Repsol YPF holds its Annual General Meeting with record profit in 2005

"Net income for 2005 rose 29.2% to a record EUR3,120 million " Dividend increases 20%, to EUR0.60 per share " Income growth in all business lines, with a 69% jump in Refining " Cash flow was 37.9% up year-on-year, at EUR6,500 million " Net debt fell 16.4%, with a cut of EUR900 million " Reserves audit concludes without new adjustments " Appointment to the Board of two new independent directors, as per EU and the Unified Code of Good Governance recommendations.

Antonio Brufau, Executive Chairman of Repsol YPF, today presided over the companys Annual General Shareholders' Meeting, at which he proposed the approval of a 20% rise in the dividend for 2005, thanks to the good performance posted in what he described as an excellent year, in which the company recorded a record profit. 

In his speech, Repsol YPFs Executive Chairman summarized the highlights of the year, in which company profit rose 29.2% to a record EUR3,120 million, shored up by enhanced performance in all the companys business areas, with the result of a 31.5% rise in income from operations, to EUR6,161 million. 

Cash flow in 2005 was 37.9% up, at EUR6,480 million, showing the companys great financial strength and capacity for cash generation. This high cash generation made it possible to cut Repsol YPFs debt by 16.4%, to a level of EUR4,513 as of December 2005 (that is EUR885 million less than the figure for December 2004), and was more than sufficient to finance the investments committed in the period. 

Growth in all business areas

Mr. Brufau pointed out that all the business lines posted excellent results, and made special mention of the outstanding performance by the Refining & Marketing area, where income rose 69.3% year-on-year to EUR2,683 million, boosted by a 48.2% improvement in refining margins.

Income from Exploration & Production operations rose 6% year-on-year, from the EUR3,062 million posted in 2004 to EUR3,246 million in 2005. In Chemicals, income from operations was EUR308 million in comparison to EUR262 million the year before, showing a rise of 17.6%, whereas in Gas & Power, income from operations was up 25.5%, from EUR310 million in 2004 to EUR389 million in 2005. 

Shareholder return

The Executive Chairman also mentioned the good performance of Repsol YPF shares on the stock market during 2005, with a revaluation of almost 29%, outperforming the Ibex-35 by nearly 8 points and the Eurostoxx 50 by over 10 points.

In view of the companys positive income statement for 2005 and the favourable evolution of the Repsol YPF share price, on 29 March 2006, the Board of Directors resolved to propose to the Annual General Shareholders Meeting that a gross dividend of EUR0.60 per share be paid out against the 2005 financial year, equivalent to a 20% dividend increase year-on-year.  This dividend rise is in line with the companys policy of sustained growth in shareholder return. If the EUR0.60 dividend payment is added to the aforementioned 29% stock market revaluation, total shareholder income was 31.4%.

Upward trend in 2006

In relation to the first quarter 2006, Repsol YPFs Chairman emphasised that the companys reported net income was 8.2% higher than in first quarter 2004, at EUR862 million, with EBITDA (earnings before interest, tax, depreciations and amortizations) 15% up year-on-year, at EUR2,354 million, and earnings per share at EUR0.71 versus EUR0.65 in first quarter 2005.

Corporate Governance

In 2005, important steps were taken to strengthen Repsol YPFs Corporate Governance and place it on a par with those using the best international practices in this sphere. In April 2005, an important decision was taken in this respect to increase the functions of the Board of Directors Audit and Control Committee, and include among these a responsibility for the overseeing and control of reserves, and fulfilment of the environmental and safety policy.

In consonance with this role of supervision, in January 2006, Repsol YPF made a downward reserves revision of 1,254 million barrels of oil equivalent (boe). The largest part of this revision, 659 million boe (52%), affected Bolivia where the company has suffered considerably from certain political, economic and legal uncertainties. Adjustments of 509 million boe (41%) were also made in Argentina, and there was a cut of 86 million boe in the rest of the world, nearly two thirds of which corresponds to Venezuela.

Closure of reserves adjustment

Repsol YPFs Audit and Control Committee hired the independent law firm, King & Spalding, to conduct a report to clarify the circumstances that led to the aforementioned reserves revision. On terminating this task, one of the reports conclusions was that the revision process conducted by Repsol YPF in 2005 was correct and the reserves cut was carried out in compliance with external auditors recommendations, and was the result of new procedures introduced by the current management team to evaluate the technical and commercial aspects of these reserves.

The report also mentions that the evaluation in the past of the reserves of certain fields, which although incorrect on occasions, was not motivated by a desire for personal benefit. King & Spaldings report also concludes that the changes introduced by Repsol YPF in the control procedures have considerably improved the reporting and reserves control system.

With regard to the effect on accounts of this reserves cut, and in agreement with Repsol YPFs financial auditor, it has been decided that no adjustments will be necessary to the companys Balance Sheet or Profit and Loss Account for 31 December 2005, nor will any restatement of this Balance Sheet or Account be required in the consolidated financial statements for previous years.

New independent directors

In application of the European Commissions latest recommendations on the length of term to be held by independent directors and the Código Unificado de Buen Gobierno (Unified Code of Good Governance) issued by the the Spanish Continuous Stock Market authorities (CNMV), the Annual General Shareholders Meeting has appointed Artur Carulla and Javier Echenique as independent directors, covering the vacancies produced by the exit of Juan Molins and Enrique Aldama, whose terms of office on the Board ended this year.

The AGM also resolved to ratify the new directors of the Board, Paulina Beato and Philippe Reichstul, appointed for a term of four years. The arrival in 2005 of these new directors, specialists in the international energy sector, was the outcome of Repsol YPFs decision to raise the number of independent directors as an additional good governance measure.

We would like to highlight the following events that took place in 2005:

• In February 2005, Repsol YPF entered an agreement with the Dutch company, Basell, to acquire 50% of the latters stake in Transformadora de Propileno A.I.E., including a polypropylene plant at the Tarragona Petrochemical Complex, with a 160,000 tons/year capacity, in which Repsol already holds the other 50%. This transaction boosts Repsol YPFs polypropylene capacity by 15%, raises the companys presence in the polyolefin business in Europe, and represents another step forward in one of the companys core strategic lines for growth. 
• In Venezuela, last March, Antonio Brufau, Executive Chairman of Repsol YPF, and Rafael Ramírez, Venezuelan Minister of Energy and Mines and Chairman of PDVSA, signed a series of strategic agreements that have increased the companys presence in the region. The most important of these agreements contemplates the creation of a joint venture between PDVSA and Repsol YPF, the first of this nature to be set up in Venezuela, that would hold the rights for oil and gas exploration and development in the areas where operations are currently underway (Mene Grande, Quiriquire and Quiamare - la Ceiba) and in new areas nearby. 
• Also in March, Repsol YPFs Executive Chairman Antonio Brufau, and ChevronTexacos Chairman Dave OReilly, signed in Caracas a Letter of Intent proposing to the Ministry of Energy and Petroleum and Petróleos de Venezuela (PDVSA) the joint development of an exploration block in the prolific Orinoco Belt and the construction of a refinery for transformation of the crude oil produced there. 
• Repsol YPF and Gas Natural SDG, on 29 April, entered an agreement for the liquefied natural gas (LNG) businesses, including the exploration, production, and liquefaction of natural gas reserves. This agreement will grant both companies access to new markets under more favourable conditions. In the upstream (exploration, production, and liquefaction) area, an association for the development of new ventures is contemplated, in which Repsol YPF will be operator with a 60% stake in assets, and Gas Natural SDG will hold the remaining 40%. 
• On 7 June, Repsol YPF and Irving Oil Limited entered an agreement to develop the first LNG regasification plant on the east coast of Canada, forming a new company, Canaport LNG, which will construct and operate the terminal to supply markets in the surrounding area, as well as the northeast coast of the United States. The Canaport terminal will initially be capable of putting 10 Bcm per year of LNG on the market. Repsol YPF will supply the natural gas to feed the terminal and hold a contract for 100% of the plants regasification capacity. This plant is scheduled to go on stream and distribute natural gas to the market from 2008 onwards, and Repsol YPF will market the regasified LNG mostly in the USA. 
• Also in June, Repsol YPF signed a Memorandum of Understanding with Hunt Oil to develop the Peru LNG project. This project consists of a Hunt Oil and SK Corporation joint venture for building and operating a liquefaction plant in Pampa Melchorita (Peru). The plant, expected to be operational in 2009, will produce 4 million tons per year of LNG for sale on the West Coast of the United States and Central America. The Peru LNG project will be fed by natural gas from blocks 88 and 56 of the Camisea field, in which Repsol YPF also has a stake. This MOU also contemplated Repsol YPF taking a stake in Transportadora de Gas del Peru SA (TGP), the company that delivers natural gas from the Camisea area via the trans-Andean pipeline. 
• Repsol YPF will invest $130 million in the start-up of the Neptune field, in deep waters of the Gulf of Mexico, in which the company holds a 15% stake. The Neptune field will have a maximum production of 50,000 barrels of oil per day and 50 million cubic feet of gas. The total cost estimated for this development is some $850 million, and its reserves are calculated at between 100 and 150 million barrels of oil equivalent (boe). The field is expected to go into production towards the end of 2007. 
• In July, Repsol YPF became one of the main oil and gas producers in the Caribbean on exercising a call option for the purchase from BP of three oil fields and one gas field in Trinidad & Tobago, for a price of $229 million. The three oil fields, Teak, Samaan and Poui, currently produce 20,500 barrels of oil equivalent per day. Investment in the oil fields and the development of the gas field will be $500 million up to the year 2025.
• Fruit of the agreement with Gas Natural SDG, in August, Repsol-Gas Natural LNG, S.L, a 50-50 joint venture, was set up for the transport, trading and wholesale of LNG. This new company is the third largest in the world in terms of LNG handled, immediately behind KOGAS and Tokyo Electric. 
• In November, the company presented a new refining investment programme for the Downstream area. Repsol YPFs refining strategy in Spain is focused on increasing the distillation and conversion capacity to reduce the deficit in gas oil; adapting the units to future product specifications; encouraging the use of bio-fuels, and improving our performance in energy efficiency, safety and the environment. To this end, the company will inject EUR3,870 million, of which EUR 2,100 million were earmarked for the Cartagena refinery to increase its refining and conversion capacity, and EUR900 million for the Bilbao refinery to reduce fuel oil production and upgrade product quality, with special emphasis on environmental improvements. 
• At its annual summit in November 2005, the Centre for Financial Stability (CEF in Spanish) declared YPF S.A. to be the company with the highest degree of Corporate Governance in Argentina in 2004. Good corporate governance practices are increasingly valued by the capital markets, and for several years now Repsol YPF has strived to be at the forefront of these practices in all the countries in which it operates. 
• In Argentina, Repsol YPF announced a planned investment of $30 million in the construction of a plant in Ensenada (due to begin in 2006) for the production of 100,000 tons of bio-diesel per year, using cutting-edge technology. This new product is developed from a suitable combination of traditional gas-oil and the energy value obtained from vegetable oils (such as soy, rapeseed and sunflower oil, etc). 
• In December, Repsol YPF put on stream in the Caribbean the largest liquefaction plant in the world, with the start of production from the fourth train at the Atlantic LNG plant in Trinidad & Tobago, in which it holds a 22% stake. This plant will have a production capacity of 5.2 million tons per annum of liquefied natural gas. 
• The Repsol YPF Board of Directors, on 29 December 2005 and in accordance with a proposal by the Nomination and Compensation Committee, approved the appointment as independent directors of energy experts, Philippe Reichstul and Paulina Beato, who took up the vacancies left several months before on the exit of the two BBVA domanial directors. These appointments have been ratified at the companys AGM. 
• At that same meeting, the Board of Directors approved payment of a EUR0.30 per share interim dividend against the 2005 financial year, equivalent to a 20% rise year-on-year, effective to shareholders as of 12 January 2006 last. 
• Moving on to 2006, in Libya, Repsol YPF made a new discovery of high-quality light crude oil at the NC 186 block in the Murzuk Basin. Tests at the well gave a preliminary production estimate of 2,300 barrels of oil equivalent per day. This discovery, in the Sahara desert, 800 km. south of Tripoli, is near the two latest finds made by Repsol YPF in this same block towards the end of last year, which gave a preliminary production of 2,060 and 4,650 barrels per day, respectively. 
• In February, Repsol YPF and West Siberian Resources (WSR) signed a strategic agreement whereby Repsol YPF acquired a 10% stake in the latter via a WSR capital increase, involving an investment of nearly $90 million, and will also develop projects in the exploration and production of oil and gas in Russia, where WSR owns exploration assets. This deal strengthens Repsol YPFs exploration and production (Upstream) business and marks progress in the companys strategy of geographical diversification. This alliance with WSR also represents a good opportunity to participate in the Russian market with a view to analyzing other projects in the region. 
• The company is opening an office in Moscow to attend to its growing presence in Russia, with a view to progressing in new projects and taking quicker and more efficient advantage of the opportunities offered by the Russian oil industry.