Income Statement

Repsol�s net income for the first three quarters of 1998 was 105,271 million pesetas, showing an 18.1% rise on the same period a year earlier. Operating income was 23.2% up, at 201,251 million pesetas, whilst cash-flow rose by 9.7%, to 254,274 million pesetas.

This good performance over the period led to significant improvement in accumulated income from January to September, 1998, in spite of negative factors such as continuously low oil prices, and the effect of the economic crisis in Asia, most keenly felt by the derivative chemical sector. This positive income trend is a sign of the balance achieved in the company�s fund-generating base.

By areas of activity, these are the highlights for the nine months from January to September, 1998:

In Exploration and Production, operating income fell by 56.5% over year earlier figures, to 14,724 million pesetas. This drop was basically due to progressively lower crude oil prices, with an average price for Brent of $13.2 per barrel, as compared to $19.2 per barrel last year. Repsol�s net production of hydrocarbons was 9.26 million tonnes, showing an 8.4% rise over the same period in 1997. During these three quarters, exploitation of the Mene Grande field began, and appraisal wells and development were begun at the Quiamare-La Ceiba discovery in Venezuela. The production process for the Issaouanne field, in Algeria, was also completed.

Operating income for the first nine months from the Refining and Marketing area was 114,121 million pesetas, showing a rise of 39.7% in comparison to the 81,682 million pesetas obtained a year earlier. Refining margins rose by 12% over 1997 levels. The contribution from marketing was most positive, and originated mainly from the success of our price differentiation policy, an increase in service stations run by Repsol itself at a better margin, and higher income from businesses connected to fuel sales, which are becoming increasingly important. In this respect, the Supercor project, based on an agreement with Spain�s largest department stores, El Corte Ingl�s, has performed extremely well. There was also a considerable rise in sales of oil products in Spain and Latin America.

Operating income from Chemicals for the first three quarters was 16.3% up on the same period of 1997, at 22,794 million pesetas, as against 19,595 million pesetas registered a year earlier. This performance is the result of a 19.5% upswing in sales for the whole area, in spite of the difficult situation for international markets caused by the economic crisis in south-east Asia, which produced a general fall in prices and margins, especially on derivative chemicals.

In Gas, three quarterly operating income was 51,311 million pesetas, in contrast to the 29,044 million pesetas for the same period last year. This is a growth of 76.7%. In the LPG activity, where prices had been frozen up to July 1997, income was boosted by a normal application of the price setting formula, and by higher sales, especially in Argentina and Peru. Total LPG sales increased by 3.6% in comparison to last year figures for the period, to reach over 1.9 million tonnes. In the natural gas activity, sales rose by more than 20% in both the residential-commercial and industrial sectors.

Investments over the first three quarters of 1998 amounted to 253,456 million pesetas, which was 35% less than the previous year. Most of this was spent on the exploration and production area, for the acquisition of oil and gas reserves and the development of fields; and in gas, for developing new markets in Spain and Latin America.

Highlights

The most important event in this period was the signature of an agreement, in the natural gas sector, between Gas Natural SDG (in which Repsol holds a 45.3% stake) and the electricity company, ENDESA, to supply the natural gas required by the latter to develop its programme for the construction of combined cycles. This agreement also contemplates the joint construction of four combined cycles, and the integration of both companies� gas distribution assets in Arag�n and Andalusia. This agreement, the Repsol-Iberdrola alliance and the agreement with Amoco, are considered the cornerstones supporting Repsol�s Group policy for the gas and electricity business.

The agreement with Amoco, signed in June last, basically consists of a contract for 6 bcm of gas, at least 4.5 of these on a "take or pay" basis for the Spanish market, and the acquisition of a 10% stake in Amoco�s reserves in Trinidad and Tobago, with an option for Repsol on a further 30%. The agreement also contemplates Amoco�s participation in electricity projects undertaken by the Repsol Group-Iberdrola in Spain, and joint ventures on the Latin American gas and electricity markets.

Another important event was the increase of Astra�s stake in Metrogas to 45.3%. Other operations also strengthening Repsol�s presence in Latin America were: the acquisition of 75% of Duragas, a company marketing LPG in Ecuador, with a 49% market share in distribution there, and annual sales of some 300,000 tonnes. As part of its international expansion policy, Repsol acquired the LPG distribution company, National Gaz, in Morocco.

In Spain, the new Law on Hydrocarbons came into effect last October, eliminating price ceilings on gasoline and providing for speedier liberalisation of the natural gas sector than that stipulated by the European Union.

 REPSOL SUMMARISED INCOME STATEMENT

(Million pesetas)

(Non-audited figures)

$ = 141.77 in 1998
$ = 149.26 in 1997
* This includes financial results, goodwill amortization and income from non-consolidated affiliates

(Million pesetas)

(Non-audited figures)