Repsol YPF

Exploration & Production 2006

Repsol YPF's oil and natural gas exploration and production activities focus on profitable, diversified, and sustainable growth with a commitment to safety and the environment. The linchpins of this strategy are increased production and reserves, geographical diversification, operating excellence as a lowcost operator, and profitability by increasing average unitary margins.

The growth strategy in the coming years for the Upstream division, the growth driver of the company's E&P business, is to continue strengthening and consolidating the good company's positioning in the liquefied natural
gas business, pursuing any profitable opportunity that may arise in integrated LNG and regassification projects. Activities will also continue to focus on organic growth by increasing overall business activities, particularly through selective exploration drilling and the acquisition of new high potential mining rights.

This strategy will also target growth of traditional resources by maximising the exploration potential of mature assets already in the portfolio and by optimising the project portfolio. The Upstream division also aims to
develop heavy crude oil projects that will be selected by taking into consideration their profitability potential for the company.

At 31 December 2006, Repsol YPF, either directly or through its affiliates, held stakes in oil and gas exploration and production assets in 25 countries and was operator in 20 of these. Repsol YPF also holds a 75% stake in
the Canaport LNG (Canada) regassification project, a 10% interest in WSR, a company with assets in Russia, and, at December 2006, was pending official ratification of its stakes in blocks in Kazakhstan and Liberia. Consequently, E&P has currently interest in 29 countries.

Average production in 2006 was 1,128.300 boepd, down 1.0% year-on-year. This drop was the result of the lower production in Venezuela due to the migration of operating concessions to joint ventures (33.6 kboepd)
and problems encountered in gas deliveries to PDVSA (9.5 kboepd). In Algeria the decline was caused by the impact of higher oil prices on PSCs (3.1 kboepd), in Argentina due to decreased liquids production because of field decline, and in Bolivia because of repair work on the Margarita-San Antonio pipeline and production delivery problems. On the upside, production in Trinidad & Tobago increased (27.6 kboepd) boosted by higher deliveries to the fourth Atlantic LNG train and the inclusion of production from TSP for the entire year. Output from the Camisea field in Peru was incorporated and the Albacora Leste field in Brazil started production in April.

At 525,200 bpd, liquids production dropped 1.1% year-on-year, falling mainly in Argentina, Bolivia, and Dubai because of greater field decline, in Venezuela due to the migration to joint ventures, and in Algeria as a result of the previously mentioned impact of higher prices on PSC contracts.

This drop was partially compensated by increased production in Trinidad & Tobago and Ecuador and the incorporation of production from the Albacora Leste (Brazil) and Camisea (Peru) fields.

Gas production, at 3,387 Mscfd (equivalent to 603,200 boepd), was down 0.8% yearon- year, mainly in Venezuela and Argentina, with this drop partially compensated by production growth in Trinidad & Tobago.

Income from operations in 2006 was €3,286 million. Improved performance was principally driven by higher reference oil prices than the year before, narrower spreads on heavy crude oil from southern Argentina, and higher gas realisation prices in Trinidad & Tobago, Venezuela, and Argentina.

The average Repsol YPF liquids realisation price was $46.29 per barrel versus $37.14 per barrel a year earlier.

The differential on crude oil reference prices in 2006 was nearly the same as in 2005. This was because the adverse impact of the 31% discount applied to liquids in Argentina, which in 2006 was applied on higher prices,
was compensated by narrower spreads on crude oil from the southern part of this country and by the increase in realisation prices in Venezuela following the migration to joint ventures.

The average gas price in 2006 was $2.16 per thousand cubic feet, showing a year-on-year rise of 35.0%. This increase was mainly driven by improved average gas realisation prices in Trinidad & Tobago, in Venezuela due
to the migration to joint ventures, and in Argentina where the average gas price, at $1.63 per thousand cubic feet, was 21.6% higher than in the previous year.

The company's lifting cost in 2006 was $2.95 per boe 20.9% higher than the $2.24 per boe in 2005. The renegotiation of contracts and field maturity in Argentina, and the widespread rise in costs throughout the
industry were largely responsible for this
increase.
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