHuincul

La Plata

Refinor(50%)

Northwest basin45.11 boepd

Offshore basin17.49 boepd

Cuyo basin25.31 boepd

Neuquen basin420.03 boepd

Golfo San Jorge basin and Austral basin108.57 boepd

ypf refineriesypf hydrocarbon basins

of Chubut and with a capacity of314,000 m3; and Caleta Olivia,located in the province of SantaCruz and with a storage capacityof 246,000 m3.

YPF also holds a 30% share inOiltanking Ebytem, the operatorof the Puerto Rosales maritimeterminal, with a capacity of480,000 m3, and of the extensionof the Puerto Rosales-La Plata oilpipeline from Brandsen to theESSO refinery in Campana. Theinstallations also include a crudeoil storage and distribution plantsituated in Formosa, with anoperational capacity of 19,000 m3.

In 2008, YPFcompleted thefirst liquefiednatural gasregasificationoperation inSouth America

MarketingIn Argentina, YPF has a networkof 1,678 service stations, 1,642of which are company managedand the remainder form part ofRepsol YPF’s 50% stake in Refinor,a company with a refinery locatedin Campo Duran and a Refinorbrand service station networklocated mainly in the country’snorth-eastern provinces. Thisrepresents almost a third of thetotal number of sales points inArgentina, making the Group theleader in this market, as is thecase in Spain.

In Argentina, YPF’s chemicalbusiness focuses mainly onthe manufacture of industrial

products, including a wide rangeof raw materials for chemical,industrial and agriculturalactivities. Production is locatedat the Ensenada, Plaza Huinculand Bahia Blanca complexes.Production of urea and ammoniain Argentina is carried out throughProfertil, a joint venture withAgrium.

YPF is the largest LPG producerin Argentina. On the retail marketit sells bottled and bulk LPGon the domestic, commercialand industrial markets, with a34.8% market share. Until May2005, the market was liberalized,although since 2002 agentsreached agreements with the

Administration on stability ofprices for butane. After 2005 thenew LPG Law stipulates that theEnergy Department will establishquarterly wholesale prices forbutane and propane and willrecommend maximum retailprices for bottled gas for domesticuse. Distribution of bottled LPGis carried out entirely throughdistributors who in turn resell theproduct to the sales points.

YPF

116 117

Gas Natural SDG

Gas Natural SDG’s operatingrevenue increased by 7.6% to ¤555million. This growth is largely dueto the positive performance of theelectricity business in Spain as aresult of improved prices in theelectricity pool, the incorporationof the Mexican power business in2008 and growth in distributionactivities in Latin America.

Investments in 2008 amounted to¤894 million, an increase of 37%,mainly attributable to the financialinvestment carried out for theacquisition of a percentage stakein the electricity company UnionFenosa. Excluding this operation,material investments were slightlylower than the previous year andwere applied above all to gas andelectricity distribution activities.

Through its 30.9% stake inGas Natural SDG, Repsolparticipates in the entire gas value

chain, from supply to distributionand marketing.

Through the Repsol-Gas NaturalLNG (Stream) joint venture,the company consolidated itsposition in 2008 as the world’sthird-ranking company in termsof volume of liquefied natural gas(LNG) transported. Founded in2005, the objective of this jointventure company is to maximizethe value of its partners’ contractsthrough efficient managementand marketing, as well asfacilitating access to LNG supplysources and strategic markets.

Sales volumeGas distribution in Spaincontributed 34.6% of GasNatural’s results, with sales forregulated activity amounting to270,073 GWh. The distributionnetwork increased by 6.9%to 48,578 kilometres. Sales in Latin

America increased 16.2%to 208,408 GWh and thedistribution network increased2.8% to 61,196 kilometres.

In 2008, Gas Natural SDGstrengthened its presence on theItalian market with the acquisitionof the Pitta Costruzioni Group,which operates in the Pugliaregion in southern Italy, forthe sum of ¤30 million. Thisacquisition, together with theincorporation of Italmeco atthe end of 2007, has enabledGas Natural SDG to increase itsdistribution area in Italy, whichnow comprises 187 municipalitiesin eight regions: Molise, Abruzzo,Puglia, Calabria, Basilicata,Campania and Lazio. In 2008,gas sales in Italy amounted to2,933 GWh, there were 397,000supply points and the distributionnetwork totalled 5,521 kilometres. Gas pipes for use at the Repsol Technology Centre located in Mostoles (Spain).

118 119

producers in Algeria, Libya,Trinidad and Tobago, Nigeria andthe Middle East and natural gasfrom producers in Algeria, Norwayand Spain.

An important element of theGas Natural SDG group’s supplystrategy is the Maghreb-Europegas pipeline, which has a diameterof 48 inches and is 540 km long.It was completed in 1996 andconnects the production fields inHassi R’Mel, in Algeria, with theconsumer centres in Spain andEurope through Morocco and theStrait of Gibraltar. From January2005 its capacity was extendedfrom 9 bcma to 11.7 bcma. GasNatural SDG holds a 72.6% stakein the company Europe-MaghrebPipeline Ltd. (EMPL), which holdsthe exclusive right to operate thesection of the Maghreb-Europegas pipeline located in Morocco

and the Strait of Gibraltar. Theremaining 27.4% is owned byTransgas, a company whichdistributes natural gas in Portugal.

Distribution and marketingGas Natural SDG is the largestdistributor of natural gas in Spain.Most sales are concentrated inthe industrial sector and powerstations.

In line with the planned schedule,on 1 July 2008 the gas sector inSpain was totally liberalized withthe abolition of the regulatedsupply market, in accordancewith Law 12/2007, publishedon 3 July 2007, and with OrderITC/2309/2007, published on 31July 2007. Distribution companieshave ceased tariffed supply activityand have created last resort supply.Royal Decree 1968/2007, publishedon 28 July 2007, regulates the

introduction of last resort supplyin the natural gas sector, which isavailable to consumers connectedto gas pipelines with pressuresless than or equal to 4 bar andwith an annual consumption ofless than 3 GWh may take part in.Gas Natural SDG is one of thecompanies which have undertakena commitment to last resort supply.

Repsol YPF participates,through Gas Natural SDG, inthe distribution of natural gas inArgentina, Colombia, Brazil andMexico to 5.25 million clients.

The group participates in thedistribution of natural gas in six ofthe largest Latin American cities:Mexico City, Monterrey, Santafede Bogota, Buenos Aires, Rio deJaneiro and Sao Paulo. In general,prices to end consumers areregulated. In Argentina and Mexicothere is a market of industrial

In the electricity industry, thecompany operates a total of 6,495MW installed power for electricitygeneration divided between Spain,Puerto Rico and Mexico.

In Spain, Gas Natural SDG hasoperational combined cycleelectricity generation installationsof 3,600 MW. A group of 400 MWis currently under construction inMalaga and a further two, totalling800 MW, in the port of Barcelona.In addition, an application iscurrently being processed fortwo 400 MW groups in Lantaron(Alava). In generation, thetotal of combined cycle plantstogether with installed capacity forcogeneration and wind generationproduced 18,130 GWh at year-end2008, that is, 6.8% more than inthe previous year.

Petroleum Oil & Gas España(100% owned by Gas Natural)

is participating, jointly withRepsol, in the offshore well to bedrilled in 2009 at the Montanazoconcession off the coast ofTarragona. The preparatory workfor this project was carried out inthe fourth quarter of 2008.

Repsol and Gas Natural, inconsortium with other companies,have signed a shareholders’agreement to develop anintegrated gas project in Angola.The company Gas Natural WestAfrica (60% Repsol-40% GasNatural), which will manage thisproject, has been incorporated.In the initial phase, an appraisalwill be made of the gas reservesbefore making the necessaryinvestments for developmentand subsequent export of LNG.Progress has been made definingthe seismic exploration and drillingwork to be carried out in 2009.

With regards to the GassiTouil project and followingSonatrach’s decision in August2007 to unilaterally terminatethe agreement, the internationalarbitration process is stillunderway in which Repsol andGas Natural will defend theirrights and which will decide onthe validity of the terminationand on the damages caused. Thearbitration court’s decision isexpected to be announced in 2009.

SuppliesMost natural gas consumedin Spain comes from imports.Algeria is the main source ofsupplies, although recent yearshave seen a significant effortto diversify. The supplies of thecompany Gas Natural SDG comefrom a number of sources. Thegroup purchases LNG from

GAS NATURAL SDG

On 30 July 2008, Gas Natural SDG reached an agreement with the construction company ACS to purchase its entire 43.3% stake in the electricity company Union Fenosa.

Gas Natural SDG consolidated its presence on the Italian market with the acquisition of the Pitta Costruzioni group.

2007 2008

1 q 2 q 3 q 4 q total 1 q 2 q 3 q 4 q total

Operating income 849 723 729 853 3.154 1.031 963 1.017 1.199 4.210 EBITDA 183 158 184 192 717 230 203 209 206 848Operating profit 149 119 123 125 516 157 130 136 132 555 Investments 48 74 99 430 651 54 72 598 170 894

Millions of euros

gas natural sdg

ntario

2004 2005 2006 2007 2008

Spain 20.99 23.36 23.11 22.2 21.2Latin America 7.92 8.59 9.19 9.92 12.4Rest of the world 3.94 4.16 3.9 4.34 4.9total sales 32.85 36.11 36.2 36.4 38.5

BCM

sales

2 7 2 00 07 202006

,70

36

2004 2005 2006 2007 2008

Spain 4.8 5.1 5.4 5.7 5.8Latin America 4.5 4.8 4.9 5.1 5.3Rest of the world 0.3 0.3 0.3 0.4 0.4total number of clients 9.6 10.2 10.6 11.2 11.5

Millions

number of clients

Brazil789,000

Mexico1,145,000

Colombia1,926,000

Argentina1,393,000

gas natural sdg clients in latin america

GasNatural SDGMilestones

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On 12 December 2008, GasNatural SDG purchased a 4.7%stake in Union Fenosa fromCaixanova. Therefore, at 31December 2008 Gas Natural’sstake in Union Fenosa amountedto 14.7%. Once the threshold of30% of voting rights in UnionFenosa had been exceeded, GasNatural SDG was under theobligation to submit a takeoverbid, within one month, for theremaining shares in the electricitycompany. Therefore, in September2008 the company initiatedthe process for securing thecorresponding permits from theappropriate authorities.

The acquisition of Union Fenosarepresents a significant stepforward in the development ofGas Natural SDG and its strategyof becoming a leading integratedgas and electricity company,

and will enable it to acceleratecompliance with the 2008-2012Strategic Plan. This will take it toa new level as an integrated gasand electricity operator due to thecomplementary nature of bothcompanies’ within the whole valuechain of the energy sector.

In July 2008, Gas Natural SDGsigned an agreement with 10banking institutions to financethe acquisition of 100% of UnionFenosa, including the stakes heldby ACS and Caixanova as wellas the subsequent takeover bid.Nineteen institutions are currentlyparticipating in the bankingsyndicate and the process of generalsyndication has commenced.

In order to ensure a sound, flexiblefinancial structure, Criteria andRepsol have undertaken to makecontributions to Gas NaturalSDG’s equity, for the amount

and in the manner necessaryfor the company to obtain aconsolidated rating immediatelyafter settlement of the takeover bidof at least BBB (stable) and Baa2(stable) from S&P and Moody’srespectively, and for a maximumamount of ¤1.903 billion and 1.6billion respectively.

Gas Natural SDG hascommenced the process forcarrying out the planned capitalincrease for the sum of ¤3.5 billionwithin the context of the UnionFenosa acquisition transaction.On 30 January 2009, its Board ofDirectors agreed to convene anExtraordinary General Meetingfor the purpose of authorizingthe issue of new shares withpreferential subscription rights.

clients authorized to freelychoose their supplier based on aminimum level of consumption.

In July 2004, Gas NaturalSDG closed the acquisition ofEnron’s stake in the CompañiaDistribuidora de Gas de Rio deJaneiro (CEG) and CEG RIO, andthe group subsequently increasedits holdings in these companiesto 54.16% and 72% respectively.In Brazil, Gas Natural SDGdistributes natural gas in themetropolitan area and state ofRio de Janeiro and, since the year2000, in the southern region ofthe state of Sao Paulo, with a totalof 789,000 clients.

In Colombia, the group distributesin Bogota, the Cundi-Boyacensearea and the eastern region ofthe country, with a total of 1.9million clients. In Mexico, GasNatural SDG is present in the

cities of Nuevo Laredo, Saltillo,Toluca, Monterrey and the Bajioand Mexico City areas, and has1.1 million clients. Finally, inArgentina, the group participates,through Gas Natural BAN, indistribution of gas in the northof Buenos Aires, where it has 1.4million clients.

InfrastructureEnagas is the company whichowns most of the gas transportinfrastructures in Spain. After theinitial public offering (IPO) in June2002 by Gas Natural SDG, thecompany has reduced its stake inEnagas (at 31 December 2008 itheld 5%).

ElectricityThe Repsol Group participatesin electricity generation andmarketing projects which enableit to make a profit from its natural

gas reserves and consolidate itsprofile as a diversified company inSpain and Latin America.

Acquisition of Union FenosaOn 30 July 2008, Gas Natural SDGreached an agreement with ACSto purchase its entire 45.3% stakein Union Fenosa at an effectiveprice of ¤18.33 per share, whichvalues the electricity company’sshare capital at ¤16.757 billion. Inaccordance with the terms of theagreement signed, in early AugustGas Natural acquired a 9.9% stakein Union Fenosa from ACS for thesum of ¤1.675 billion.

In accordance with the agreementsigned with ACS, the purchaseprice was adjusted, deducting the¤0.28 per share dividend paid byUnion Fenosa on 2 January 2008.The resulting adjusted price is¤18.05 per share.

The acquisition of Union Fenosarepresents a significant step forwardin the development of Gas Natural SDGand its strategy of integration of gas andelectricity, and will accelerate compliancewith the 2008–2012 Strategic Plan

GAS NATURAL SDG