CEPSA memo'02 ingles CEPSA · 2003. 5. 8. · CEPSA 7 Thousands of euros CREDIT 2002 2001 Revenues Sales and services on ordinary activities 7,296,884 7,565,819 Oil and gas excise

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Balance Sheets 4Statements of Income 6Notes to the Financial Statements 8

M A N AG E M E N T D I S C U S S I O N S & A N A LY S I S 4 6

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R E P O RT F RO M I N D E P E N D E N T A U D I TO R S

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Report from Independent Auditorsfor Compañía Española de Petróleos, S.A. CEPSA

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B A L A N C E S H E E T S

Thousands of euros

ASSETS 2002 2001

Fixed and other noncurrent assetsIntangible assets (Note 5) 691,495 490,652Tangible fixed assets (Note 6)

Land and structures 33,037 33,642Technical installations and machinery 1,747,847 1,723,651Other installations, tools and furniture 12,100 8,606Advances and construction in progress 111,675 98,366Other tangible fixed assets 26,192 22,644Provisions and accumulated depreciation (1,206,194) (1,156,527)

Total tangible fixed assets 724,657 730,382Long-term financial investments (Note 7)

Holdings in Group companies 419,916 418,661Loans to Group companies 591,577 383,049Holdings in Associated companies 131,306 130,126Loans to Associated companies 12,235 2,380Long-term investment securities 5,096 5,092Other loans 158,334 153,381Long-term deposits and guarantees 13,279 12,336Provisions (102,223) (85,301)

Total long-term financial investments 1,229,520 1,019,724

Total fixed and other noncurrent assets 2,645,672 2,240,758

Deferred charges (Note 8) 16,384 21,814

Current assetsInventories (Note 9) 480,689 424,000Accounts receivable (Note 2-c) 1,230,535 1,026,048Short-term financial investments (Note 7) 389,189 397,400Cash 984 1,834Accrual accounts 12,607 11,469

Total current assets 2,114,004 1,860,751

TOTAL ASSETS 4,776,060 4,123,323

Translation of financial statements originally issued in Spanish and prepared in accordance with generally accepted accounting prin-ciples in Spain (see Note 22). In the event of a discrepancy, the Spanish-language version prevails.

Balance Sheets as of December 31, 2002 and 2001 (Notes 1, 2, 3 and 4)Compañía Española de Petróleos, S.A. (CEPSA)

(The accompanying Notes 1 to 22 are an integral part of these balance sheets).

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Thousands of euros

SHAREHOLDERS’ EQUITY AND LIABILITIES 2002 2001

Shareholders' equity (Note 10)Capital stock 267,575 267,575Additional paid-in capital 338,728 338,728Revaluation reserve 90,936 90,936Reserves

Legal reserves 53,605 53,605Other reserves 842,273 665,728

Prior years' earnings 263 262Income for the year 357,049 339,317Interim dividend paid in the year (61,542) (61,110)

Total shareholders' equity 1,888,887 1,695,041

Deferred revenues (Note 11) 84,227 10,465

Provisions for contingencies and expenses (Note 12) 189,659 229,238

Long-term debt (Note 13)Payable to credit entities 673,875 546,558Payable to Group and Associated companies (Note 17) 381,577 291,459Other accounts payable 17,182 52,192Uncalled capital payments outstanding 492 1,262

Total long-term debt 1,073,126 891,471

Current liabilities (Note 13)Payable to credit entities 95,636 44,953Payable to Group and Associated companies (Note 17) 740,476 640,197Trade accounts payable 283,283 214,564Other nontrade payables (Note 2-c) 417,568 394,869Accrual accounts 3,198 2,525

Total current liabilities 1,540,161 1,297,108

TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 4,776,060 4,123,323

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S TAT E M E N T S O F I N C O M E

Translation of financial statements originally issued in Spanish and prepared in accordance with generally accepted accounting prin-ciples in Spain (see Note 22). In the event of a discrepancy, the Spanish-language version prevails.

Statements of income for the years ended December 31, 2002 and 2001 (Notes 1, 2, 3 and 4)Compañía Española de Petróleos, S.A. (CEPSA)

(The accompanying Notes 1 to 22 are an integral part of these statements of income).

Thousands of euros

DEBIT 2002 2001

ExpensesProcurements (Note 17) 6,255,771 6,366,565Personnel expenses (Note 2-c) 170,648 167,104Period depreciation and amortization 118,525 117,095Variation in operating provisions 1,148 3,014Other expenses (including oil and gas excise tax) (Note 2-c) 2,734,631 2,637,883

9,280,723 9,291,661

Operating income 170,900 309,403Financial expenses on debts to Group companies (Note 17) 14,445 17,975Financial expenses on debts to Associated companies (Note 17) 687 664Financial expenses on debts to third parties and similar expenses 30,895 31,056Variation in financial investments' provisions 6,061 - Exchange gains 3,507 10,191

55,595 59,886

Financial income 137,100 159,124

Income from ordinary activities 308,000 468,527Variation in intangible assets, tangible fixed assets and control portfolio provisions (Note 17) 18,965 65,450Losses on intangible assets, tangible fixed assets and control portfolio (Note 17) 1,001 1,668Extraordinary expenses (Note 17) 51,891 11,535

71,857 78,653

Extraordinary income (Note 17) 58,763 -

Income before taxes 366,763 416,742 Corporate income tax (Note 14) 9,714 77,425

Income for the year 357,049 339,317

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Thousands of euros

CREDIT 2002 2001

RevenuesSales and services on ordinary activities 7,296,884 7,565,819Oil and gas excise tax charged on sales 2,051,503 1,951,083

Net sales (Note 17) 9,348,387 9,516,902Increase in finished products and work-in-process inventories 25,708 13,132Capitalized expenses of in-house work on fixed assets 34,974 40,601Other operating revenues 42,554 30,429

9,451,623 9,601,064

Revenues from shareholdings 144,059 181,323Revenues from other marketable securities and loans to Group and Associated companies (Note 17) 24,703 19,443Revenues from other marketable securities and noncurrent loans 3,962 5,779Other interest and similar revenues 5,271 5,147Exchange gains 14,700 7,318

192,695 219,010

Gains on disposal of intangible assets, tangible fixed assets and control portfolio (Note 17) 90,780 14,317Capital subsidies transferred to income for the year (Note 17) 1,028 1,203Extraordinary revenues (Note 17) 38,812 11,347Prior years' revenues and income - 1

130,620 26,868

Extraordinary loss (Note 17) - 51,785

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N OT E S TO F I N A N C I A L S TAT E M E N T S


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Notes to financial statements for the years ended December 31, 2002 and 2001Compañía Española de Petróleos, S.A. (CEPSA)

1. Company descriptionCompañía Española de Petróleos, S.A. (“CEPSA”), whose registered office is at Avenida del Partenón 12 (Campo de lasNaciones), Madrid, was incorporated for an unlimited period of time on September 26, 1929, and is registered in theMadrid Mercantile Register in Volume 206 of the Companies book, Folio 100, Sheet 6045. Its employer identification num-ber is A-28003119.

CEPSA’s corporate purpose is basically to carry on in Spain and abroad all manner of activities relating to solid, liquid orgaseous hydrocarbons.

2. Basis of presentation of the financial statementsa) True and fair viewThe financial statements, which were prepared from CEPSA’s accounting records, are presented in accordance with theSpanish National Chart of Accounts approved by Royal Decree 1643/1990 and subsequent legislation, and, accordingly,give a true and fair view of the Company’s net worth, financial position and results of operations.

The 2002 financial statements, which were prepared, in euros, by the Board of Directors at its meeting on March 20, 2003,will be submitted for approval by the next Shareholders’ Meeting.The Shareholders’ Meeting held in Madrid on May 30,2002 approved the 2001 financial statements without any changes.

b) Comparative informationIn accordance with the Spanish National Chart of Accounts approved by Royal Decree 1643/1990, the individual finan-cial statements present, together with the figures for 2002, the corresponding amounts for 2001 translated from pesetasto euros at the irrevocable exchange rate of Ptas. 166.386 = Eur 1.

c) Grouping of itemsThe balances of the "Accounts Receivable" and "Other Non-trade Payables" captions in the accompanying balance sheetsas of December 30, 2002 and 2001, consist of the items detailed below:

Thousands of euros2002 2001

Current assets (accounts receivable)Customer receivables for sales and services 559,855 515,024 Receivable from Group companies (Note 17) 618,310 491,789 Receivable from Associated companies (Note 17) 56,260 21,806 Sundry accounts receivable 16,889 19,408 Tax receivables 24,598 22,781 Provisions (45,377) (44,760)Total 1,230,535 1,026,048


Current liabilities (other nontrade payables)Accrued taxes payable 99,908 93,953 Other accounts payable 312,942 293,730 Short-term guarantees and deposits received 4,718 7,186 Total 417,568 394,869

Translation of financial statements originally issued in Spanish and prepared in accordance with generally accepted ac-counting principles in Spain (see Note 22). In the event of a discrepancy, the Spanish-language version prevails.

The balances of the "Personnel Expenses" and "Other Expenses" captions in the accompanying 2002 and 2001 statementsof income consist of the following items:

In compliance with the Spanish Accounting and Audit Institute (ICAC) Resolution of March 25, 2002, approving the reg-ulations for the recognition, valuation and reporting of environmental aspects in the financial statements, a breakdown isgiven of the environmental expenses for 2002 and 2001 included under the “Other Operating Expenses” caption.The en-vironmental expenses for 2001 have been reorganized to facilitate their comparison with those for 2002 (see Notes 4-nand 19).

3. Distribution of incomeThe Company’s Board of Directors will submit for approval by the Shareholders’ Meeting the following distribution of2002 income and of prior years’ retained earnings:

Of the total dividend indicated above, an interim dividend of Eur 61,542 thousand, equal to Eur 0.23 per share,was paid on No-vember 4, 2002, and this amount is recorded under the "Shareholders' Equity - Interim Dividend Paid during the Year" captionin the accompanying balance sheet as of December 31, 2002.

This dividend was declared by the Board of Directors on September 26, 2002, on the basis of the accounting statement as ofAugust 31, 2002 (shown below), prepared in accordance with Article 216 of the revised Corporations Law, evidencing the ex-istence of sufficient liquidity for the distribution of the aforementioned interim dividend.

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Personnel expensesWages, salaries, etc. 120,088 120,623 Contributions and provisions to pension allowances 13,696 10,820 Other employee welfare expenses 36,864 35,661Total 170,648 167,104

Other expensesTaxes other than income taxes 14,254 12,862 Excise tax on oil and gas borne 2,052,024 1,952,415 Transport and freight 132,180 133,018 Work, supplies and outside services 524,992 528,845 Other current operating expenses 3,533 3,411 Environmental expenses (Note 19) 7,648 7,332 Total 2,734,631 2,637,883

Thousands of euros

Distribution basisIncome (loss) 357,049 Prior years' unallocated earnings 263 Total distributable 357,312

Distribution toDividends 184,627 Voluntary reserves 172,685 Unallocated earnings - Total distributed 357,312

The Company’s distributable net income per the foregoing accounting statement as of August 31, 2002, was obtained af-ter deducting period depreciation and amortization and provisions and the estimated corporate income tax.At that datethe mandatory legal reserve was at the required level, working capital, i.e. the difference between current assets and cur-rent liabilities, amounted to Eur 597,022 thousand, and the Company had unused credit facilities of more than Eur 419,000thousand.The undrawn balances did not bear interest.

4.Valuation standardsThe main valuation standards applied were as follows:

a) Intangible assetsIntangible assets, which are valued at acquisition cost or at the cost incurred in producing or developing them, includingpersonnel, financial and other expenses relating to projects carried out, are presented in the accompanying balance sheetsnet of the related accumulated amortization (see Note 5).

Research and development expenses are amortized in full when the related project is completed, regardless of its out-come, unless the technology developed is patented, in which case they are amortized over 13 years.

Oil exploration investments are recorded by the “successful efforts method”, and exploration costs are expensed as in-curred. Drilling costs are capitalized until it is determined whether they give rise to the detection of exploitable reserves,

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Thousands of euros

Individual Accounting Statement of CEPSA supporting the interimdividend declared on September 26, 2002 08.31.02

AssetsFixed and other noncurrent assets

Intangible assets 643,778 Tangible fixed assets 715,458 Long-term financial investments 884,455

Total 2,243,691

Deferred charges 18,516

Current assetsInventories 434,470 Accounts receivable 1,145,239 Short-term financial investments 793,711 Cash 3,168 Accrual accounts 31,580

Total 2,408,168

Total Assets 4,670,375

Shareholders' equity and liabilitiesCapital stock and reserves 1,594,032 Income for the year 194,296 Deferred revenues 50,572 Provisions for contingencies and expenses 233,977 Long-term debt 786,352 Current liabilities 1,811,146

Total shareholders' equity and liabilities 4,670,375

at which time they start to be amortized, together with the field development expenses, on the basis of the reserves ex-tracted with respect to the reserves proven to be recoverable; if the reserves detected are not exploitable, the drillingcosts are charged to income as soon as this becomes known.

Production license rights are amortized at the same rates as those used to depreciate the production units to which theyrelate.The other intangible assets are amortized on a straight-line basis over a maximum of three years.

The rights under financial lease contracts, when there is no reasonable doubt that the purchase option will be exercised,are recorded at the cost of the related assets, and the total debt for lease payments plus the amount of the purchase op-tion are recorded as a liability.The difference between the two amounts, which represents the interest expenses on thetransaction, is recorded as a deferred expense.These rights are amortized at the same rate as the leased asset.

When the purchase option is exercised, the value of the rights recorded and the related accumulated amortization arerelieved from intangible assets and are recorded as part of the value of the acquired asset.

b) Tangible fixed assetsAssets of this nature acquired through December 31, 1996, are valued at cost, revalued where appropriate, in accordancewith the applicable enabling legislation. Subsequent additions are recorded at cost. In both cases, the accumulated depre-ciation and specific-purpose allowances recorded to cover losses were deducted.

If necessary, in accordance with Spanish accounting regulations, the values of tangible fixed assets are definitively adjustedbased on the amounts that it is not possible to recover through the foreseeable generation of future revenues (see Note 6).

The costs of expansion, modernization or improvements leading to increased productivity, capacity or efficiency or to alengthening of the useful lives of the assets are capitalized. Repair, upkeep and maintenance expenses are expensed currently.

Depreciation of tangible fixed assets is basically calculated by the straight-line method at annual rates based on the yearsof estimated useful life.The detail, by type of asset, is as follows:

c) Marketable securities and other similar financial investmentsInvestments in marketable short- and long-term fixed-income and equity securities are recorded at the lower of cost,revalued, where appropriate, pursuant to the applicable enabling legislation, or market.The market value for holdings inunlisted companies was taken to be the underlying book value of the holdings per the balance sheets of the investees, ad-justed, where appropriate, by the amount of the unrealized gains disclosed at the time of the acquisition and still existingat the present date. Unrealized losses (cost higher than market value) are recorded under the "Long-Term Financial In-vestments - Provisions" caption in the accompanying balance sheets (see Note 7).

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Years of useful life

Depreciation of tangible fixed assetsBuildings and other structures 33 to 50Technical installations and machinery

Machinery, installations and tools 10 to 15Furniture and fixtures 10

Specialized complex installationsUnits 12 to 15Lines and networks 15 Tanks and spheres 20

Other tangible fixed assets 4 to 10

CEPSA’s financial statements do not reflect the effects of applying consolidation principles to its shareholdings. Under cur-rent legislation CEPSA is required to prepare consolidated financial statements. Had the holdings in Group companiesbeen consolidated by the global integration method and those in associated companies been carried by the equity method,the effect on the individual financial statements would be as follows:

d) InventoriesCrude oil and oil derivatives are valued at the lower of “Dollar Value” LIFO cost or market value. Crude and oil deriva-tives in transit are valued at the cost at source plus direct costs incurred through year-end. Replacement parts and sup-plies and other inventories are valued at the lower of average acquisition or production cost or market (see Note 9).

In the case of refined products, the individual costs are allocated to the various products in proportion to the sellingprice thereof (isomargin method).

Production cost is calculated based on the acquisition cost of raw materials and other consumables required, determinedin accordance with the valuation standards of the Spanish Chart of Accounts, and on costs directly allocable to the prod-uct and the reasonably corresponding portion of the costs indirectly allocable to the product in question, insofar as thesecosts relate to the production, manufacturing or construction period.

e) SubsidiesCapital subsidies are recorded at the amount granted. Nonrefundable capital subsidies are recorded under the “DeferredRevenues” caption in the balance sheet and are allocated to income on the basis of the years of useful life of the subsi-dized investments. Refundable capital subsidies are recorded as long-term debt transformable into subsidies, and operat-ing subsidies are credited to income when earned.

f) Provisions for pensions and similar obligationsPer actuarial studies conducted by the Company based on individual capitalization techniques and using interest rates inline with the commitments, the value of the commitments to employees which were covered by in-house allowancesamounted to Eur 34,417 thousand in 2002 and Eur 64,873 thousand in 2001 (see Note 12).

The annual cost accrued for commitments to employees and for the financial effect related to pension funds’ revaluationis recorded under the “Personnel expenses” and “Financial expenses” captions.

In December 1999 the Company and the workers’ representatives agreed on the externalization of the capital relatingto each participant at the date on which the pension plan was set up (i.e. past services) in accordance with Royal Decree1588/1999 approving the Regulations on the instrumentation of companies’ pension commitments to workers and ben-eficiaries. CEPSA has fully covered this commitment, making payments in 1999 and 2000 amounting to Eur 146,441 thou-sand. On November 16, 2002, CEPSA externalized commitments for death of spouse, death of parent, disability and re-tirement to its employees and their beneficiaries amounting to Eur 23,965 thousand, in accordance with Additional Pro-vision 25 of Law 14/2000 on Tax,Administrative, Labor and Social Security Measures.

As required by Transitional Provision Four of Royal Decree 1643/1990 and subsequent legislation, the difference as of De-cember 31, 1989, between the value of the commitments and the provisions recorded for pension payments for retiredand serving employees at that date, net of the related tax effect, is being amortized with a charge to reserves over 7 and15 years, respectively.The unamortized amounts of Eur 6,018 thousand in 2002 and Eur 9,027 thousand in 2001 relateonly to serving employees. (see Note 8)

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Assets 1,234,695 1,381,237 Liabilities 605,150 812,957 Reserves 525,737 472,714 Income (loss) for the year 103,808 95,566

g) Other provisions for contingencies and expensesCEPSA has recorded provisions for major repairs of production units on the basis of the projected cost of the next over-haul and of the period between two overhauls. It has also recorded provisions for environmental risks, for taxes, for taxassessments issued by the tax inspection authorities which have been challenged by the Company and for which appealswill foreseeably be filed, and for third-party liability to cover possible obligations.

In previous years provisions were recorded at year-end to cover the estimated expenses relating to the adaptation of thecomputer systems and other fixed assets as a result of the changeover to the euro.After completion of the conversionprocess, without any noteworthy incidents, this provision was used and released in full.

h) Classification of debtDebts maturing at 12 months or over from year-end were classified as long-term debt and the remainder as current lia-bilities.

i) Corporate income taxThe expense for corporate income tax for each year is calculated on the basis of book income before taxes, increased ordecreased, as appropriate, by the permanent differences from the income for tax purposes.Tax relief and tax credits aretreated as a reduction of the amount of corporate income tax for the year in which they are taken.

CEPSA files tax returns on a consolidated basis with its subsidiaries, which meet the relevant legal requirements, observ-ing the Spanish Accounting and Audit Institute Resolution dated October 9, 1997 partially modified by the Spanish Ac-counting and Audit Institute Resolution dated March 15, 2002 (see Note 14).

j) Foreign currency transactions and balancesTransactions in foreign currencies are translated to euros at the exchange rates ruling at the transaction date and the ex-change differences arising at the date of settlement of the transactions are charged or credited, as appropriate, to income.Foreign currency balances at each year-end are translated to euros at the year-end exchange rates or, where appropriate,at the hedged exchange rates. Exchange losses are recorded as an expense under the “Exchange Differences” caption inthe statement of income; in accordance with the accounting principle of prudence, only realized exchange gains are allo-cated to income, those others related to long term financing are deferred to future years under the “Deferred Revenues”caption.

Exchange differences arising on foreign currency loans financing investments for which the functional currency is the sameand for which there are currency hedges relating to the loans, are recorded with a balancing entry under the “DeferredRevenues” or “Deferred Charges” caption, and are allocated to income as the foreign currency financing from which theyderive is repaid or when the risk ceases to be hedged. (see Notes 8 and 11)

k) Severance costsUnder current labor legislation, companies are required to pay severance to employees terminated without just cause.Al-though CEPSA does not have any labor force reduction plans, it has recorded provisions to cover any risks that might arisein this connection.

l) Recognition of revenues and expensesRevenues and expenses are recognized on an accrual basis, i.e. when the actual flow of the related goods and services oc-curs, regardless of when the resulting monetary or financial flow arises. However, the Company only records realized in-come at year-end, whereas foreseeable contingencies and losses, including possible losses, are recorded as soon as theybecome known.

In accordance with the legislation applicable to companies operating in the oil and gas industry, the excise tax on oil andgas sales is recorded as part of the selling price and as an addition to cost under the “Net Sales” and “Other Expenses”captions, respectively, in the statement of income (see Note 2-c).

The “Net Sales” caption also includes the value of the hedging transactions for strategic stocks arranged with other op-erators.

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m) Hedging transactionsCEPSA uses certain hedging instruments and derivatives, including most notably futures contracts with crude oil andproduct brokers, to hedge price risks relating to the monthly volume of purchases and sales of oil-based products.Thetransaction limits and the hedging instruments have been approved by Company management and the monitoring processrespects the separation of the performance and control functions.Any negative differences between the market price atyear-end and the deal price for open transactions at year-end are charged to income (see Note 16).

For currency and interest rate risks, the transaction limits and hedging instruments (basically forward currency transac-tions and interest rate swaps) have also been approved by Company management and the monitoring process respectsthe separation of the performance and control functions.Any negative differences between the market price at year-endand the deal price for open transactions at year-end are charged to income (see Notes 13 and 16).

The gains or losses on the hedging transactions are credited or charged to income symmetrically to the revenues or costsarising on the hedged item.

n) Environmental mattersUnder a Spanish Accounting and Audit Institute (ICAC) Resolution of March 25, 2002, investments which are included inthe Company’s assets to be used at long-term in its business activities whose main purpose is to minimize the impact ofthe activities on the environment and to protect and improve the environment, including the reduction or elimination offuture pollution arising from CEPSA’s operations, are deemed to be environmental investments.

Also, expenses incurred to prevent, reduce or repair damage to the environment, as well as those arising from environ-mental commitments are deemed to be environmental expenses.

With respect to the provisions for environmental contingencies and obligations, CEPSA has recorded provisions to cov-er the risk of gradual pollution of soil, which are recorded with a charge to extraordinary expenses in the statement ofincome.These provisions are quantified on the basis of the estimates and in-house technical studies. CEPSA has taken outinsurance policies which cover such other environmental damage as might arise, including any third-party liability that mightarise therefrom. (see Note 19)

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5. Intangible assetsThe variations in intangible asset accounts in 2001 and 2002 were as follows:

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Thousands of euros

2001 Balance at Additions or Transfers Retirements Balance at01.01.01 Provisions or Disposals 12.31.01

AssetsResearch and development expenses 1,069 3,646 (4,174) - 541 Oil well drilling expenses 376,327 257,330 - (260) 633,397 Concessions, patents and licenses 18,391 459 3,753 - 22,603 Goodwill 250 - - - 250 Computer software 39,513 9,544 - - 49,057 Rights on leased assets 19,492 19,844 - - 39,336 Other project rights - 571 - - 571 Total 455,042 291,394 (421) (260) 745,755

Accumulated amortization and provisionsOil well drilling expenses (170,328) (23,558) - 2,478 (191,408)Concessions, patents and licenses (16,724) (3,867) - - (20,591)Goodwill (10) (25) - - (35)Computer software (34,313) (7,149) - - (41,462)Rights on leased assets (698) (909) - - (1,607)Surface rights - - - - - Total (222,073) (35,508) - 2,478 (255,103)

Net intangible assets 232,969 255,886 (421) 2,218 490,652

Thousands of euros

2002 Balance at Additions or Transfers Retirements Balance at01.01.02 Provisions or Disposals 12.31.02

AssetsResearch and development expenses 541 4,942 (3,729) - 1,754 Oil well drilling expenses 633,397 202,690 - - 836,087 Concessions, patents and licenses 22,603 27 3,669 - 26,299 Goodwill 250 - - - 250 Computer software 49,057 8,456 (168) - 57,345 Rights on leased assets 39,336 17,835 - - 57,171 Other project rights 571 - - - 571 Total 745,755 233,950 (228) - 979,477

Accumulated amortization and provisionsOil well drilling expenses (191,408) (21,278) - 2,218 (210,468)Concessions, patents and licenses (20,591) (3,867) - - (24,458)Goodwill (35) (25) - - (60)Computer software (41,462) (7,371) - - (48,833)Rights on leased assets (1,607) (2,537) - - (4,144)Surface rights - (19) - - (19)Total (255,103) (35,097) - 2,218 (287,982)

Net intangible assets 490,652 198,853 (228) 2,218 691,495

In 2001 and 2002 Eur 34,891 thousand and Eur 28,603 thousand, respectively, of personnel, financial and other expensesrelating basically to oil well drilling and computer software projects in progress in those years were capitalized to intangi-ble asset accounts with a credit to the “Capitalized Expenses of In-House Work on Fixed Assets” caption in the accom-panying statements of income.

The direct and indirect costs incurred in research and development projects in progress were recorded as additions to“Research and Development Expenses” in 2001 and 2002.

The “Oil Well Drilling Expenses” caption includes basically exploration and development investments made by CEPSAwithin the framework of the Production Distribution Contract entered into by CEPSA and Sonatrach in relation to Block406 A of the Algerian Sahara.

These investments gave rise to the discovery of two oil fields: RKF, which came on stream in July 1996, and Ourhoud (aunitized field) which came on stream in December 2002 and in which CEPSA has a 39.756% “working interest”. Of the23 wells for the extraction of crude oil, built up to date in Ourhoud, 9 came on stream in December 2002, and the re-maining wells will come on stream, successively, in the first half of 2003, together with water and gas injection wells andthe production plant, which was designed to reach a “plateau production” of 230,000 barrels a day.

The amortized amounts of the assets on stream totaled Eur 17,213 thousand in 2001 and Eur 15,227 thousand in 2002.Also, exploration costs amounting to Eur 6,341 thousand and Eur 6,051 thousand were amortized in 2001 and 2002, re-spectively, and the investments amortized in the year in which they were incurred amounted to Eur 2,394 thousand andEur 6,050 thousand, respectively.

The investment recorded by CEPSA under the “Computer Software” caption relates, basically, to acquisitions made in or-der to update computer software to the most recent market versions.

Eur 19,844 thousand in 2001 and Eur 17,835 thousand in 2002 were recorded as an investment under the “Rights onLeased Assets” caption in relation to the construction, under a lease arrangement, of four tanks of 150,000 m3 each tostore crude oil and four tanks of 50,000 m3 each to store diesel.

The main figures concerning CEPSA’s lease contracts for the years ended December 31, 2002 and 2001, are as follows:

As of December 31, 2001 and 2002, the fully amortized intangible assets amounted to Eur 88,245 thousand and Eur110,724 thousand, respectively.

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Original cost (without purchase option) 54,908 37,647Purchase option 1,776 1,202Principal repaid 8,119 3,180Inter-period allocation of deferred interest expenses 178 96Outstanding financial expenses 9,927 8,667Lease payments paid 11,974 4,868Outstanding lease payments 58,670 44,432Contract term (months) 120/123 120Contract currency EUR EUR

6.Tangible fixed assetsThe variations in this caption in 2001 and 2002 were as follows:

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Thousands of euros

2001 Balance at Additions or Transfers Retirements Balance at01.01.01 Provisions or Reductions 12.31.02

AssetsLand and structures 40,633 - 77 (7,068) 33,642 Technical installations and machinery 1,675,947 - 93,353 (45,649) 1,723,651 Other installations, tools and furniture 12,669 - 271 (4,334) 8,606 Advances and construction in progress 93,932 99,858 (95,424) - 98,366 Other tangible fixed assets 33,629 72 2,144 (13,201) 22,644 Total 1,856,810 99,930 421 (70,252) 1,886,909

Accumulated depreciationLand and structures (2,383) (43) - 280 (2,146)Technical installations and machinery (1,047,602) (78,773) - 29,148 (1,097,227)Other installations, tools and furniture (7,081) (1,045) - 3,604 (4,522)Other tangible fixed assets (19,608) (1,725) - 12,550 (8,783)Total (1,076,674) (81,586) - 45,582 (1,112,678)

Provisions (43,273) (13,666) - 13,090 (43,849)

Net tangible fixed assets 736,863 4,678 421 (11,580) 730,382

Thousands of euros


AssetsLand and structures 33,642 - 715 (1,320) 33,037 Technical installations and machinery 1,723,651 - 69,849 (45,653) 1,747,847 Other installations, tools and furniture 8,606 - 3,494 - 12,100 Advances and construction in progress 98,366 90,843 (77,534) - 111,675 Other tangible fixed assets 22,644 - 3,704 (156) 26,192 Total 1,886,909 90,843 228 (47,129) 1,930,851

Accumulated depreciationLand and structures (2,146) (39) - 16 (2,169)Technical installations and machinery (1,097,227) (79,772) - 6,395 (1,170,604)Other installations, tools and furniture (4,522) (1,115) - - (5,637)Other tangible fixed assets (8,783) (2,503) - 118 (11,168)Total (1,112,678) (83,429) - 6,529 (1,189,578)

Provisions (43,849) (10,394) - 37,627 (16,616)

Net tangible fixed assets 730,382 (2,980) 228 (2,973) 724,657

The Company’s capitalized costs of in-house work on fixed assets are recorded at production cost and include, where appro-priate, personnel and other expenses incurred during the related construction period. Eur 5,710 thousand and Eur 6,371 thou-sand of expenses were capitalized to tangible fixed assets in this connection in 2001 and 2002, respectively, and these amountswere credited to the “Capitalized Expenses of In-House Work on Fixed Assets” caption in the accompanying statements of in-come.

As a result of the court-ordered foreclosure of the mortgage taken out on the land where the La Rábida refinery is located inPalos de la Frontera (Huelva), as security to the bondholders for the redemption of a mortgage bond issue made by Unión Ex-plosivos Rio Tinto, S.A., later Ercros, S.A.; Ertoil, S.A. (now merged into CEPSA), as the “third holder” of the mortgaged assetsand as the only means of avoiding a public auction thereof, had to pay into Court No. 1 of Moguer (Huelva) the outstandingamount of Ercros, S.A.’s debt to the syndicate of bondholders that filed for foreclosure of the mortgage, which totaled Eur 8,915thousand.This sum was initially withheld and the principal amount thereof (Eur 7,690 thousand) was delivered to the foreclos-ing syndicate in 1999.At 2002 year-end, only the amount relating to interest, costs and expenses had not been settled, and thiswill depend on the decision to be handed down by the First Chamber of the Spanish Supreme Court in respect of a requestby CEPSA that the mortgage be declared null and void. In any case, CEPSA has recorded the provisions considered necessaryto meet any financial liability that may arise from this litigation (see Note 12)

Similarly, the Spanish Supreme Court will hand down a decision with respect to a proceeding initiated against Ercros, S.A. to ob-tain from the latter reimbursement of the Eur 8,915 thousand deposited at the Court of Moguer and compensation for dam-ages caused by the aforementioned mortgage foreclosure.

The additions to tangible fixed assets in 2001 and 2002, which amounted to Eur 99,930 thousand and Eur 90,843 thousand,respectively, relate basically to investments made at the three refineries.The main objective of these investments was to ensurethe continuous improvement and increase the flexibility of the production processes, as well as to increase safety conditionsand respect for the environment in operations.These investments include most notably the commencement of the construc-tion of new units in order to comply with European regulations on product specifications and environmental emissions that willcome into force in 2005, and the commencement of the project to extend the jetty at the Gibraltar refinery.

The retirements or reductions column in 2001 shows the following items: under “Land and Structures”, the sale of several landlots, and under the “Technical Installations and Machinery” caption the disposal of the cogeneration plant at the La Rábida re-finery which was transferred to DETISA, a wholly-owned subsidiary of CEPSA, for which the allowance recorded in prior yearswas used. In 2002 the “Land and Structures” caption reflects the sale of land lots and the "Technical Installations" caption includesmost notably the net reduction in the value of certain refining installations as a result of the use of the allowance recorded in2000 and 2001, because it is considered that, based on the recoverability of the investment through the estimated future rev-enues, the events giving rise to the recording of the allowance are definitive.

As of December 31, 2001 and 2002, fully-depreciated tangible fixed assets amounted to Eur 639,389 thousand and Eur 663,193thousand, respectively.All the tangible fixed assets recorded at those dates were assigned to operations.

As of December 31, 1996, CEPSA revalued its tangible fixed assets, including those of the absorbed company Ertoil, by Eur71,154 thousand pursuant to the applicable enabling legislation (Royal Decree 2607/1996 regulating the rules for asset revalu-ations enacted by Royal Decree-Law 7/1996).This increase in value is being depreciated (the depreciation charge is a tax-de-ductible expense) with a charge to income in 1997 and subsequent years based on the years of residual useful life of the reval-ued assets.The revaluation made pursuant to Royal Decree-Law 7/1996 increased the tangible fixed asset depreciation chargesfor 2001 and 2002 by Eur 4,624 thousand and Eur 4,286 thousand, respectively.At the close of these years, the increases in val-ue yet to be depreciated amounted to Eur 22,848 thousand and Eur 27,335 thousand, respectively.

CEPSA has been granted administrative concessions by the Spanish state to use mooring facilities and access and adjacent ar-eas at the ports of Santa Cruz de Tenerife and Algeciras-La Línea, which will revert to the State in 2061 and 2065, respective-ly, and at Palos de la Frontera, which will revert in 2005 and 2022. Management of the CEPSA Group considers that it is notnecessary to record a provision to a reversion reserve since the facilities are adequately maintained and the related cost willhave been depreciated in full for accounting purposes during the term of the concession.

19C E P S A

7. Marketable securities and other financial investmentsThe variations in 2001 and 2002 in the "Long-Term Financial Investments" caption were as follows:

20

02


Thousands of euros


AssetsHoldings in Group companies 407,858 16,019 2,945 (8,161) 418,661 Loans to Group companies (Note 17) 84,010 393,902 13,544 (108,407) 383,049 Holdings in Associated companies 179,037 17,703 (2,945) (63,669) 130,126 Loans to Associated companies (Note 17) 16,419 2,380 (13,544) (2,875) 2,380 Long-term investment securities 3,938 1,156 - (2) 5,092 Other loans 166,227 16,894 - (29,740) 153,381 Long-term deposits and guarantees 12,694 54 - (412) 12,336 Total 870,183 448,108 - (213,266) 1,105,025

ProvisionsHoldings in Group companies (10,114) (14,439) - 5,033 (19,520)Holdings in Associated companies (10,084) (56,419) - 1,602 (64,901)Other (880) - - - (880)Total (21,078) (70,858) - 6,635 (85,301)

Net long-term financial investments 849,105 377,250 - (206,631) 1,019,724

Thousands of euros


AssetsHoldings in Group companies 418,661 3,413 - (2,158) 419,916 Loans to Group companies (Note 17) 383,049 518,968 - (310,440) 591,577 Holdings in Associated companies 130,126 1,180 - - 131,306 Loans to Associated companies (Note 17) 2,380 12,235 - (2,380) 12,235 Long-term investment securities 5,092 7 - (3) 5,096 Other loans 153,381 75,624 - (70,671) 158,334 Long-term deposits and guarantees 12,336 990 - (47) 13,279 Total 1,105,025 612,417 - (385,699) 1,331,743

ProvisionsHoldings in Group companies (19,520) (16,000) - 578 (34,942)Holdings in Associated companies (64,901) (1,500) - - (66,401)Other (880) - - - (880)Total (85,301) (17,500) - 578 (102,223)

Net long-term financial investments 1,019,724 594,917 - (385,121) 1,229,520

Besides the subscription to capital increases in several Group and Associated companies, CEPSA’s transactions includemost notably the acquisition in 2001 of Endesa Cogeneración y Renovables S.A’s holdings in various Group companieswhich are involved in combined heat and power activities, and the sale in 2002 of 10% of the capital stock of CMD Aerop-uertos Canarios, S.A., reducing its holding in this subsidiary to 60%.

In accordance with the stipulations of Royal-Decree Law 6/2000 on urgent measures to intensify competition in the goodsand services markets, in 2002 CEPSA will partly sell its holding in Compañía Logística de Hidrocarburos CLH, S.A, reduc-ing it to a maximum of 15% of the capital stock of CLH, S.A.As a result of the aforementioned transaction, as of De-cember 31, 2001, CEPSA reclassified this investment by transferring the value of the percentage to be disposed of to the"Short-Term Financial Investments" caption (see Table I).

In 2001 and 2002 the Company recorded and released provisions to adjust the cost recorded in its financial statementsto the underlying book value of certain holdings if so required by accounting regulations (see Note 4-c).

In the “Other Loans” caption CEPSA has recorded as of December 31, 2001 and 2002, basically the prepaid taxes amount-ing to Eur 121,687 thousand and Eur 111,350 thousand, respectively, arising from timing differences due to expenses in-curred which, in principle, were not deductible for tax purposes but will be deductible at medium and long term, up to alimit of ten years.This caption also includes receivables from third parties totaling Eur 23,175 thousand and Eur 38,086thousand, respectively, arising from fixed asset disposals.

The information on Group and associated companies is shown at the end of these notes to financial statements (see Table I).

The variations in the "Short-Term Financial Investments" caption in 2001 and 2002 were as follows:

21C E P S A

Thousands of euros

2001 Balance at Additions or Retirements Balance at01.01.01 Provisions or Reductions 12.31.01

AssetsLoans to Group companies (Note 17) 304,411 282,806 (326,495) 260,722 Holdings in Associated companies - 61,470 - 61,470 Loans to Associated companies (Note 17) 3,583 131,052 (134,332) 303 Other short-term investment securities 888 2 (2) 888 Other loans 16,830 6,339,062 (6,281,075) 74,817 Short-term deposits and guarantees 365 99 (317) 147 Total 326,077 6,814,491 (6,742,221) 398,347

ProvisionsShort-term investment securities (887) - - (887)Bad debts at short term (60) - - (60)Total (947) - - (947)

Net short-term financial investments 325,130 6,814,491 (6,742,221) 397,400

In 2002 CEPSA sold 5,745,255 shares of Compañía Logistica de Hidrocarburos, which represent 81.4% of its obligationto dispose of shares of that company, in accordance with the stipulations of Royal-Decree Law 6/2000 on urgent mea-sures to intensify competition in the goods and services markets.After these disposals, CEPSA owned, as of December31, 2002, 16.8% of the capital stock of Compañía Lógistica de Hidrocarburos CLH, S.A.

The detail of the short- and long-term loans granted as of December 31, 2001 and 2002, classified by maturity, is as follows:

The average annual interest rate applied by CEPSA on loans to subsidiaries in 2001 and 2002 was similar to the aver-age cost of its borrowed funds for transactions of the same type.

22

02


Thousands of euros

Maturity Subsequent 2001 2002 2003 2004 2005 2006 years Total

Loans to Group companies 260,722 300,439 37,429 2,708 5,508 36,965 643,771Loans to Associated companies 303 2,380 - - - - 2,683Other loans 74,817 26,380 26,035 26,035 18,336 56,595 228,198Total 335,842 329,199 63,464 28,743 23,844 93,560 874,652

Thousands of euros


Loans to Group companies 349,256 517,126 2,708 2,708 2,708 66,327 940,833Loans to Associated companies 8,412 9,269 880 2,086 - - 20,647Other loans 19,995 38,513 39,621 20,134 10,017 50,049 178,329Total 377,663 564,908 43,209 24,928 12,725 116,376 1,139,809

Thousands of euros

2002 Balance at Additions or Retirements Balance at01.01.02 Provisions or Reductions 12.31.02

AssetsLoans to Group companies (Note 17) 260,722 319,136 (230,602) 349,256 Holdings in Associated companies 61,470 - (50,031) 11,439 Loans to Associated companies (Note 17) 303 26,139 (18,030) 8,412 Other short-term investment securities 888 3 (3) 888 Other loans 74,817 6,913,066 (6,967,888) 19,995 Short-term deposits and guarantees 147 3 (4) 146 Total 398,347 7,258,347 (7,266,558) 390,136

ProvisionsShort-term investment securities (887) - - (887)Bad debts at short term (60) - - (60)Total (947) - - (947)

Net short-term financial investments 397,400 7,258,347 (7,266,558) 389,189

8. Deferred chargesThe variations in the "Deferred Charges" accounts in 2001 and 2002 were as follows:

Pursuant to Royal Decree 1643/1990 and subsequent legislation, Eur 3,009 thousand and Eur 3,009 thousand relating tothe estimated shortfall in the pension allowance as of December 31, 1989, were amortized in 2001 and 2002, respec-tively, with a charge to reserves and to prepaid income taxes.The unamortized portion, relating to serving employees on-ly, of this shortfall amounted to Eur 6,018 thousand as of December 31, 2002.

In 2001 and 2002 Eur 5,165 thousand and Eur 3,037 thousand, respectively, of deferred interest expenses were record-ed in relation to the lease contracts entered into by CEPSA to finance the acquisition of 4 crude oil and 4 diesel storagetanks.

In 2001 CEPSA recorded under the “Other Deferred Charges” caption exchange differences of Eur 3,351 thousand aris-ing from hedging transactions relating to the foreign currency financing of its investments in the Ourhoud field in Algeria.In 2002, due to the appreciation of the euro with respect to the U.S. dollar, these exchange losses were absorbed and, inaddition, Eur 64,996 thousand were allocated to the “Deferred Revenues” caption in this same connection (see Notes 4-j and 11).

23C E P S A

Thousands of euros

2001 Balance at Incurred Amortiz. Charged to Amortiz. Charged Balance at01.01.01 Expenses Reserves/Tax Receivables to Income 12.31.01

Personnel expensesAsset internal allowance 12,036 - (3,009) - 9,027

Deferred interest expenses 4,873 5,165 - (1,371) 8,667 Other deferred charges 712 3,667 - (259) 4,120 Total 17,621 8,832 (3,009) (1,630) 21,814

Thousands of euros

2002 Balance at Incurred Amortiz. Charged to Amortiz. Charged Balance at01/01/02 Expenses Reserves/Tax Receivables to Income 12/31/02

Personnel expensesAsset internal allowance 9,027 - (3,009) - 6,018

Deferred interest expenses 8,667 3,037 - (1,777) 9,927 Other deferred charges 4,120 (3,351) - (330) 439 Total 21,814 (314) (3,009) (2,107) 16,384

9. InventoriesThe breakdown of the balances of the "Inventories" caption as of December 31, 2002 and 2001, is as follows::

Pursuant to Royal Decree 2111/1994, CEPSA, as an operator authorized to distribute oil products, is required to main-tain minimum safety stocks and Corporación de Reservas Estratégicas (CORES) inspects and controls the fulfillment ofthis obligation. Company management considers that it is meeting this obligation.

As indicated in Note 4-d, CEPSA uses the “Dollar Value” LIFO valuation method to value its raw material and commer-cial goods inventories.

Pursuant to the ICAC Resolution dated May 9, 2000, establishing the methods for determining production cost, it is here-by stated that the value using the weighted average price or weighted average cost method at 2002 year-end was Eur167,342 thousand, which is higher than the value obtained using the LIFO “Dollar Value” valuation method.

10. Shareholders’ equityThe variations in equity accounts in 2001 and 2002 were as follows:

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02


2002 2001MT Amount MT Amount

Thousands of euros Thousands of euros

Crude oil in tanks 788,912 73,782 964,488 105,379 Crude in transit 642,637 130,780 470,340 70,030 Refined finished products 1,641,228 236,585 1,536,730 210,877 Other raw materials 31 4 31 4 Supplies and other inventories 40,114 38,205 Advances to suppliers 154 235 Provisions (730) (730)Total 480,689 424,000

Thousands of euros

Capital Additional Revaluation Legal Other Unallocated Income InterimStock Paid-in Capital Reserve Reserve Reserves Earnings for the Year Dividend

Balance at 12.31.00 267,575 338,728 90,936 53,605 412,854 285 378,635 (51,461)Distribution of income

Gross dividend - - - - - - (123,829) 51,461 Reserves - - - - 254,829 - (254,829) - Unallocated earnings - - - - - (23) 23 -

Other variationsProvision to internal pension allowance - - - - (1,955) - - -

Income for the year - - - - - - 339,317 - 2000 interim dividend - - - - - - - (61,110)Balance at 12.31.01 267,575 338,728 90,936 53,605 665,728 262 339,317 (61,110)

Capital stockOn April 22, 1999, CEPSA’S Shareholders’ Meeting resolved, inter alia, to redenominate the capital stock in euros, as a re-sult of which capital stock stood at Eur 267,574,941, and consisted of 267,574,941 shares of Eur 1 par value each.This res-olution became effective July 12, 1999.

According to the information furnished by the shareholders that are members of the Board of Directors and the infor-mation registered at the Spanish National Securities Market Commission (C.N.M.V.), as of December 31, 2002,TotalfinaElfand Banco Santander Central Hispano, S.A. had (directly or indirectly) holdings of more than 10% in CEPSA’s capital stock.International Petroleum Investment Company (IPIC) of Abu Dhabi and Unión Fenosa, S.A. also had (directly or indirect-ly) holdings of more than 5% in CEPSA’s capital stock.

CEPSA’s shares are traded on the continuous market on the four Spanish Stock Exchanges.

Legal reser veUnder the revised Corporations Law, 10% of income for each year must be transferred to the legal reserve until the bal-ance of this reserve reaches at least 20% of capital stock.The legal reserve can be used to increase capital provided thatthe remaining reserve balance does not fall below 10% of the increased capital stock amount. Otherwise, until the legalreserve exceeds 20% of capital stock, it can only be used to offset losses, provided that sufficient other reserves are notavailable for this purpose.

As of December 31, 2002, CEPSA had recorded a legal reserve of Eur 53,605 thousand, i.e. 20% of capital stock.This le-gal reserve was recorded before the capital stock was redenominated in euros.

Additional paid-in capitalThe revised Corporations Law expressly permits the use of the additional paid-in capital balance to increase capital andestablishes no specific restrictions as to its use.There were no variations in 2002 or 2001 in the balance of this account,which amounts to Eur 338,728 thousand.

Revaluation reser veThis reserve, amounting to Eur 90,936 thousand, relates to the revaluations made pursuant to 1979 State Budget Law1/1979, 1981 State Budget Law 74/1980 and Royal Decree-Law 7/1996 on asset revaluations.

Eur 15,896 thousand and Eur 16,602 thousand of the aforementioned revaluations relating to State Budget Law 1/1979and State Budget Law 74/1980, respectively, can be assigned to unrestricted voluntary reserves.The balance of the “Reval-uation Reserve, Royal Decree-Law 7/1996” account, which amounts to Eur 58,438 thousand, is still subject to the restric-tions contained in the legislation under which it was recorded and can be used, free of tax, to eliminate recorded lossesand to increase capital. From January 1, 2007 (i.e. ten years after the date of the balance sheet reflecting the revaluationtransactions) the balance of this account can be taken to unrestricted reserves, provided that the monetary surplus has

25C E P S A

Thousands of euros

Capital Additional Revaluation Legal Other Unallocated Income InterimStock Paid-in Capital Reserve Reserve Reserves Earnings for the Year Dividend

Balance at 12.31.01 267,575 338,728 90,936 53,605 665,728 262 339,317 (61,110)Distribution of income

Gross dividend - - - - - - (160,815) 61,110 Reserves - - - - 178,501 - (178,501) - Unallocated earnings - - - - - 1 (1) -

Other variationsProvision to internal pension allowance - - - - (1,956) - - -

Income for the year - - - - - - 357,049 - 2001 interim dividend - - - - - - - (61,542)Balance at 12.31.02 267,575 338,728 90,936 53,605 842,273 263 357,049 (61,542)

been realized.The surplus will be deemed to have been realized in respect of the portion on which depreciation has beentaken for accounting purposes or when the revalued assets have been transferred or retired from the accounting records.

If this balance were used in a manner other than that provided for in Royal Decree-Law 7/1996, it would be subject totax.

11. Deferred revenuesThe variations in “Deferred Revenues” in 2001 and 2002 were as follows:

The positive differences relating to value adjustments arising from the hedging transactions corresponding to the foreigncurrency financing of CEPSA’s investments in the Ourhoud field in Algeria are included under the “Exchange Gains” cap-tion (See Note 4.j and 8)

The “Other Deferred Revenues” caption includes a contract for the assignment of surface rights entered into betweenCEPSA and Nueva Generadora del Sur, S.A. for the erection of the combined cycle plant for combined heat and powerproduction. CEPSA has a 25% holding in the capital stock of Nueva Generadora del Sur, S.A.

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02


Thousands of euros

2001 Balance at Additions Amortiz. charged Balance at 01.01.01 to income 12.31.01

Revenues from capital subsidies 6.602 - (1.203) 5.399 Deferred interests 889 312 (234) 967 Exchange gains - 4.099 - 4.099 Other deferred revenues - - - - Total 7.491 4.411 (1.437) 10.465

Thousands of euros

2002 Balance at Additions Amortiz. charged Balance at 01.01.02 to income 12.31.02

Revenues from capital subsidies 5.399 - (1.028) 4.371 Deferred interests 967 2.350 (681) 2.636 Exchange gains 4.099 64.996 - 69.095 Other deferred revenues - 8.148 (23) 8.125 Total 10.465 75.494 (1.732) 84.227

12. Provisions for contingencies and expensesProvision for pensions and similar obligationsCEPSA’s commitments in this connection as of December 31, 2001 and 2002, are fully covered, either by external fundsor through in-house provisions based on actuarial individual capitalization techniques, calculated at 4%, pursuant to agree-ments reached with the various groups (see Note 4-f).

The variations in and balances of this account in 2001 and 2002 were as follows:

In 2002 in order to comply with the obligation to externalize commitments for death of spouse, death of parent, disabil-ity and retirement assumed by CEPSA to its employees and their beneficiaries which are recorded in the Company’s bal-ance sheet, the deadline for which was November 16, 2002, CEPSA took out various insurance policies to instrumentthese commitments.These policies led to the use of provisions totaling Eur 23,965 thousand.

The “Other Amounts Used” caption in 2002 and 2001 includes Eur 9,412 thousand and Eur 8,002 thousand, respective-ly, relating to payments of pensions the commitments for which were covered with in-house provisions, and Eur 870 thou-sand and Eur 985 thousand, respectively, relating to payments of other commitments to employees who retired in 2001and prior years (see Note 4-f).

27C E P S A

Thousands of euros

Balance at 12.31.00 64,662

Charges to other loans to Group companies 498

ProvisionsFinancial expenses 2,503 Personnel expenses

Ordinary contributions to in-house pension allowances 6,606 Discounted present value of guarantee to retired employees (74)Other contingencies and expenses coverage (335)

Other contributions -

Amount used in 2001Externalizations - Other amounts used (8,987)

Balance at 12.31.01 64,873

Charges to other loans to Group companies -

ProvisionsFinancial expenses 2,252 Personnel expenses

Ordinary contributions to in-house pension allowances 3,477 Discounted present value of guarantee to retired employees (349)Other contingencies and expenses coverage (1,589)

Other contributions -

Amount used in 2002Externalizations (23,965)Other amounts used (10,282)

Balance at 12.31.02 34,417

The balance as of December 31, 2002, relates to the actuarial estimate of the commitments whose externalization wasnot compulsory pursuant to Law 14/2000.

Other provisions for contingencies and expensesThe variations in 2001 and 2002 in other provisions for contingencies and expenses were as follows:

The "Provision for Taxes” account includes the provisions recorded by the Company to cover possible tax contingencies.

The “Provision for Third-Party Liability” covers in accordance with the accounting principle of prudence, the foreseeablecontingencies arising from CEPSA’s ordinary operations, which might arise from its relationships with third parties andwith its employees.As of December 31, 2002, the most significant items were the contributions and allocations to agen-cies and funds to cover maritime risk amounting to Eur 2,344 thousand, contingencies relating to litigation in progressamounting to Eur 7,395 thousand, contingencies with third parties for contractual commitments amounting to Eur 24,672thousand, and exceptional welfare expenses amounting to Eur 26,937 thousand.The balance of this account includes Eur2,554 thousand relating to welfare commitments to the directors contributed in prior years.

The "Provision for Major Repairs" covers the expenses of periodic general overhauls at the Company’s refineries.

The “Provision for Environmental Risks” covers possible contingencies that might arise as a result of environmental risksand liability (see Note 19).

The “Other Provisions” caption includes basically the cancellation of no consolidated margins arising from transactions re-lating to the maintenance of minimum safety stocks with third parties.

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02


Thousands of euros

2001 Balance at Additions Amounts Balance at01.01.01 Used 12.31.01

Provision for taxes other than income tax 6,689 14,034 - 20,723 Provision for third-party liability 138,882 7,180 (43,915) 102,147 Provision for major repairs 22,438 4,828 (11,067) 16,199 Provision for environmental risks 9,458 - (5,147) 4,311 Other provisions 18,166 3,606 (787) 20,985 Total 195,633 29,648 (60,916) 164,365

Thousands of euros

2002 Balance at Additions Amounts Balance at01.01.02 Used 12.31.02

Provision for taxes other than income tax 20,723 2,587 (1,910) 21,400 Provision for third-party liability 102,147 34,574 (44,340) 92,381 Provision for major repairs 16,199 4,754 (4,207) 16,746 Provision for environmental risks 4,311 1,311 (286) 5,336 Other provisions 20,985 6,096 (7,702) 19,379 Total 164,365 49,322 (58,445) 155,242

13. Accounts payable (Nontrade payables)The detail of the Company’s nontrade payables as of December 31, 2002 and 2001, is as follows:

CEPSA pays interest on the interest-bearing payables to Group and associated companies at a current interest rate sim-ilar to that paid on its bank debt.

The payables to credit entities as of December 31, 2002 and 2001, were denominated basically in euros and U.S. dollarsthe detail, by maturity, being as follows:

Thousands of euros


Interest-bearing payables to Group and associated companies 190,898 170,737 120,722 - - - 482,357 Non interest-bearing payables to Group and associated companies 32,062 - - - - - 32,062 Payables to credit entities 44,953 24,176 79,252 135,619 144,672 162,839 591,511 Other nontrade payables 394,869 4,264 3,757 3,757 3,757 36,657 447,061 Short-term deposits and guarantees - - - - - 1,262 1,262 Total 662,782 199,177 203,731 139,376 148,429 200,758 1,554,253

29C E P S A

Thousands of euros

2002 2001Maturity Maturity

Current liabilities Long-term debt Current liabilities Long-term debt

Euros 92,338 275,357 42,279 276,587 Foreign currency 4 398,518 772 269,971 Unmatured interest payable 3,294 - 1,902 -Total payables to credit entities 95,636 673,875 44,953 546,558

Thousands of euros

Maturity Subsequent2002 2003 2004 2005 2006 2007 years Total

Interest-bearing payables to Groupand associated companies 206,882 381,577 - - - - 588,459 Non interest-bearing payables to Group and associated companies 9,785 - - - - - 9,785 Payables to credit entities 95,636 73,575 121,096 130,087 209,808 139,309 769,511 Other nontrade payables 417,568 1,947 1,305 625 625 12,680 434,750 Short-term deposits and guarantees - - - - - 492 492 Total 729,871 457,099 122,401 130,712 210,433 152,481 1,802,997

The annual average nominal interest rate on the loans received in euros was 3.48% in 2002 and 4.37% in 2001.The in-terest rate on loans in foreign currencies was 2.19% in 2002 and 3.83% in 2001.The overall average annual interest rateon the loans received was 2.84% in 2002 and 4.17% in 2001.

The aforementioned interest rates include the net effect of interest rate swaps arranged by the Company.As of Decem-ber 31, 2002, the interest rate swaps outstanding were hedging financial debt amounting to Eur 168,884 thousand (seeNote 16).As of December 31, 2001, the amount thus hedged was Eur 244,203 thousand.

As of December 31, 2002 and 2001, CEPSA had unused credit facilities exceeding Eur 388,029 thousand and Eur 435,734thousand, respectively, with several banks.The unused balance does not bear any interest.

The “Other Nontrade Payables” caption comprise mainly deferred income taxes amounting to Eur 14,446 thousand andEur 49,567 thousand in 2002 and 2001, respectively.The short-term debts include interest-bearing financial debt, instru-mented in financial instruments in the form of promissory notes and loans payable to insurance companies amounting toEur 232,077 thousand and Eur 218,707 thousand in 2002 and 2001, respectively.Apart from the aforementioned itemsand amounts, this caption also includes commercial and corporate taxes payable and debts for fixed asset additions.

14.Tax mattersCEPSA files consolidated tax returns.The reconciliation of CEPSA’s income before taxes per books to the taxable incomefor corporate income tax purposes for 2001 and 2002 is as follows:

30

02


Thousands of euros

2001 Increases Decreases Amount

Book income for the year, before taxes 416,742 Corporate income taxIndividual permanent differences 30,322 76,219 (45,897)Individual timing differences

Arising in the year 23,853 14,488 9,365 Arising in prior years 3,427 71,784 (68,357)

Individual taxable income 311,853

Permanent differences in consolidation 13,456 41,251 (27,795)Timing differences in consolidation

Arising in the year - - - Arising in prior years 4 21 (17)

Taxable income 284,041

The permanent differences arose mainly as a result of income attributed to the permanent establishment in Algeria en-gaging in the exploitation of the RKF field, covered by the exemption regime; provisions; dividends distributed by Groupcompanies and consolidation adjustments.Also, pursuant to the Law accompanying the 2002 State Budget Law, which es-tablished a special regime governing the sales made under the provisions of Royal Decree-Law 6/2000 on market dereg-ulation and competition, which provides for the broadening of Cía. Logística de Hidrocarburos C.L.H., S.A.’s shareholderstructure, the gains arising from the related transfers of assets, referred to in Article 36 ter of the Corporate Income TaxLaw, are not included in the tax base for corporate income tax purposes for the aforementioned reasons.The gains forcorporate income tax purposes amount to Eur 81,305 thousand, and the reinvestment requirements established in 2001and 2002 were complied with.

The timing differences arose as a consequence of the expenses for covering and updating supplementary pension com-mitments, which gave rise to increases of Eur 11,445 thousand in 2002 and Eur 9,405 thousand in 2001 relating to nond-eductible period contributions and to decreases of Eur 33,034 thousand in 2002 and Eur 31,756 thousand in 2001 relat-ing to the payments made in those years in connection with those commitments and to one-tenth of the reversal of thedeferred tax asset for the externalization of past-service costs.

As of December 31, 2002, the balances of the “Prepaid Income Taxes” and “Deferred Income Taxes” accounts totaled Eur118,916 thousand and Eur 17,387 thousand, respectively.As of December 31, 2001, the balances of the “Prepaid IncomeTaxes” and “Deferred Income Taxes” accounts totaled Eur 131,569 thousand and Eur 51,464 thousand, respectively.

The detail of the calculation of the corporate income tax expense for 2002 and 2001 is as follows:

31C E P S A


Taxable income 132,316 284,041 Gross tax payable 46,311 99,414 Tax relief 2,404 2,855 Tax credits taken 17,735 34,022 Net tax payable 26,172 62,537 Net generation of prepaid taxes 11,533 16,784 Net generation of deferred taxes (3,241) 3,870 Corporate income tax expense 34,464 83,191 Tax credit for reinvestment of extraordinary income (Transitional Provision Three of Law 24/2001) (16,324) - Prior years' corporate income tax adjustment (8,426) (5,766)Total corporate income tax expense 9,714 77,425

Thousands of euros

2002 Increases Decreases Amount

Book income for the year, before taxes 366,763 Corporate income taxIndividual permanent differences 27,496 128,856 (101,360)Individual timing differences

Arising in the year 42,588 6,277 36,311 Arising in prior years 5,055 75,521 (70,466)

Individual taxable income 231,248

Permanent differences in consolidation 4,376 113,770 (109,394)Timing differences in consolidation

Arising in the year - - - Arising in prior years 10,483 21 10,462

Taxable income 132,316

“Prior years’ corporate income tax adjustment” amounting to Eur (8,426) thousand and Eur (5,766) thousand in 2002and 2001 respectively, include the difference between the corporate income tax expense recorded as of December 31,2001 and 2000, and the corporate income tax expense per the final tax returns for those years.

In calculating the corporate income tax expense for each year, CEPSA took into account the applicable tax credits for div-idend double taxation and investments and other tax incentives.

As of December 31, 2002 and 2001, CEPSA did not have any material unused tax credits.

In 1998, 1999, 2000 and 2001 CEPSA deferred income of Eur 42,203 thousand, Eur 19,291 thousand, Eur 23,976 thou-sand and Eur 10,558 thousand, respectively, due to reinvestment.These amounts were included in full in the tax base inthe 2001 corporate income tax return, pursuant to Transitional Provision Three of Law 24/2001, which permits the de-duction of 17%, (stipulated in Article 36 ter. of the Corporate Income Tax) of such income.This tax credit amounted toEur 16,324 thousand in 2002.Also, in 2002 income qualifying for the tax credit for reinvestment amounted to Eur 17,754thousand.This income was reinvested in 2002.

In 2002 and 2001 CEPSA took the following tax credits for environmental investment pursuant to Article 35 of the Cor-porate Income Tax Law:

Also, pursuant to Article 94.1.a ("Tax Credit for Investment in the Canary Islands”) of Canary Islands Tax Law 20/1991,the following tax credit for environmental investment in the Canary Islands was taken (30% of investments made):

Under Law 24/2001 which amends Article 36 quater of the Corporate Income Tax Law, in 2002 CEPSA took a tax cred-it of Eur 200 thousand for business contributions to occupational pension plans.

In 2000 the tax inspection authorities reviewed returns of CEPSA for various taxes, including the excise tax on oil and gas,and issued tax assessments which were also contested. CEPSA filed the related appeals against these assessments withthe appropriate courts.The Company recorded a provision for the full amount of these assessments and the related late-payment interest accrued through 2002 year-end.

The years open for review by the tax inspection authorities in connection with the applicable taxes are as follows: yearssince 1996 for corporate income tax; years since 1997 for VAT and personal income tax withholdings; and years since2000 for the excise tax on oil and gas. CEPSA is currently having the aforementioned years audited by the tax inspectionauthorities for the following taxes:

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Thousands of eurosGeneral Tax Regime 2002 2001

Environmental investments 5,724 9,831 Tax credit 572 983

Thousands of eurosCanary Islands Tax Regime 2002 2001

Environmental investments 392 1,041 Tax credit 118 312

Taxes open for review by the tax inspection authorities Years

Corporate income tax 1996 to 2002Value added tax and personal income tax withholdings July 1997 to 2002Excise taxes and VAT on transactions treated as imports 2001 to 2002Local and Autonomies Community taxes 1999 to 2002

CEPSA management does not expect any additional material liabilities for which provisions have not been recorded toarise as a result of the appeals filed or of inspection of the open years.

15. Directors’ compensation and other benefitsThe compensation (salaries, per diems and other compensation) earned by CEPSA's directors amounted to Eur 3,596thousand in 2002 and Eur 3,446 thousand in 2001.Also, the Company has not granted any advances or loans to its Boardmembers.

16. Guarantee commitments to third parties and other contingent liabilitiesAs of December 31, 2002 and 2001, CEPSA had provided guarantees to various entities, mainly to secure financing trans-actions for Group companies and supply contracts.

The breakdown of the guarantee commitments relating to the credit drawn down is as follows:

CEPSA management considers that the unforeseen liabilities, if any, which might arise from the guarantees provided as ofDecember 31, 2002, would not be material.

In addition, as of December 31, 2002, CEPSA had arranged interest rate swaps for a financial debt of Eur 168,884 thou-sand. (see Note 13)

17. Revenues and expensesThe breakdown, by market, of CEPSA’s net ordinary sales in 2002 and 2001 is as follows.

33C E P S A


Bank guarantees to public athorities as a result of CEPSA's business activities 70,555 62,350 Guarantees provided by CEPSA to financial institutions as a result of guarantees issuedby such institutions to public authorities for the operations of subsidiaries 64,042 42,778 Guarantees provided by CEPSA to financial institutions as a result of financial transactions of Group subsidiaries 519,232 538,361 Other guarantees 18,437 13,287 Total 672,266 656,776

(1) These transactions are recorded on the liability side of the Group's consolidated balance sheet.

Thousands of euros

2002 2001Product Services Product Services

Sales Provided Sales Provided

Spain 8,300,077 96,108 8,528,842 91,491 Other E.U. countries 380,002 6,057 356,508 10,994 All other countries 504,236 61,907 442,995 86,072 Total 9,184,315 164,072 9,328,345 188,557

The breakdown of the balances of the "Procurements" caption is as follows:

The balance of the “Independent Professional Services” account, under the “External Services” caption in the accompa-nying statement of income, includes the fees for the audit of the Company’s financial statements, amounting to Eur 228thousand.This caption also includes fees for other services billed by the auditors or by other entities related to the audi-tors, amounting to Eur 53 thousand.

The detail of CEPSA’s transactions with Group and Associated companies in 2001 and 2002, is as follows:

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Thousands of euros

Expenses RevenuesPurchases Services Interest Sales Services Interest Dividends

2001 Received Paid Provided Collected Received

CEPSA EE.SS. 448 35 267 2,642,840 - 4,185 - CEPSA INTERNACIONAL 4,464,770 6,161 14,011 497,284 - 4,635 - CEPSA LUBRICANTES 2,796 534 12 49,909 - 173 1,070 ERTISA 14,487 127 27 112,947 - 185 - INTERQUISA 10 1,149 373 23,475 - 518 12,838 INTERQUISA LP - - - (77) - 241 - LUBRISUR 5,760 125 288 71,957 - - 8,982 PETRESA 38,501 - - 100,579 (936) 1,468 23,121 PROAS - 38 366 138,160 - 4 - Other companies 30,403 87,027 3,036 678,094 200 8,165 7,064 Total Group companies 4,557,175 95,196 18,380 4,315,168 (736) 19,574 53,075

CLH 4,306 90,402 - 7,502 - (6) 127,069 Other companies 9,947 19,055 188 249,132 - 263 1,052 Total Associated companies 14,253 109,457 188 256,634 - 257 128,121

Other Associated entities - 16 476 278 - 9 -

Total 4,571,428 204,669 19,044 4,572,080 (736) 19,840 181,196


Goods consumedPurchases 254,103 126,087

Raw and other materials consumedPurchases 6,025,652 6,227,025 Inventory variation (30,793) 6,272

Other external expenses 6,809 7,181 Total 6,255,771 6,366,565

35C E P S A

Thousands of euros

Expenses RevenuesPurchases Services Interest Sales Services Interest Dividends

2002 Received Paid Provided Collected Received

CEPSA EE.SS. 480 292 544 2,518,333 - 2,064 22,344 CEPSA INTERNACIONAL 4,331,216 3,969 9,743 552,695 - 10,963 - CEPSA LUBRICANTES 1,812 675 220 34,534 - 9 7,876 ERTISA 16,440 549 405 158,183 - 1 2,000 INTERQUISA 1 1,335 291 25,037 - 1,055 18,643 INTERQUISA CANADA LP - - - - - 2,287 - LUBRISUR 2,318 89 13 78,265 - - 8,752 PETRESA 113,830 - - 132,463 (214) 1,099 40,752 PROAS - 77 643 152,347 - - 17,057 Other companies 46,935 89,055 3,610 732,387 1,948 7,848 11,287 Total Group companies 4,513,032 96,041 15,469 4,384,244 1,734 25,326 128,711

CLH (8,771) 87,562 - 3,075 - 2 13,697 Other companies 9,494 4,537 112 278,165 - 161 1,595 Total Associated companies 723 92,099 112 281,240 - 163 15,292

Other Associated entities 33,996 1,080 574 45,666 - 19 -

Total 4,547,751 189,220 16,155 4,711,150 1,734 25,508 144,003

The detail of CEPSA’s Group and Associated companies balances as of December 31, 2001 and 2002, is as follows:

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Thousands of euros

Asset Balances Liability BalancesTrade Accounts Other Accounts Long-Term Current

2001 Receivable Receivable Debt Liabilities

CEPSA EE.SS. 230,563 100,039 - 262 CEPSA ELF GAS 5,549 78,570 - 9 CEPSA INTERNACIONAL 32,730 232,130 154,762 395,140 CEPSA LUBRICANTES 4,378 5,887 - 1,234 CEPSA PORTUGUESA 1,064 79,681 - 57 CIEPSA 204 - 24,124 - ERTISA 20,479 234 8,015 2,253 LUBRISUR 7,316 - - - INTERQUISA 7,449 - 7,100 10,346 INTERQUISA LP - 34,848 - 4 PETRESA 20,216 34,586 - 16,554 PROAS 37,042 1,798 16,134 27 Other companies 124,799 76,002 81,324 38,482 Total Group companies 491,789 643,775 291,459 464,368

CLH 1,695 10 - 168,524* Other companies 20,068 2,683 - 7,305 Total Associated companies 21,763 2,693 - 175,829

Other Associated entities 43 - 2,862 473

Total 513,595 646,468 294,321 640,670

* Including Eur 163,356 thousand relating to the excise tax on oil and gas accrued in December 2001 and paid by CEPSA to the Spanish Treasury in January 2002 through CompañíaLogística de Hidrocarburos CLH, S,A,

In 2001 and 2002 CEPSA carried out the following foreign currency transactions in the course of its ordinary commer-cial and financial operations (amounts expressed in equivalent euro value):

37C E P S A

Equivalent Value in Thousands of Euros

2001 USD GBP Other Currencies Total

Sales 2,142,640 16,415 4,775 2,163,830Purchases 435,897 491 1,323 437,711Services provided 2,102 - - 2,102Services received 138,910 5,914 2,152 146,976Financial revenues 8,756 339 95 9,190Financial expenses 25,742 186 10 25,938

Thousands of euros

Asset Balances Liability BalancesTrade Accounts Other Accounts Long-Term Currents

2002 Receivable Receivable Debt Liabilities

CEPSA EE.SS. 244,790 45,663 - 618CEPSA ELF GAS 8,507 105,885 - 352CEPSA INTERNACIONAL 111,927 306,897 201,760 476,974CEPSA LUBRICANTES 6,666 2,931 - 922CEPSA PORTUGUESA 692 92,182 - 524CIEPSA 141 - 25,635 - ERTISA 30,422 4,786 32,606 3,197LUBRISUR 9,900 - 10 225INTERQUISA 5,945 85,111 - 2,295INTERQUISA LP - 124,074 - 2PETRESA 39,442 65,890 - 44,232PROAS 36,660 1,839 9,406 3Other companies 123,218 105,579 111,917 25,467 Total Group companies 618,310 940,837 381,334 554,811

CLH 214 8,404 - 163,203*Other companies (**) 29,224 12,253 243 3,982 Total Associated companies 29,438 20,657 243 167,185

Other Associated entities 26,822 1 2,342 19,091

Total 674,570 961,495 383,919 741,087

* Including Eur 161,544 thousand relating to the excise tax on oil and gas accrued in December 2002 and paid by CEPSA to the Spanish Treasury in January 2003 through CompañíaLogística de Hidrocarburos CLH, S.A.

** This caption includes most notably the balances with TotalFinaElf Group

The breakdown of the extraordinary items in the 2001 and 2002 statements of income is as follows:

The “Gains on the Disposal of Tangible Fixed Assets and Control Portfolio” caption includes the gains of Eur 10,326 thou-sand and Eur 12,319 thousand on the sale of land and other fixed assets in 2002 and 2001, respectively (see Note 6). In2002 the gains on the shares of Compañía Logística de Hidrocarburos C.L.H., S.A and CMD Aeropuertos Canarios, S.Aamounting to Eur 70,823 thousand and Eur 9,636 thousand, respectively, were recorded (See Note 7).

In accordance with the accounting principle of prudence, CEPSA has recorded as “Period Provisions” the provisions it mayneed to meet expenses relating to exceptional commitments and liabilities arising from its relations with third parties andwith its employees (see Note 12).

The main item recorded under the “Expenses and Indemnities Arising From Claims” caption in 2002 relates to expensesarising from the damage caused as a result of the accident at the La Rábida refinery lubricant deasphalting plant amount-ing to Eur 11,606 thousand.The main item recorded under the “Revenues” caption were the indemnities of Eur 29,536thousand agreed on with the reinsurers of this accident, which also include indemnity for loss of profit.

The variations in intangible asset, tangible fixed asset and control portfolio allowances include the net value adjustmentsdetermined at the end of each year for the assets under these captions.Those for 2001 relate mainly to provisions record-ed for CEPSA’s long-term investments.The most significant provisions in 2002 relate to the adjustment of the value ofcertain refining installations and of CEPSA’s long-term investments. (see Notes 5, 6 and 7).

The “Other Items” caption groups together certain revenue and expense items of a very diverse nature which wererecorded as extraordinary items in 2001 and 2002.These include most notably the recording as a revenue of the result

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Thousands of euros

2002 2001Extraordinary Extraordinary Extraordinary Extraordinary

Expenses Revenues Expenses Revenues

Gains/losses on disposal of tangible fixed assets and control portfolio 1,001 90,780 1,668 14,317 Additions to provisions 37,921 - 9,054 - Expenses and indemnities arising from claims 12,681 30,447 2,727 107 Capital subsidies transferred to income for the year (Note 4-e) - 1,028 - 1,203 Variation in intangible asset, tangible fixed assetand control portfolio provisions 18,965 - 65,450 - Other items 1,289 8,365 (246) 11,241 Total 71,857 130,620 78,653 26,868

Equivalent Value in Thousands of Euros

2002 USD GBP Other Currencies Total

Sales 2,058,331 16,347 - 2,074,678Purchases 488,458 1,494 14 489,966Services provided 609 - - 609Services received 147,166 644 44 147,854Financial revenues 17,429 1,041 103 18,573Financial expenses 18,855 304 4 19,163

of an agreement with a fixed asset supplier amounting to Eur 5,895 thousand and Eur 4,316 thousand in 2001 and 2002,respectively; and the recovery in 2001 of the guarantee expenses of Eur 1,849 thousand obtained from the authorities,relating to a judgment handed down by the Supreme Court in relation to the oil and gas excise tax, for sales of heptanemade by the Company from 1981 to 1985.

18. EmployeesThe average number of employees in 2002 and 2001, by category, was as follows:

19. Information on the environmentThe environmental information for 2002 is as follows:

In accordance with the definition contained in an ICAC Resolution dated March 25, 2002, enacting the regulations for therecognition, valuation and disclosure of environmental matters in the financial statements, CEPSA classified the followingas environmental facilities: amine plant, sulfur I and II recovery plants, facility for the assimilation of used oils, torch and chim-ney systems, subsoil control network, drainage networks and waste water treatment plant at the Tenerife refinery; aminetreatment units, sulfur units (5), acid water lines, regeneration of chemical products, drainage, waste water plants and ad-joining facilities, inert gas outlets, underwater discharge outlet, environmental control networks, torch and chimney systemsat the Gibraltar refinery; and acid water stripper at the fuel plant, amine unit, sulfur units, drainage system, environmentalcontrol network, waste water treatment plants at the La Rabida refinery.

CEPSA considers that the objective of certain investments as those made in the hydrodesulfurization units is to adapt thegasoline and diesel specifications to market demand, for that reason these units have not been recorded as environmen-tal facilities although their aim is to reduce sulfur in these products in order to comply with European environmental leg-islation (since January 1, 2002, gasoline and diesel must contain less than 150 ppm and 350 ppm, respectively, of sulfur).

39C E P S A

Average number of employees2002 2001

Professional categoryManagement 76 76 Department heads 284 293 Technicians 1,045 1,048 Specialists / assistants 1,410 1,446 Total 2,815 2,863

Thousands of euros

Environmental investments Balance at Additions Retirements Balance atYear 2002 01.01.02 Provisions Amounts used 12.31.02

Environmental fixed assets 93,870 7,221 (876) 100,215 Accumulated depreciation of environmental fixed assets (46,592) (5,919) 76 (52,435)Total 47,278 1,302 (800) 47,780

Thousands of euros

Environmental provisions Balance at Provisions Amounts used Balance atYear 2002 01.01.02 12.31.02

Provisions for environmental contingencies and obligations 4,311 1,311 (286) 5,336 Total 4,311 1,311 (286) 5,336

The provisions recorded by CEPSA under the “Provisions for Contingencies and Expenses” caption relating to environ-mental matters include the provision for prevention of gradual land pollution, which is the only provision not covered bythe insurance policies taken out by the Company. In 2002 CEPSA adjusted the value of this provision by Eur 1,311 thou-sand.The amounts used in 2002 basically offset the extraordinary expenses arising from land treatment.

The “Other Services” caption includes mainly the expenses of Eur 3,053 thousand relating to the inerting of waste at theCompany’s facilities.The “Extraordinary Expenses” caption includes the expenses relating to the adjustment of items forwhich provisions were recorded, included in the “Provisions” column in the foregoing environmental provisions table.

20. Events subsequent to year-endAs of March 17, 2003, CEPSA, together with REPSOL-YPF and BP-OIL, has signed a purchase agreement for the sharesof Compañía Logística de Hidrocarburos CLH, S.A.

This sale, similarly to those having place in 2002, has been carried out in accordance with the stipulations of Royal-DecreeLaw 6/2000 on urgent measures to intensify competition in the goods and services markets. In order to attract new share-holders, these measures include, the restriction of individual holdings in CLH to a maximum of 25%, and the restriction ofjoint holdings in companies with refining capacity in Spain to 45%.

As a result of the aforementioned transaction, CEPSA, who owned 16.875% of the capital stock of Compañía Lógisticade Hidrocarburos CLH, S.A as of December 31, 2002, has disposed of 2.730% of its holding.The economic conditions aresimilar to those agreed upon in the transactions carried out in 2002 and CEPSA’s representation on CLH’s Board of Di-rectors will remain at 3 of a total of 20.

The first sale of crude oil from the Ourhoud field took place in January 2003, ahead of the estimated date. In March 2003,also a month ahead the estimated date, a production of 230,000 barrels a day has been reached, this being the maximumproduction agreed on with the Algerian Ministry of Energy.The average production of the whole unitized field in the firsthalf of March totaled 215,000 barrels a day.

40

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Thousands of euros

Environmental expenses 2002

Rent and royalties 43 Repairs and upkeep 3,578 Transport 81 Other services 3,946

Total outside services 7,648

Extraordinary expenses 1,345

Total environmental expenses 8,993

21. Statements of changes in financial positionThe 2001 and 2002 statements of changes in financial position are as follows:

41C E P S A

Thousands of eurosSource of funds 2002 2001

Funds obtained from operations 405,421 533,368

Capital subsidies and other deferred revenues 6,327 312

Long-term debtA) Debt securities and other similar liabilities - - B) Group companies 187,706 172,328 C) Associated companies 243 0 D) Other companies 254,445 286,148 E) Fixed asset and other suppliers 144 427

Fixed asset disposalsA) Intangible assets - 258 B) Tangible fixed assets 13,096 36,608 C) Long-term financial investments

1 Group companies 11,794 2,218 2 Associated companies 70,819 1,052 3 Other financial investments 3 6

Early amortization or transfer to short-term of long-term financial investmentsA) Group companies 65,395 60,877 B) Associated companies - 2,873 C) Other financial investments 4,618 721

Provisions for contingencies and expenses - 499

Total funds obtained 1,020,011 1,097,695

Funds applied in excess of funds obtained (decrease in working capital) - 57,709

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Thousands of eurosApplication of funds 2002 2001

Fixed asset additionsA) Intangible assets 233,950 291,395 B)Tangible fixed assets 90,843 99,930 C) Long-term financial investments

1 Group companies 293,974 357,782 2 Associated companies 7,639 18,655 3 Other financial investments 20,873 2,741

Deferred charges 2,100 319

Dividends 161,247 133,473

Repayment or transfer to short-term of long-term debtA) Debt securities and other similar liabilities - - B) Group companies 72,136 - C) Associated companies - - D) Other accounts payable 60,143 18,433 E) Fixed asset and other suppliers 23 200,648

Provisions for contingencies and expenses 64,217 32,028

Total funds applied 1,007,145 1,155,404

Funds obtained in excess of funds applied (increase in working capital) 12,866 -

22. Explanation added for translation to EnglishThese financial statements are presented on the basis of accounting principles generally accepted in Spain. Certain ac-counting practices applied by the Company that conform with generally accepted accounting principles in Spain may notconform with generally accepted accounting principles in other countries.

43C E P S A

Thousands of eurosFunds obtained from operations 2002 2001

Net income for the year 357,049 339,317 Period depreciation and amortization and fixed asset provisions 143,552 182,287 Amortization of expenses 2,107 1,629 Net provisions for contingencies and expenses 24,638 469 Losses on disposal of fixed assets 6 920 Gains on disposal of fixed assets (90,781) (14,845)Capital subsidies transferred to income (1,028) (1,202)Deferred interest (681) (234)Long-term exchange differences (9,047) 4,814 Deferred revenues of Associated companies (23) - Deferred corporate income tax (34,076) 5,277 Prepaid corporate income tax 13,705 14,936 Total 405,421 533,368

Thousands of euros

2002 2001Variation in working capital Increase Decrease Increase Decrease

1. Inventories 56,420 - 9,496 - 2.Accounts receivable 206,802 - - 339,758 3.Accounts payable - 241,760 263,171 - 4. Short-term financial investments - 8,211 10,800 - 5. Cash - 850 - 2,314 6.Accrual accounts 465 - 896 -

Total 263,687 250,821 284,363 342,072

Variation in working capital 12,866 - - 57,709

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Thousands of euros

Shareholders’ Equity

Capital Stock Reserves + Net Cost

Name Registered Offices Line of Business Holding (%) Suscribed Paid Income (loss) of Holding

ARAGÓN OIL, S.A. C/ Sanclemente 15, 1º Oficina, 1ª Drcha.

50001 ZARAGOZA. SPAIN Oil Trading 100% 300 300 729 820

ASFALTOS ESPAÑOLES, S.A. C/ Juan Bravo 3, Planta Baja Refining

(ASESA) 28006 MADRID. SPAIN for Asphalts 50% 8.529 8.529 8.963 8.578

ATLAS, S.A. COMBUSTIBLES C/ Playa Benitez s/n Bunkering

Y LUBRIFICANTES 51004 CEUTA. SPAIN Services 100% 3.930 3.930 7.915 4.077

C.M.D. AEROPUERTOS C/ San Lucas 6

CANARIOS, S.L. 38003 Santa Cruz de Tenerife Jet Fuel

( TENERIFE). SPAIN Distribution 60% 21.576 21.576 11.711 12.946

CEPSA AVIACIÓN, S.A. Polígono Industrial de Güimar

manzana XIV, parcelas 17 y 18

38509 Santa Cruz de Tenerife

(TENERIFE). SPAIN Oil Distribution 100% 954 954 12.245 956

CEPSA COLOMBIA, S.A. Avda. Ribera del Loira, nº 50

28042 MADRID. SPAIN Oil Exploration 100% 5.026 5.026 (10.395) -

CEPSA COMERCIAL MADRID, S.A. C/ Embajadores Final s/n

(CECOMASA) Apartadero Santa Catalina

28018 MADRID. SPAIN Oil Trading 100% 1.169 1.169 1.213 2.463

CEPSA ELF GAS, S.A. Avda. Ribera del Loira 50, 1ª planta Gas sale

28042 MADRID. SPAIN and Distribution 100% 36.752 36.752 12.635 42.012

CEPSA ESTACIONES Avda. Partenón 12, 2ª Sector B Service Station

DE SERVICIO, S.A. (CEPSA EE.SS.) 28042 MADRID. SPAIN Operation 100% 82.043 82.043 188.385 120.017

CEPSA INTERNATIONAL B.V. Riverstaete Office Building.

Amsteldijk 166, 2nd Floor 1079 LH

1007 MA AMSTERDAM. HOLLAND Oil Trading 100% 4.060 4.060 37.693 15.210

CEPSA ITALIA, S.p.A. Viale Milanofiori Palazzo A/6 Petrochemicals

20090 Assago- MILAN. ITALY Trading 100% 6.000 6.000 6.828 6.934

CEPSA LUBRICANTES, S.A. (C.L.S.A.) Avda. Ribera del Loira nº 50, 3ª planta Lubricants

28042 MADRID. SPAIN Trading 100% 15.000 15.000 20.662 15.025

CEPSA PANAMA. S.A. C/ 50 Edificio Banco Alemán 6º Piso Bunkering

Panama City. REPUBLIC OF PANAMA Services 67% 1.478 1.478 (833) 322

CEPSA PORTUGUESA Avda. Columbano

PETROLEOS, S.A. Bordalo Pinheiro 108, 3º

1070-067 LISBOA. PORTUGAL Oil Trading 96% 27.500 27.500 34.453 37.200

CEPSA UK, LTD. International Press Centre 76 Shoe Lane Petrochemicals

EC4A 3JB LONDON. UK Trading 100% 154 154 6.490 154

CEPSA VENTAS

DIRECTAS-DISTRIBUCIÓN, S.A. Avda. Partenón 12, 5ª Sector C

(CEPSA V.D.-D., S.A.) 28042 MADRID. SPAIN Oil Trading 100% 60 60 1.825 823

Table IBreakdown of the companies in which CEPSA had significant direct ownership interest,at December 31, 2002

45C E P S A

Thousands of euros

Shareholders’ Equity

Capital Stock Reserves + Net Cost

Name Registered Offices Line of Business Holding (%) Suscribed Paid Income (loss) of Holding

CEPSA, S.A. Avda. Partenón 12 Corporate

28042 MADRID. SPAIN Services 100% 61 61 24 61

COMPAÑÍA DE INVESTIGACIÓN Y

EXPLOTACIONES PETROLÍFERAS, S.A. Avda. Ribera del Loira 50, 2ª

(CIEPSA) 28042 MADRID. SPAIN Oil Exploration 100% 3.438 3.438 16.417 16.136

COMPAÑÍA LOGÍSTICA C/ Capitán Haya 41

DE HIDROCARBUROS CLH, S.A. 28036 MADRID. SPAIN Oil Trading 17% 84.070 84.070 164.075 37.750

DERIVADOS ENERGÉTICOS PARA

EL TRANSPORTE Y LA INDUSTRIA, S.A. Avda. Partenón 12, 1ª Sector A

(DETISA) 28042 MADRID. SPAIN Oil Distribution 100% 12.330 12.330 (6.886) 1.536

ENERGÉTICOS DE LA MANCHA,S.A. Ctra. C-415

(ENERMAN) Ciudad Real-Valdepeñas Km. 2,35

13001 Miguelturra

(CIUDAD REAL). SPAIN Oil Trading 100% 768 768 114 889

ERTISA, S.A. Avda. del Partenón 12, 2º D Manufacture and sale

28042 MADRID. SPAIN of Petrochemicals 100% 11.550 11.550 92.952 17.173

INTERCONTINENTAL QUIMICA, S.A. Avda. Partenón 12, 5ª Sector C Manufacture and sale

(INTERQUISA) 28042 MADRID. SPAIN of Petrochemicals 100% 25.865 25.865 155.530 50.111

LUBRICANTES DEL SUR, S.A. Avda. Ribera del Loira 50, 2ª planta Lubricants

(LUBRISUR) 28042 MADRID. SPAIN Trading 65% 6.102 6.102 12.317 12.243

PETROQUÍMICA ESPAÑOLA, S.A. Avda. Partenón 12, 5ª Sector A Manufacture and sale

(PETRESA) 28042 MADRID. SPAIN of Petrochemicals 100% 3.750 3.750 169.705 12.847

PLASTIFICANTES DE LUTXANA,S.A. La Florida, s/n.

(P.D.L.) 48930 Lutxana-Baracaldo Manufacture and sale

(VIZCAYA). SPAIN of Petrochemicals 100% 3.023 3.023 6.597 6.258

PRODUCTOS ASFÁLTICOS, S.A. Avda. Ribera del Loira 50

(PROAS) 28042 MADRID. SPAIN Asphalt Sales 100% 3.150 3.150 9.817 5.313

PROPEL-PRODUTOS Avda. Columbano

DE PETROLEO, L.D.A. Bordalo Pinheiro 108, 3º Service Station

1070-067 LISBOA. PORTUGAL Operation 93% 224 224 1.792 1.357

M A N AG E M E N T D I S C U S S I O N & A N A LY S I S

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02


Management Discussion & Analysis of 2002Compañía Española de Petróleos, S.A. (CEPSA)

A review of the operating environment in which CEPSA developed its businesses as well as an explanation of the com-pany’s upstream, downstream, wholesale, retail and supply businesses, financial operations and R&D activities can be foundin the Management Discussion & Analysis of the CEPSA Group.

Likewise, the analysis made therein of key developments that took place in the CEPSA Group subsequent to the end ofthe year and its future prospects and outlook are fully applicable to the parent company CEPSA.

ResultsCEPSA’s net sales and operating revenues in 2002, including the excise tax on oil & gas, amounted to 9,348 million euros.

As regards extraordinary income, which totaled 59 million euros, a large portion of this figure stems from the consecuti-ve sales made of CEPSA’s shareholdings in the logistics company CLH, totaling 8.2% of its share capital, as well as otherdivestments of non-strategic assets.The gross gains generated from these sales came to 90 million euros in the company’sincome statement.

After including the remaining cost and expense items, as well as the provision for corporate income taxes, CEPSA’s year-end profit came to 357 million euros.

Based on these earnings, the Board of Directors will bring a motion before the Annual General Meeting of Shareholdersto approve a dividend distribution of 0.69 euros per share, meaning an increase of 14.8% from the dividend paid out in2001. In November 2002, an interim dividend of 0.23 euros per share was distributed.The proposed dividend is equiva-lent to a pay-out of slightly over 40% of the CEPSA Group’s consolidated net income.Taking into account the average pri-ce of CEPSA’s shares in 2002 (16.58 euros, up 40.5% from the average price in 2001), this represents a yield of 4.2%.

47C E P S A

Translation of a report originally issued in Spanish. In the event of a discrepancy, the Spanish-language version prevails.

Financial and Equity PositionAt December 31, 2002, CEPSA’s total net assets amounted to 4,776 million euros, 2,662 million of which belonged tothe net value of long-term assets. At the end of said year, shareholders’ equity stood at 1,889 million euros.

Treasury Stock CEPSA and its Group of companies did not repurchase any shares of Compañía Española de Petróleos, S.A. in 2002, nordid they own any securities at year-end.

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Documents

CEPSA memo'02 ingles CEPSA · 2003. 5. 8. · CEPSA 7 Thousands of euros CREDIT 2002 2001 Revenues Sales and services on ordinary activities 7,296,884 7,565,819 Oil and gas excise