1.1.- Income Statement

Repsol’s net income for the third quarter of 1997 was almost 8% higher than in the same period a year earlier, at 27,536 million pesetas. This rise in income has produced a 2.5% higher accumulated income for the first nine months of 1997 than for the same period of 1996.

Third quarter operating income was 26.7% up over the 1996 figure, at 59,553 million pesetas, and was 17% more than operating income for the second quarter of this year.

At the end of this quarter, cash-flow had risen by 26% in comparison to the accumulated level for the first three quarters of 1996, reaching 231,791 million pesetas.

This performance was achieved over a period in which conditions were atypical, when, as we have already mentioned in former income reports, the following special circumstances were present:

• The price freeze on LPG continued over the first seven months of the year, and cut back Repsol’s operating results in this area by 15,300 million pesetas, thus lowering net income and cash-flow by 9,945 million pesetas.
• Asset revaluation over the first nine months of 1997 led to larger amortizations, which depleted operating income by 14,700 million pesetas. Consequently, net income fell by 9,555 million pesetas, although tax savings from this measure boosted net cash-flow by 5,145 million pesetas.

If these two factors were disregarded, Repsol’s net income for the first three quarters of 1997 would have been more than 24.9% higher than the amount obtained a year earlier.

Accumulated investments at September 30th, 1997 were 389,044 million pesetas, whilst, at this same date last year, investments amounted to 222,423 million pesetas.

The high levels of capital expenditure made over the past two years led to a net debt at September 30th, 1997, of 668,174 million pesetas. This was 286,629 million pesetas more than the debt level registered at December 31st, 1996, and included 48 billion pesetas on dollar denominated debt from the appreciation of the dollar against the peseta, and 51,314 million pesetas from the consolidation of debt for companies acquired this year.

This is a temporary situation, for the company has already taken the necessary measures to reduce debt level, including a $725 million issue of preference shares on the United States retail market.

1.2.-Expansion in Latin America.

The following investments were made in Latin America this quarter:

• Astra acquired 60.4% of the refining and marketing company EG3, and 42.5% of the refining company Refisan, for a total of 294 million dollars. Following this operation, Astra owns 93% of EG3 capital equity. The joint refining capacity of these two companies is 3.2 million tonnes per year, and they have facilities for the production of asphalts, lubricating oils and specialties. The EG3 service station network, with 614 sales outlets, represents an 11% share of the Argentine market.
• Repsol Exploraci�n, 100% affiliate of Repsol, S.A., purchased the exploitation rights to the Mene Grande area in Venezuela for 330 million dollars. Current production from this field is 5,500 barrels per day, and the use of modern technology is expected to raise this to 60,000 barrels per day. Proved and probable reserves are now calculated at 154 million barrels. Possible reserves to be discovered by exploration could surpass a further 250 million barrels.
• A consortium made up of Gas Natural SDG (with 33.5%), Pluspetrol Energy, (with 4%), Enron (with 45%), and Iberdrola (with 17.5%) acquired 56.41% and 75% respectively of the Brazilian companies CEG and Riogas, at a total cost of $576 million. These recently acquired companies are engaged in the distribution of piped gas in the metropolitan area and State of R�o de Janeiro. This transaction implied an indirect investment by Repsol of 95 million dollars.
• In July, Gas Natural Latinoamericana (a company owned 50% by Gas Natural SDG and 50% by Repsol, S.A.) won a concession to distribute natural gas to the metropolitan area of Toluca, near Mexico, D.F. Winning this concession did not imply any initial outlay, but involves an investment programme of $30 million over the next 5 years. Gas Natural Latinoamericana now distributes natural gas to the Mexican municipalities of Toluca, Nuevo Laredo and Saltillo.
• Repsol Exploraci�n was awarded, in consortium with other companies, four exploration blocks in Bolivia. Repsol was already engaged in exploration activities in Bolivia, and is operator of the Secur� block, with a surface area of 13,000 Km2, in the north-east of the country. With these four new areas, Repsol owns a stake in over 20,000 Km2 of new mining acreage, and is committed to an investment of 27 million dollars over the next three years.
• Astra and Pluspetrol Energy have exercised their option to purchase a 20% stake in the consortium called Gasoducto Atacama. This is a project to transport gas and generate electrical power, developed by the Chilean company Endesa and the U.S. company, CMS Energy Corporation.
• As part of Repsol’s policy to rationalize assets, in September, Astra sold all its shipping assets, at a price of 45.5 million dollars.

1.3.-Other outstanding events

• On July 9th last, Repsol paid a final gross dividend of 102 pesetas per share, as approved by the Annual General Shareholders’ Meeting in June. The overall gross dividend against the 1996 financial year was 181 pesetas per share.
• On August 1st, 1997, the Ministry of Industry and Energy re-introduced application of the formula for fixing LPG price ceilings, bringing to a close the 10 month price freeze which cost Repsol 20,600 million pesetas in loss of operating income: 5,300 million in 1996 and 15,300 million in 1997.
• Repsol is following a policy to strengthen its financial structure and, in October, the affiliate company Repsol International Capital Ltd. issued 725 million dollars’ worth of preference shares on the U.S. market. These preference shares are guaranteed under subordinate terms by Repsol, S.A., are non-accumulative, produce an annual dividend of 7.45%, and will be quoted on the New York Stock Exchange. Rating agencies Moody’s and Standard and Poor’s classify this issue as grade aa3 and AA- respectively, equivalent to the rating held for non-subordinated Repsol debt. This was the first issue of its type to be made by a Spanish industrial corporation, and is the largest ever to be launched by a non-U.S.A. company on the preference share market.
• In July, Repsol, Iberdrola, Amoco and the Ente Vasco de la Energ�a signed an agreement to study the possibility of building an LNG plant at the port of Bilbao, together with an integrated power station.
• Repsol has introduced a new trade mark, Repsol Gas, to promote, increase and improve the distribution service for propane gas in its various forms. This business line already has a considerable logistics and marketing network, with 23 storage centres, 8 territorial coordination centres and 22 trading areas. It currently delivers to 55,000 customers with propane tanks, and 250,000 piped gas customers on networks. Annual sales are approximately 625,000 tonnes of propane.
• In July, 1997, Repsol signed an agreement to explore for hydrocarbons in the Baijaninsk area, in the Republic of Kazakhstan. Repsol will be operator, with a 60% stake, and Enterprise Oil will be the other shareholder with 40%. The acreage under exploration has a surface area of 10,000 km2. This project is Repsol’s first exploration activity in the Republic of Kazakhstan, and forms part of Repsol’s policy to invest in high potential areas.
• This quarter, Repsol Exploraci�n completed the Poseidon project, with the development of the Gulf of Cadiz gas fields, where production began in October.
• At the beginning of November, a consortium made up of Repsol (operator with a 32% stake), OMV and Total (each with a 24% stake), and Saga (with 20%), signed an exploration agreement on blocks A and B in Libya. These blocks are located in the Murzuq basin, near the NC-115 concession operated by Repsol, and have a surface area of 23,000 km2.

2.- ANALYSIS OF RESULTS BY ACTIVITIES

2.1. Exploration and production

E&P operating income for the third quarter of 1997 was 18.7% higher than the third quarter of 1996, at 12,385 million pesetas, and 32.3% up on the second quarter of this year.

Accumulated operating income at September 30th, was 61.9% higher than at the same date in 1996, at 33,874 million pesetas.

Operating cash-flow for the three month period was 24,873 million pesetas, showing a rise of 26.5% and 14.1% over the third quarter of 1996 and the second quarter of 1997, respectively.

As in the second quarter of 1997, oil prices had a negative effect when compared with the previous year. The average price of crude oil over the third quarter of 1997 was $18.53 per barrel, in contrast to $20.94 per barrel for the third quarter of 1996.

This negative effect of oil prices was counteracted by the higher exchange rate of the dollar against the peseta, which continued over this quarter and had a positive influence on income, more than compensating for low oil prices on international markets. To be precise, the dollar went up to 152.49 pesetas/$, surpassing the previous quarter’s level of 144.72 pesetas/$, and even more so the 126.56 pesetas/$ registered in the third quarter of last year.

Repsol’s production of hydrocarbons for the third quarter was 13.2% up on the previous year, at 3.51 million tonnes of oil equivalent (Mtoe). Higher production came from the inclusion of output from Pluspetrol and Mexpetrol fields, and a good performance by Harding field, although production from libyan field if taking longer than originally expected.

Additional oil reserves were discovered in September by the Boquer�n 1 exploratory well, 3 km. from the Casablanca rig. This well has a production capacity of over 10,000 barrels of oil per day.

Astra’s contribution this quarter to E&P operating income was 5,379 million pesetas, and rose by 103.5% in comparison to that for the same period in 1996. The reasons for this, apart from those already explained above, are a greater corporate activity from the acquisition and exploitation of Mexpetrol and Pluspetrol Energy oil and gas reserves.

Overall investments for this quarter were 82,470 million pesetas: 51,667 million in payment of the exploitation concession on reserves in Venezuela, 20,947 million for the development of oil fields, and 9,856 million for exploration.

2.2. Refining and Marketing

Operating income for the third quarter of 1997 was 30,437 million pesetas, showing a rise of 57.8% over the same period a year earlier, and of 7.4% over the preceding quarter of this year. Accumulated operating income for the first three quarters of 1997 was 45.2% higher than in 1996, at 81,682 million pesetas.

Quarterly operating cash-flow rose by 45.6% in comparison to last year, reaching 50,891 million pesetas.

The refining margin indicator fell back to the levels registered during the first quarter of this year, reaching a position of around $2.35 per barrel, 50 cents lower than in the second quarter, although they were 60 cents higher than in the third quarter of 1996.

Third quarter figures for the refining area were also affected by other factors:

• 9.5 million tonnes of oil were processed at Repsol refineries in Spain, Argentina and Peru. This was 5% higher than in the second quarter of this year, and 14.5% up on the same period a year earlier.
• Petronor’s increased conversion capacity led it to achieve refining margins of $3 per barrel in this quarter. This, together with the distillation levels maintained over the three month period, boosted operating income by 9% over the second quarter of 1997, and by 150% in comparison to the third quarter of 1996.
• In contrast to the first two quarters of this year, there have been no significant losses of production through scheduled maintenance shut-downs.

In the logistics area, overall deliveries of light products rose by 3.4% in comparison to the third quarter of last year, in spite of a fall in petrol consumption due to a growing preference for vehicles with diesel engines.

Sales of light products in Spain were 4.3% higher than the same quarter a year earlier. 91,000 tonnes of gasolines and gasoils were sold this quarter to CORES to make up strategic stock.

Income from refining and marketing operations in Latin America amounted to 5,743 million pesetas over the three month period.

The La Pampilla refinery processed 1.2 million tonnes during this third quarter, in comparison to 550,000 tonnes processed in the first two months of production after being taken over by Repsol in the third quarter of 1996.

Since September 1st, 1997, statements of amounts of oil processed include the EG3 refinery at Bah�a Blanca. Here, figures for September were 125,500 tonnes.

Quarterly capital expenditure was 51,392 million pesetas, of which 32,827 million pesetas were related to the acquisition of EG3 by Astra. Other investments were mainly to link up and build service stations, and to improve the company’s refinery units.

2.3 Chemicals

Operating income from chemicals for the third quarter of 1997 was 7,542 million pesetas. This was 31.1% up on year earlier figures for the period, and an improvement of 56.9% on the second quarter of this year.

Accumulated income at September 30th was 3.8% up on 1996 figures, at 19,595 million pesetas.

Operating cash-flow for the activity in this quarter was 9,432 million pesetas, showing a rise of 31.1% over the same period in 1996, and 46.9% over the second quarter of 1997.

As for operating income in the third quarter, base chemicals (4,380 million pesetas) doubled the previous year’s figure (2,150 million pesetas) thanks to strong price rises on international markets this quarter.

In comparison with the second quarter, income on base chemicals was 78.7% up as a result of higher sales, once production at the olefins cracker in Tarragona had returned to normal. This positive effect was partially reduced by a slight fall in olefin prices over this third quarter against the second quarter of 1997. Derivative petrochemicals registered a 25% higher income due to improved international margins.

431,000 tonnes of petrochemical products were sold during the three month period, that is, 13% more than in the second quarter, again following eradication of last quarter’s production problems at the Tarragona petrochemical complex.

Investments this quarter were 4,652 million pesetas. Accumulated investments over the first nine months of 1997 amounted to 14,521 million pesetas, in comparison to 17,064 million pesetas in 1996. As mentioned in our last quarterly income preview, the main projects already completed include a new polypropylene plant, and, in Tarragona, a 33,000 tonne capacity increase at the LDPE plant and a 64 MW cogeneration unit. Capacity increases for polyols, rubber and methyl metacrylate are also under way.

2.4 Gas and electricity

Third quarter 1997 operating income from this area, at 9,448 million pesetas, fell by 19% in comparison to the same period a year earlier, but was 9.1% higher than the second quarter of 1997.

The price freeze on LPG finally came to an end in this quarter. From the date on which the government introduced this measure, until August 1st when prices were up-dated, Repsol Butano suffered a loss in operating income of 20,600 million pesetas: 5,300 million of this in 1996 and 15,300 million in 1997. If the impossibility of revising marketing terms is added to this negative effect, operating income would have suffered a total loss of 23,100 million pesetas: 7,800 million of this in 1996 and 15,300 million in 1997.

This winters’ mild temperatures also had a negative effect on gas income in 1997, which may be calculated at 8,450 million pesetas.

In spite of the effects of the aforementioned price freeze, a warm winter and asset revaluation, accumulated operating income had reached 29,044 million pesetas by September 30th last, in comparison to 47,647 million pesetas at the same date a year before.

Operating cash-flow for the three month period showed a rise of 9.8% against year earlier figures, at 16,481 million pesetas, and accumulated operating cash-flow was 49,346 million pesetas, whereas it was 60,647 million pesetas for the same nine months of 1996.

LPG quarterly operating income in Spain was 44% lower than in 1996, at 2,599 million pesetas. However, this was a 69% improvement over the second quarter of this year, mostly because of higher margins after lifting of the price freeze.

Total third quarter sales by Repsol Butano were 2.8% below 1996 levels, at 450,000 tonnes. This slight fall is due to the fact that a cold September in 1996 favoured gas sales.

Natural gas registered a third quarterly operating income of 6,762 million pesetas, 3.7% lower than the same period of the previous year. Sales were 6.1% down in Argentina against 1996 figures, because winter temperatures were cold there in that year, and unitary margins were lower this quarter because of the time lapse in adjusting feedstock purchasing prices to selling prices, the effect of which was not fully counterbalanced by higher sales to the industrial sector and power stations.

The residential-commercial sector consumed 6,539 million thermies of natural gas in this third quarter, showing a 2.4% rise over the same period in 1996. Sales to the industrial sector were 21% higher than a year earlier, at 20,271 million thermies.

Recent investments in Gas Natural ESP (Colombia) and CEG-Riogas (Brazil) have begun to mature, although their contribution this quarter was small.

Of the other activities in Latin America, the sale of 71,000 tonnes of LPG in Peru and Argentina was outstanding. These new activities, together with electrical power in Argentina, are currently gaining strength, so income over this period is not really representative.

Overall investments for the area were 36,359 million pesetas. Of this, 2,584 million pesetas were spent on LPG, and 33,775 million pesetas on the natural gas and electricity sectors. The latter amount includes 13,166 million pesetas for the acquisition of stakes in Riogas and CEG.

2.5 Corporate and others

This caption shows a negative operating income for the quarter of 259 million pesetas, compared to a negative 154 million pesetas in 1996, and basically reflects the expenses incurred by Repsol’s corporate headquarters, which are not accountable to group companies.

3.- FINANCIAL RESULTS

Net financial expenses for the third quarter of the year were 8,309 million pesetas, in contrast to 4,845 million pesetas registered for the same period a year earlier.

 This increase in net financial expenses was mainly due to Repsol’s higher financial debt, which rose from 381,545 million pesetas at the close of 1996 to 668,174 million pesetas at September 30th, 1997. This figure is partly due to the effect of new investments made by Repsol over the first nine months of this year and partly to consolidating debt from newly acquired companies.

 It should be mentioned that the dividend paid or accrued on preference shares issued in October (mentioned in paragraph 1 of this preview) will be entered under the caption "Minority Interests", and not under "Financial Results".

4.- EQUITY ON EARNINGS OF UNCONSOLIDATED AFFILIATES

The figure entered under this caption for the third quarter of 1997 was 748 million pesetas. The largest contributions were from gas and electricity (388 million pesetas) and refining and marketing (351 million pesetas).

The accumulated balance for this section at September 30th was 1,340 million pesetas, 1,154 million pesetas of which relate to income from companies in which Astra holds a minority stake.

5.- GOODWILL AMORTIZATION

Goodwill amortization for the third quarter of 1997 was 1,470 million pesetas, of which 645 million pesetas were registered in September. With the recent acquisition of a 62% stake in EG3, goodwill pending amortization at September 30th last reached a figure of 76,649 million pesetas: 51,914 million pesetas of this on investments in EG3, Alg�s, Solg�s and the La Pampilla Refinery, and 20,665 million on investments in CEG, Riogas and Gas Natural ESP.

6.- EXTRAORDINARY ITEMS

The third quarter of 1997 reported an extraordinary loss of 863 million pesetas, which may be broken down into some 2,935 million pesetas of income and 3,798 of expenses. On the income side, a profit of 2,014 million pesetas was obtained on the divestment of Astra’s shipping assets. Expenses were mainly provisions for manpower restructuring programmes and possible future losses or contingencies.

7.- MINORITY INTERESTS

Income attributable to minority shareholders in the third quarter was 7,056 million pesetas. Accumulated income for the first nine months of this year was 16,632 million pesetas. This figure may be broken down as follows:

8.- TAXES

Estimated income tax for the first nine months of 1997 was 29.6%. Our current information leads us to calculate an effective tax rate for the whole year of approximately 30%.

REPSOL SUMMARISED INCOME STATEMENT

(Million pesetas)

(Non-audited figures)

______________________
$= 128.41 pesetas in 3Q96
$= 147.45 pesetas in 2Q97
$= 149.26 pesetas in 3Q97

BREAK-DOWN OF REPSOL OPERATING INCOME BY ACTIVITY

(Million pesetas)

(Non-audited figures)

BREAK-DOWN OF REPSOL OPERATING CASH-FLOW BY ACTIVITY

(Million pesetas)

(Non-audited figures)

__________________________________________________________________________
(1) Includes Repsol Exploraci�n and from third quarter of 1996 onwards Astra E & P activity.
(2) Includes C.L.H., refining & marketing of Repsol Petr�leo and Petronor, Repsol Comercial de Productos Petrol�feros. From third quarter of 1996 onwards, it also includes La Pampilla and from September 1997 onwards, EG3.
(3) Includes basic petrochemicals from Repsol Petr�leo and Petronor plus derivative petrochemicals from Repsol Qu�mica.
(4) Includes Repsol Butano, Solgas and the 45.3% stake in the Gas Natural Group and, from 1997 onwards, electricity activity of Astra.
(5) Mainly includes Repsol. S.A. overheads

BREAK-DOWN OF REPSOL OPERATING REVENUES BY ACTIVITY

(Million pesetas)

(Non-audited figures)

BREAK-DOWN OF INVESTMENTS BY ACTIVITY

(Million pesetas)

(Non-audited figures)

_________________________________________________________________________
(1) Includes Repsol Exploraci�n and from third quarter of 1996 onwards Astra E & P activity.
(2) Includes C.L.H., refining & marketing of Repsol Petr�leo and Petronor, Repsol Comercial de Productos Petrol�feros. From third quarter of 1996 onwards, it also includes La Pampilla and from September 1997 onward, EG3.
(3) Includes basic petrochemicals from Repsol Petr�leo and Petronor plus derivative petrochemicals from Repsol Qu�mica.
(4) Includes Repsol Butano, Solgas and the 45.3% stake in the Gas Natural Group and, from 1997 onwards, electricity activity of Astra.
(5) Includes elimination through sales made between different business areas.

REPSOL COMPARATIVE BALANCE SHEET

(Million pesetas)

(Non-audited figures)

REPSOL CONSOLIDATED STATEMENTS OF CASH-FLOWS

JANUARY-SETEMBER - 1996 AND 1997

(Million pesetas)

(Non-audited figures)

OPERATING HIGHLIGHTS

_________________________________________________________________________
(1) From July 19th, 1996 onwards, includes 100% of Astra production (2.874 Mtoe in the period January-September 1997)
(2) From August 1st 1996 onwards, includes 100% of La Pampilla and, from september 1st 1997, also includes 100% of EG3.
(3) Includes net sales of base chemicals
(4) Since October 1st, 1996, includes 100% of RIMAC, S.A. shares in Peru, and, since January 1st, 1997, 100% of SOLGAS sales in Peru. The third quarter includes 100% of ALGAS sales for the period from June to September.
(5) Refers to the proportional consolidation of Gas Natural Group sales (45.3%) and includes global consolidation of Enagas sales in the Gas Natural Group.
(6) Includes proportional consolidation of Gas Natural BAN sales (45.3%), 72.6% of Gas Natural Latinoamericana sales, 53% of Gas Natural ESP (Colombia) sales, and 15.2% of CEG and Riogas sales in Brazil.