Josu Jon Imaz San Miguel

Letter from the

One year ago we launched an ambitious Transformation Program through which we want Repsol to become an even more efficient, agile, and innovative company
We are decidedly and continuously committed to sustainability as a key factor for creating value, now and in the future

Dear Shareholders,

2016 was a difficult year due to the persistence of low oil and gas prices. Against this backdrop, our company must address a double challenge: to create value with an average barrel price of 43.7 dollars while continuing to generate cash flow to guarantee the continuity of our business and adequately remunerate our shareholders.

Today, we can affirm that we have been able to successfully overcome the difficulties inherent to this scenario, having reduced our company's debt level by 32% and achieved our best net profits in the last four years. In 2016, debt fell by 3.790 billion euros, standing at 8.144 billion euros at year end, while net profit for the year rose to 1.736 billion euros, up more than 3.100 million euros on 2015.

These data reflect the effectiveness and level of fulfillment of the measures adopted in our 2016-2020 Strategic Plan. By following these measures, we have been giving our businesses greater flexibility and resilience, improving effectiveness, and increasing synergies. The plan also helps us manage our assets portfolio in a highly dynamic manner.

For example, the efficiency and synergies program has allowed us to save more than 1.6 billion euros, 150% more than expected. As for investments, they were reduced to 3.2 billion euros without affecting our business potential or commitment to safety and the environment.

In terms of share performance, the value of our company's shares increased by 33%, reaching a price of 13.42 euros at year end. Additionally, in the first quarter of 2017 we exceeded the average share price of European companies in the sector by 8%. The Board of Directors approved a shareholder remuneration equivalent to 0.8 euros per share, materialized within the framework of the Repsol Flexible Dividend Program.

In order to guarantee value creation in the long term, one year ago we launched an ambitious Transformation Program through which we want Repsol to become an even more efficient, agile, and innovative company. We are identifying and implementing initiatives so that performance and improvement in all areas is sustainable over time.

As regards the analysis of our businesses, I would like to highlight the good results we’ve had in all our activities, thanks especially to the expertise and talent of the more than 24,000 professionals who strive to overcome the adverse context and demanding objectives we set for ourselves last year.

In Upstream, our challenge was to maintain our competitive edge in an international price scenario of $43.7/barrel, to which end we focused on projects capable of creating value at that price. We achieved this objective thanks to a highly demanding efficiency and synergies program, which enabled us to reduce the cost per barrel produced and generate savings of 900 million euros.

Another key factor was our ability to reduce investments without affecting future business potential and ultimately increase production and reserves. In 2016, our average hydrocarbon production rose 23% to 690,200 barrels of oil equivalent per day, while reserves grew to 2.382 billion barrels with a replacement ratio of 103%.

Once again, the Downstream business demonstrated its cash-generating capacity (EBITDA of 3.367 billion euros). We continued to improve efficiency in all activities and we achieved greater integration between industrial and commercial areas. Specifically, the Refining and Chemicals areas maintained their leadership positions in terms of margins thanks to the high quality of our assets and the operational improvements carried out in our facilities in recent years.

I would like to take this opportunity to mention one of the company's major milestones: the find in Alaska in March 2017. It is the biggest conventional discovery of hydrocarbons in the United States in the last 30 years. The resources identified in the area total approximately 1.2 billion barrels of recoverable light crude, the equivalent to four years of oil consumption in Spain. This gives us an idea of the size of the find and confirms, once again, that Repsol has positioned itself among the leading companies of the sector in its own right.

In 2016, we developed our activities to become an even more sustainable and competitive company, with a responsible commitment to the environment and to the areas in which we operate. We are decidedly and continuously committed to sustainability as a key factor for creating value, now and in the future.

We work toward solutions that will allow society to enjoy a future with low greenhouse gas emissions. As part of our strategy, we are committed to increasing the presence of natural gas in the global energy mix, to innovation, and to energy efficiency.

In terms of safety, we are not content with simply reducing our accident rates; we want to go a step further, acting preventively and implementing innovative actions aimed at further improving the safety of our operations.

I could not end this letter without expressing my gratitude for the trust you place in Repsol, whose success is only possible thanks to your commitment and to the enthusiasm and work of everyone who forms part of this company. Thank you very much.

ceo signature

Josu Jon Imaz San Miguel
Chief Executive Officer (CEO)