Repsol

Risk management

Repsol YPF, as an oil and gas company, is active in many countries, each with different regulatory frameworks. As a result, Repsol YPF is exposed to: 

• market risks, stemming from the price volatility of oil, natural gas and their derivative products, exchange rates and interest rates, 
• counterparty risks, stemming from financial contracts and from commercial commitments with suppliers or customers, 
• risk of liquidity and solvency, 
• legal and regulatory risks (including the risks of changes in tax schemes, sector and environmental regulations, exchange rate schemes, production limitations, export limitations, etc.),
• operational risks (including risks of accidents and natural catastrophes, uncertainties related to the physical characteristics of the crude oil and gas fields, safety and environment and reputation risks, such as those related to ethics and the social impact of business),
• risks in the economic realm (stemming from the global economic cycle and of the countries in which the company is present, technological innovation in the sectors in which it operates, etc.).         

The company considers the most relevant risks to be those that could compromise reaching the objectives in the Strategic Plan, especially in maintaining its financial flexibility and long-term solvency. Repsol YPF manages its assets and businesses prudently. However, many of the risks mentioned are a natural part of undertaking the activities, they are beyond the company's control, and they cannot be eliminated completely.

Repsol YPF has an organisation, procedures and systems that enable it to identify, measure, evaluate, prioritise, control and manage the risks that the group is exposed to, and to decide to what extent those risks are assumed, mitigated, covered or avoided as much as possible. Analysing risks is an integral part of the group's decision-making processes, both in the area of the central governing bodies and in business management, with special emphasis placed on the coexistence of different risks or the effects of diversification at an aggregate level. 

The following analysis, supervision and independent control units exist, specialising in a variety of risk management areas:

• Internal Auditing Unit, focusing on constant evaluation and improvement of the existing controls to guarantee that potential risks of any kind (control, business, image, etc.) that could affect reaching the Repsol YPF Group's strategic goals are identified, measured and controlled at all times. 
• Credit Risk Management Unit, responsible for:
  - follow-up and control of the Group's credit risk
  - co-ordinating regulatory development related to credit risk, in the Group's different business units and corporate areas, and establishing measurement and assessment methods for those risks in keeping with the best practices
  - analysis and control of the credit risk generated by the Group's activities, including establishing individual credit risk limits by counterpart
  - defining the criteria for amounts granted, applying provisions for insolvency, refinancing and legal claims on debt.
• Market Middle Office Unit, responsible for:
  - the calculation, follow-up, control and market assessment of liquidity positions, exchange rate risk positions and interest rate risk positions
  - measuring position risk and analysis of the sensitivity of the results and value of the products and instruments taken out to the different risk factors
  -  development and validation of the measurement and assessment methods for instruments and positions according to market best practices
• Risk Follow-up Unit, responsible for:
  - co-ordinating regulatory developments related to commodity price risks, of the different business units and corporate areas in the Group, establishing measurement and assessment methods for these risks in accordance with the best practices
  - follow-up and control on the Group's commodity price risk 
• Insurance Unit, responsible for:
  - the analysis and evaluation of accidental risks that could affect the assets and activities of the Group
  - the definition of the most efficient financial policy for those risks, with an optimum combination of self-insurance and risk transfer measures
  - taking out insurance covers that are deemed necessary in each case
  - negotiating compensation for damages stemming from insured accidents
• Safety and Environment Unit, responsible for:
  - defining the objectives and strategic lines for safety and the environment in the company, and conducting follow-up 
  - establishing corporate regulations (policy, standards, procedures, manuals and guides) on safety and the environment in the global general scope of the company, as well as the mechanisms necessary to publish them.
  - identifying and leading corporate safety and environmental projects and advising the Units on implementing them and conducting follow-up. 
  - establishing key performance indicators, conducting performance follow-up in the company on safety and the environment and proposing corrective actions.
  - promoting the creation of working groups and sharing best practices in the area of safety and the environment
  - co-ordinating safety and environment audits and following up on them.
• Corporate Responsibility Unit, part of the Corporate Responsibility and Institutional Services Department, responsible for advising, promoting and co-ordinating the Company's joint Corporate Responsibility strategy, which involves:
  - proposing elements of governance, such as corporate regulations, manuals or guidelines, targets, indicators and other CR management tools, and introducing them as a complement to those already in place in the company.
  - co-ordinating dialogue with the company's stakeholders at the corporate level, and transmitting their expectations to the Corporate Responsibility Committee. Co-ordinating the monitoring of the dialogue with the stakeholders regarding the ethical, social and environmental contingency which may be relevant at corporate level.
  - monitoring the company's performance in CR, reporting to the Investment, Strategy and Corporate Responsibility Commission of the Board of Directors, to the executive committee and to the corporate responsibility committee.
  - consolidating CR-related information at the corporate level and developing the Company's communication tools for CR at the corporate level, such as the annual CR report and its verification, the Repsol YPF CR website, and the reports for trading on selective sustainability indices.
  - representing the company in external corporate forums on CR issues, presenting our corporate positions, gathering relevant information on the competition's best practices and transferring that knowledge to the Corporate Responsibility Committee.
• Internal Control Unit for the Financial Report, responsible for follow-up and management of the internal control system for the economic and financial report, in compliance with the requirements of section 404 of the Sarbanes-Oxley Act.
  The system applied by Repsol YPF is based on the conceptual framework defined in the COSO model.
• Reserve Control Unit, which ensures that the Repsol YPF's proven reserve estimates are in line with the regulations published by the different stock markets on which the company is traded. It also conducts internal audits on reserves, co-ordinates certifications by external reserve auditors and evaluates the quality controls related to reserve information, making any necessary suggestions within the process of continuous improvement and application of best practices.
  There are also several functional and business committees that are responsible for overseeing the risk management activities carried out in their areas of responsibility.
  

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