Letter from
the CEO

Josu Jon Imaz San Miguel

Dear shareholders,

Once again, I am here to let you know how our Company did in 2017, as well as fill you in on the main projects that we're taking on at the moment.

2017 has been a key year for Repsol. Thanks to the strength of our integrated business model and our ability to adapt to the crude oil and gas price scenario, we have secured an adjusted net income of €2.405 billion. This is a 25% increase on our 2016 result and the best of the past six years, showing how our businesses are developing. These results reflect the efforts of the Company's human team. Without them, we wouldn't have been able to achieve this.

Our businesses' steady progress has allowed us to increase the EBITDA by 29%, reaching a five-year high of €6.723 billion. In addition, the efficiency plans we have developed over the last few years have helped us to reduce the Company's net debt by 23% to €6.267 billion. This is almost €2 billion lower than in 2016.

The Upstream area's net result increased to €632 million, 12 times more than in 2016. Net hydrocarbon production rose to 695,000 barrels of oil equivalent per day, its highest level since 2011. Two of the Upstream area’s major milestones were the discoveries in Savannah and Macadamia (Trinidad and Tobago) and Alaska (United States), the latter being one of the ten largest hydrocarbon discoveries worldwide in 2017. During this period, the Company has started up six new assets, including the Sagari (Peru) and Reggane (Algeria) projects. These two projects strengthen the presence of gas in our assets portfolio, which currently represents 63% of our production and 74% of our reserves.

These great results have been recognized by Standard & Poor's Global Platts, who named us the best Exploration and Production company in 2017, for our ability to generate value in a context marked by volatility and low crude oil prices.

Downstream achieved an adjusted net income of €1.877 billion thanks to the quality of our industrial assets and commitment to new markets and businesses.

Specifically, the area of Refining got a better result than in 2016, driven by the 7.9% increase in the refining margin indicator and the efficiency of our integrated system. Our Chemicals and Lubricants businesses continue to expand internationally and have brought our products to market in over 90 countries.

We have taken further action in the Marketing area to continue to offer the best service to our customers. We have reached agreements with important partners like Amazon and El Corte Inglés, and have launched the application Waylet, which allows you to pay in our service stations via cell phone. In March 2018, we achieved one of the Company's major milestones — breaking into the Mexican fuel market — which is a great opportunity for growth and internationalization. This shows that the Downstream area has a lot of room for growth where we can set more ambitious objectives, maximizing return on our current activities, applying our successful business models to other countries, and incorporating new energy products and services.

The figures I have mentioned reflect the efficiency of the measures we have put in place as part of the 2016–2020 Strategic Plan. In fact, we have met its objectives two years ahead of schedule. One of the key tools has been the synergy and efficiency program, which has allowed us to save close to €2.4 billion, bypassing the initially planned €2.1 billion.

These results were reflected in our share price, which reached €14.75/ share at the end of 2017. This represents a 46% revaluation, exceeding the IBEX-35 index. The Board of Directors approved shareholder remuneration of 0.9 euros per share, 12.5% higher than the previous year. In addition, the Company's management and its results have been valued by credit rating agencies, which have unanimously improved Repsol's ratings.

In early 2018, a key operation for our Company took place: selling our stake in Gas Natural. This will give us the room to develop our key sectors, such as gas marketing activities, and increase our presence in alternative energies. At Repsol, we firmly believe that the energy sector is going to be transformed over the next few decades, and this sale is a step that will help us to maintain our leading position in the industry.

We will put forward a new road map that will enable us to continue providing value for our shareholders, society, and our Company. We must ensure that Repsol is competitive by 2030 and move from resilience to growth, taking advantage of all the benefits of being a big little company, as well as our streamlined management and the strength of our structure. A future project, built on the pillars of digitalization, technology and innovation in management. Alongside these factors, sustainability forms a key part of our vision for the future and all of the decisions that we make as a company.

In 2017, we have taken huge steps forward in the fight against climate change. In May, we became the first company in the Oil & Gas sector to issue a green bond of €500 million, which will be used to fund more than 300 emissions reduction projects based on improving efficiency through innovation and technology. In addition, we signed an agreement with Kia in early 2018 to launch the WiBLE carsharing service in Madrid. This is a clear investment in sustainable mobility in cities.

A year on, I don't want to say goodbye without thanking you again for trusting in our Company's projects, as you do year after year. All of the professionals that make up Repsol will continue working to provide value for society and our shareholders, with a firm commitment to efficiency and sustainability.

Many thanks.

CEO sign

Josu Jon Imaz San Miguel