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T R A D I N G , R E F I N I N G , D I S T R I B U T I O N & M A R K E T I N G

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Refining, Distr ibution & Marketing

Figures in millions of euros 2002 2001

Product sales (millions of tons) 23.4 23.1Capital expenditures in the year 237.2 297.0EBITDA 439.9 545.1EBIT 352.1 370.1

Supply and TradingIn 2002, 20.4 million tons of crude oil (148.2 million barrels)were unloaded at CEPSA’s refineries, over 6% more thanthe previous year’s volume.

As regards crude oil sourcing, 35% came from countries inWest Africa, 30% from the Middle East, 18% from Russia,Ukraine and Poland; 12% from Latin America and theCaribbean, and the remaining 5% from Northern Africa andvarious European countries.

Furthermore, over 5.4 million tons of other oil and chemicalproducts, primarily gas oils and fuel oils, were acquired tomeet the needs of CEPSA’s growing customer base.

RefiningCEPSA conducts its core refining operations at its 3 wholly-owned refineries,Tenerife, located in Santa Cruz de Tenerife,“Gibraltar” in San Roque (Cádiz) and “La Rábida” in Palosde la Frontera (Huelva), with distillation capacities of 4.5, 12and 5 million tons of crude oil per year, respectively.

Additionally, CEPSA has a 50% interest in the share capitalof Asfaltos Españoles, S.A.“ASESA”, which owns a refineryin Tarragona, chiefly engaged in the production of asphalt,with a treatment capacity of 1.1 million tons per year.

The Group’s four refineries have been operating for over adecade using an integrated optimization model, which hasenabled maximizing synergies from transfers between therefineries of intermediate feedstock and products and froma high level of integration between chemical and refiningoperations at the “Gibraltar” and “La Rábida” refineries.

In 2002, the “La Rábida” Refinery resumed normal operatingconditions following the fire which broke out in October2001 in the Vacuum unit. Likewise, scheduled maintenanceturnarounds were performed on the refineries throughoutthe year, and the RZ-100 unit for the catalytic reforming oflight naphtha was revamped.

The CEPSA Group’s overall installed refining capacity, includingits share in ASESA, comes to 22 million tons of oil per yearand accounts for 33.6% of the country’s total capacity. In2002, 20.5 million tons of crude oil were processed at thecompany’s facilities, up 700,000 tons, or over 3.5%, from theyear before. Out of total tonnage treated, the “Gibraltar”Refinery processed 11.5 million tons of crude oil;“La Rábida”,4.4 million tons;Tenerife, 4.0 million tons; and 600,000 tonscorresponding to CEPSA’s stake in the ASESA Refinery.

With regard to activities to expand and/or upgrade facilities,several projects were carried out in the “Gibraltar” Refinery,namely modifications to the units involved in the project toexpand the “Crude 3” unit and some remodeling andupgrading of a variety of conversion units; the coming on-line of a new plant to biologically treat and recycle wastewater ; the link-ups with the new adjacent butane bottlingplant belonging to CEPSA ELF GAS; and the adjustmentsmade to the RZ-100 unit which started up. In the TenerifeRefinery, the remodeling of the waste water treatment plantwas completed.And lastly, in the “La Rábida” Refinery, 4 newdiesel fuel tanks for product storage, with a capacity of50,000 m3 each, came on stream as scheduled; a neweffluent collector at the “Reina Sofia” docking facilities wascommissioned and the railway loading facilities weremodernized to improve future operative safety andefficiency.

Additionally, successful results continued to be harnessedfrom implementation of the PIP (Profit ImprovementProgram) projects in the three refineries, to optimize yieldand process performance, as well as from the completion ofthe M.I.P project for maintenance planning and programming.

Furthermore, CEPSA’s three refineries witnessed the phaseddeployment of various SAP R/3 models, known as MM(Materials Management), PM (Plant Maintenance), PS (ProjectSystem) and EBP (Enterprise Buyer Professional).Work alsomoved ahead on developing and implementing a number ofprojects in the areas of supplies and maintenance included inthe M.A.S. (Maintenance, Supplies and Services) project.

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In 2002, the value added from refining stood at $14.09/ton,29% lower than the year before.

Distribution & MarketingThe CEPSA Group sold 25.8 million tons of oil products in2002, up 360,000 tons, or 1.5%, from the previous year.

CEPSA’s share of Spain’s energy market, considering all salesmade through its retail network and direct sales channels,rose from last year, coming to roughly 25% against abackground of heavy competition, the restructuring of theretail networks of several major oil companies, theexpanding number of facilities in hypermarkets and theenforcement of restrictive legislation in some areas of Spainregarding the sale of specific non-oil products in gas stationconvenience stores.

In compliance with the Spanish Government Ruling 6/2000of June 23rd, regarding urgent measures to intensifycompetition in the goods and services market, throughoutthe year CEPSA reduced its shareholding in CompañíaLogística de Hidrocarburos (CLH) engaged in storing,transporting and distributing oil and gas nationwide, from25% to 17% of its share capital, with the objective being toachieve the maximum permitted by the Government, whichin the company’s case is 15%, during the first quarter of2003.

Retail/Direct Sales OperationsCEPSA ESTACIONES DE SERVICIO continued toselectively target higher returns through a rigorous and cost-effective capital spending program aimed at upgrading thecompany’s retail network in a more challenging marketenvironment, as well as improving the range and quality ofits offerings.

Accordingly, an innovative training program called “IMAN”was put into practice, contributing towards developing a newand more customer-oriented focus, as well as otherpersonnel training initiatives in environmental protection,health and safety, micromarketing, c-store merchandising and

Cepsanet (high-speed data transmission), which have beensuccessful in giving our retail network a technical andcommercial edge.All in all, 2,692 hours of instruction weregiven through 856 courses, in which nearly 5,000 employeesfrom the subsidiaries CEPSA ESTACIONES DE SERVICIO,VENTAS DIRECTAS, PROMIMER and CEDIPSA participated.

Throughout the year and in full compliance with provisions setout in the Spanish Government Ruling 6/2000 of June 23rd,imposing restrictions on the opening of new stations, until June2003 for CEPSA, steps and actions were taken to increase thenumber of company-owned and operated stations andmarketing measures were put into place, in the context of thecompany’s new positioning, building new outlets in selectivelychosen sites to offset the closure of other sites.Additionally,the merger of AVANTI’s retail network into CEPSAESTACIONES DE SERVICIO, to reap the full benefits of retailsynergies, was recently completed.

CEPSA expanded its motor fuel retail share with over 4million tons of automotive gasoline and diesel sales, 4%more than the previous year. CEPSA also continued to beat the forefront of the C-store segment in Spain, adding 41new outlets in the year, under the names DEPASO orMINIMARKET, whereby the total number of storesoperated by PROMIMER comes to approximately 800.These stores come equipped with the most modernconveniences, and efforts have been made in trainingpersonnel and increasing the number and variety ofproducts as well as customer service and quality, whichresulted in a year-on-year sales increase of 18% in 2002.

Progress was made throughout the year in expanding thenumber of CEPSA STAR, GRUPO, GASOLEOBONIFICADO, RESSA and SERVISA cardholders, withnearly 500,000, cards issued so far, up 4.3% from the yearbefore. In addition, the new EUROTRAFFIC card beganoperating, which will lead to a sharp growth in volume inthe future, representing one of the most competitiveinternational means of payment available on the market,with a network of 11,000 retail sites in 15 countries.

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As regards customer loyalty schemes, CEPSA’s TRANS-CLUB, a leader in the fleet driver segment in recent years,launched a new smart card system coupled with a newcatalog of free gifts and special offers. As a result of thisinitiative, average monthly sales have risen 11%.

Another successful scheme comes under the nameTURYOCIO, a frequent shopper program aimed atindividual motorists, with over 2 million cardholders.Promotional campaigns continued in service stations toattract more customers and new gift catalogs and specialtravel offers were developed.

AGRO-CLUB, a loyalty scheme targeting users of diesel forfarm equipment, increased its membership by 12,000 in theyear.

CEPSA continued to put into practice a plan to refurbishand ensure environmentally-friendly operations at its sites.Agreements were signed with the Environmental QualityDirectorates of Spain’s regional governments andadditionally, a cost-effective project was undertaken to purifywaste waters at gas stations. Likewise, an integratedenvironmental and quality management system began to beimplemented, pursuant to UNE-EN ISO 9001/2000 andUNE-EN ISO 14001 standards.

CECOMASA and CECOGALSA, subsidiaries of CEPSAVENTAS DIRECTAS, obtained “Qualicert” certification,which is being awarded for the first time in Spain to dieseland fuel oil distribution companies, offering independentrecognition to an organization for meeting 44 specificationsregarding the level of quality and service provided tocustomers and guaranteeing conformity with the mostrigorous standards. Steps will be taken in upcoming monthsto seek certification for the rest of the company’ssubsidiaries.

CEPSA was the first and only oil company in Spain to offera “Heating Oil Furnace Replacement Plan”, providing aconvenient and inexpensive way of repairing, replacing or

installing a heating oil furnace, with value added services suchas remote control, teleprocessing and an integral heatingplan.The success of this program can be measured by morethan 1,000 furnaces that have been replaced to date.

In recognition of CEPSA’s marketing achievements, thecompany’s numerous campaigns have received the followingprizes and distinctions: “Lion Direct Award”, gold, in theCannes Direct Festival; “Echo Award”, silver, in the EchoAwards Festival (DMA);“IMAN”, silver, and “Special Prize forthe Best Loyalty Scheme” in the IMAN Festival of FECEMD;and “John Caples Award”, gold, in the “John Caples” Festival.

Bunker FuelsCEPSA’s staying power as the leading bunker supplier onthe Spanish market was evidenced by an exceptional salesfigure of 5.8 million tons of products.

International bunkering business was strengthened fromCEPSA’s increased activity in the Panama Canal through thesubsidiary CEPSA PANAMÁ, which sold 200,000 tons ofbunker fuel products in 2002.

Aviation FuelsCEPSA’s sales in the aviation market in 2002 reached 2million tons, 1% higher than the year before, despite aparticularly difficult year for airlines.

The planned capital spending program continued to bepursued in the year, noteworthy being the construction ofa new supply station in Fuerteventura which is due to becompleted in 2003.

Highlights of the year include CEPSA’s entry in thePortuguese market, servicing the Portuguese Air Force, aswell as supply contracts signed with other operators.

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AsphaltCEPSA produces asphalt at its Tenerife and “La Rábida”refineries as well as in ASESA’s refinery in Tarragona, with atotal nominal capacity of 1 million tons per year.

Sales are made through the wholly-owned subsidiaryPROAS, a company which distributes these products fromthe refineries and 8 proprietary terminals, where specialasphalt derivatives for the construction sector are likewisemanufactured.

In 2002, PROAS sold over 1 million tons of asphalt and by-products, up 8% from the year before. Out of total sales,19% were channeled to markets abroad.

At year-end, all of PROAS’ work centers were in possessionof ISO-9002 quality assurance certification by AENOR, andare currently in the process of being certified as per thenew ISO-9000 quality management standard and ISO-14000 environmental management standard.

LubricantsThe CEPSA Group has two manufacturing plants located inSan Roque at the “La Rábida” Refinery and in LUBRISUR -an affiliate in which CEPSA holds an interest of 65%, theother shareholder being BP Oil España S.A. - and ablending and bottling facility, in which finished lubricants, basestocks and paraffin are produced.

During the year, CEPSA’s facilities yielded a combinedoutput of over 274,000 tons, slightly lower than the yearbefore, once problems resulting from the accident whichtook place in October 2001 in the “La Rábida” Refinerywere successfully managed.

Retailing activity is carried out by the 100% affiliate CEPSALUBRICANTES, as well as through wholly or majority-owned companies, such as LUBRISUR, ATLANTICO,LUBRITURIA, LUBRINER, and PETROJAÉN.

Aggregate sales of lubricants, base stocks, paraffin, greasesand other related products exceeded 301,000 tons.

These products were sold under the brand names CEPSA– a leader in the Spanish lubricants market – and ERTOIL,with 55% channeled to the domestic market, where theGroup sells a variety of other automotive products andaccessories for both passenger vehicles and fleet drivers.

Capital expenditures in the year, amounting to 6.3 millioneuros, were earmarked towards deploying cutting-edgetechnologies, enhancing productivity in industrial operationsand bolstering marketing performance.

In 2002,AENOR, the company that audits quality systemsin CLSA, awarded it certification for compliance withinternational ISO 9001:2000 standards, which will berequired as of December 2003, with more stringentspecifications than the previous ISO 9001:1994 qualitystandards.

CEPSA in PortugalCEPSA operates in Portugal through CEPSAPORTUGUESA DE PETRÓLEOS, 100% CEPSA-owned,with reception, storage, distribution and marketing facilitiesfor motor fuels, asphalt, lubricants, bunker fuel, and propane.Furthermore, this affiliate has also started selling aviationproducts to the Portuguese Air Force.

A total of 900,000 tons of these products were sold in 2002,up 2.8% from the year before, generating sales revenues of462 million euros. By products, sales of motor fuelsamounted to 326,000 cubic meters, with a market share ofroughly 6%, while sales of fuel oil came to 161,000 tons,asphalt, to 188,000 tons and bunker fuel, to 32,000 tons.

Capital expenditures totaled 21 million euros, chiefly for theservice station network, which numbered 146 retail sites, 5of which started operating in the year. Noteworthy was anew service area in Almodovar, on the Lisbon-Algarvemotorway, as well as the Abrantes station, on the IP6motorway.

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CEPSA in MoroccoThroughout the year, CEPSA supplied Moroccan operatorswith 260,000 tons of gasoline, diesel fuels and liquefiedpetroleum gases, 30% more than in 2001.

CEPSA has been developing its activities in Moroccothrough CEPSA MAGHREB and PETROSUD, selling up to35,000 cubic meters of gasoline and diesel fuels in 2002, upmore than 75% from the previous year, largely concentratedin the fishing sector (Agadir).

Liquefied Petroleum Gases (LPG):Butane and PropaneCEPSA markets the Group’s LPGs through its wholly-owned subsidiary CEPSA ELF GAS, with 12 storage anddecanting facilities nationwide; 5 of these sites bottle the12.5 kg. butane canisters, 11 and 35 kg propane containersand the 12 kg. automotive LPG containers. Additionally, anew center came on-line in 2002 in San Roque (Cádiz),practically doubling previous bottling capacity, in order tomeet growing demand.

Butane for residential use is currently sold in the provincesof Andalusia, Murcia,Valencia, Galicia and Madrid, as well asin some regions of Castilla-La Mancha, Castilla-León andAsturias.As bottling capacity grows, equipped with the mostadvanced technologies, plans are to continue extendingretailing activity over the next few months throughout therest of the two Castilian provinces and Extremadura, as wellas to begin distribution in the areas of Aragón, Navarre,Cantabria and the Basque Country.

Butane and propane canisters are delivered either door-to-door through a network of 72 distributors, or can bebought directly in more than 740 outlets, 482 of whichbelong to CEPSA’s service station network.

Overall, 170,900 tons of propane and butane were sold onthe domestic market to end customers in 2002, with anincrease of 43,000 tons, or over 34%, from the previousyear. The number of canisters came to nearly 6 million,almost twice as many as the year before.

Natural GasThe Group’s strategy in this segment is pursued throughMEDGAZ, CEPSA GAS COMERCIALIZADORA, NUEVAGENERADORA DEL SUR and GAS DIRECTO.

MEDGAZThis company, started up initially by CEPSA andSONATRACH, each with a 20% interest, was created tostudy and promote a new sub-sea natural gas pipelinelinking Algeria directly to Europe via Spain. Companiescurrently involved in this project include TOTAL, ENDESA,BP, GAZ DE FRANCE and ENI, each one having a share of12%.

Progress was made in the year towards completing themarine survey to seek a suitable pipeline corridor stretchingfrom Beni Saf in Algeria to the coast of Almeria, Spain, aswell as the project’s conceptual engineering and marketstudies. Plans are to conclude the feasibility study in early2003 and begin the second phase of the project, whichinvolves setting up the new company to undertake thedetailed engineering and construction of the pipeline, slatedfor completion at the end of 2006.

The MEDGAZ Project, included by the EuropeanCommission last year in the proposed List of Projects ofCommon Interest in the energy sector, was likewiseincluded by Spain’s Finance Ministry in the document titled“Planning of Gas and Power Sectors. Development ofTransportation Networks 2002-2011” of September 13,2002.

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CEPSA GAS COMERCIALIZADORAIn 2002, CEPSA GAS COMERCIALIZADORA, S.A.continued to build on its natural gas marketing business tolarge consumers, signing agreements with customersnationwide involving 10,192 GWh/year.

Sales came to 6,553 GWh in the year, 50% of which werefor the Group’s internal consumption, with revenues comingto 95.1 million euros, rising sharply by 443% from the yearbefore.

The company signed a long-term agreement with theBasque utility, Bahía Bizkaia Gas, S.L. to reserve re-gassification capacity, in addition to what it already has ineffect with ENAGAS, and likewise secured two long-termsupply contracts for LNG (liquefied natural gas) with theAlgerian national oil company SONATRACH, to meet itsgas retailing requirements.The company also added to itsgas provisions by importing shipments of LNG from theMiddle East.

One of the year’s highlights was the agreement signed byCEPSA and TOTAL with SONATRACH for the Algeriancompany to acquire an interest in CEPSA GASCOMERCIALIZADORA, S.A. Once the administrativeformalities of this acquisition, now underway, have beencompleted, the new shareholding structure will beSONATRACH (30%),TOTAL (35%) and CEPSA (35%).

NUEVA GENERADORA DEL SURNUEVA GENERADORA DEL SUR, a venture betweenCEPSA (25%) and UNION FENOSA GENERACIÓN (75%),continued to advance the project to build and operate anatural gas-fired combined cycle power generation plant onproperty belonging to the “Gibraltar” refinery, with two 370mw electrical units, the steam by-product of which will bereused by the refinery itself for its industrial processes.

At year-end, contracts for the power islands, the electricalequipment of the 400 Kw sub-station, the water coolingsystem, the water treatment plant and other auxiliarysystems were already awarded.The facility is expected to beoperational by mid-2004.

GAS DIRECTOCEPSA, through its 40% stake in GAS DIRECTO, S.A., inpar tnership with UNION FENOSA GAS (60%), is alsoactive in the natural gas distribution sector for theregulated tariff market, and has been authorized by thegovernment to supply gas in 21 townships of Madrid,Galicia, Castilla-La Mancha and Castilla-León.

The company delivered natural gas to over 1,200residential, commercial and industrial customers, generatingrevenues of 4.2 million euros, in 2002, with a year-on-yearincrease of over 400%.

Power CogenerationIn order to enhance energy efficiency at its refineries,chemical plants and production sites, the CEPSA Group’s hasfive cogeneration facilities, with a total capacity of 240 MW,which have been operating since 1998.

These five plants generated 1,743 million kWh in 2002, aswell as 3.75 million tons of steam, used in the Group’sinternal processes, similar to last year’s production volumes,with capacity utilization in these facilities averaging about 86%.

Spanish Government Ruling 841/2002 of September 2granted access to the power market for the sale of surpluselectricity production from cogeneration units.This activitywas undertaken through CEPSA’s affiliate DETISA in the lastfour months of the year.

CEPSA signed an agreement with SONATRACH tocollaborate on the development of co-generation facilitieson the Spanish Peninsula, which will take effect with theacquisition of a 30% interest in DETISA by the Algerian oilcompany.

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MW power Output Million kWh

COTESA "Tenerife" 38 257.7DETISA "La Rábida" 50 397.7GEGSA "Gibraltar" 74 566.7GEMASA "Ertisa" 27 209.7GETESA "Interquisa" 41 311.0TOTAL 230 1,742.8

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