Consolidated management report 2008 - Repsol

Consolidated Management Report 2008 Repsol YPF

Economic-Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145

Business Areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150

Upstream(ExplorationandProduction) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150

LiquefiedNaturalGas(LNG) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153

Downstream(Refining,Marketing,LPG&Chemicals) . . . . . . . . . . . . . 156

YPF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159

GasNaturalSDG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162

Corporate Areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164

HumanResources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164

InnovationandTechnology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167

SafetyandtheEnvironment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168

KnowledgeandManagement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170

Quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171

CorporateResponsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172

Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174

BrandingPolicy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175

SportsSponsorship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .176

Suplementary content of Management Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .177

New Repsol Headquarters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181

CoNSoLIDaTEDMaNaGEMENTREPoRT

MaCRoECoNoMICENvIRoNMENT

1 Economic-Financial Information

1.1 Macroeconomic environment

Theyearended31December2008wasmarkedbytheglobaleconomiccrisisanduncertain-ties .Economicgrowthhadstartedtoslowdowninthefirstquarterof2007duetoturbulenceinthefinancialsystem,which,atfirst,affectedstructuredcreditmarketsandtheirfundingrequirements, intensifying subsequently and generating tensions in the creditmarket be-yondtheissueofsubprimemortgages .Thefinancialcrisisbecamemoretoxicin2008andmarkets entered a vicious cycle of deleveraging and declining asset values, affecting therealeconomybecauseofthesignificantlossofconfidence,leadingtoarecessioninmajoradvancedeconomies .

In its January 2009 report, the InternationalMonetary Fund (IMF) estimated that globalgrowthin2008haddeclinedto3 .4%incomparisonwiththe5%growthrecordedinrecentyears .Growthinadvancedeconomieswasweakerin2008,approximately1%(2 .7%in2007),andemerginganddevelopingeconomiesgrew6 .3%, showing strongperformancealbeitlower thanthe8 .3%growthrecorded in2007 .Thesefiguresshowthat the impactof thefinancialcrisisonmaturemarketswasmoreintensethanonemergingoneswhichdemon-stratedgreatresistanceuntilthelastquarteroftheyearwhenfinancialtensionspeakedasLehmanBrothers,theU .S .investmentbank,declaredbankruptcy .

anotherimportantfactorinthecontextofthe2008macroeconomicscenariowasthesharprise in inflationupuntil the thirdquarter,whereafter it fell sharply,principallyasaconse-quenceoftheevolutionofrawmaterials,oil,andcerealsprices .oilpricesin2008continuedtheupwardtrendthatbeganin2002 .TheaveragepriceofBrentwasUS$97vs .72recordedin2007;althoughitwashighlyvolatilereachingamaximumofUS$133inJuly2008andthenplungingtoamonthlyaverageUS$40inDecemberbecauseoftheslumpinglobaleconomicactivity .

Theoilmarketin2008wasextremelyvolatile .Pricesinthefirstpartoftheyearfollowedtheupwardtrendinplacesincethestartof2007,continuingtoclimbfromtheaverageUS$92/barrelinJanuaryreachingarecordhigh,innominalandactualterms,inearlyJulywhen,inthespecificcaseofWestTexasIntermediate(WTI)pricespeakedatmorethanUS$145/bar-rel .variousfactorswereresponsibleforthisrise,suchas:inelasticdemand,particularlyincountriesnotmembersoftheorganizationforEconomicCo-operationandDevelopment(oECD); theuncertainty onwhether supplywouldbe able tomeetdemand in the short,medium,andlongterm;andthedevelopmentofafinancialmarketthatwassignificantlycommodity-leveraged .Theturningpointcameinaugustwhenthefinancialcrisisspreadtooilmarketsthrough:reduceddemandinviewofthemacroeconomicoutlook;anddeleverag-inginthefinancialmarket .oilpricesfelltolevelsnotseensince2004,averagingUS$99 .45/barrelattheendof2008 .

Themoderation in inflation, registeredasofaugust2008,becauseofweakdemandandlowercommodityprices,enabledcentralbankstotakecoordinatedaction,drasticallyreduc-inginterestratesandinjectingliquidity .Governmentsintervenedprovidingpublicfundstorecapitalisebankingentitiesandtopurchaseso-calledtoxicassets,alsocoordinatingmajortaxstimulusmeasurestomitigatetheadverseimpactofthefinancialcrisisanditseffectsontherealeconomy .

IntheUnitedStates,GDPin2008grew1 .1%,downfromthe2%recordedin2007 .Thecrisis,whichwasinitiallyconcentratedinthehousingsector,spreadtothemanufacturingindustryandisintenselyaffectingprivatespending .

TheEurozone,whichshowedpositiveperformanceinthefirsthalfof2008,wasalsoseverelyaffectedbythefinancialcrisisinthesecondpartoftheyear,andaveragegrowthfellfrom2 .6%in2007to1% .

InSpain,theinternationalfinancialcrisisaggravatedtherealestatemarketcorrectionthatstartedin2007 .Thisscenarioadverselyaffecteddomesticdemandand,asaconsequence,GDPatyear-end2008stoodat1 .2%comparedto3 .7%inthe lastdecade, followingtwoquartersofaneconomicdownturn,somethingwhichhadnothappenedin15years .

Latinamericain2008benefittedfromhighrawmaterialspricesinthefirsthalfoftheyearandgreatermacroeconomicstability,recordingnearly4 .6%economicgrowth,onepercent-agepointlessthanin2007 .Nevertheless,thefinancialcrisisalsoaffectedthelastpartof2008becauseofthedeleveragingprocess,againstabackdropofgrowinguncertainties .

1.2 Results

at€2,711million,RepsolYPF’snetincomein2008was15%belowtherecordfigurepostedin2007 .operatingincomewas€5,083millionincomparisonwiththe€5,808millionpostedayearearlier .Earningspersharewere€2 .23 .

Theyear2008wasmarkedbyhighoilpricevolatilityandtheaveragedepreciationofthedol-larduringtheyear .ThepriceofBrentoilpeakedatUS$145perbarrelinJulyandthenstartedtodeclineuntilreachingUS$41bytheendoftheyear .

operatingincomeintheUpstreambusiness(ExplorationandProduction)wasup20%to€2,258millionreflectinghigheroilbenchmarkprices .

LiquefiedNaturalGas(LNG)revenuesrose17%to€125milliondrivenbyincreasedactivityandhigherpricesofthemaincommoditiesandintheSpanishelectricitypool .

IncomeintheDownstreamarea(Refining,Marketing,LiquefiedPetroleumGas,andChemi-cals)onceagainshowedRepsolYPF’sleadershipinthisbusiness .operatingincomeintheyearreflectedtheyear-on-yearimprovementinrefiningmarginsalthoughthisbusinesswasnegativelyaffectedbythesharpcontractionoftheChemicalbusinessin2008becauseoftheglobaleconomicslump .

operatingincomeinRepsolYPFassociateswas€1,159million,5 .6%lessthanin2007 .High-erpricesintheargentineanmarketoffsettheriseincosts,thedropinexportsandinthechemicalbusiness,andthedepreciationofthepeso .at€555million,operatingincomeinGasNaturalSDGincreased7 .6% .Thisgrowthisattributabletohigheryear-on-yearaverageelectricitypricesinSpain,theincreaseinelectricitygeneration,theincorporationofthepowerbusinessinMexico,andenhancedperformanceinthegasbusiness,particularlyinregulateddistributioninBrazilandingasprocurementandmarketinginderegulatedmarkets .

RepsolYPFGroup’sfinancialresultin2008amountedto€372millionandincometaxac-cruedin2008totalled€1,940million,withtheeffectivetaxrateat41 .2% .

repsol ypf income statement MillionsofEuros

2007 2008

operating income 5,808 5,083

Upstream 1,882 2,258

lng 107 125

Downstream 2,204 1,111

ypf 1,228 1,159

Gas Natural sdg 516 555

Corporate and other (129) (125)

financial result (224) (372)

profit before tax and share in results of companiesaccounted for using the equity method

5,584 4,711

Income tax (2,338) (1,940)

Share of results in companies accounted for using the equity method 109 66

net income for the year 3,355 2,837

Net income attributable to minority interests (167) (126)

net income attributable to the parent 3,188 2,711

1.3 Financialoverview

Despite the difficultmacroeconomic scenario, Repsol YPF’S financial position remainedstrongattheendof2008 .Financialdebtstoodat€3,334million,€159millionlessthanattheendof2007 .Thisdebtreductionwasachievednotwithstandingtheproportionateconsolida-tionofGasNaturalSDG’snetdebtwhichincreasedduringtheyearmainlybecauseofthepartialacquisitionoftheelectricutilityUniónFenosa .

ExcludingGasNatural,netdebtfellby€488millionthankstothevolumeofgeneratedEBIT-Da,whichexceededtheamountofnetinvestments,dividendpayments,andtaxliabilities .

Theyear-on-yearappreciationofthedollarin2008increasedthenominalamountofnetdebt,mostofwhichisdenominatedinthiscurrency,by€179million .

TheStrategicPlan2008-2012,approvedbyRepsolatthebeginningoftheyear,servedastheguidelinefortheinvestmentsmadeintheyear .Thecompanyinvested€5,586millionin2008,mostofwhichamountwasspentindevelopingtheShenziexplorationwell intheUnitedStates,theconstructionoftheCanaport(Canada)regasificationplant,thePeruLNGproject,andexplorationactivity .Expendituresinclude€517millionforthepartialacquisitionofUniónFenosabyGasNaturalinJuly2008 .otherexpenditureswereearmarkedforongoingrefiningprojects,forupgradingoperationsandinstallations,safetyandtheenvironment,fuelqual-ity,andconversion .TheFinalInvestmentDecision(FID)fortheCartagena(Spain)refineryenlargementprojectwasmadein2008 .

Divestmentsintheyeartotalled€1,721million .on21February2008,Repsolsolda14 .9%stakeinYPFtothePetersenGroupforUS$2,235M,providingthepurchaserwithavendorloanintheamountofUS$1,015M .ThePetersenGroupwillbeabletoincreaseitsstakeinYPFbyanadditional10 .1%throughacalloptionwithinamaximumperiodoffouryears .ThisGroupalreadyexercisedanoptionforanadditional0 .1%stake .

In2008andaspartofitsnon-coreassetdivestmentstrategy,theCompanysolditsservicestationnetwork inEcuadorandBraziland its interest in theManguinhosrefinery,also inBrazil .

In2008,Repsolpaiditsshareholders€1,608millionindividends,ofwhichamount€1,221millionwerechargedto2007results(39%higherthanthepreviousyear’sremuneration) .Theremainingsumrelatestodividendspaidtominorityshareholdersofsubsidiarycompa-nies,principallytothePetersenGroup .

Withregardstotransactionsinvolvingownshares,theannualGeneralMeeting,on14May2008,resolvedtograntauthorizationtotheBoardofDirectors“forthederivativeacquisitionofsharesofRepsolYPF,S .a .bypurchase,exchange,oranyotheronerouslegalbusinessmodality,directlyorthroughcontrolledcompanies,uptoamaximumnumberofsharesthat,addedtothosealreadyheldbyRepsolYPF,S .a .anditssubsidiaries,donotexceed5%ofsharecapitalandforapriceorequivalentvaluethatmaynotbelowerthanthenominalvalueofsharesnorexceedthequotedpriceonthestockmarket .”

This authorization is valid for 18months reckoned from the date of the annualGeneralMeeting,renderingnullandvoidtheauthorizationgrantedbythepreviousordinaryannualGeneralMeetingheldon9May2007 .

accordingly, in 2008, Repsol acquired 12,924,428 own shares representing 1 .06% of theCompany’ssharecapital foratotalsumof€261 .73millionandanominalvalueof€12 .92million .Inaddition,Repsolsold695,000ownshareswithanominalvalueof€0 .69millionandaneffectivesumof€17 .50million .at31December2008,Repsolheld12,229,428ownshares .

Financial prudence

Inkeepingwithitsprudentfinancialpolicy,RepsolYPFholdsasignificantvolumeoffinancialinvestmentsincludedinthecaptionslistedunderNote15oftheannualReportas“otherfinancialassetsatfairvaluethroughprofitsorloss”,“Loansandaccountsreceivables”and“Held tomaturity investments” for an amount of€4,625million ofwhich,€4,452millioncorrespondtoRepsol,excludingGasNatural .TheGroupalsohasundrawncreditfacilitiesamountingto€3,916million,ofwhich€3,496millioncorrespondtoRepsol,excludingGasNatural .

Consequently,netdebtandthenetdebt/capitalemployedratio,inwhichcapitalemployedreferstonetdebtplusnetequity,providesatrueandfairviewofthevolumeofnecessaryborrowingsandtheirrelativeweightinginthefundingofcapitalemployedinoperations .

at31December2007,thenetdebttocapitalemployedratiostoodat11 .9%,2 .9pointslowerthanatyear-end2007 .Takingpreferredsharesintoaccount,thevariationinthisratiowasfrom26 .4%at31December2007to24 .4%atthecloseof2008 .

breakdown of net debt MillionsofEuros

net debt at the start of the period 3,493

Ebitda (8,160)

Variation in working capital (1,187)

Investments 5,586

Divestments (1) (1,721)

Dividends (including affiliates) 1,608

Translation differences 179

Taxes paid 2,399

Other movements 1,137

net debt at the close of the period 3,334

(1)Thedivestmentfigureincludes€690millioninconnectionwiththeloangrantedtothePetersenGroupaspartofthesaleofa14 .9%stakeinYPFon21February2008 .Moreover,itdoesnotreflectdivestmentsoflong-termfinancialinvestments(€14million)sincethisdoesnotaffectthevariationinnetdebt .

Thefollowingtabledescribesthecalculationofreportednetdebtonthebasisofbalancesheetinformationcontainedintheconsolidatedfinancialstatements .

MillionsofEuros

2007 2008

Non-current financial liabilities 10,065 10,315

Less: preference shares (See Note 19) (3,418) (3,524)

Current financial liabilities 1,501 1,788

Non-current financial assets (1,650) (2,466)

Less: financial assets available for sale (See Note 15) 138 881

Other current financial assets (266) (494)

Cash and cash equivalents (2,585) (2,891)

Hedging derivative instruments on interest rate (See Note 38) (292) (275)

Netfinancialdebt 3,493 3,334

Preference Shares (See Note 19) 3,418 3,524Netfinancing(*) 6,911 6,858

(*)Inaddition,€721millionand€632millionarerecordedat31December2008and2007undertheheading“othernon-currentliabilities”and€31millionand€61millionundertheheading“othercreditors”relatingtofinancialleasesmeasuredatamortizedcost(SeeNote23) .

Notestothe2008consolidatedfinancialstatements .

Management of financial risks and definition of hedging

TheorganizationandsystemsatRepsolYPFenabletheCompanytoidentify,measure,andcontroltherisksassociatedwiththefinancialinstrumentstowhichtheGroupisexposed .TheGroup’sactivitiesinvolveseveraltypesoffinancialrisks:

Liquidity Risk

TheliquidityriskisassociatedwiththeGroup’sabilitytofinanceitscommitmentsatreason-ablemarketpricesandtoexecuteitsbusinessplanswithstablefundingsources .

RepsolYPFappliesaprudentpolicywithrespecttoliquidityrisk,keepingsufficientresourcesavailableincashandotherliquidfinancialinstrumentsandundrawncreditfacilitiestomeetthematuritiesofdebtfallingduewithinatwelve-monthhorizon .TheGrouphadundrawncredit facilities totalling€3,916millionand€4,132millionat 31December2008and2007,respectively .

Credit RiskTheGroup’screditriskexposuremainlyrelatestocommercialdebtsfromtradingtransac-tions .Theseamounts,whichtotalled€5,758millionand€7,103millionat31December2008and 2007, respectively, are recorded in the balance sheet net of allowances for doubtfulaccountsandaremeasuredandcontrolledperclientorper individual thirdparty .Tothispurpose,theGrouphasitsownsystems,alignedtobestpractices,forconstantlymonitoringthecreditworthinessofall itsdebtorsandfordeterminingtherisk limitsperthirdparties .Noneoftheclientsaccountformorethan4%ofthetotaloftheseaccountspayableandassuch,exposureisspreadoveralargenumberofclientsandothercounterparties .

onageneralbasis,theGroupconsidersbankguaranteesissuedbyfinancialentitiesasthemostsuitableinstrumentforcreditriskprotection .Incertaincases,theGrouphastakenoutcreditinsurancepoliciesthroughwhichittransferstothirdpartiestherisksassociatedwiththetradeactivitiesconductedbysomeofitsbusinessunits .

at31December2008,theGroup’sguaranteesinforcegrantedbythirdpartiestotalled€2,460million,havingexecuted€10millionofsuchguarantees .at31December2007, thisfigurestoodat€1,949million,with€19millionworthofguaranteeshavingbeenexecuted .

Note5of theconsolidatedfinancialstatementsprovidesadditionaldetailsontherisksas-sociatedwiththefinancial instrumentsusedbytheGroupandNote38describeshedgingfinancialinstruments .

1.4 BusinessRiskfactors

RisksrelatedtofactorsthataffecttheGroupexclusivelyorexternalfactorsaffectingallcompa-niesintheindustryarepartoftheenvironmentinwhichtheRepsolYPFGroupconductsitsactivities .TheseriskscouldhaveanimpactontheCompany’sbusiness,operations,resultsandfinancialsituation .Futurerisks,unknownatpresentornotconsideredrelevant,couldalsoaffecttheCompany’sbusiness .

Currency riskIncome from operations is exposed to currency exchange fluctuations, mainly the dollaragainsttheeuro,sincemostoftheGroup’srevenuesandpartofitsexpensesaredenomi-natedindollarsoraredollar-indexed .Inordertomitigatetheriskofthedollarcomponent,RepsolYPFhedgesthisriskbytakingoutcurrencyoptions .

The company is alsoexposed to currency risk affecting the valueof its assetsorfinancialinvestmentsindollars .MostofRepsolYPF’Sfinancingisindollars,eitherdirectlyorsyntheti-callythroughcurrencyderivatives .

Commodity price riskIn thenormalcourseofoperationsand tradingactivities,RepsolYPFGroupearningsareexposedtovolatilityinthepriceofoil,naturalgas,andrelatedderivativeproducts .

Interest rate riskThemarketvalueoftheGroup’snetfinancingandnetinterestexpensescouldbeaffectedbyinterestratefluctuations .

Regulatory risksTheoil andgas industry is subject towidespreadgovernment regulationand interventionsuchasthoserelatedtoexplorationandproductionpermits,specificcontractualobligationsfordrillingandexplorationactivities,productionrestrictions,pricecontrols,assetdivestments,currencycontrols,andnationalization,expropriation,orthecancellationofcontractualrights .TheseregulationsandlawsapplyvirtuallytoallRepsolYPFoperationsinthecountrieswhereitconductsitsactivities .Furthermore,theselawsandregulationscouldchangeinthefuture .

Furthermore,theRepsolYPFGroupissubjecttoincreasinglystringentenvironmentalrequi-sitesinpracticallyallthecountrieswhereitoperates .Theseaffectthecompany’soperationsinrelationtoissuessuchastheenvironmentalqualityofitsproducts,emissionstoair,climatechange,discharges intowater, andmanagementofundergroundwater resources, aswellasinrelationtothegeneration,storage,transport,treatment,andfinaldestinationofwaste .Theserequisiteshaveandwillcontinuetohaveasubstantial impactonRepsolYPF’sbusi-ness,itsfinancials,andincomefromoperations .Consequently,thecompanyhasmadeandwillcontinuetomakethenecessaryinvestmentstocomplywiththeserequisites .

2 Business Areas

2.1 Upstream(ExplorationandProduction)

Results

operatingincomeintheUpstreamdivisionin2008was€2,258million,20%higherincom-parisonwiththe€1,882millionpostedayearearlier .EBITDaamountedto€2,864and€2,631in2008and2007,respectively .Enhancedearningsperformancewasmainlydrivenbyrev-enuegrowthonthebackofhigherrealizationprices .

The average retail price of theRepsol oil productmixwasUS$ 87 .3/barrel (€59 .3/barrel)versusUS$61 .5/barrel (€44 .8/barrel) in2007 .TheaveragepriceofgaswasUS$4 .2perthousand cubic feet, 37% higher year-on-year . These increases were driven by higher oilbenchmarkprices in internationalmarkets .oilplayedamajorrole inthe2008economicscenario .afterstartingtheyearathighlevels,thepriceofoilcontinuedtoclimbuntilreach-ingarecordUS$147/barrel,fallingsharplythereafteruntilitreachedlessthanUS$40/barrelinDecember .

TheliftingcostwasUS$2 .24/barrel,1 .8%higherthanUS$2 .20/barrelin2007 .DecreasedproductionlargelybecauseofthedeconsolidationofandinainBoliviaandthecessationofoperationsinDubaiwerebehindthisdrop .FindingcostsofprovedreservesaveragedUS$10 .9/barrelinthe2003-2008period .

Main activities by countries

Majorstridesweremadein2008intheconsolidationprocessoftheUpstreambusinessinkeyregionsfortheCompany,suchastheGulfofMexico(UnitedStates),Brazil,Peru,Northafrica,andTrinidadandTobago .TobolsterRepsol’sdefineddiversificationandgrowthstrat-egyforoECDcountries,thefirststepsweretakenin2008towardsthestartofoperationsinCanadaandNorway .Theobjectiveistoensureorganicgrowthbymaximisingassetprofit-abilityandboostingproductionandreservesoverthe2008-2012period .

United States

overthepastthreeyears,RepsolhassignificantlystrengtheneditspresenceindeepwatersintheU .S .GulfofMexico,participating inthemajorShenzioildevelopmentprojectandsecuringa largenumberofexplorationblocks .Thisregion isconsideredoneof themostprofitableandoffersthegreatestdeepwaterexplorationpotentialintheworld .

TheCompanyholdsa28%interestintheShenzifield,oneofthelargestdeepwaterdiscover-iesmadetodateintheGulfofMexico,currentlyinthefinaldevelopmentphase .Theprojectisprogressingasscheduledandproductionisexpectedtocomeonstreaminsecondquarter2009 .

Inearly2008,Repsolwasawarded32newexplorationblocksinExplorationRound206intheGulfofMexico,which, togetherwithothersawarded in recentyears,compriseaverysolidexplorationprojectportfolio .TheCompany’sparticipationintheseroundsispartofitsstrategyfordiversificationandgrowthinoECDcountries .

Africa

RepsolhasasignificantpresenceinNorthafrica,mainlyconcentratedinLibyaandalgeria,countries where it has twomajor ongoing projects that ensure sustained and profitablegrowthoverthecomingyears .

InLibya,inJune2008the“I/R”fieldintheprolificMurzuqbasininBlocksNC186andNC115cameonstream .Repsolparticipatesinbothoftheseblocks .Discoveredin2006,the“I/R”fieldisoneoftheCompany’smostimportantexplorationdiscoveriesinitshistoryandthemostimportantoneinLibyainthelastdecade .Withaproductionpotentialof90,000bar-rels/day,developmentofthisfieldwillgiveamajorboosttotheCompany’sreservesandproductioninthiscountry .The“I/R”fieldisoneofthe10keyprojectsdefinedinRepsol’sStrategicPlan2008-2012 .

attheendof2008,theLibyanNationaloilCompany(NoC)authorizedthedevelopmentplanssubmittedforthe“J”and“K”fieldsinblockNC186(Repsol,Total,oMv,andStatoil-Hydro) .Thedevelopmentplanforfield“E”inblockNC-200(RepsolandoMv)shouldbe

UPSTREaM

approvedinthefirsthalfof2009,therebyenablingthestartofproductionofthesethreenewfields .Inaddition,anewexplorationdiscoverywasmadein2008inblockNC186withtheY1explorationwell .

on17July,RepsolandNoC,theLibyannationaloilcompany,executedanagreementthatex-tendsthetermoftheoilexplorationandproductioncontractsinthiscountryuntil2032 .ThenewagreementextendsthetermofthecontractsforblocksNC115andNC186intheprolificMurzuqbasin,until2032 .Thisimpliesa15-yearextensionofthetermoftheBlockNC115con-tractandanotherfivetonineyears,dependingonthefields,ofthecontractforBlockNC186 .TheagreementensuresRepsol’sexploitationoftheabundantresourcesdiscoveredinbothblocks,whichexplorationlicenseswerealsoextendedforanadditionalfiveyears .

Twonewgasdiscoveriesweremadeinalgeriain2008intheRegganebasininblock351c-352coperatedbyRepsol .Thesediscoveriesareinadditiontothosemadeinthesameblockinpreviousyears .Sonnatrach’s“DeclarationofCommerciality” (DoC),expected tobese-curedin2009,willmakeitpossibletostartthedevelopmentofthismajorgasproject .Twootherdiscoveriesweremadeinthiscountry intheM’Sariakabliblock inwhichRepsol isalsotheoperator .

Latin America

Brazil isoneof theprincipalareas forRepsol’s futuregrowth .With21explorationblocks(operatorin11ofthese)RepsolistheleadingprivatecompanyinoffshoreminingrightsintheSantos,Campos,andEspírituSantobasins .

Repsolholdsa10%interestinthealbacoraLestefield(Santosbasin),whichhasbeenpro-ducing since april 2006 .output in thismajor deepwater field in Brazil reached approxi-mately 140,000barrels/day in2008 . Ithasmore than400millionbarrelsofprovedandprobableoilreserves .

anewmajordiscoverywasmadeinsecondquarter2008inBraziliandeepwatersinblockBM-S-9intheSantosbasinwiththeGuaráprospect .ThisfindingisinadditiontotheonemadeintheCariocafield,situatedinthesameblock,attheendof2007 .accordingtopre-liminaryappraisals,bothfieldsofferenormouspotentialofhighqualityoilresources .ThisBrazilian offshore area is considered one of themost promising and offers the greatestpotentialintheworld .

TheexplorationdiscoveriesinblockBM-S-9bolsterthecompany’sstrategyinoffshoreBrazilandrepresentoneofthekeygrowthprojectsinUpstream .Twoadditionalwellswillbedrilledinthisblockin2009 .

InBolivia,anagreementwasexecuted inMay2008with theBoliviancompanyYPFB forthesaleofa1 .08%stakeinandina .Followingthistransaction,theshareholderstructureofandinaisbrokendownintoYPFB(51 .08%)andRepsolE&PBolivia(48 .92%) .Inaddition,aShareholders’agreementwasexecutedinoctober2008thatwillgoverntheoperationsandmanagementofthiscompany .ThisagreementcameintoforceinNovember2008 .

InTrinidadandTobago,Repsolisoneoftheleadingprivatecompaniesintermsofoilandgasproductionandreserves,jointlywithBP,withwhichitsharesownershipofbpTT .Thiscompany,inwhichRepsolholdsa30%stake,operatesalargeoilandgasproductionareain the country’s offshore . Its output in 2008 averagedmore than 460,000 barrels of oilequivalent .

TheTeakBlowDowngascompressionproject,fordomesticsales,wascompletedinfourthquarter2008,boostinggasproductionby700 .000m3/dayasofJanuary2009 .

ThebpTTfields,MangoandCashima,whichstartedproductioninfourthquarter2008,con-tributedtoincreasingoutputin2008,supplyinggastotrain4attheatlanticLNGliquefac-tionplantinwhichRepsolholdsa22 .22%stake .

InPeru,theworkforthecompletedevelopmentoftheCamiseafield(blocks56and88),inwhichRepsolholdsa10%interest,wasongoing .TheseblockswillsupplynaturalgastothefuturePeruLNGprojectliquefiednaturalgasfacilitythatisexpectedtocomeonstreamin2010andinwhichRepsolholdsa20%stake .Twofieldsarebeingdevelopedinblock88,SanMartín(producingsince2004)andCashiriari,andproductioninthePagorenifieldinblock56cameonstreaminSeptember2008 .

alsoinPeru, inJanuary2008RepsolmadeamajorexplorationdiscoveryattheKinteroniwellinblock57,locatedintheUcayali-MadredeDiosbasininthecountry’scentralforest,50kmfromtheCamiseagasandcondensatefield .ThepresenceofgasandcondensateintheKinteronifieldwasconfirmedanditssignificantresourcepotentialiscurrentlybeingap-praised .Repsol,witha53 .84%stake,istheoperatorofthisblock .

InColombia,theCapachosSurfield,intheCapachosblock,startedproducinginapril2008 .Repsolholdsa100%stakeinthis259km2blocksituatedintheLlanosbasin .

Alaska and Canada

Infirstquarter2008,Repsolwasawarded93blocksinalaskainexplorationround193 .Theseoffshoreblocks,intheChukchiSea,extendoveranareaof2,139km2 .Thecompany’sobjec-tiveistocreatealargeprojectportfoliointhisalmostunexploredareawithhugepotentialofundiscoveredresources .Tothisend,inJuly2007theRepsolhadreachedanagreementwithShelloffshoreInc .andEniPetroleumUSLLCtoexplore71adjacentoffshoreblocksinBeaufortSea,northoftheprolificPrudhoebasinandtheKuparukoilfields .Repsolholdsa20%stakeintheseblocks .

InCanada,attheendof2008RepsolsuccessfullybidforexplorationrightsinthreeblocksintheNewfoundland(Terranova)andLabradoroffshoreareas .TwooftheseblocksareintheCentralRidge/FlemishPassareaandtheotheroneinJeanned’arcBasin .Repsol’spartnersintheseblocks,withatotalsurfaceareaof4,000km2,aretheCanadiancompaniesHuskyoilandPetro-Canada .Theawardedminingrightsmarkanotherstep forward in thecom-pany’splanstoincreaseitspresenceinoilandgasexplorationandproductionactivitiesinoECDcountries .

Europe

InNorway,andinkeepingwiththediversificationandgrowthstrategyinoECDcountries,anagreementwasexecutedinSeptember2008withNorway’sDetNorskeoljeselskapaSa(DetNorske)forjointlystudyingtheareasputouttotenderinExplorationRound20 .Repsolholdsa40%interestinthisprojectwithDetNorskeholdingtheremaining60% .InNovem-ber, thecompaniessubmitteda jointbid for fourblocks .Repsolalsosubmittedabid for100%ofanotherthreeblocks .Theresultsofthisroundwillbeannouncedin2009 .

Inoctober2008,alsoinNorway,Repsol,jointlywithDetNorske,Bayerngas,andSvenska,bidforfourblockssituatedbetweentheNjordandDraugen(NorwaySea)fields,inRoundaPa2008(awardofPredefinedareas) .Theoutcomewillbeannouncedin2009 .

Discoveries

Repsolmade10newexplorationdiscoveriesinBrazil,Peru,algeria,Colombia,andLibyain2008 .

InJune2008,RepsoldiscoveredaseconddeepwateroilfieldintheSantosbasin,Brazil .Thenewfield,knownasGuará,issituatedinblockBM-S-9andisadjacenttotheCariocafield,alsointhisblock,discoveredattheendof2007 .Bothfieldscouldcontainenormoushigh-qualityoilresources,accordingtopreliminaryappraisals,andconfirmthisbasinasoneofthedeepwaterareaswiththegreatestpotentialworldwide .

Thepresenceoflightoilwithadensityofapproximately28ºaPIwasfoundinthenewfield,discoveredbyaconsortiumformedbyPetrobras(45%andtheoperator),BG(30%),andRepsol(25%)at310kmoffthecoastoftheStateofSaoPauloatadepthof5,000metresinmorethan2,000metresofwater .

Repsolanditspartnersintheblockwillcontinuecarryingouttheactivitiesandmakingthenecessary investments in 2009 in order to determine the size of theCarioca andGuaráoilfieldswithgreaterprecisionandtodefinethe futuredevelopmentplan .Twoadditionalwellswillbedrilledin2009andproductiontestswillbeconductedintheGuaráwell .De-velopmentofthesedeepwaterprojectsintheSantosbasinisoneofthetenkeyinitiativescontemplatedbyRepsolinitsStrategicPlan2008-2012 .

InBrazil,twoothermajordeepwatergasdiscoveriesweremadeatthebeginningof2009inthePialambaandPanoramixfieldsinSantosbasin .

InPeru,asignificantexplorationdiscoverywasmadeinJanuary2008inblock57inCuzcoprovinceattheKinteroniexplorationwell .Repsol,witha53 .84%stake,istheoperatorintheconsortiumthatwillexploitthefield(Petrobrasholdstheremaining46 .16%stake) .Prelimi-naryproductiontestsyieldedflowsofonemillioncubicmetresofgasperday(0 .365bcm/year)and198cubicmetresperdayofassociatedhydrocarbonliquids(72,270m3/year) .Inordertodefineacommercialanddevelopmentplanforthisdiscovery,a3Dseismiccam-paignwillbeconductedattheKinteronistructureandseveralappraisalandexplorationwellswillbedrilledintheblock .Thisshouldenableamorepreciseassessmentofthediscoveredresources,whichhavebeenpreliminarilyestimatedatapproximately2TCF(56bcm) .

Kinteroni,nexttotheCamiseagasfieldinblocks56and88andinwhichRepsolhasa10%stake,willsupplygastooneofthecompany’smajorLiquefiedNaturalGas(LNG)projects:PeruLNG .

LIQUEFIEDNaTURaLGaS

Inalgeria,twonewexplorationdiscoveriesweremadewiththeaZSE-2(azrafilSE)andKLS-1(KahloucheS)wellsinblock351c-352c(RegganeNord),intheRegganebasin .Repsol,witha33 .75%stake,istheoperatoroftheconsortiumjointlywithalgeria’sstate-ownedSonatrach(25%),Germany’s RWEDea (22 .5%) and Italy’s Edison (18 .75%) . Situated in the central-southernpartofthealgerianSaharaDesert,theblockextendsoveralarge4,682km2area .Thisdiscoveryisinadditiontoanotherfourmadeinthesameblockinearly2005(withtheReggane5),2006(withtheSali1andKahlouche-2wells)andthelastdiscoverymadein2007(withtheReggane6well) .

In thisNorthafricanCountry, twootherexplorationdiscoveriesweremade in theM’SariakabliblockwiththeTGFo-1andoTLH-2(ouedTalha)wells .Repsolholdsa33 .75%stakeandistheoperatorofthis8,103km2block .

Inearly2009,adiscoverywasannouncedinGassiChergui,Berkinebasin,withwellaL-2 .

InColombia,threediscoverieswereannounced .TwooftheseweremadewiththeCosechaZandCosechaYNortewellsintheCosechablockintheLlanosorientalesbasin,inwhichRepsolholdsa25%stakeandoxy,theoperator,holdstheremaining75% .TheCosechablockhasasurfaceareaof2,856km2 .ThethirddiscoverywasmadewiththeCapachosSur1wellintheCapachosblock,inwhichRepsolistheoperatorwitha100%stake .

at thebeginningof2008,anewexplorationdiscoverywasmade inLibya’sprolificblockNC186withwellY1 .Witha32%stake,Repsolistheoperatorofthis4,295km2blockintheMurzuqbasin .

IndeepwatersofftheU .S .GulfofMexico,amajoroildiscoverywasmadeinearly2009attheBuckskinprospectinKeathleyCanyon,300kilometresoffshorefromHouston .Repsolistheoperatorintheexplorationworkatthisnewfieldwherea100-metrehydrocarboncolumnhasbeendiscoveredthatcouldbeevenhigheratthetopofthestructure .Thenewwellis10,000metresdeepin2,000metresofwater .

Production

Repsol’soilandgasproductionin2008was333,721barrelsofoilequivalentperday(boepd),14 .6%lessthanin2007 .ExcludingcontractualvariationsinDubai(5,000boepd),venezuela(2,300boepd)andBolivia(47 .700boepd),productionwassimilaryear-on-year .Productionincreased,particularlyintheUnitedStates(1,200boepd),thankstothestartofproductionofthenewwellsintheShenzifield;inTrinidadandTobago(3,800boepd);andinPeru(1,900boepd),wherethePagorenifieldinblock56startedproduction .

Investments

TheinvestmentsoftheUpstreambusinessin2008amountedto€1,184million,18%lessthanthe€1,439investedin2007 .Theseexpendituresweremainlyearmarkedforthedevel-opmentoftheShenzifield,intheUnitedStates,andinexplorationactivitiesinNorthafrica,Brazil,andtheGulfofMexico .

2.2 LiquefiedNaturalGas(LNG)

Results

operatingincomeintheLNGactivityin2008was€125millionversus€107millionayearearlier,up17% .EBITDawas€173millionincomparisonwith€146millionpostedin2007 .

Pricesfortheprincipalcommoditieswerehigherinthefirsthalfof2008,andthenstartedtodeclineinthesecondhalfoftheyear .Throughout2007andthefirstpartof2008,naturalgaspriceswerehigherinallmarketsonthebackofrecordoilprices,growingdemandinnewandinestablishedmarkets,andsignificantdelaysininvestments .Despitesteeppricesduringthisperiod,demandinlargeimportingmarkets,suchasSpainandasiancountries,didnotdecline,showingasharpupwardtrendinthefirsthalfoftheyear .Inthesecondhalfoftheyear,however,theglobalfinancialcrisisandshrinkingdemandcontributedtoreversingthistrend,withpricesfallingbacktothelevelsofrecentyears .

Inthefirsthalfof2008,theaveragepriceofHenryHub,theprimarynaturalgasbenchmark,was10 .1$/MBtu,36 .5%higherthaninthesameyear-agoperiod .Theaverageforthefull-yearwaslower,8 .9$/MBtu,25 .3%morethaninpreviousyear .Inadditiontothehighpricesdur-ingthefirsthalfoftheyear,asianmarkets,unliketheEuropeanandNorthamericanmarkets,werepayingapremiumontopofoil-productpricesthroughout2008 .asaconsequenceofthis,theindustrydivertedshipmentsfromthePacificandatlanticbasinstothismarketsinceitwasmoreprofitable .

Withregardstothepowergenerationmarket,theaverageSpanishelectricitypoolpricein2008was64 .4€/MWh,63 .9%higherthanin2007 .Thisincreaseisattributableto,amongotherfactors,greaterdemand,higherinternationalcommodityprices,andthehighercostofCo2emissionrights .ThetradingvolumeintheSpanishelectricitysystemdailymarketwasmuchhigher:232TWhin2008vs .200TWhin2007 .

ResultsofthebusinessescomprisingtheLNGareaaregenerallyinU .S .dollars .Theyear-on-year7 .4%depreciationofthiscurrencyagainsttheeurohadanegativeimpacton2008earnings .

Projects

IntheLNGarea,Repsolhasbeendevelopingapolicytobolsteritscompetitivepositioninthisbusiness,keytoitsmediumandlongtermgrowth .

RepsolispresentintheTrinidadandTobagointegratedLNGproject,inwhichitparticipatesjointlywithBPandBG,andothercompanies, intheatlanticLNGliquefactionplant .ThestrategicgeographicallocationofthisplantenablesittosupplymarketsintheatlanticBasin(Europe,UnitedStates,andtheCaribbean)atveryadvantageouseconomicconditions .

Thisplanthas four liquefaction trainswitha combinedcapacityof 15million tonsa year .Repsolholdsa20%stakeintrain1 .25%intrains2and3,and22 .22%intrain4 .Productioncapacityoftrain4,oneofthelargestintheworld,is5 .4milliontonsperyear .Inadditiontoitsparticipationintheliquefactiontrains,RepsolisaleadingplayeringassupplyandoneofthemainbuyersofLNG(approximately3 .2milliontonsperyear) .

Repsol, inapartnershipwithIrvingoil,holdsastakeintheCanaportprojectforthecon-struction andoperationsof thefirst LNG regasificationplantonCanada’s eastern shore .LocatedinSaintJohn(NewBrunswick)andwithaninitialsend-outcapacityof10bcm/year(1,000millioncubicfeetperday,whichcouldbeexpandedto2,000millioncubicfeetperday),theCanaportterminalisoneofthelargestinNorthamericaandwillsupplymarketsontheeasterncoastofCanadaandnorth-easternUnitedStates .Holdinga75%stake,RepsolwilloperatetheplantandsupplytheLNGthatwillfeedtheterminal,andwillbeentitledtotheentireregasificationcapacity .Thisplantisscheduledtostartoperationsinthefirsthalf2009 .

Constructionworkattheplantin2008wentasscheduled .Theonshorepartoftheprojectforthetwotankscontemplatedintheinitialprojectis92%complete .

Workonthethirdtank,whichwasapprovedsubsequentlybytheconsortiumandwhichwillmakeitpossibletoreceivesuppliesfromthelargestmethanetankersbuilttodate,is72%complete .Constructionoftheoffshoreterminalispracticallyfinished .Inaddition,theNewBrunswick(Canada)andMaine(UnitedStates)gaspipelinesarereadytotransportnaturalgasdeliveredtotheCanaportplanttomarketsinthenorth-easternpartofNorthamerica .

In2008,RepsolbeganmarketingactivitiesinNewEnglandandinotherpartsofnorth-east-ernUnitedStates .Thesemarketswillgrowsignificantlyin2009aftertheCanaportterminalstarts operations .Gas fromRepsol’s exploration and production activities in theGulf ofMexicowillalsobemarketed .

InPeru,theintegratedliquefiednaturalgasproject,PeruLNG,iscurrentlybeingdeveloped .TogetherwiththeCanaportproject,PeruLNGisoneofthemajorinitiativesenvisionedintheStrategicPlan2008-2012andakeyprojectfortheCompany’sgrowth .Since2005,Repsolhasbeeninvolvedinthisproject,inwhichitholdsa20%stake,inpartnershipwithHuntoil(50%),SK(20%),andMarubeni(10%) .

ThePeruLNGprojectcontemplatestheconstructionandoperationofaliquefactionplantinPampaMelchorita,inwhichRepsolholdsa20%interest,andagaspipelinelinkingupwiththeexistingoneinayacucho .TheCamiseaconsortium,inwhichRepsolalsohasastake,willdelivernaturalgassuppliestothisplant .

additionally,theprojectcontemplatesRepsol’sexclusivemarketingoftheliquefactionplant’sentireproduction,estimatedatmorethan4 .5milliontonsperyear .Thetermofthegaspur-chaseagreemententeredintowithPeruLNGis18yearsasofthestartofcommercialopera-tions .Intermsofvolume,itisthelargestLNGacquisitionevermadebyRepsol .

InSeptember2007,RepsolwonacontractinaninternationaltendersponsoredbyComisiónFederaldeElectricidad(CFE)forthesupplyofLNGtothenaturalgasterminalintheportofManzanilloonMexico’sPacificcoast .Thecontractcontemplatesthesupplyofmorethan67bcmofLNGtotheMexicanplantovera15-yearperiod .TheManzanilloplant,whichwilldelivergastoCFE’spowerplantsinthecentral-westernpartofMexico,willbefedwithgasfromtheLNGPeruproject .

LIQUEFIEDNaTURaLGaS

atyear-end2008,constructionworkontheonshorepartoftheliquefactionplantwas68%complete,afteradvancing41%overthecourseoftheyear .Theoffshoreinstallationswere72%complete,andthegaspipeline62%complete .Thisplantisexpectedtostartoperationsinmid-2010 .ThefinanceagreementsforthisprojectwereestablishedinDecember2007andconcludedon26June2008 .ThefirstfinancinginstalmentwasmadeinNovember2008 .

InSpain,Repsolholdsa25%stakeinBahiaBizkaiaGas,S .L .(BBG) .Thiscompanyownsaregasificationplantwithunloadingfacilitiesformethanetankersofupto140,000m3,two150,000m3LNGstoragetanks,andavaporisationcapacityof800,000Nm3/hour .BBGistheoperatorofthisplantwhichhasaregasificationcapacityof7bcma,ispartoftheSpan-ishgassystem,andisremuneratedbyComisiónNacionaldelaEnergía(CNE)bymeansoftariffs,tolls,andfees .Theterminal,locatedintheBilbaoharbour,hasanotherthreepartners(BP,EvE,andIberdrola)eachholdinga25%stake .Theenlargementofthisfacility iscur-rentlybeingappraised .Thiswouldinvolvetheconstructionofathirdtank,alsowith150 .000m3capacity,andtheadditionofanother400,000Nm3/hourregasificationcapacity .In2008,theregasificationplanthadanavailabilityrateof96%andaloadfactorofmorethan68%,bothparametershigherthanin2007andtheaverageinSpain,wheretheaverageloadfactoris52% .

Repsolalsoholdsa25%stakeinBahíadeBizkaiaElectricidad,S .L .(BBE),acompanywhichownsacombinedcyclepowerplantwith800MWeinstalledcapacity .TheplantusesnaturalgasdeliveredbyBBGasitsmainfeedstock .Electricitygeneratedatthisplantisfedtothegridforresidential,commercial,andindustrialconsumption .SituatedintheBilbaoharbour,thisfacilityhasthesamepartnersasBBG .In2008,theavailabilityrateoftheplantwas97%andtheloadfactormorethan66%,bothparametershigherthanin2007 .

In Iran,RepsolandShell, jointlywithNIoC,continuedtoworkonthe integratedPersianLNGproject .Thefinalinvestmentdecisionontheliquefactionplanthasnotbeentakenyet .

InDecember2007Repsol andGasNatural executeda shareholders’ agreementwithSo-nangolGasNatural(SoNaGaS)withtheaimofstartingworkondevelopinganintegratedgasprojectinangola .Thisinitiativeinvolvestheappraisalofgasreservestodeterminetheinvestmentsthatwouldberequirefortheirdevelopmentand,ifsuchisthecase,exportthesereservesintheformofliquefiednaturalgas .Theservicecontractandthelawdecreefortheconcessionoftheareasofinterest,approvedbyangola’sCouncilofMinistersinJuly2008,arependingratificationbytheNationalassembly .Seismictestsandotherprocedureswerecarriedoutin2008andtheplansaretodrillawellin2009 .

LNG transport and marketing

TheRepsol-GasNaturalLNG(Stream)50-50%jointventureisoneoftheleadingLNGmar-ketingandtransportcompaniesintheworldandoneofthemostimportantoperatorsintheatlanticBasin .oneofthemissionsofthiscompanyistheoptimizationofbothpartners’fleet,whichcomprisesatotalof11methanetankers .In2008,Repsol,withmanagementsup-portfromStream,marketed4 .7bcmofLNGandmanaged65cargoes,mostofwhichwerefromTrinidadandTobagowithSpainasthemaindestination .

atyear-end2008,Repsolhadthreemethanetankersundertimecharteragreements,withatotalcapacityof416,700m3 .Thecompanyalsohadanotherfourthtanker,theSestao-Knuts-en,whichcancarryupto138,000m3ofgasandbelongs50-50%toRepsolandGasNatural .Inthebeginningofthesecondhalfof2009,thefleetwillbeincreasedwiththeadditionofthenewIbéricaKnutsenTanker,whichRepsolandGasNaturalwillshareona50-50%basis .

additionally,inearly2007,RepsolexecutedtimecharteragreementsforfournewLNGtrans-portvessels,onefromNavieraElcanoandthreefromKnutsenoaS .Thefourvessels,featur-ingthelatesttechnology,scheduledtostartoperationsin2010,willhaveanominalcapacityof173,000m3ofLNG .ThevesselswillbeusedmainlyfortransportingsuppliesassociatedwiththeRepsolandPeruLNGagreement .

Investments

Investments in the LNGbusiness in 2008 totalled€242million, 37% less than the€387millioninvestedin2007 .TheseinvestmentsweremainlyappliedintheconstructionoftheCanaportregasificationplant(Canada)andthePeruLNGliquefactionproject .Thislastproj-ectwasfinancedwithcapitalcontributionsfromthepartnersuntilNovember2008,atwhichtimethefirstexternalfinancingdisbursementwasmade .

operating highlights 2006 2007 2008%variation

2008/2007

Netlngproduction(*)(Bcma)

Trinidad and Tobago 3.0 3.3 3.5 4.7

(*)Equitygas:doesnotincludetheLNGproductionofcompaniescarriedbytheequitymethodintheconsolidatedGroupaccounts .

lngMarketing

Cargoes (number) 42 66 65 (1)

Volume sold (Bcma) 3.2 4.5 4.7 4.2

Conversionfactor:1Bcma=39 .68TBtu .

2.3 Downstream(Refining,Marketing,LPG,andChemicals)

Results

operatingincomeintheDownstreambusinesswas€1,111million,down49 .6%incompari-sonwith€2,204millionin2007 .Thefollowingfactorswerebehindthisdrop:

a .329millionlessinnon-recurrentincome,mostofwhichisexplainedbythecapitalgains(€315million)realisedonthesaleofa10%stakeinCLHbookedin2007 .

b .Inventorylosses(€495million)inrelationtorawmaterialsandproductsincomparisonwithinventorygainsrecordedin2007(€234million) .

c .Lower income in theChemicalbusiness(€352million) incomparisonwith2007(€100million) .Thisdropwasprincipallytheoutcomeoflowersales(16 .4%)duetoshrinkingdemandandreduced inventories inthetransformationanddistributionchain;andnar-rowermargins,affectedbyhighnaphthapricesinthefirsthalfoftheyearandbythesaleanddepreciationofstocksinthesecondhalfoftheyear .

Excluding the impactonearningsofnon-recurring itemsand inventory valuations in thelasttwofiscalyears,thedropwouldhavebeen2 .1%,from€1,656millionin2007to€1,622millionin2008 .

Ifthecontributionofthechemicalbusinessinbothyearsisexcluded,incomewouldhaveincreasedby22 .7%, from€1,565million in2007 to€1,920million in2008,underscoringthepositiveperformanceoftheotherDownstreamactivities(Refining,Marketing,LPGandTrading)comparedto2007(ona like-for-likebasis,excludingtheimpactofnon-recurrentitemsandinventories) .

Refining

ThecapacityofRepsol’sfiverefineriesinSpain(Cartagena,aCoruña,Petronor,Puertollano,andTarragona)increasedby30,000barrelsperdayin2008thankstotheinvestmentsmadetoboostcapacity .ThishasmadeitpossibleforinstalledcapacityinSpaintoincreasefrom740,000to770,000barrelsperday .InstalledcapacityatLaPampillarefinery(Peru)inwhichRepsolholdsa51 .03%stakeandistheoperator,is102,000barrelsperday .

In2008,Repsolsolditsstake(31 .13%)intheBrazilianMaguinhosrefinery,maintainingitsholding(30%)intheRefaprefinery,alsoinBrazil .

In2008,RepsolrefineriesintheDownstreamdivisionprocessed39milliontonsofoil,slight-lylessthanthefigurein2007 .

TherefiningmargininSpainin2008was7 .4$/bbl,15%higheryear-on-year,asaresultofthestrengthofmediumdistillatesandfueloilanddespiteweakergasolineperformance .Thehigherdollar/euroexchangecurtailedthisimprovementand,consequently,theeuro/barrelmarginin2008wasquitesimilartotheonein2007 .

ThenewEuropeanspecificationsforlocomotivegasolineanddieselfuelcameintoforceon1January2009 .Thesenewspecificationsreducesulphurcontentfrom50ppmto10ppm .

DoWNSTREaM

Repsol’sSpanishrefineriescompletedthenecessaryinvestmentsandarepreparedtomanu-factureaccordingtothesenewspecifications .

WiththeaimofbolsteringitsleadershipinSpain,Repsoliscurrentlyimplementinganam-bitiousinvestmentplantoincreaserefiningcapacityandconversion,whilealsoenhancingsafety, the environment, and the efficiency of its facilities . The projects for enlarging theCartagenarefineryandforconversionatthePetronorrefineryinBilbaoarekeyaspectsofthisplan .Progresswasmadein2008towardsdevelopingtheseprojectsaccordingtoplan .

Cartagena:awealthandemploymentgeneratingproject

TheenlargementoftheCartagenarefineryisakeyinitiativeoftheStrategicPlan2008-2012 .The€3,262millioninvestmentwillmakethisoneofthemostmodernfacilitiesofitskindintheWorldandwilldoubleitscapacityto220,000barrels/day .ahydrocracker,acoker,atmosphericandvacuumdistillationunits,anddesulphurisationandhydrogenplantsareamongthemainunitscontemplatedinthisProject .

In2008,thenecessaryadministrativepermitsfortheenlargementprojectweresecured .Thelocalcom-munityandregionalgovernmentsareinfavourofthisinitiativewhichwillboostgrowthintheregionofMurcia .about1,000peoplearealreadyworkingontheprojectexpectedtobecompletedin2011,withalltheworkinpreparingthelandcompletedaccordingtothetimetable .Thisprojectmakesitpossibletomaximisetheproductionofcleanfuelsforthetransportsegmentandwillemploymorethan6,000duringtheconstructionphase .Nearly700jobswillbecreatedoncetheprojectcomesonstream .Morethan50%oftheproductstobemanufacturedatthisfacilitywillbemediumdistillates,significantlycontributingtoaddresstheshortageoftheseproductsinSpain .

Marketing

Repsolmarkets itsoilproductsthrougha largenetworkofservicestationsunderamulti-brandstrategy;Repsol,Campsa,andPetronorinSpain,andRepsolinothercountrieswherethe Downstream business operates . In addition, marketing activity includes other saleschannelsandthemarketingofawiderangeofproductssuchaslubricants,asphalt,coke,andderivatives .

Totaloilproductsales(excludingLPG)amountedto42 .86milliontons,7 .7%lessthaninthepreviousyear .ThisdropwasduetoweakerdemandandtothedisposalofthemarketingbusinessinEcuadorandBrazilandthesaleofmarketingactivitiesinChilein2007 .SalesinEuropeweredown2 .4%and29 .3%intherestoftheworld .WithregardstosalestotheCompany’snetwork,lightproductsalesinSpainfell5 .8%becauseofshrinkingdemand,andinothercountries,saleswere22 .7%lowermainlybecauseoftheabove-mentioneddivest-ments .

at year-end2008,Repsolhadanetworkof4,399service stations in countrieswhere theDownstreambusinessoperates .Thenetwork inSpainconsistedof3,590salesoutlets,ofwhich,75%hadastrongconcessionarylinktothenetwork,and946werecompany-ownedandoperated .ServicestationsinothercountrieswerelocatedinPortugal(441),Italy(133),andPeru(235) .

InJune2008,aspartofitsnon-coreassetdivestmentstrategy,Repsolsolditsliquidfuelmar-ketingbusinessinEcuadortoPrimaxforUS$47million .Thesaleincludedthe123servicestationnetwork,andtheindustrialsalesbusiness,commercialandlogisticsinfrastructure,andtheaviationandlubricantactivities .

alongtheselines,inDecember2008,RepsolsolditsliquidfuelmarketingbusinessinBrazilforUS$55milliontotheBrazilianaleSatGroup .Thesaleagreementincludedthe327ser-vicestationnetwork,inadditiontothecommercialandlogisticsinfrastructure,conveniencestores,directsales,andasphalt .

Throughout2008,Repsolcontinuedwithitspolicyaimedatimprovingservicequality,par-ticularlyincompany-ownedandoperatedservicestations .Bytheendoftheyear,243facili-tieshadbeenadaptedtotheSprintstoreconcept,withmorethan60m2ofcommercialfloorspace,morethan1,300productreferences,andannualsalesperstoreofover€300,000 .

Customerloyaltyprograms,throughtheuseofspecificcards,areanessentialpartofRepsol’smarketingstrategy .attheendof2007,thecompanylaunchedanewcard,SolredMÁXIMa,offeringclients5%discountsonallservicesandproductsattheshops,anda1%discountonfuel .Thiscardcanalsobeusedforpaymentatrepairshops,motorways,andoffersmanyotheradvantages .SolredMÁXIMa isacceptedatmore than4,000Repsol,Campsa,andPetronorservicestationsinSpainandPortugal .

Respectfortheenvironmentispartofcompany’spolicyandstrategy,focusingalleffortsindevelopingenvironmentally-friendlyandadvancedtechnologyproducts .Repsolsellsawiderangeoflatestgenerationfuelsthatcomplywiththestrictestqualitystandards:Efitec95and98petrol,Diesele+,andDiesele+10 .

Inkeepingwithitscommitmenttothecommunity,Repsolcontinuedtopromoteprojectsfortheintegrationofthosewithdifferentcapabilities,230ofwhomwereemployedbytheMarketingdivisionattheendof2008,morethan3%ofitsworkforce .

Liquefied Petroleum Gas (LPG)

RepsolisoneoftheleadingretaildistributorsofLPGintheworldandranksfirstinSpainandLatinamerica .ThecompanyoperatesintencountriesinEurope,Northafrica,andLatinamerica .

LPGsales in2008 totalled3 .22million tons, 5 .3%downyear-on-year . InPeru,LPGsaleswere93%uponthebackofmarketgrowth .SalesinSpainfell1 .9%comparedtotheprevi-ousyear .

Repsoldistributesbottled,bulk,andpipedLPGinSpain throughcollectivedistributionnet-worksandhasmorethan10millionbottledLPGcustomerssuppliedthroughanetworkof522distributionagencies .BulkLPGsalesaccountedfor39%oftotalretailLPGsalesin2008 .

TostrengthenitsleadershipintheSpanishmarket,improveservicequality,andguaranteesupply,thecompanyimplementedafactoryefficiencyplanforthe2007-2009period .

InPortugal,RepsoldistributesbottledandbulkLPGtoendcustomersandsuppliesotheroperators .Salesin2008reached184 .199tons,makingthecompanythethirdoperatorwitha21%marketshare .

InLatinamerica,RepsolistheleadingLPGdistributorinargentina,Ecuador,Peru,andChile .ItmarketsbottledandbulkLPGinargentinatotheresidential,commercial,andindustrialsegments,withsalestotalling325,836tons .

InNovember2008,thecompanysoldits51%stakeinRepsolYPFGasdeBoliviaS .a .,aban-doningthebottlingandbulkmarketingactivitiesinthiscountry .

operating highlights (refining, marketing, and lpg)

2007 2008(1)

%variation

2008/2007

Feedstockprocessed Milliontons

Crude 40.1 39 (2.7)

Other loads and raw materials 6.5 5.1 (20.8)

total 46.6 44.1 (5.2)

Producción Thousandtons

Medium distillates 20,906 19,994 (4.4)

Gasoline 7,820 7,235 (7.5)

Fuel Oil 7,337 7,308 (0.4)

LPG 1,017 1,013 (0.4)

Asphalts 1,741 1,558 (10.5)

Lubricants 249 212 (14.8)

Other (exc. petrochemicals) 1,627 1,674 2.9

total 40,696 38,995 (4.2)

Oilproductsales Thousandtons

Diesel/ Kerosene 25,853 23,723 (8.2)

Gasoline 7,757 6,775 (12.7)

Fuel Oil 7,397 7,234 (2.2)

LPG 3,405 3,223 (5.3)

Other 5,448 5,130 (5.8)

total 49,860 46,085 (7.6)

Salesbyregions Thousandtons

Europe 39,156 38,183 (2.5)

Rest of the world 10,704 7,902 (26.2)

total 49,860 46,085 (7.6)

(1)RefabnotincludedasofJuly

Chemicals

TheChemicalsactivity,partoftheDownstreambusiness,incurredanoperatinglossof€352millioncomparedtoanoperatingprofitof€100millionayearearlier .Thiswasprincipallytheoutcomeoflowersalesbecauseofshrinkingglobaldemandandreducedinventoriesintheentiretransformationanddistributionchain,aswellasnarrowermarginsduetohighnaphthapricesinthefirsthalfoftheyear,andinventorydepreciationinthesecondhalfoftheyear .

Salestothirdpartiesin2008were2 .60milliontons,16 .4%lessthanthe3 .11milliontonssoldin2007 .

TheprojectfortheenlargementoftheSines(Portugal)complex,whichaimstodoubleout-put and increase competitiveness through greater integration and energy efficiency, wasapproved in June 2008 . The project contemplates three newplants –lineal polyethylene,polypropylene,andcogeneration– inadditiontoenlargingcrackercapacitybymorethan570,000tons/year .Thenewlinearpolyethyleneandpolypropyleneplantswillbeverycom-petitivethankstotheirsizeandlatestgenerationtechnology .

operating highlights (chemicals) 2007 2008 2008/2007

Thousandtons %variation

Capacity

Base petrochemicals 2,664 2,679 0.6

Derivative petrochemicals 2,937 2,927 (0.3)

total 5,601 5,606 0.1

Salesbyproduct

Base petrochemicals 772 629 (18.6)

Derivative petrochemicals 2,341 1,973 (15.7)

total 3,113 2,602 (16.4)

Ventaspormercados

Europe 2,776 2,348 (15.4)

Rest of the world 337 254 (24.6)

total 3,113 2,602 (16.4)

Investments

InvestmentsinDownstreamincreased64%,totalling€1,534millionversus€936milliontheyear before .Most of this amountwas spent onongoing refiningprojects, particularly inSpain,upgradingoperations, installations,andfuelquality,andonsafetyandtheenviron-ment .

2.4 YPF

YPFposted€1,159millioninoperatingincomein2008,5 .6%lessthanin2007 .Thisdropwasduetotheinternationalcrisis,whichintensifiedinthelastfewmonthsoftheyearandtriggeredadropindemandintheargentineanmarket,andareductioninexports .

on21February2008,Repsolconcludedthesaleofa14 .9%stake inYPFtothePetersenGroupforUS$2,235million .Thistransaction,whichvaluesYPFatUS$15billion,obeysthecompany’s strategyof improving thegeographicaldistributionof its assetsandof imple-mentingaglobalmanagementapproachwithalocalaccent .Theagreementalsocontem-platesthatthePetersenGroupcanincreaseitsYPFholdingto25%throughcalloptionsforanadditional10 .1% .ThePetersenGroupalreadyexercisedanoptionforanadditional0 .1%stake .

In 2008, YPF investmentswere€1,508million compared to€1,374million a year before .Nearly80%oftheseexpenditureswereearmarkedforoilandgasdevelopmentandexplora-tionprojects, includingtheagreementforextendingtheconcessionintheNeuquénprov-ince .

averageannualproductionfell3%to617,100barrelsofoilequivalentperday(boepd)versus636,400boepdin2007 .outputwasaffectedbylabourstrikesinSantaCruz,withoutwhich,averageannualproductionwouldhavereached628,300boepd .

operatingcostsincreasedin2008,mainlybecauseoftaxeswhichincreasedfrom€179mil-lionto€685million in2008becauseofwithholdings,depreciation,purchases fromthird-parties,environmentalandlegalcontingencies,andseverancepay,andcompensation .

Internationalpriceswerehigheryear-on-year,fallingsharply,however,inthelastquarterof2008 .Thesehigherpriceshadan impactonthedomesticand foreignmarkets,althoughinrelationtothelatter,thiswascurtailedbywithholdings,whichwerehigherthanin2007followingtheimplementationofResolution394thataffectsoilandoilproductexports,andResolution127,whichaffectsnaturalgasandliquefiednaturalgas .

Demandfell in2008,except forgasoline for thedomesticmarket,mainlybecauseof theinternationalcrisisandotherfactors,suchasthefarmers’strikeandthedrought .

Intheinternalmarket,thecompanycollaboratedwiththeGovernmentofargentinaontheTotalEnergyPlan(PET),participatingintheprogramsrelatingtodieselsupplyandthesub-stitutionofnaturalgasforliquidfuels .

ThecontributionfromYPFassociateswaslowerthaninthepreviousyearsbecauseofthefollowingfactors:

-MegawasaffectedbytheimpactoftheresolutionsongasolineandLPGexportpricesandbylowerethaneprices .

-Thedropinthepriceofureainthelastquarter,whichhadanimpactonProfértil’sretailpricesanddiminishedthevalueofitsstocks .

-RefinorpostedlowerincomebecauseoftheapplicationofResolution394whichaffectedthepriceofitsexports .

-YPFHolding’searningswereaffectedbyhigherprovisionsforenvironmentalcontingencies,althoughthiswaspartlyoffsetbythestartofproductionofNeptuno .

operating income in YPF’s Exploration and Production business was €441million, 55%downyear-on-yearduetohighercostsintheindustry,theeffectofregulatedoilpricesintheargentineanmarketandstrikes .

In2008,YPF’soilandgasproductionwas226millionbarrelsofoilequivalent,4 .9%lessthanin2007,ofwhich114millionwereliquidsandgasaccountingfortheremainder .Strikesandweakerdemandforgasinthethirdpartoftheyeardiminishedoutputby4 .8millionboe .

YPFmadefiveoildiscoveriesandonegasfindin2008outofthe17wellsthatweredrilled .ofthesixwellsthatyieldedpositiveresults,fourareintheNeuquénbasin(Elorejanox-1,BordeSurdelPayúne-4,PuestoCachox-1,andLosReyesNortex-1),thefifthoneisintheaustralbasin(LasFlechasx-2001),andthesixthoneinGolfodeSanJorge(ElBalcónx-1) .Theamountoftotalinvestmentsinexplorationwas€122million .

SeismicactivitywasconcentratedintheRíoBarrancasblockinNeuquénprovince,andalsointheTamberíasblockintheprovinceofSanJuan .Theprovincesdidnotorganizeanybid-dingroundsfornewminingacreagein2008 .

Regardingfielddevelopment activities, 612developmentwellsweredrilled,which, jointlywithsecondary,repair,andinfrastructureactivitiesinvolvedaninvestmentof€868million .

aspartoftheglobal€1,215millioninvestmentplan,€55millionwerespentinrevitalizingma-turefieldsaccordingtothePlandeDesarrollodeactivos(assetDevelopmentPlan,PLaDa) .Launchedin2007,thisinitiativeispartofthecompany’sstrategyaimedatbecomingtheleaderintheexploitationofmaturefieldsandbasins .Theobjectiveistodefinecomprehen-sivedevelopmentandrevitalizingplansforallYPFfieldsbasedoncurrenttechnologyandfocusingeffortsonacquiringgreaterknowledgeofthesubsoil .Supportedbyaportfolioof1,400definedprojectsandgeneratingmorethan1 .6billionbarrelsofoiltodate,thePLaDaplanaugursa10-yearstableoutlookforoilproductionandactivity .

ThankstotheworkcarriedoutinrecentyearswithintheframeworkofPLaDa,YPFwasabletoincorporateprovedreservestotalling75millionbarrelsofoilequivalentin2008,mostlyoil .Inaddition,forthefirsttimeeveritwaspossibletoachievea120%oilreplacementrateinChubutandSantaCruz,situatedinthesouthernbasinofargentina .

Theresultsobtainedinmaturefields,suchasPerales,BarrancaBaya,andManantialesBerth,areworthmentioning .TogetherwiththeactivityintheMaurekareaandintheCañadonYatelfield,inparticular,enabledtheincorporationofreservesinthisregion .

PilottestswereconductedintheNeuquénbasintoassessthetechnicalandeconomicvi-abilityofdevelopingtightgasfields .Theresultsofthesestudiesarecurrentlypending .

The 10-yearextension (2017-2027)of theconcessions inNeuquénprovince isalsoworthmentioning .JointlywiththeextensionofLomalaLatain2002,50%ofYPF’sreservescon-cessionsinargentinahavebeenextended .

anothermilestonewastheIbero-americanQualityGoldPrizeinthecategoryof“MediumPrivateCompany”awardedbythepanelofjudgestoMega .

YPF’snaturalgassalesin2008totalled16 .4billionm3,growingparticularlyinthedistribu-tion,industry,andmanufacturingsegments .YPF’smarketshareinthisargentineanmarketwas40%andtheaveragepriceofnaturalgassoldbythecompanyclimbed32%in2008,enablingthegradualalignmentofpricesinthedomesticmarket .

Thefirst liquefiednaturalgas (LNG) regasificationoperationsbegan in June2008at theBahíaBlancaharbourwiththeExcelsiorregasificationtankercontractedforthispurposetomeetthecountry’sdemand .ThisprojectwascarriedoutfortheargentineanGovernmentandwascompletedsuccessfullyinrecordtime,incorporatinganaverage5 .5m3/dayinthewinterseason .Thisoperation,thetransferfromvesseltovessel,fromtheExcelsiortotheExcelerate,wasthefirstofitskindintheworld

additionally,withintheframeworkoftheprogramforsupportingtheGovernmentofargen-tina,inthewinterof2008YPFbuiltthelargestpropane-airplantinBuenosaires,thelargestintheworld .Theplant,withasupplycapacityof1 .5millionm3/day,willbeusedtomeetpeakwinterdemandinargentina’scapital .

IntheRefining,Logistics,andMarketingactivity,YPFrefineriesprocessed18 .7millionm3ofoil,1%lessthanin2007 .

Theutilizationrateofrefininginstalledcapacitythroughout2008remainedstablethankstotheoperatingreliabilityplansunderwaywhichmakeitpossibletoextendthemaintenancecyclesoftheunits,increasingeffectiveprocessingcapacityandenablingthemaximumuseofassetstomeetgrowingfueldemandinargentina .

Gasolineproductionforthedomesticmarketwas3millionm3,14%higherthanin2007andanewrecordinrecentyears .Thisalsoimpliedanimprovementinthequalityofgasolineproductionandmadeitpossibletomeetincreasingdemandintheargentineanmarket .

YPFcompletedtheupgradingofthecatalyticcracker(FCCB)attheLaPlatarefinery,contrib-utingtoincreasingtheproductionofmediumdistillatesandgasolineandsettinganewre-cordindieselandJeta1aviationfuelproductionatthisfacility,reachinganaverageof13,625m3/day .Forthesecondconsecutivemonthandforthefourthtimeinitshistory,therefinerybeatthe400,000m3/monthrecordinmediumdistillateproduction .

at2millioncubicmetres,fueloilproductionwas5%higheryear-on-year .DomesticdemandfromthemanufacturingsectorremainedstableandtheTotalEnergyPlan(PET)requisitesweremet,deliveringmorethan290,000m3offueloil .

Thecharteredfleet forseaandriver transportwasrenewedwiththe incorporationof twodouble-hullnewvesselsandonebarge .Thenewly-builtMaríavictoriaandCaletaRosariovessels,aswellastheargentinavbarge,complywiththelatestsafetystandardsasrequiredbytheGroup .asixthbargeisunderconstructionandisscheduledforlaunchin2009 .

Throughout2008,YPF’sliquidfuelsupplywasinlinewiththegrowthrecordedinargentina,ensuringpermanentandhighqualitysupplytoallitsclients .Thissupply,particularlyfueloil,akeyconsumableforsupportinggrowth,wasmadefromthecompany’srefineries,orwasimportedtomeettheexceptionallevelsofdemand .

attheendof2008,YPFhad1,642servicestations,166ofwhichwerecompany-managed .Thecompanybegantorevamptheimageofitssalesoutlets,seekingamoremodernimageandbringingitlinewiththeslogan“Let’sinventthefuture” .

Pricesinthedomesticmarketgraduallyadaptedtointernationalpricesandthoseofborder-ingcountries .Dieselprices increasedapproximately23%andsupergasolinepriceswere37%higher .

atthecloseof2008,YPFunveiledanewfuel,YPFD .Eurodiesel,thefirstlowsulphurfuel(less than 50ppm) launchedby the company,which is recommended for all high-perfor-manceEURoIvengines .

TheRefining,Logistics,andMarketingbusinessposted€743millionoperating income in2008 .Investmentsinthisareatotalled€167million .

WithregardstoYPF’schemicalsbusiness,incomewasup20%,reachinganall-time-highof€158millionthankstowidermarginsinalllinesandtheintegrationoftherefining,explora-tion,andproductionactivities .Thiswasachieveddespitethedropininternationalpricesinfourthquarter2008anddecliningdemandfor fertilizersbecauseof the farmers’strike inargentina .Enhancedearningsperformancewasshoredupbyhighinternationalpricesinthe

firstthreequartersoftheyear,theimplementationofacostsavingsandexpense-curtailmentplan,andapolicyalignedtopricesinthelocalmarketwhichbolsteredtheargentineanin-dustry’sgrowth .Investmentsintheyearamountedto€25million .

In2008,thesubsidiaryProfértilwontheNationalQualityPrizeinthelargecompanycategory,alsorenewingthecustomsdutyexemptionformethanolexportedtotheUnitedStates .

YPF’sworkforceattheendof2008comprised11,038employees,1 .3%lessthanintheprevi-ousyear .TheExplorationandProductiondivisionhired271employees,16%morethanin2007 .atastraEvangelista(aESa),theheadcountwascutby540workers .

TheRepsolYPFGroupstartedtoimplementateleworkingpilotproject . Inargentina,theprojectwaslaunchedwiththecollaborationoftheMinistryofLabour .YPFisthefirstcom-panyinthecountrytoimplementthisnewworkarrangement,adoptedbyseveralofitsem-ployees,andwinneroftheMeta4PrizeforInnovationinHumanResources .

ThreelabouragreementsgoverntheworkingconditionsofYPF’srefinery,field,service,sta-tion and LNGemployees . In 2008, several salary agreementswere executedwith labourunionrepresentatives .

RegardingResearchandDevelopment(R+D),inthecontextofPLaDa,YPFbegantoassessanddeveloptechnologiesfortheexploitationofheavyoilfields,forimprovingtherecoveryfactoratmaturefields,andforrecyclingwaterusedinproductionprocessesforirrigationandotherpurposes .TheChemicalsbusinessunveiledanewfertilizermadewithliquidsul-phurgeneratedbythehydrocarbonsprocessedattherefinery .astoenvironmentalissues,thecompanycontinuedtodevelopsoilrecoverytechnologies .

2.5 GasNaturalSDG

GasNaturalSDG’soperatingincomeincreased7 .6%to€555million .ThisgrowthwaslargelytheresultofthepositiveperformanceofthepowerbusinessinSpainonthebackofhigherelectricitypoolprices,theincorporationoftheMexicanpowerbusinessin2008,andgrowthindistributionactivitiesinLatinamerica .

at€894million,investmentsincreased37%in2008mainlybecauseofthefinancialinvest-mentrequiredfortheacquisitionofapercentagestakeinUniónFenosa .

Through its 30 .9%stake inGasNaturalSDG,Repsolparticipates in theentiregasvaluechain,fromsupply,todistribution,andmarketing .

ThroughtheRepsol-GasNaturalLNG(Stream)jointventure,thecompanywastheworld’sthird-rankingcompanyintermsoftransportedLNGvolumes .Foundedin2005,theobjec-tiveofthiscompanyistomaximisethevalueofitspartners’agreementsthroughefficientmanagementandmarketing,also facilitatingaccess toLNGsupplysourcesandstrategicmarkets .

GasdistributioninSpaincontributed34 .6%ofGasNatural’sresults,withsalestothereg-ulatedmarket amounting to 270,073GWh . The total number of supply points increasedto5,842,000andthegaspipelinenetworkgrew6 .9%to48,578kilometres .SalesinLatinamericaclimbed16 .2%to208,408GWhandthenumberofsupplypointsreached5,253,000 .Thedistributionnetworkincreased2 .8%to61,196kilometres .

In2008,GasNaturalSDGconsolidateditspresenceintheItalianmarketwiththeacquisi-tion,worth€30million,ofthePittaCostruzioniGroupwhichoperatesinthePugliaregioninsouthernItaly .Thisacquisition,jointlywiththeincorporationofItalmecoattheendof2007,willallowGasNaturalSDGtoincreaseitsdistributionareainItaly,whichnowcomprises187citiesandtownsineightregions:Molise,abruzzo,Puglia,Calabria,Sicily,Basilicata,Cam-pania,andLazio .In2008,gassalesinItalyreached2,933GWh,therewere397,000supplypoints,andthedistributionnetworkstretchedover5,521kilometres .

Inthepowerbusiness,thecompanyoperatesatotal6,495MWofinstalledelectricitygenera-tioncapacityinSpain,PuertoRico,andMexico .

InSpain,GasNaturalSDGhas3,600MWincombinedcyclepowergenerationplants .agroupof400MWiscurrentlyintheconstructionphaseinMalagaandanothertwo,totalling800MW,inBarcelona’sharbour .Inaddition,two400MWgroupsinLantarón(Álava)arecurrently intheprocessingstage . Ingeneration, thetotalofcombinedcycleplants jointlywithinstalledcogenerationcapacityandwindgeneratorsproduced18,130GWhatyear-end2008,thatis,6 .8%morethaninthepreviousyear .

GaSNaTURaLSDG

Petroleumoil&GasSpain(100%heldbyGasNatural)isparticipating,jointlywithRepsol,intheoffshorewelltobedrilledin2009attheMontanazoconcessionoffthecoastofTar-ragona,withpreparatoryworkcarriedout in relation to thisprojectduring fourthquarter2008 .

RepsolandGasNatural,inaconsortiumwithothercompanies,haveexecutedasharehold-ers’agreementtodevelopanintegratedgasprojectinangola .ThecompanyGasNaturalWestafrica(60%Repsol-40%GasNatural),whichwillmanagethisproject,hasbeenincor-porated .Inafirstphase,anappraisalwillbemadeofthesegasreservesbeforemakingthenecessaryinvestmentsfordevelopmentandsubsequentexportasLNG .Progresshasbeenmadedefiningtheseismicexplorationanddrillingworkthatwillbecarriedoutin2009 .

WithregardstotheGassiTouilprojectandfollowingSonatrach’sdecisionin2007torescindtheagreementunilaterally,anarbitrationprocessiscurrentlyongoinginwhichRepsolandGasNaturalwilldefendtheirrightsandwhichwilldecideonthevalidityofsuchdecisionandondamagesforwrongfulterminationofthecontract .Thearbitrationcourt’sdecisionisexpectedtobeannouncedin2009 .

Unión Fenosa Acquisition Process

on30July2008,GasNaturalSDGreachedanagreementwithaCSontheacquisitionofitstotal45 .3%stakeinUniónFenosaataneffectivepriceof€18 .33pershare,whichimpliesavaluationof100%oftheelectricutility’ssharecapitalof€16,757million .Inaccordancewiththetermsandconditionsoftheagreement,inearlyaugust,GasNaturalacquiredfromaCSa9 .9%stakeinUniónFenosafor€1,675million .

UnderthetermsandconditionsoftheagreemententeredintowithaCS,thepurchasepricewasadjusted,deductingthe€0 .28persharedividendpaidbyUniónFenosaon2January2008 .Theresultingadjustedpriceis€18 .05pershare .

on12December2008,GasNaturalacquired fromCaixanova its4 .7%stake in thesharecapitalofUniónFenosa .at31December2008GasNatural’sownershipinterestinUniónFenosawastherefore14 .7% .afterexceeding30%votingrightsinUniónFenosa,GasNaturalmustlaunchabid,withinonemonth,fortheremainingsharesintheelectricalutilityand,therefore,inSeptember2008thecompanyinitiatedtheprocessforsecuringthecorrespond-ingpermitsfromcompetentauthorities .

TheacquisitionofUniónFenosamarksamajorstep in thedevelopmentofGasNatural,fulfillingitsgoalofbecomingtheleadingintegratedgasandpowercompany .Thiswillbeachievedthankstothecomplementaritiesofbothcompanies’activitiesintheentirevaluechainof these twobusiness lines . This acquisition also accelerates the fulfilmentofGasNatural’sStrategicPlan2008-12 .

InJuly2008,GasNaturalexecutedanagreementwith10bankingentitiesforfinancingtheacquisitionof100%ofUniónFenosa, includingthestakesheldbyaCSandCaixanova inUniónFenosa,aswellasthesubsequenttenderoffer .Nineteenentitieswillparticipateinthesyndicationprocessthatiscurrentlyunderway .

CriteriaandRepsol,inordertoensureasoundandflexiblefinancialstructure,haveagreedtomakecontributionstoGasNatural’ssharecapital,inthenecessaryamountandmanner,foramaximumsumof€1,903millionand€1,600million,respectively,toensurethatthecompanyobtainsaconsolidatedratingimmediatelyaftersettlementofthetenderofferofatleastBBB(stable)andBaa2(stable)fromS&PandMoody’s,respectively .

GasNaturalhasstartedtheprocessforcarryingoutthecontemplatedrightsissueforthesumof€3 .5billioninthecontextoftheUniónFenosaacquisitiontransaction .on30January2009,itsBoardofDirectorsagreedtoconveneanExtraordinaryGeneralMeetingtoautho-rizetheissueofnewshareswithpre-emptivesubscriptionrights .

3 Corporate Areas

3.1 HumanResources

at31December2008,Repsol’scomprised36,302employeesworkinginmorethan30coun-tries,mainlyinSpain(50%)andinargentina(33%),withemployeesinPortugal(4%),Brazil(2%),Peru(2%),Ecuador(2%),andTrinidadandTobago(2%) .oftheseemployees,6%workintheUpstreamarea,48%inDownstream,30%inYPF,6%inGasNatural,and0 .5%intheLNGdivision .Thebreakdownbyprofessionalcategoriesis:1%executivepersonnel;6%technicalmanagers;43%technicians;5%administrativestaff;and,45%operators .Per-manentworkcontractsaccountfor91%ofthetotalandwomenrepresentonethirdofthetotalworkforce .

Renewal of the Executive Team

InFebruary2008,coincidingwiththepresentationoftheStrategicPlan2008-2012,theCom-panyannouncedthenewmakeupofthecompany’sexecutiveteam,21%ofwhomarenewmembers . Throughout 2008, therewere 157 changes, including changes inmanagementpositionsandnewappointments(63) .Themostimportanttraitsrequiredofexecutivesincharge ofmanaging the companywere defined in accordancewith the business require-mentscontemplatedintheStrategicPlan .Thesetraitsareasfollows:

• Globalanddiverseleaders,withavisiononthedifferentfunctionsandgeographicalenvi-ronments;leaderswhoareflexibleandabletoadapttothecompany’sdifferentneedsandpriorities .

• Stronglycommittedtoachievingresults .

• Excellenceinpeoplemanagement .

Followingthesemanagerialchanges,theprofileofRepsol’sexecutiveteamismoreglobalandmorediverse in relation togender andnationalities (thepercentageofwomenhold-ingexecutive jobsandnationalitydiversity increased from8%and10%to17%and19%,respectively .

TheRepsolExecutiveConventionwasorganizedinMay2008forthepurposeofdisseminat-ingthenewmanagementstyleandforpromotingtheleadershipoftheExecutiveCommitteeandfosteringasenseofprideinbeingpartofthecompany .over250executivesfrom16countriesparticipatedinthisevent .

Diversity and balance

Professionalsofmorethan70nationalitiesworkatRepsol .oftheseemployees,some900work incountriesother thantheones inwhich theywerehired,comprising thegroupofexpatriates .ThisismostlythecaseintheUpstreambusinessarea(79%) .

Thecompanycontinuedtoworkin2008intheanalysisandimplementationofnewmea-surestoencouragediversityandbalance,promotedbytheDiversityandBalanceCommitteecreatedin2007 .Thiscommitteecontinuedtoworkonanin-depthstudyoftheobjectivesandcoreprioritiesinrelationtothisissueforthe2009-2012period .oneofthemeasuresimplementedin2008wastheteleworkingpilotproject,withtheparticipationofmorethan130peoplefromvariousbusinessareasinSpainandargentina .Theresultsofthisinitiativehavebeenverypositiveandwillbegraduallyextendedtoincludemoreworkersanddepart-ments .

another initiativeworthmentioning is the pilot project to provide support to employeesthroughanexternalcompanythatoffersawiderangeofservices,fromlegalandfinancialcounsellingtotherecruitmentofdomesticstaff .

Inaddition,inthefirsthalfof2008,theWorkingDayReductionProtocolwassigned .Thisinitiativeisdesignedforemployeeswhoworkinshiftsandestablishesflexiblemeasuresforreducingthespecificworkingdayoftheseemployees .

In2008,Repsolincorporated422peoplewithdisabilitiesinitsworkforce(365throughdirecthiringand57 throughalternativemeasures), increasing thepercentageofpersonnelwithdisabilitiesto2 .29%afteramorethan10%increaseinthepreviousyear .Throughanadver-tisingcampaignwiththeslogan“atRepsol,weworktowardsmakingintegrationareality”,theCompanymadeknown itsstance, vocation,andcommitment to thesocialandwork

HUMaNRESoURCES

integrationofpeoplewithdisabilities .Repsolcarriesoutdifferentprojectstofosterequalityandopportunitiesandthesocialintegrationofallgroups,particularlywithrespecttothosewhoencountergreaterdifficultyinjoiningthejobmarket .

Repsol,thecompanycreatingthemostjobsforthedisabled

RepsolwontheFundación Empresa y Sociedadawardforitsactiveworkinfavourofthedisabled .Thisawardisarecognitionofthebestcorporateactionsfortheintegrationofthedisabled,alwayswithintheframeworkofpromotingcorporatecompetitivenessandsocialcohesion .Repsolwasselectedamong27candidates .

Thecompanycontinuedtoimproveaccessibilitystandardsatitsservicestationsandoffices,becomingabenchmarkamongSpanishcompanies .In2008,Repsolinauguratedthefirstservicestationwheretheentirestaffcomprisespeoplewithdifferentcapabilities .

accordingtotheobservatoriodeEmpresaandSociedad,Repsolisthecompanythatgeneratesthemostdirectjobsinabsolutetermsforpeoplewithdifferentcapabilities .

Thecompanyalsoconductedanauditon remunerationandpromotionofpersonnelnotincluded inthebargainingagreement inorder toguaranteethat thisgroupofemployeesenjoysequalopportunities .

Hiring the best professionals

In2008,animportantchangewasmadeintherecruitmentstrategyforprofessionalswhowishtojointthecompany,whichisbasedonacquiringknowledgewithregardstotheirmoti-vationandontheoptimaluseofavailableresources .Recruitmenttechniquesandprocesseswereredesignedandtheconceptof“brandasanemployer”wasintroducedtoencouragejobmarketing .

TheobjectiveoftheseimprovementsistoprojectRepsol’svalueswithregardstoqualityjobs,seekingacloserrelationshipwiththeacademicworld,andpromotingprofessionaltrainingbasedonvariousinitiatives .Theseinitiativesincluded:publicationofthe“SoY”campaigninuniversitynewspapers,stressingthecompany’sfivevaluesinrelationtojobs:careerde-velopment,diversity,teamwork,globalscope,andcommitmenttosociety;theredesigningandupdatingofEmploymentChannelcontents,whichcanbeaccessedthroughthecorpo-rateweb;promotingattendance inemployment forums;and, thesponsorshipof variousseminarsandreports .RepsolwasincludedintheselectgroupofTopCompaniesinwhichtoWork .

The“Impulsa”scholarshipprogramwaslaunchedin2008 .Thisprogramprovidesstudentsintheirlastyearsofuniversitywithanofferthatgoesbeyondin-houseworkexperience .Itprovidestraininginlanguages,genericskillsandcompetencies,andthepossibilityofjoiningthecompanythroughtheNewProfessionalsProgram .

Morethan1,850peoplejoinedthecompanyin2008 .over120ofthesenewincorporationsarerelatedtoPlandeChoque,a5-yearprogramthataimstoincorporateprofessionalsintheUpstreamareainordertomeettheneedsenvisagedinthegrowthplanforthisactivity .Inaddition,280peoplejoinedtheRefiningSpainareaintheDownstreamdivisiontofillthevacanciesinthefacilitiesenlargementprojectsandtoensureasuitablegenerationalshift .

Talent management

Withthehelpofthe“PeopleReview”system–atoolforidentifyinganddevelopingtalentinRepsol–andthrough58worksessionsorganizedin2008,itwaspossibleobtainamapoftalentineachofthecompany’sareasandtodesignaspecificdevelopmentplantooffergreateropportunitiestoprofessionals .

Inkeepingwiththecompany’s interest incontinuingto identify,yearafteryear, thetalentofitsworkers,16sessionsofthe“DevelopmentCenter”programwereconductedin2008 .Nearly150professionalswereevaluatedinthesesessions,72%ofthemwomen,aclearex-ampleoftheproject’spotentialfordetectingtalentinthisgroup .

Executivecoachingwasalsointroducedasatoolforcareerdevelopment .ThisexperiencewaslaunchedintheMarketingandChemicalsdivisions,draftingaprocedurewhichwillbeappliedinotherareasoverthecomingyears .Inaddition,apersonalinterviewprocessforemployeeswhoshowgreatpotentialwasalsoimplementedinordertolearnmoreaboutthisgroupofemployees .

TechnicalknowledgeisakeyfactorforthegrowthofRepsol’sactivities .Towardsthisend,theExecutiveCommitteedecidedtolaunchaprojectforthereviewoftechnicalcompetencies,standardjobs,andtrainingcourseswhichwillmakeitpossibletomanagetechnicaltalentinastandardandefficientfashionfromaplatformofcommonknowledgeforallemployees .

afteridentifyingtechnicalcompetencyrequirements,thedefinedlearning“roadmap”willmakeitpossibleto:

• Provideorientationtoemployeesfortheirdevelopment,offeringastructuredtrainingplanforeachstageoftheircareerfocusedonacquiringcriticalcompetencies .

• Promotetechnicaltrainingwithawiderglobalscopeintegratedandsharedbythevariouscompanyareas .

• optimizeplanning,management,andtraining .

Repsol’s corporate university

TheCentroSuperiordeFormación(CSF),Repsol’scorporateuniversityproject,waslaunchedinthesecondhalfof2008 .ThisprojectcombinesalltheresourcesearmarkedfortrainingactivitiesinthesameorganizationalunitandcomprisestheLeadershipandManagementSchoolandtheTechnicalExplorationandProduction,Industrial,Marketing,andCorporateProcessesSchools .Thecreationofthiscentrewillcontributetooptimisingtraininginvest-ment,which,in2008,totalled€27millionfortheentirecompany .

Entrepreneurial spirit and excellence

ThevariableremunerationsystemforRepsolprofessionals,knownasManagementbyCom-mitments(MxC)hasbeeninforceforthreeyearsandispartofthecommonlanguageoftheorganization .Theobjectiveofthissystemisforemployeestofocustheireffortsonachievingestablishedtargetsandalsofortheseprofessionalstobecommittedtotheirdevelopmentandthatof thosereportingtothem,notonlyassessingresultsobjectively,butalsoknow-inghowtoachieveresults .Italsoemphasisesmonitoringday-to-daybehaviour,promotingpreferably those that the company considers essential: responsibility and results-focused,entrepreneurial spirit and excellence, cooperation, people development, andmerit-basedrecognition .

Theanalysisof2007resultsshowedthatprogresswasmadeinmerit-baseddifferentiation,providingincentivesandawardingactionsthatcontributetotheorganization’ssuccessinthelongterm .

Work Climate in 2008

afollow-upsurveywasconductedinNovember2008withtheparticipationofmorethan8,000companyemployees,toevaluatetheprogressmadeinrelationtotheactionsoutlinedonthebasisoftheworkclimatestudycarriedoutin2006 .Theresultsofthissurvey,withtheparticipationof77%ofemployees,showedthatprogresshadbeenmadeinmostoftheidentifiedareassubjecttoimprovement .

Labour relations

ThetermoftheFourthFrameworkagreementforSpainexpiredin2008withoutanylabourconflictstakingplacewhileitwasinforce .NegotiationsontheFifthFrameworkagreementbeganinNovemberwiththecreationofabargainingroundtableandthepresentationofthenegotiationplatforms .

TheHarassmentProtocolwasexecutedinthefirsthalfof2008 .Thisprotocoloutlinesthestepsthatmustbetakenintheeventthatanyemployeesuffersanyharassmentatthework-place .

Health and safety at the workplace

SincetheapprovaloftheManagementStandardsforHealthandSafetyattheWorkplaceatRepsol inoctober2007, theWorkplaceHealthandSafetyTechnicalCommitteehasbeenworkingondraftingasetofuniformstandardsonaninternationalscale .Inthiscontext,thefollowingproceduresareworthmentioning:

• Safetyandhealthrequirementswhentravellingtoriskcountries .

• Individualhealthmonitoring,jointlywithperiodicalvigilanceguidelines .

• Theprovisionofmedicalservices .

• Safetyandhygieneinfoodpreparation .

In addition, a health data and indicators procedurewas approved thatwill contribute toimprovingcurrentmonitoringsystems .

INNovaTIoNaNDTECHNoLoGY

3.2 InnovationandTechnology

RepsolconsidersitsResearchandDevelopment(R+D)investmentsandactivitiesasessen-tialtoolsthatenableittohavecompetitivetechnologyformanufacturingthebestproductsbymeansofefficientandenvironmentally-friendlyprocessesthathavetheminimumimpactontheenvironment,therebyfulfillingmarketneedsanditsclients’expectations .Bydoingthis,thecompany’svalueincreasestothebenefitofitsstakeholders,andthecompanybe-havesinasociallyresponsiblemanner .

ResourcesareappliedinR+Dprogramstoidentifyandincorporatethebestcommerciallyavailabletechnologywhile,atthesametime,workiscarriedouttodevelopthecompany’sowntechnologytoenableittoachieveastrongercompetitivepositioning .additionally,thecompanyconducts researchonemerging technologies thatcanchangebusinessoutlookandconstantlymonitorstechnologicalareasidentifiedasbeingofcriticalimportanceforthecompany .

TheGroup’stechnologycentresinSpain(Móstoles)andargentina(LaPlata)employ450researcherswhodevelopanintensiveprojectprogramcoveringallofthecompany’sbusi-nesslines:oilandgasexplorationandproduction,thenaturalgasvaluechain,oilrefiningandpetrochemicals,withoutignoringfuturediversificationopportunitiessuchasbiofuels .In2008,€74millionwereinvestedtocarryoutalloftheseactivities,plusanother€6millionforprojectsundertakenatthebusinessunits .

Repsol collaborates with its social surroundings, aware of the increasing importance forscientificandtechnologicaldevelopmentforstrengtheningthebondsbetweenthecompanyandthecommunity .Toachievethis,thecompanyhasanactivecollaborationpolicythroughagreementswithuniversities,companies,andotherpublicandprivatetechnologycentres .The2008budgetearmarkedforthesetypesofagreementstotalledmorethan€12million,muchhigher than in recent years .Theareasofcooperationspanned frompreliminaryvi-abilitystudiesforstartingnewprojectstoundertakingspecificstagesinR+Dinitiativesac-cordingtospecificknowledgeand/orspecificfacilitiesavailableatthesecentres .Inaddition,therewasanincreaseinthecompany’sinvolvementinconsortiumswithothercompaniesforthepre-competitivedevelopmentofnewtechnologies .

Furthermore, Repsol participates in R+Dprojects sponsored by different administrations(regional,national,andEuropean) .In2008ittookpartin24differenttypesofprojectspro-motedbytheSpanishGovernmentandinsevenEuropeanUnionprojects .

R+Dprojects and programs involve the entire value chain of the various business units,fromexplorationofnewoilandgasfields,toliftingandpreparationfortransport,includingtransformationandmanufacturingofproductsinindustrialcomplexesanddistributiontotheendclient .The followingsignificant linesandactions in thevariousRepsolbusinessareasareworthmentioning:

• Upstream . Repsol applies themost advanced technologies in the exploration of newoilandgasfields,developingnewseismicprocessingtechnologies jointlywithother leadingcompaniesanduniversitiesto improvethepossibilitiesofanalysingandinterpretingseis-micimages,thefirststepintheoilandgasexplorationprocess .Thistechnologybolsterscompetitiveadvantagesinceit increasesthepossibilitiesoffindingdeepwateroilandgasreserves–ascenariothat,untilnow,wascharacterisedbygeologicalformationsthatwerecomplexorinvisiblewhenusingtraditionaltechniques–andsignificantlyreducesexplora-tionrisksandassociatedcosts .

anotherofthemainlinesoftechnologicaldevelopmentatRepsolinvolvesimprovedrecov-erytechnologiesforextractingmoreoilandgasfrommaturereservoirs .Thecompanyalsodevelops and adapts technologies to enhance non-conventional hydrocarbon production,suchasheavyoilandlow-permeabilitygasresources,inadditiontotechnologiesandmeth-odologiestoimproveproductioninoffshorefields .

• LNG .Inthisbusiness,inwhichRepsolisaleadinginternationalplayer,liquefactiontechnol-ogiesarebeingdevelopedtousefloatingsystems,whichwillmakeitpossibletocapitalisegasreservesthatcannotbeexploitedinaneconomicallyviablemanneratpresent .

• Downstream .Specialisedtechnologicalsupportforrefineriesmakesitpossibletoproducebetter quality gasoline anddiesel fuel .Bymakingprogress in this field,Repsol can keepaheadofinternationalregulatoryrequirements,consistentlymaximisingitsoperatingmar-gin,ensuringcompliancewithenvironmentalrequirements,andpromotingenergysavingsandefficiency .Newproductsarebeingdevelopedaspartofthisstrategy,suchasplant-basedbiofuelsand improvedperformance lubricantsandasphaltsadapted tocomplywithnewenvironmentalstandards .

Severalfleettrialsandfieldtestshavebeenconductedtoensurethatthesenewbio-productsreachthemarketwithfullguarantees,includingthefollowing:atrialusingafleetofbusesrunningonbio-dieselmadewith recycled fryingoil; the testsperformedon200vehiclesusingabiofuelwithahighcontentofrenewables(30%);fieldtestsusinganewenhancedsafetyoilasabiodegradableelectricaltransformer;andthetestonaroadsurfaceusingas-phaltthatcanbespreadatalowtemperaturethatprovidesenvironmentaladvantagesandcostsavings .

aspartofitscommitmenttoresearchandsustainabledevelopment,Repsolhaslaunchedseveral innovativeprojects,suchasthestudyofnewcropsforproducingbiofuels,thede-velopmentofCo2capturesystemsusingreusablebio-algae,biomass,productsmadewithvegetableoilsfortreatingcropsaffectedbyplagues,andtheapplicationofspreadableoilstotreatwoodtopreventattacksbyxylophagousorganisms . .

CompetitionfuelsdevelopedattheRepsolTechnologyCentreareusedinmajorsportscom-petitions .In2008,forthefourthconsecutiveyear,HondaHRCratedRepsol’sCTR-54com-petitionfuelthebestperformercomparedtoseveralothersmanufacturedbycompetitors .Repsol’stechnologydepartmentalsodevelopedthefirstcompetitiondieselfuelforMitsubi-shi’snewLancer,whichcompetedinthelastDakarraceheldfrom3to18January2009inargentinaandChile .Knowledgeacquiredinthesecutting-edgetechnologiesissubsequentlyusedtoimprovethecompany’sproductsthatreachendusers .

InLPG,newend-to-endair-conditioningapplicationsfortheresidential,tertiary,andindus-trial sectors are being implemented gradually . These applications, jointlywith the use ofautogas(LPGusedtopowervehicles)andincoastalfishingvessels(Peixeverdeproject),openawiderangeofenvironmentally-friendlybusinessopportunities .

Research inpetrochemicals focusesonoptimisingexistingprocesses,manyofwhichareproprietary technology, and indevelopingproducts adapted tonewmarket requirementsinincreasinglycompetitivescenarios .Itisinthesetypesofproducts,particularlythoseformassconsumption, inwhichperformanceexcellenceandthebalancebetweenpropertiesandthepriceofrawmaterialsandenergyrequiredforproductionmarkthedifferenceinef-ficiencyandsustainabilitybetweenprocessesandproducers .

Theprojects developed throughout 2008made it possible to redesignpolyol productionunits,increasingcapacitywhileatthesametimeimprovingthequalityofthecompositionandpropertiesoftheseproducts .

Moreefficientproceduresweredefinedfortheproductionofpolyolefinandalternativeusesfortraditionalmonomersweredevelopedbyintroducingmoreefficientcatalystsinthepro-cesses .

ThroughtheinvolvementinDynasol,thecompanycontinuestodevelopnewsyntheticrub-ber, theapplicationsofwhichareveryappreciated in theautomotive industryand in themanufacturingofadhesivesandcompounds .

3.3 SafetyandtheEnvironment

ForRepsol,payingattentiontosafetyandtheenvironmentisanessentialaspectinmanag-ingitsactivities .Thisprincipleispartofthecompany’sstrategicvisionanditscommitmentto“contributetosustainabledevelopmentandimprovementofthesocialenvironment,andtorespecthumanrights,theenvironment,andsafety” .Thiscommitmentiscomplementedbythefollowingethicalvalue:“wedemandahighdegreeofsafety inprocesses, facilities,andservices,stressingtheprotectionofemployees,contractors,customers,andthelocalsurroundings,andweconveythisprincipletotheentireorganization” .

ThesearethecommitmentsandvaluesunderpinningRepsol’sSafety,Health,andtheEnvi-ronmentPolicythat,throughthemanagementsystem,appliestoallthecompany’sactivities .ItsmainsupportistheSafetyandEnvironmentManual,whichissupplementedbyalargesetofstandards,procedures,andtechnicalguides,constantlyupdatedtoadaptthemtothebestpracticesintheindustry .

Themostimportantactionscarriedoutrecentlytoimprovesafetyandtheprotectionandconservationoftheenvironmentandtheevolutionofthemostrelevantindicatorsarede-tailedintheRepsol2008CorporateResponsibilityReportandonitswebsite(www .repsol .com) .

SaFETYaNDTHEENvIRoNMENT

Safety

Repsol’sobjectiveistohaveaccident-freeoperations .Toachievethis,managementimprove-mentmeasuresand investmentsaredefinedeachyear tomaintain the facilities inaccor-dancewiththebeststandardsinthesector .Toimprovesafety,themanagementsystemisconstantlybeingevaluated .

TherateofaccidentsatRepsoldecreasedonceagain in2008 .Thefrequencyoftimelostduetoaccidentsaffectingintegratedpersonnel(companyemployeespluscontractors),fell25%incomparisonwiththepreviousyear,therebymeetingtheannualtargetandmakingprogressinachievingthestrategicgoalsdefinedbythecompanyfor2012 .

Unfortunately,however,despiteall thestepstakenandtheprogressmadeinthisrespect,ninefatalaccidentsoccurred,withelevendeaths,threeofwhomwerecompanyemployeesandeightwereemployedbycontractors .Fiveofthesedeathsoccurredinroadaccidents .

Environment

IncompliancewithRepsol’sstrategiclines,protectionandconservationoftheenvironmentarekeyelements in thecompany’sactivities .Significantenvironmental investmentsweremadein2008 .Keyamongthese,asinpreviousyears,weretheimprovementsachievedintherefiningbusinesstomeetenvironmentaloilproductqualitystandards .alsosignificantwere themeasures implemented tominimiseemissions toair, theoptimisationofwaterconsumption,thereductionofcontaminationinlandfills,propermanagementofwaste,andtheimprovementofsystemstopreventspillagesbasedonthebestavailablepracticesandtechnologicalinnovation .Greateffortsweremadeinidentifying,assessing,andaddressingpossiblecontaminationepisodesinthepast .

Note39oftheRepsolYPFGroupConsolidatedannualReportprovidesdetailedinformationontheassets,expensesandinvestments,contingencies,provisions,andfutureactionsinrelationtotheenvironment .

Climate Change

In2008,theEuropeanCommission,undertheFrenchpresidency,approvedapackageofmeasures tofightclimatechangeandpromote renewableenergies .Thedocumentestab-lishesa20%greenhousegasreductiontargetby2020andanincreaseintheuseofrenew-ableenergies .EuropeanUnioncommitteeswillbemeeting in2009todefinethespecificmeasurestobeimplementedinordertofulfilthesetargets .

additionally,thepartiestotheUnitedNationsFrameworkConventiononClimateChange,meetinginPoznan(Poland), inDecember2008,reachedagreementsontheKyotoProto-coladaptationFundandon the transparencymeasures forhandlingCleanDevelopmentMechanisms(CDM)projects .ThecountriesincludedinannexIoftheKyotoProtocoltriedtoadvanceinthenegotiationsonthecommitmentstoreducegreenhousegasemissionsandthosenotincludedinannexIonthepossibilityofincludingcarbondioxidecaptureandstorageaspartoftheCDMsandalsosoughtclarificationontherulesfortechnologytransfer .atthemajorgatheringtobeheldattheendof2009inCopenhagen(Denmark),thepartieswillseektoconcludetheseactions .

atthein-houselevel,Repsolcontinuedin2008toimplementitsCarbonPlaninallthebusi-nesslinesthatproducegreenhousegas(GHG)emissions,principallybyseekingemissionreductionopportunities,assessingitsviabilityasaCDMproject,theimprovementofGHGinventories,andinvestmentinCarbonFunds .

In 2005,Repsol outlined its objective of reducing emissions by onemillion tonsofCo2equivalentoverthe2005-2012periodinrespectofabusinessasusualscenario .Thankstotheefficiencymeasuresimplementedinrecentyears,thecompanywasabletomeetthistar-getin2008 .Consequently,Repsolhasrevisedthistargetandhassetamoreambitionsgoal:anadditional1 .5milliontonreductionofCo2equivalentduringthe2009-2013inrespectofthebusinessasusualscenario .

oneofthelinchpinsoftheCarbonPlanisthedevelopmentofapotentin-houseprogramtodetectreductionopportunities .Thankstothisinitiative,knownasCoRE(Reductionop-portunityCatalogue),94projectshadbeenidentifiedbyyear-end2008 .

Repsolcontinuedtoworkthroughoutyeartowardsensuringtheconsistency,transparency,and credibility of greenhousegas emissionquantification,monitoring, and reportingpro-cesses,applyingtheprogramintroducedin2007forverifyingtheinventoryofthistypeofgasandmeasuresforitsreductioninaccordancewithISoStandard14064 .

InvestmentinCarbonFundscontinuedasestablishedinrecentyears .ThesefundsareusedtodevelopCDMprojects indevelopingcountries, including investing inenergyefficiencyinitiatives,renewableenergies,wastemanagement,andfuelchangeprojects .In2008,the

companyparticipatedintwoinitiativescarriedoutinChinathroughtheNatsourceCarbonFund“GreenhouseGasCreditaggregationPool(GG-CaP)”,anindustrialcogenerationproj-ectinChaochuanandanotherhydrogenerationprojectintheprovinceofHunanwhichispoweredbythecurrentoftheChenshuiRiver .

Biodiversity

Repsol respects biodiversity when planning and developing its projects and operations,preventingandminimisingthepossiblenegativeimpactsonecosystems .In2008,RepsolYPFdevelopedasetofregulationsthatdefinethebiodiversitycriteriaandguidelinesforallthecompany’soperations,includingthecommitmenttoimplementtheBiodiversityactionPlansinprojectsdevelopedinsensitiveareas .

alongtheselines, in2008thecompanycontinueddevelopingthetwoBiodiversityactionPlan(BaP)undertakenin2006inrelationtoexplorationactivitiesinblock39(Peru)incol-laborationwiththeprestigiousSmithsonianInstitution,andin2007foroffshoreoperationsinTrinidadandTobago .

Acknowledgementinsafetyandtheenvironment

Forthethirdconsecutiveyear,RepsolwasincludedintheselectiveDownJonesSustainabilityWorldIndex,theDowJonesEuroStoxxSustainabilityIndex,andtheClimateLeadershipIndex .

TheDowJonesSustainabilityIndexcomprisesseveralmarketindiceswhosemembersmustprovethattheyhaveimplementedadvancedpracticesinrelationtovariouscorporateresponsibilityfacets .onanannualbasis,theseindicesassessseveralaspects,includingcompanies’managementofsafetyanden-vironmental issues . In2008, for thefirst time,Repsolobtainedthemaximumrating in itssectorwithrespecttoenvironmentalpolicyandmanagement,protectionofbiodiversity,andon-the-jobhealthandsafety .Inaddition,forthesecondconsecutivetime,thecompanyreceivedtopratingsforitsmanagementofclimatechange .

Forthethirdconsecutiveyear,RepsolremainedintheClimateLeadershipIndexwhichincludesthe30bestFinancialTimes500companiesinissuessuchasstrategyandtransparencypolicyinrelationtoclimatechange .Thecompanywasratedoneofthebestthreeintheoilandgassectorandwastheonlyonethathasrankedamongthetopthreeoverthepastthreeyears .

Foritsinclusioninthisindex,Repsolsuccessfullypassedanevaluationoftenkeycriteriarelatedtoitsactivity,suchasinvestmentinnewtechnologiestoreduceemission,emissioninventorymanagementandreporting,andinvestmentinenergysavingsandefficiency .

Since2003,RepsolhasbeenamemberoftheFTSE4Good(FinancialTimesStockExchangeIndex)intheLondonStockExchange .

3.4 KnowledgeManagement

Repsoliscurrentlyimmersedinamomentofchangetoadaptitselftotheneedsofacompet-itivemarketthatdemandsconstantinnovation .Tothisend,thecompanyplanstocontributetothisadaptationbycreatingvalueandinnovativecapabilitiesintheorganizationthroughtheuseofknowledgemanagementtechniquesandtools .

General Mission

KnowledgemanagementinitiativesatRepsolmustcontributetobusinessresults,efficiencyimprovement,andcommitmentmanagementthroughthedesignanddeploymentofacapa-bilitiesdevelopmentandtransfermodelamongallthebusinessunitsandtheorganization’stransversalareas .Theobjectiveistocreateacommonframeworkforgeneratinginnovativecapabilities,constantlyalignedtostrategicobjectivesandtheresultsofwhichcanbequanti-fiedtoensuresustainableimprovement .

Corporate Vision

Repsolwantsknowledgemanagementtobecomeanundifferentiatedandintrinsicpartoftheday-to-dayactivityof itsemployeesandof itsworkprocessesandevaluationsystems,contributing to a constant improvement and innovation framework and an environmentthat encourages the participation, implication, and development of company employees .Throughknowledgemanagement,Repsolaimsfor itsemployeestofeelprofessionallyen-richedandmotivatedandencouraged,onapersonallevel,toparticipateactivelyinthecom-pany’sprogress .

QUaLITY:MaNaGEMENTEXCELLENCE

Strategic Objective

Repsolemployees,nomatterwheretheyareorinwhichunitorfunctionalareatheycarryouttheiractivities,willhaveaccesstoallavailableknowledge(contents,people,andprocesses)toenable themtofind,whenever theyneed it, thepertinentknowledgeand theconstantidentificationandtransferofgoodpracticesinallkeyareasandprocesses,contributingtocreatingafavourableenvironmentforinnovation .

Deployment and actions carried out

aspartofthestrategicknowledgemanagementplan,newpracticecommunitieshavebeencreatedwhich,togetherwiththosealreadyinexistence,compriseapproximately20,000peo-ple throughout theentirecompany . In2008,projects forretainingemployees’knowledgeanditstransfertoothers,(duetoretirement,turnover,changes,theincorporationofnewprofessionals,trainingmaterial,etc .)remainedinplace .appliedmethodologyismainlysup-portedbycompilingpersonalhistoriesandexperienceswhicharerecordedinaudiovisualsupport .

TheMoebiusProjectwaslaunchedinordertobringthecompany’sknowledgeclosertoitsemployees .ItsobjectiveistomakeavailabletoallemployeestheknowledgeexistingwithinRepsol .Toaccomplishthis,aprototypeofthedesiredfinalsystemhasbeenmade .Incol-laborationwiththeSystemsDivision,apreliminaryversionwasmadethatiscurrentlybeingusedtoshowtheachievablefunctionalitiestoallbusinessunitsandtohaveatrialenviron-menttooptimiseperformanceandensureitsproperusebyendusers .

Acknowledgements

In2008,RepsolreceivedtheEuropeanMaKE-2008awardinrecognitionforthemeasuresimplementedbythecompanyandtheresultsachievedinknowledgemanagementthroughtheevaluationofmorethan500professionals,thankstowhich,RepsolwasselectedasoneofthetenbestEuropeancompaniesinthisfield .

3.5 Quality:ManagementExcellence

Repsolperceivesqualityastheconstantpursuitofexcellencebymanagingthecompany’sresourcesinanappropriatemannertogeneratevalueforitsstakeholdersoverthecourseoftime .

In 2001, in order tomake progress on the road to excellence, Repsol adopted the Euro-peanFoundationforQualityManagement(EFQM)andtheIbero-americanFoundationforQuality (FUNDIBEQ)models, implementing thesemodelsbyperformingperiodicself-as-sessmentsthatenablethecompany’sunitstoidentify,prioritize,implement,andassessitsimprovementplans .

Repsolisamemberofthetwointernationalfoundations(EFQMandFUNDIBEQ)andac-tivelyparticipates in the leadingquality associations in thegeographical regionswhere itoperates .

Updating the Strategic Quality Plan

Each year, the Quality Committee, comprising seniormanagement representatives fromcorebusinessareasandcorporatedirectors,approvesthecompany’sStrategicQualityPlanwhichsetsoutthepriorityobjectivesandtheactionscontemplatedfordevelopingthequal-itypolicy .ThecurrentplanenvisagesseveralstrategiclinesthatrecogniseandpromoteasoneofRepsol’scoreprofessionalvalues,acustomer-drivenpolicyguidedbyknowingandsatisfyingcustomers’needswithspeedandflexibility,andbyanticipatingtheirexpectations .Thebasicpremiseoftheplanistofostercreativityandinnovationasameansofensuringsustainablecompetitiveadvantage .

In2008,thecompanycontinuedtodevelopthekeyStrategicQualityPlanprograms .aspartoftheconsolidationandimprovementoftheself-assessmentprocess,thecompany’sdiffer-entbusinessunitsdefineandimplementtheirimprovementplansandprogramsbasedontheself-assessmentsthattheyperform .

Since theprogramwasfirst implemented in2001,more than 120self-assessmentshavebeenperformed .Thisimpliesthatat31December2008,100%oftheorganizationhadcom-pletedatleasttwoself-assessments,and30%hadperformedthreeormore .

Theself-assessmentmethodology,designedin2007,wasreviewedindepthin2008forthepurposeofimprovingitsalignmentwiththebusinessstrategyandensuringtheintegrationofallimprovementinitiativesandthemonitoringofactionplans,alsowiththeobjectiveof

havingthequalityfunctionactasacatalystforchangemanagement .allthisissupportedbyambitiousvalue-accretionobjectivesandunderpinnedbyasystemofindicatorsformonitor-ingandbolsteringtheconstantimprovementprocessesandenhancedefficiency .

Repsolalsoworkedon implementingaprocess-focusedmanagementsystemthroughoutthe entire company . The decision-making process and implementation of improvementstoensure fulfilmentofobjectivesaresupportedbyestablishingprocessesand identifyingperformanceindicatorsandmetrics .

Repsolpromotestheuseofbenchmarkingasthebasisforestablishingimprovementobjec-tivesaccordingtotheenvironmentanddisseminatingknowledgeofbestpracticewithintheorganization .

Innovation and the use of quality training

Repsolalsopromotesinnovationasanessentialmanagementvalueasreflectedinitsqual-itypolicy .In2007,thecompanyapprovedtheimplementationofaninnovationframeworkpromotedbyClubExcelenciaenGestión (ManagementExcellenceClub)and theCoTECFoundationasareferenceforboostingtheorganization’scapacityforinnovation .

a new training curriculum on quality was developed in 2008 for all company personnel .Thiscurriculumcoversallquality-relatedaspects:excellenceandself-assessmentmodels;process-drivenmanagement;qualitycertifications;andbasic toolsandmethodologies forimprovementandtheirimplementation .

on8october2008,anopen-doorseminarwasorganizedatRepsol’sheadquarters,incol-laborationwiththeManagementExcellenceClub,undertheslogan“Let’sinventthefuture” .atthisevent, inwhich150peoplefrom60companiesfromdifferentsectorsparticipated,informationwasprovidedonsomeoftherelevantinitiativesthattheGroupisimplement-ing in itsquest for achievingexcellence .Toshed lightonRepsol’squalitypolicy commit-ments,theday’sagendaincludedsubjectsrelatedtothetransformationoftheorganization,humancapital,innovation,theenvironment,andthecompany’sconstantcommitmenttothecommunity .ThesethemescoincidewiththecorevaluespromotedbytheManagementExcellenceClubandexcellenceprinciplespromotedbytheEFQMandFUNDIBEQmodelsappliedatRepsol .

Certifications

Repsol promotes the implementation of qualitymanagement systems based on interna-tionalstandards inorder toprogressontheroadtoexcellence,developingacultureandcommitmenttoquality,andcomplyingwithmarketrequirements .

Thecompanyhasapproximately60qualitycertificationsbasedonstandardssuchasISo9001:2000,TS16949,andISo17025,whichareavailableatthecompany’swebsite(www .repsol .com) .

3.6 CorporateResponsibility

Commitment to society

Repsolworksinalargevarietyofsocial,culturalandfinancialenvironments .aconcernforlocalsensitivitieshelpsthecompanyunderstandandrespondtotheparticularneedsofthecommunitieswithwhichitcomesintocontactinthedifferentphasesofitsbusiness .Devot-ingattentiontolocalissuesgivesRepsolacloserfeelfortheconcernsofthepeoplelivinginthevicinityofthecompany’soperations .

Repsol’sefficientandmodernenergymanagementisframedinthecontextofafirmcom-mitmenttothewell-being,developmentandprosperityofthesocietiesinwhichitispresentandtotheprinciplesofsustainabledevelopment .Thecompanyseessocialcommitmentasaninherentpartofitsactivity .Betweenthem,protectingthenaturalandsocialenvironment,goodrelationswiththecommunitiesinwhichitworks,people’ssafetyandrespectforhu-manrightsdefineitsmanagementmodel .

During2008,Repsolmadeprogressinputtingintoactionthesixstrategicstrandsofthe2007-2009CorporateResponsibilityMasterPlan .asof31December2008,fiftyof the65stepssetoutinthePlanhadbeenimplemented,amountingtoaprogressrateof80% .

acloserandongoingrelationshipwith thedifferentgroupsof interest to thecompany isoneofthebasicpremisesoftheCommunityCommitmentScheme,whichisframedinthecontextofoneofthestrategicstrandsoftheMasterPlanaimedatpromotingdialogueandcooperationwiththecommunity .

CoRPoRaTERESPoNSIBILITY

Thisschemefocusesonanalysing,organisingandsteeringthecompany’ssocialcommit-mentactivities,aligningthemwiththeobjectivesandstrategyofthebusinessandwiththerealneedsofthecommunitiesandsocietiesinwhichRepsoloperates .

oneofthekeymilestonesthisyearwasthepreparationandapprovalofthepolicyforrela-tionswiththecommunityandthepolicyforrelationswithindigenouscommunities,whichfromthatpointongovernthepracticesofRepsolandofitscontractorsandsuppliers .

Socialstakeholdersplayedapart indrawingupthepolicies .Tobeprecise,morethan24nationalandinternationalorganisationswerecontactedwhenthepolicyforrelationswithindigenouscommunitieswasdrawnup .

ThispolicyrepresentsRepsol’ssupportfortherecognitionofindigenouspeoplesassetoutinConvention169oftheInternationalLabourorganization(ILo)andintheDeclarationontheRightsofIndigenousPeoplesoftheUnitedNationsGeneralassembly .Itacknowledgesthedifferentialnatureofthesecommunities,thedutytorespectandpromotetheirhumanrightsandfundamentalfreedomsand,particularly,theirorganisational,economicandsocialstructures .Likewise,intheframeworkoftheapprovedpoliciesmentionedabove,Repsolun-dertakestoconsultthosecommunitiesbeforehandandknowledgeablyandtoletthemshare,wheneverpossible, thebenefitsaffordedbybusinessactivities toexploit thehydrocarbonresourcesthatexistintheirsoil,amongothers .

ThesepoliciesmakeitpossibletostrengthentheapproachthatRepsolhassoughttopro-moteinthedialoguewithandunderstandingofthecommunitiesinthevicinityofitsbusi-nessoperations,andtorespondtotheirspecificneedsbydrawingupplansforrelationswiththecommunity .

Thecompany’sapproachtocorporateresponsibilityandsustainabledevelopmentwonrec-ognitiononcemorein2008 .RepsolwasincludedagainintheselectiveDowJonesSustain-abilityIndexes .Intermsofthesocialcriteriaassessedintheanalysis,Repsolstoodoutforitssolidsocialcommitmentandscoredtopmarks inhumancapitaldevelopment,healthandsafetyintheworkplaceandsocialimpactoncommunities .Likewise,bycontinuingtobeincludedintheFTSE4Goodindex,Repsol’scommitmenttolong-termvaluecreationisendorsedforanotheryear .

In2009,andtakingtheexpectationsofgroupsofinterestintoaccount,thefoundationsforthe company’snewCorporateResponsibility strategywill be establishedaround thenew2010-2012MasterPlan .

asaresultofRepsol’svoluntarycommitmenttothesustainedenhancementofsociety,theRepsolFoundationembarkedonanewphasein2008inwhichitsetitselfnewgoals .

TheFoundationisconsideredtobethemaximumexpressionofthecompany’spledgeforsocialresponsibility .Itsaimistoworkinfieldsinwhichitcanmakemoreofacontribution,whichhaveaclearimpactontheenhancementandprogressofsocietyandwhichcontributetopeople’swell-being .Itsareasofactivityrevolvearoundsocialaction,energyandtheenvi-ronment,responsiblemobilityandeducationandculture .TheFoundationwillalsoprovidedebateonandanalysisof trendsandsensitiveareasofconcern inthesocial,energyandenvironmentalfield,creatingmeetingplacesanddiscussionforums .

ThenewFoundation is responsible for runningcultural, social, scientificandeducationalschemesandactivitiesaswellasthoseforpromotingresearch,afunctionhithertoscatteredacrosstheRepsolGroup,thusgivingcontinuitytotheinitiativesthatthecompanywasput-tinginpracticefromitsCorporateResponsibilityunit .

More than 1,200 schemes

oneofRepsol’sstrandsofactivityintermsofsocialcommitmentrespondstoneedsidenti-fiedinthecommunitiesfromalastingpowerviewpoint .asarule,thecompany,inconjunc-tionwiththecommunitiesortheirrepresentatives,decideswhichpriorityprojectsshouldtobeundertakeninordertohelpaddresstheneedsidentified .

Theactivitiesthatthecompanyhascarriedoutcanbesummarisedinthefollowingstrandsofactivity:educationandtraining,communitydevelopment,health,socialintegration,theenvironment,artandculture .

In2008,RepsolYPFanditsfoundationsput€30milliontowardssocialinvestmentaltogeth-er .allinall,duringtheyear,morethan1,200socialandculturalschemeswereundertaken .

investment in social and cultural schemes ThousandsofEuros

2004 2005 2006 2007 2008

Spain(1) 9,714 10,856 12,806 13,308 8,982

Europe, Africa and Asia 868 295 801 1,270 845

North America 537 719 478 54 62

South America (excl. Arg.) 2,836 3,903 5,116 5,310 5,343

Argentina 2,378 6,898 6,254 12,360 14,662

total 16,333 22,671 25,455 32,302 29,894

%ofpre-taxresults(2) 0.40% 0.41% 0.47% 0.58% 0.63%

(1)HigherInstituteforEnergy(InstitutoSuperiordeEnergía,ISE)involvementin2008amountedtonearly€5million .

(2)Calculatedonearningsbeforetaxandfromassociatedcompanies .

3.7 Communication

Transparencyandhavingcloserelationswithsociety’sdifferentstakeholdersarethemain-stayofRepsol’scommunicationsstrategy .Thesedays,societywantsaccessibleinformationandRepsoldoesnothesitatetocaterforthisneedinthesmoothestandmostreliablewaypossible,throughanumberofdifferenttools .

Shareholders and investors

Thesegroupshaveaccesstoallsortsofresourcesthatenablethemtofindoutabouttheday-to-daybusinessofthecompany .Sinceitsflotationin1989,RepsolhashadaShareholder’sInformationoffice (oficinade informaciónalaccionista,oIa)andan InvestorRelationsoffice,andthroughthembothitdealswiththeneedsofitsshareholders,institutionalinves-torsandstockmarketanalysts .

ShareholderscanaskforanyinformationtheyneedattheoIa,bygoingtotheofficethem-selves,callingthe900100100freephoneorbypostore-mail .In2008,theoIadealtwithover62,000calls(anaverageof238aday)andnearly300e-mailsfromshareholdersaskingforinformation .Mostoftheenquiriesin2008hadtodowiththeshareprice,theGeneralMeetingofShareholders,thepolicyforanddatesofpaymentofdividendsandthematerialfactsofthecompany .

addedtothat,thecorporatewebsite(www .repsol .com)providesaccesstoalltherelevantin-formationaboutthecompany,aswellasspecificcontentsinthesectionon“Informationforshareholdersandinvestors”,whichin2008hadmorethan200,000visits .Theportalalsohasane-mail address (infoaccionistas@repsolypf .com)whereenquiriescanbesentandpublicationsrequested .In2008,morethan500e-mailsweresenttothismailbox,mainlyaskingforinformationaboutRepsol .

TheInvestorRelationsofficeprovidessmoothcommunicationwithinstitutionalinvestorsandstockmarketanalysts .oneofthehighlightsofitsactivitiesin2008wasthepresenta-tionofthe2008-2012StrategicPlantoinvestorsandtotheinternationalfinancialcommu-nity .Duringtheyear,12globalroadshowswereheld(meetingsbycompanyexecutiveswithinternational institutional investors) andmore than 120 one-on-one interviews (personalinterviewswithinvestorsandfinancialanalysts) .Repsolalsoorganisedanumberofsector-basedconferencesinEuropeandtheUnitedStateswhichwereattendedbyalargenumberofinstitutionalinvestors .In2008,theInvestorRelationsofficealsoarrangedafieldtripforfinancialanalyststoRepsol’sHoustonofficestopresenttheUpstreamprojectsthatthecom-panyiscarryingoutinthearea,aswellasthecompany’sdeepwaterexplorationstrategy .

News media

Repsol’spolicyfornewsmediarelationsisbasedontheprinciplesofthetransparency,ac-curacyandreliabilityoftheinformationconveyed .Thecompanyendeavourstoensurethatrequestsfor informationfromjournalistsareansweredasquicklyaspossible,keepingupafree-flowingandongoingcontactwiththemediawhichisregardedasvitalforconveyingdevelopmentsin,thebusinessactivityandmanagementofacompanypresentinsome30countries .

BRaNDINGPoLICY

Repsol’sCommunicationsofficedealsdailywithgeneralandspecialisedmediaatinterna-tional,national,regionalandlocallevel,providingthemwithinformationabouteverythingthattheprofessionalsfromthissectorneedtoknow .Inaddition,itworkscloselywiththelocalmediaintheplaceswherethecompany’sindustrialcomplexesarelocated .

allthenewsmediaareinformedofanyactivityandinitiativecarriedoutbyRepsolbymeansofpressreleases .In2008,Repsoldistributedmorethan80pressreleasesinSpainalone,aswellasothersdisseminatedbyindustrialcomplexesatlocallevel,andthoseissuedinthecountrieswherethecompanyoperates .

Tostrengthentherelationshipwithjournalists,pressconferencesandspecificinformativemeetingswiththeheadsofnewsmediaarearranged .Particularmentionshouldbemadeofthoseheldin2008tomarktheGeneralMeetingofShareholdersandthepresentationofthe2008-2012StrategicPlan .

Thecompany’swebsitehasaspecificspace,thepressroom,thatprovidesimmediateaccesstoinformationabouttheGroup .Fromthisspace,thepressreleasesissuedbyRepsol,andpublications,picturesandall kindsof relevant informationabout thecompanyaremadeavailabletothenewsmediaandthepublicingeneral .Italsocontainsusefultools,suchasaglossaryofterms .

Repsolhasapressmailbox(prensa@repsol .com)thatoperates24hoursadaywhichfacili-tatestherelationshipwiththedifferentnewsmedia .Nearon4,000enquiriesandrequestsforinformationweredealtwithin2008throughthischannel .

Therepsol .comportal isanimportantcommunicationstool .Itsmonthlyaverageofvisitsandofpagesviewed,fivemillionandeightymillionrespectively,endorseitasoneofportalsmostvisitedamongallthecompaniesthatmakeuptheIBEX-35,theprincipalbenchmarkin-dexoftheSpanishstockexchange .Therepsol .comsiteincludesnewfeaturesconstantlythatenhancetheappeal,accessibility,securityandspeedoftheinformation .Theportal,whichamongotherservicesprovidesthecompany’scustomerswiththepossibilityofoperatingonline,canbeconsultedinSpanish,English,Portuguese,Catalan,GallegoandBasque .

In2008,theinternationalconsultancy,Hallvarsson&Hallvarsson,creditedRepsolwithbeingthetopSpanishcompanyintermsofitstransparencyandbestpracticesinthecontentsofitscorporatewebsite,standingsixth intheglobalrankingofcompanieswiththehighestmarketcapitalisationinEurope .

Thatsameyear,thecompany’sportalwontheIMaoutstandingachievementawardforitsServiceStations’channel,arecognitionoftheeffortmadetodisseminateitsbusinessactivi-tiesandtoforgeacloserrelationshipbetweenthebrandanditsproductsandcustomersinaninnovativeandaccessibleway .

3.8 BrandingPolicy

In2008,considerableprogresswasmade inconsolidating thebrandstrategy,andmajormilestoneswereachievinginmarketingandcommunication,thecornerstonesforvaluecre-ationforthecompany .

Communicating Repsol’s expertise and technological innovation at the service of society.

Thecommunicationscampaign“Inventemoselfuturo”(Let’sinventthefuture)summarisesthepositioningofanexpertcompanyintheenergysectorandonethatis,atthesametime,responsibleandpeople-oriented,committedtosocietyandthefuture .

TogivetangibleproofoftheprogressmadebyRepsolalongtheselines,thecommunicationscampaignwasbasedonfourofitsmostinnovativeprojects:

• Microalgae.Repsoldevelopssecond-generationbiofuelsfrommicroalgaeandotherculturesnotsuitableforfoodpurposes .

• Kaleidoscope. Cutting-edgescienceandtechnologyjoinforcestodiscoveroilandgasfieldsinthedepthsofthesea,respectingthenaturalenvironment .

• Asphalts.Byrecyclingtyres,Repsolproducesasphaltsthatreduceenvironmentalandacous-ticpollutionandimproveroadsafety .

• Plastics.Repsolisdevelopinganewgenerationofenvironment-friendlyplasticsforgreen-houses,whichachievemoreefficientcropsbymakingoptimumuseofthesunandlessuseofwater .

Rationalisation of the architecture of company brands.

Repsol’s brands policy is focused on building and boosting the YPF brand in argentinaand theRepsolbrandelsewhere in theworld .Thekeysteps taken involvedconductingacompany-widereviewofthemainbrandapplications,prioritisingthosewithmostvisualim-pact .Togiveastrikingexampleofthisapproach,thenameoftheguidebook“GuíaCampsa”waschangedto“GuíaRepsol”,afterprovidinginformationaboutgastronomyandtourisminSpainformorethan30years .Theproduct-brandshavebeenredefined,aswell,usingtheRepsolbrandforallofthemsothatthelinkisneverlost .Thecompany’snewproduct-brandsaredesigned in the frameofagraphic family that facilitatesselective recall,albeitalwaysmeetingthespecificneedsofeachbusinessarea .

Thecorrectmonitoringandapplicationofbrandidentityobjectivesisakeypieceinthecoher-entpositioningoftheRepsolbrandanditstradebrands;itenablesitsrenowntogrowinasustainedway,guaranteesknowledgeofandconveyanceofthevaluesthatidentifyitandactsassupportforincreasingitsfinancialvalue .

Thestrategicpriorityinbuildingandmanagingthebrandisreflectedinthedocumentsontheguidelinesthatshouldunderpinourcommunication,bothatexternalandinternallevel .Toguaranteethecorrectapplicationofthebrandanditsidentity,thekeycommunicationsmanagersareprovidedwithidentityhandbooks,whichstrictlydefinethemostnoteworthyaspectsoftheuseofthebrandattheirdifferentcontactpoints,whetheritbeaservicestation,abutanegasdistributoragencyorafueltransportlorry .Inthisway,aprocessforrenewingthevisualidentityhandbookshascommenced,inwhicheffortsarefocusedoninteractivity,simplification,easeofuseandthepossibilityofdownloadingprintedforms .

Intheperiod2006-2007andintheframeworkofaninternalstrategicreflectionbasedontheresultsofthebrandassessmentprojectandotherstudies,awiderangeofinitiativeswereundertakentooptimisebrandmanagementandcreatefinancialvalueinthemediumandlongterm .Togaugetheimpactoftheseinitiativesonthecompany’sbrandsandoncustom-ers,anewappraisalofthecompany’sprincipalbrandshasbeenmadewhichanalysestrendsintheirpositioning,theimpactofcommunicationsandsponsorshipactions,andthechang-es in thecompetitivecontext .Thishelpsgaugethevariation incustomerdriversandthebrandroleandstrengthsincethelastappraisalanduptothepresentday .Thisassessmentwillmake itpossible to support strategicdecision-making in this context andstrengthenrecognitionofthebrandandofotherintangibleassetsaskeyassetsofthecompanyvis-à-visitsemployeesandsocietyingeneral .

3.9 SportsSponsorship

In2008,andforanotheryearrunning,RepsoltookpartincompetitionssuchastheWorldMotorcycleChampionshipwhichrepresentthebesttestbenchesforitsfuelsandlubricantsby exposing them to themost extreme situations . Thanks specifically to this experience,gainedindevelopingspecificproductsfortop-levelcompeitions,Repsolisabletomaintainits leadposition intheresearchanddevelopmentofproductscapableof livinguptotheexpectationsofitscustomers .

2008wasanoutstandingseasonintermsoftheworldtitlessecuredbytheRepsoldriverswhotookpartintopnotchinternationalcompetitions .BetweenthemtheywontheoutdoorWorldTrialChampionshipinthewomen’scategory,andthesametitleandthatoftheindoorWorldTrialChampionship inthemen’scategory .Theyalsosecuredfirstplace intheGP2Series–the threshold to Formula 1– and the title ofworld champions, individual andbyteams,intheWorldTouringCarChampionship,whichaddsuptosixworldmedalstoaddtoRepsol’srecord .

ofnotein2008wasRepsol’sparticipationintheWorldTouringCarChampionship(WTCC) .Initsfifthyear,thiscompetitionhaspositioneditselfasthesecondmostimportantautomo-bileevent,onlysurpassedbyFormula1 .YvanMuller’svictoryandtheteamvictorysecuredwithSeatwereagreatinternationalshowcasefortheRepsolbrand,anotheroftheattributes,togetherwiththedevelopmentoffuelsandlubricants,throughwhichthecompanypledgescommitmenttosportssponsorship .

IntheWorldMotorcycleChampionship,RepsolriderMarcMarquez,aged16,stoodtoformpartof theelite in thisdiscipline,demonstratinghisqualities,bothsportingandhuman,featureswhichRepsolalwaysviewspositively in its sports representatives, inaddition torigorous standards and professional expertise . InMotoGP, themaximum category,DaniPedrosaheldontohispositionasleaderforthefirsthalfofthechampionship,and,although

SUPPLEMENTaRYCoNTENToFTHEMaNaGEMENTREPoRT

goodluckthendesertedhim,heendedtheseasonwithawell-deservedthirdplaceintheoverallclassification .

Intrial,ToniBouprovedtobetheindisputablenewleaderinthisspeciality,byregaininghistwoworldtitles,whileLaiaSanzremainedatthetopinthewomen’scategory,achievinghereighthworldcrown .

2009couldnothavestartedoffbetterforRepsol .onceagain,MarcComaprovedthatno-bodycanovershadowhiminoffroadmotorcyclesbywinningtheDakar2009,whichwasheldforthefirsttimeinargentinaandChile .HeisthefirstSpaniardtobetwo-timescham-pioninthismythicaleventandthefirstwinbyaRepsolriderthisyear,whichmarksthe40thanniversaryofthecompany’spresenceinthemotorworld .

4 Supplementary Content of the Management Report

(Pursuanttosection116(B)oftheSecuritiesMarketact(LeydelMercadodevalores))

A. Capital structure, including securities not traded on a European Community regulated market, indicating, where appropriate, the different classes of shares and, for each class of shares, the rights and obligations that it confers and the percentage of capital that it represents.

TheShareCapitalofRepsolYPF,S .a .iscurrently€1,220,863,463,representedby1,220,863,463shares,eachwithaparvalueof1euro,fullysubscribedandpaidup,belongingtoasingleclassand,consequently,havingthesamerightsandobligations .

ThesharesofRepsolYPF,S .a .arerepresentedbybookentriesandhaveallbeenadmittedtolistingonthecontinuousmarketoftheSpanishsecuritiesmarkets(Madrid,Barcelona,Bilbaoandvalencia),theNewYorkStockExchangeandtheBuenosairesexchange(BolsadeComerciodeBuenosaires) .

B. Any restriction on the transferability of securities.

aslaiddowninthe11thadditionalProvisionofact34/1998onthehydrocarbonssector,inthewordingthereofgivenbyRoyalDecree-Law4/2006,24February,administrativeautho-risationmustbesoughtfromtheNationalEnergyCommissionforcertainholdingacquisi-tionsthatinvolvecompaniesthatcarryonregulatedactivitiesoractivitiesthataresubjecttoadministrativeinterventionwhichentailsaspecialbindingrelationship .

TheRulingoftheCourtofJusticeoftheEuropeanCommunities(CJEC)of28July2008laiddownthat,byenforcingthis requirement, theKingdomofSpainhasbreachedtheobliga-tionsincumbentuponitunderarticles43(freedomofestablishment)and56(freedomofmovementofcapital)oftheEuropeanCommunityConstitutionalTreaty .

C. Significant direct or indirect holdings in the capital.

asofthelastdateavailable,thefollowingwerethemostsignificantholdingsinthesharecapitalofRepsolYPF:

Shareholder Total%ofthesharecapital

Sacyr Vallehermoso, s.a. (1) 20.01

Criteria Caixa Corp. (2) 14.31

Petróleos Mexicanos (3) 4.81

(1)Sacyrvallehermoso,S .a .holdsitsstakethroughSacyrvallehermosoParticipacionesMobiliarias,S .L .

(2)CriteriaCaixaCorp .owns9 .28%directlyand5 .02%indirectlythroughRepinves,S .a .(acompanyinwhichCriteriaCaixaCorp .holds67 .60%stake) .

(3)PetróleosMexicanos(Pemex)holdsitsstakethroughPemexInternacionalEspaña,S .a .andthroughseveralequityswapinstrumentswhichenablePemextoexercisetheeconomicandthepoliticalrightsofapercentageofupto4 .81%oftheCompany’ssharecapital .

Furthermore,on18January2008theentitiesBarclaysGlobalInvestors,Na,BarclaysGlobalInvestors,Ltd .,BarclaysGlobalFundadvisorsandBarclaysGlobalInvestors(Deutschland)aGnotifiedtheSecuritiesMarketCommission(ComisiónNacionaldelMercadodevalores,CNMv)oftheexistenceofanagreementfortheconcertedexerciseofvotingrightsinRepsolYPFfora3 .22%holding .accordingtotheinformationsubmittedtotheCNMv,suchentitiesaremanagementcompaniesofcollectiveinvestmentinstitutions,withouttheircontrollingentity(BarclaysGlobalInvestorsUKHoldings,Ltd .)givingdirectorindirectinstructionsfortheexerciseofthecorrespondingvotingrightsheldbysuchmanagementfirms .

D. Any restriction on voting rights.

• article27oftheCorporatearticlesofassociationofRepsolYPF,S .a .laysdownthatthemaxi-mumnumberofvotesthatanindividualshareholder,orcompaniesbelongingtothesameGroup,maycastattheGeneralMeetingofShareholdersshallbe10%oftheShareCapitalwithvotingrights .

• Pursuanttoact55/1999(amendedbyact62/2003),theadministrationmustbenotifiedofholdingsacquiredbystate-ownedentities,orentitiesofanykindinwhichstate-ownedenti-tieshaveamajorityorcontrollinginterestof,atleast,3%inthesharecapitalofenergycom-panies,inorderthattheCouncilofMinisters,withinaperiodoftwomonths,mayauthorise,denyorplaceconditionsontheexerciseofthevotingrights(thesocalled“goldenenergyshare”) .

Withregardtothatprovision,theRulingoftheCourtofJusticeoftheEuropeanCommuni-ties(CJEC)of14February2008laiddownthattheKingdomofSpainhasbreachedtheobli-gationsincumbentuponitunderarticle56EC(freedomofmovementofcapital),bykeepinginforcemeasuressuchasthe“goldenenergyshare”whichrestrictthevotingrightsattachedtosharesheldbystate-ownedentitiesinSpanishfirmsoperatingintheenergysector .

• Furthermore,article34ofRoyalDecree-Law6/2000 laysdowncertainconstraintson theexerciseofvotingrightsinmorethanoneprincipaloperatorinthesamemarketorsector .amongothers,itliststhemarketsfortheproductionanddistributionoffuels,theproductionandsupplyofliquidpetroleumgasesandtheproductionandsupplyofnaturalgas,principaloperatorbeingunderstoodtobetheentitiesthatholdthefivelargestsharesinthemarketinquestion .

Suchconstraintsarespecifiedasfollows:

• Naturalorlegalpersonswhohaveadirectorindirectholdingofover3%intheShareCapitalorthevotingrightsoftwoormoreprincipaloperatorsinthesamemarketmaynotexercisethevotingrightsattachedtotheexcessoverandabovesuchpercentageinmorethanoneofthosecompanies .

• aprincipaloperatormaynotexercisevotingrightsinaholdingofmorethan3%oftheShareCapitalofanotherprincipaloperatorinthesamemarket .

Theseprohibitionsshallnotapplytoparentcompanieswhichhavethestatusofprincipaloperatorwithrespecttotheircontrolledcompaniesthathavethesamestatus,providedthatsuchstructureisimposedbythelegalsystemoristheconsequenceofamereredistributionofsecuritiesorassetsamongcompaniesinthesameGroup .

TheNationalEnergyCommission,astheenergymarketregulatorybody,mayauthorisetheexerciseofthevotingrightsattachedtotheexcess,providedthatthisdoesnotfavourtheexchangeofstrategicinformationorentailrisksofcoordinationintheirstrategicactivities .

E. Shareholders’ Agreements.

RepsolYPF,S .a .hasnotbeeninformedofanyshareholders’agreementthatincludestheregulationoftheexerciseofvotingrightsatitsgeneralmeetingsorthatrestrictsorplacesconditionsonthefreetransferofRepsolYPF,S .a .shares .

F. Rules applicable to the appointment and replacement of members of the board of direc-tors and to the amendment of the corporate Articles of Association.

• Appointment

TheGeneralMeeting of Shareholders is entrustedwith nominating themembers of theBoard ofDirectors, notwithstanding the powers of theBoard to nominate persons fromamongtheshareholderstofillvacanciesthatariseuntilthenextGeneralMeetingisheld .

Personstowhomtheprohibitionsundersection124oftheCompaniesact(LeydeSocie-dadesanónimas)applyandthosewhoareincompatibleaccordingtothelawinforcemaynotbeappointedasdirectors .

SUPPLEMENTaRYCoNTENToFTHEMaNaGEMENTREPoRT

PersonsandentitiesthatareinasituationofpermanentconflictofinterestwiththeCom-pany,includingrivalentities,theirdirectors,executivesoremployeesandthepersonslinkedwithorproposedbythemmaynotbedirectorsoftheCompanyeither .

Nomineesshallbepersonswho,inadditiontofulfillingtherequirementsforthepoststipu-lated inthe lawandarticlesofassociation,haveacknowledgedprestigeandpossesstheappropriateprofessionalknowledgeandexpertiseforperformingtheirduties .

TheproposalsfortheappointmentofDirectorsthattheBoardsubmitstotheGeneralMeet-ing,andappointmentsmadebyco-option,shallbeapprovedbytheBoard(i)attheproposaloftheNominationandCompensationCommittee,inthecaseofIndependentExternalDi-rectors,or(ii)subjecttoapriorreportbythatCommitteeinthecaseoftheotherdirectors .

• Re-election

TheNominationandCompensationCommitteeisresponsibleforassessingthequalityofworkanddedicationtotheofficeduringtheprecedingtermofofficeofdirectorsproposedforre-election .

Theproposalsforthere-electionofDirectorsthattheBoardsubmitstotheGeneralMeetingshallbeapprovedbytheBoard(i)attheproposaloftheNominationandCompensationCommittee,inthecaseofIndependentExternalDirectors,or(ii)subjecttoapriorreportbythatCommittee,inthecaseoftheotherdirectors .

• Withdrawal or resignation

Directorsshall cease toholdofficewhen the term forwhich theywereappointedexpires(unlesstheyarere-elected)andintheothercircumstancesprovidedforintheLaw,theCor-poratearticlesofassociationandtheby-lawsoftheBoardofDirectors .

Furthermore,directorsmustsubmittheirresignationtotheBoardofDirectorsinanyofthefollowingcircumstances:

a.Whenanyof the instancesof incompatibilityorprohibitionprovided forby law, theCom-pany’sarticlesofassociationortheregulationsapplytothem .

b .WhentheyhavebeenseriouslycautionedbytheNominationandCompensationCommitteeortheauditandControlCommitteeforhavingbreachedtheirobligationsasDirectors .

c .When,intheopinionoftheBoard,subjecttoapriorreportbytheNominationandCom-pensationCommittee:

1 .TheircontinuedpresenceontheBoardmayjeopardisetheinterestsoftheCompanyorimpairthefunctioningoftheBoarditselforthestandingandreputationoftheCompany;or

2 .Whenthereasonsforwhichtheywereappointeddisappear .Thisincludes,inparticular:

•TheExternalInstitutionalDirectorswhentheshareholderthattheyrepresentorthathadproposedtheirappointmenttransfersthewholeofitsshareholding .Theymustalsosur-render theirpost to theBoardand, if theBoarddeems it fitting, tender the respectiveformalresignation,inthecorrespondingproportion,whensuchshareholderreducesitsshareholdingtoalevelthatrequiresthereductioninnumberofitsExternalInstitutionalDirectors .

•TheExecutiveDirectors,whentheyceasetoholdtheexecutivepostsoutsidetheBoardtowhichtheirappointmentasDirectorwaslinked .

TheBoardofDirectorsshallnotproposethewithdrawalfromofficeofanyIndependentEx-ternalDirectorbeforethestatutoryperiodforwhichhe/shehadbeenappointedcomestoanend,exceptwhentherearepropergroundsfordoingso,intheopinionoftheBoardsubjectto aprior report by theNominationandCompensationCommittee . Inparticular, propergroundsshallbedeemedtoexistwhentheDirector(i)hadbreachedthedutiesinherentinhis/heroffice;(ii)wereinanyofthesituationsdescribedinthepreviousparagraphs;or(iii)wereinanyofthecircumstancesdescribedintheRulesandRegulationsoftheBoardasaresultofwhichhe/shecannotbeclassifiedasanIndependentExternalDirector .

Proposals for the withdrawal from office of Independent External Directorsmay also bemadeasaresultoftakeoverbids,mergersorothersimilarcorporateoperationsthatentailachangeintheCompany’scapitalstructure,totheextentnecessarytoestablishareasonablebalancebetweenExternalInstitutionalDirectorsandIndependentExternalDirectorsaccord-ingtotherelationshipbetweenthecapitalrepresentedbytheformerandtheremainderofthecapital .

• Amendment of the Articles of Association

Thearticles of association of Repsol YPF, S .a .,which are available on itswebsite (www .repsol .com),donotlaydowndifferentconditionsfromthosecontainedintheJointStockCompanies act (Ley de Sociedades anónimas) for their amendment, with the exceptionoftheamendmentofthelastparagraphofsection27,regardingthemaximumnumberofvotesthatashareholderorcompaniesbelongingtothesameGroupmaycastattheGeneralMeeting .Saidresolution,aswellastheresolutiontoamendthisspecialrulecontainedinthelastparagraphofsection22ofthearticlesofassociation,require,bothinthefirstandinthesecondconvening,thefavourablevoteof75%ofthesharecapitalwithvotingrightsattendingtheGeneralMeeting .

G. Powers of the members of the Board of Directors and, in particular, those concerning the possibility of issuing or buying back shares.

TheannualGeneralMeetingofShareholdersofthecompany,heldon31May2005agreedto authorise the Board ofDirectors to increase the ShareCapital, once or several times,duringaperiodof5years,bythemaximumamountof€610,431,731(approximatelyhalfthecurrentShareCapital),byissuingnewsharesthecountervalueofwhichshallconsistofcashcontributions .

Likewise,theannualGeneralMeetingofShareholdersofthecompany,heldon14May2008,authorisedtheBoardofDirectorstomakethederivativeacquisitionofownshares,underthetermsindicatedaboveinthe“Financialoverview”sectionofthisManagementReport .

Finally,inadditiontothepowersrecognisedintheCompany’sarticlesofassociationandtheBoardRegulationsasbeingconferredupontheChairmanandDeputyChairmanoftheBoard,theExecutiveDirectorshaveeachbeengrantedgeneralpowersofattorneytorepre-senttheCompany,conferredbytheBoardofDirectors,andwhicharedulyrecordedintheMadridCompaniesRegister .

H. Significant agreements to which the company is party and that take effect, alter or ter-minate upon a change of control at the company as a result of a takeover bid, and their effects, except when disclosure thereof would be seriously detrimental to the company. This exception shall not apply when the company is under the legal obligation to make this information public.

TheCompanyparticipatesinexploringforandexploitinghydrocarbonsthroughconsortiumsorjointventureswithotheroilcompanies,bothprivateandstate-owned .Inthecontractsthatgovernrelationsbetweenthemembersoftheconsortiumtheotherpartnersareusuallygrantedarightoffirstrefusalovertheholdingofthepartneronwhichachangeofcontroltakesplacewhenthevalueofsaidholdingissignificantinrelationtotheoverallassetsofthetransactionorwhenotherconditionssetoutinthecontractsoccur .

Likewise,accordingtotherulesregulatingtheoilandgasindustryinthedifferentcountriesinwhichtheCompanyoperates,thetransfer,totalorpartial,ofresearchpermitsandexploi-tationconcessionsaswell as,onoccasions, the changeof control in the concessionaireentityorentitiesandinparticularintheentitythathasthestatusofminingareaoperator,aresubjecttopriorauthorisationbythecompetentadministrativeauthority .

Inaddition,theagreementsenteredintobyandbetweenRepsolYPFandCajadeahorrosyPensionesdeBarcelona(“laCaixa”)relatingtoGasNaturalSDG .S .a .,reportedasrelevantfacts through theSecuritiesMarketCommission,aswell as theagreement for IndustrialactivitybetweenRepsolYPFandGasNaturalSDG,S .a .providedforinthemandnotifiedasarelevantfacton29april2005andthePartnershipagreementbetweenRepsolYPFandGasNaturalSDGrelatingtoRepsol–GasNaturalLNG,S .L .considerthechangeinthecontrolstructureofeitherofthepartiestobecausefortermination .

I. Agreements between the company and its directors and executives or employees provid-ing for compensation when they resign or are unfairly dismissed or if the employment relationship comes to an end because of a takeover bid.

• Executive Directors

TheChairmanandtheGeneralSecretaryandMemberoftheBoardareentitledtoaDeferredFinancialCompensationintheeventoftheterminationoftheirrelationshipwiththecom-pany,providedthatsaidterminationdoesnottakeplaceasaresultofabreachoftheirobliga-tionsoroftheirownfreewill,withouttherebeinggroundsforit,amongthoseprovidedforinthecontractitself .Theamountoftheindemnityforterminationoftherelationshipshallbethreeyears’totalmonetaryremuneration .

NEWREPSoLHEaDQUaRTERS

• Executives

TheRepsolYPFGrouphasestablishedasolelegalruleforexecutivestaff,whichisspecifiedintheExecutiveContract, inwhichthecompensationsystemapplicable incircumstancesinvolvingterminationoftheemploymentrelationshipisregulatedandinwhichthecausesprovidedforunderthelawinforceareconsideredascausesforcompensation .

Inthecaseofseniorexecutives,theyincludetheresignationoftheexecutivefollowingcorpo-ratesuccessionoramajorchangeinitsownership,resultinginareplacementofitsgovern-ingbodiesorofthecontentandapproachofitscorebusinessactivity .

Theamountoftheindemnitypaymentsiscalculatedaccordingtotheage,lengthofserviceandsalaryoftheexecutive,exceptinonecase,inwhichitisestablishedasthreeyears’totalmonetaryremuneration .

FurtherinformationaboutthismattercanbefoundinNote34oftheconsolidatedfinancialstatementsoftheRepsolYPFGroup .

NewRepsolHeadquarters

onNovember3rdlast,afterhavingsecuredthepermitsandauthorizationsgrantedbytheTownHallofMadrid,theconstructionworksfornewheadofficeofRepsollocatedinMéndezÁlvarocommencedattheplotsbelongingtotheformersiteofCompañíaLogísticadeHidro-carburos(CLH) .Thisprojecthasbeencommissionedtotheprestigiousarchitects’firmRafaeldelaHoz .

ThefuturecorporateheadquartersofRepsolwillboastofanaggregate66,000sqmoverheadbuiltsurfacespanningbetweengroundlevelanditsfourfloorsofofficesandfacilities .Belowgroundlevel,the56,000sqmavailablewillbedistributedintwobasementfloorsforgeneralinstallationsandparkinglotsfor2,000vehicles .Theprojectcontemplatestheallocationofmorethan8,000sqm .committtedtoanambitiousfacilities’planfortheemployees .

Theclosedringlayoutofthebuildingswillprovideagardenenclosureofmorethan9,500sqmdesignedbythearchitecturalandlandscapefirmLatz&Partner .Thisareabasedonasustain-ablegrowthconceptwillavailitselfofarainfallreutilizationsystemandofnativespeciesand/oradaptedtotheMadridclimate .Moreover,withintheperimeterofthebusinessparkanewgreenareawillbecreatedof2,700sqmwhichtiesinwiththeexistingonesinthearea .

Duringthedesignstageoftheproject,Repsolisfullycommittedtosustainability,whichwillenableittoobtaintheprestigiousLeadershipinEnergy&EnvironmentalDesign(LEED®)CertificationawardedbytheU .S .GreenBuildingCouncil .Thisprestigiousinstitutionhasde-velopedasystemwhichtakesintoaccountthefulllifecycleofthebuilding(design,construc-tion,operationandmaintenance) .Themainvariableswillbelocationoftheplotchosen,thewaterandenergyconsumptionefficiency,theenvironmentalqualitywithinthebuildingandthesourceofthematerialsusedduringtheconstructionprocess .

Consolidated management report 2008 - Repsol

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Transcript of Consolidated management report 2008 - Repsol

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