Repsol : Information on the results for the first quarter 2016

Microsoft Word - NOTA Q1 16 INGLÉS Q1 2016 RESULTS

5 May, 2016

TABLE OF CONTENTS

BASIS OF PREPARATION OF THE FINANCIAL INFORMATION 2 KEY METRICS FOR THE PERIOD 4 KEY MILESTONES FOR THE FIRST QUARTER OF 2016 4 NET INCOME PERFORMANCE BY BUSINESS SEGMENT 6

UPSTREAM 6

DOWNSTREAM 8

GAS NATURAL FENOSA 9

CORPORATE AND OTHERS 10

NET INCOME ANALYSIS: NON-RECURRING ITEMS 11

NON-RECURRING INCOME 11

NET DEBT ANALYSIS: NET DEBT EVOLUTION AND ADJUSTED CASH FLOW STATEMENT12

NET DEBT EVOLUTION 12

ADJUSTED CASH FLOW STATEMENT 13

RELEVANT EVENTS 14 APPENDIX I - FINANCIAL METRICS AND OPERATING INDICATORS BY SEGMENT 16

OPERATING INDICATORS 23

APPENDIX II - CONSOLIDATED FINANCIAL STATEMENTS 26 APPENDIX III - RECONCILIATION OF NON-IFRS METRICS TO IFRS DISCLOSURES 30

BASIS OF PREPARATION OF THE FINANCIAL INFORMATION

Repsol S.A. ("the Group") activities are carried out in three operating segments:

• Upstream, corresponding to the exploration and development of crude oil and natural gas reserves.
• Downstream, corresponding, mainly, to (i) the refining, trading and transportation of crude oil and oil products, as well as the commercialization of oil products, petrochemical products and LPG, (ii) the commercialization, transport and regasification of natural gas and liquefied natural gas (LNG), and (iii) renewable energy power projects; and

• Gas Natural Fenosa, corresponding to its shareholding in Gas Natural SDG, S.A., whose main activities are the distribution and commercialization of natural gas, and the generation, distribution and commercialization of electricity.

Finally, Corporation and adjustments includes activities not attributable to the aforementioned businesses, and specifically, corporate expenses and financial results, as well as intersegment consolidation adjustments.

The results for each segment include those from joint ventures, or other managed companies operated as such, in accordance with the percentage of interest held by the Group, considering its operational and economic metrics in the same manner and with the same detail as for fully consolidated companies. Thus, the Group considers that the nature of its businesses and the way in which results are analyzed for decision‐making purposes is adequately reflected.

In addition the Group, considering its business reality and in order to make its disclosures more comparable with those in the sector, uses as a measure of segment results the so‐called Adjusted Net Income, corresponding to the recurring net operating income of continuing operations at current cost of supply ("Current Cost of Supply" or CCS) after taxes.

Inventory valuation method widely used in the industry, current cost of supply (CCS), differs from that accepted under prevailing European accounting standards ("Weighted average cost"). The use of CCS methodology facilitates users of financial information comparisons with other companies in the industry. Under CCS methodology, the cost of sales during the period is based on current prices of purchases during the period. Consequently, Adjusted Net Income does not include the so‐called Inventory Effect. This Inventory Effect is presented separately net of the tax effect and excluding non‐controlling interests and it is the difference between the net income using CCS and the net income using "Weighted average cost".

Likewise, Adjusted Net Income excludes the so‐called Non‐Recurring Income, that is, those originating from isolated events or transactions of an exceptional nature, or which are not ordinary or usual transactions of the Group. Non‐Recurring Income is presented separately, net of the tax effect and excluding non‐controlling interests.

However, the Adjusted Net Income of Gas Natural Fenosa segment includes the company´s net income in accordance with the equity method.

All of the information presented in this Q1 2016 Results Earnings Release has been prepared in accordance with the abovementioned criteria, with the exception of the information provided in the Appendix II headed "Consolidated Financial Statements" which has been prepared according to International Financial Reporting Standards adopted by the European Union (IFRS‐EU).

Appendix III provides a reconciliation of the segment reported metrics and those presented in the consolidated financial statements (IFRS‐EU).

In addition, the Group is consolidating the results of the acquired company Talisman Energy Inc. 1

("Talisman"), since the date of closing of the transaction, 8 May.

This business combination's accounting treatment will be revised if any of the circumstances contemplated in IFRS 3 Business Combinations materialize since the prescribed 12‐month period ‐ starting on the acquisition date ‐ has yet to elapse.

In accordance with IFRS 6 "Exploration for and evaluation of mineral resources", the Group have considered that the capitalization of geology and geophysics costs (G&G) during the exploratory phase provides a fairer presentation of the assets´ economic reality and performance of its businesses. For more information about this change in the accounting policy please consult interim condensed consolidated financial statements as of 31 March, 2016.

Repsol will today publish interim condensed consolidated financial statements as of 31 March, 2016 and they will be available on Repsol and the CNMV's (Comisión Nacional del Mercado de Valores) websites.

1 The registered name of Talisman Energy Inc. was changed to Repsol Oil&Gas Canada Inc. on 1 January, 2016.