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CEPSA
LEGAL DOCUMENTS
REPORT FROM INDEPENDENT AUDITORS / 2
BALANCE SHEETS / 4
INCOME STATEMENTS / 6
NOTES TO FINANCIAL STATEMENTS / 8
MANAGEMENT DISCUSSION & ANALYSIS / 88
TABLE OF CONTENTS
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CEPSA LEGAL DOCUMENTS2
REPORT FROM INDEPENDENT AUDITORS
COMPAÑÍA ESPAÑOLA DE PETRÓLEOS, S.A. (CEPSA)
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CEPSA LEGAL DOCUMENTS4
BALANCE SHEETS
at 31 December 2007 and 2006 (Notes 1, 2, 3 and 4)Compañía Española de Petróleos, S.A. (CEPSA)
Thousands of Euros
ASSETS 2007 2006
Non-current assets
Start-up costs (Note 6) - -
Current assets (Note 7) 589,991 636,061
Property, plant and equipment (Note 8)
Land and buildings 38,139 36,899
Plant and machinery 2,441,423 2,357,915
Other fixtures, tools and furniture 15,928 14,354
Advances and non-current assets in the course of construction 354,030 146,298
Other items of property, plant and equipment 64,653 64,580
Allowances and accumulated depreciation (1,610,422) (1,505,902)
Total property, plant and equipment 1,303,751 1,114,144
Long- term Investments (Note 9)
Investments in group companies 503,597 485,993
Loans to Group companies 502,629 656,290
Investments in associates 188,030 187,923
Loans to associates 95,869 17,430
Long-term investment securities 1,201 4,467
Other loans 47,053 38,920
Long-term deposits and guarantees given 10,245 11,757
Allowances (81,340) (70,018)
Total long-term investments 1,267,284 1,332,762
Total non-current assets 3,161,026 3,082,967
Deferred charges (Note 10) 2,174 3,313
Current assets
Inventories (Note 11) 611,812 694,011
Accounts receivable (Note 2-c) 2,363,506 1,795,943
Short-term investments (Note 9) 625,561 438,986
Cash 6,261 27,305
Accrual accounts 8,149 16,031
Total current assets 3,615,289 2,972,276
TOTAL ASSETS 6,778,489 6,058,556
(The accompanying Notes 1 to 27 are an integral part of these balance sheets)
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BALANCE SHEETS
5
Thousands of Euros
SHAREHOLDERS' EQUITY AND LIABILITIES 2007 2006
Shareholders' equity (Note 12)
Share capital 267,575 267,575
Share premium 338,728 338,728
Revaluation reserve 90,936 90,936
Reserves
Legal reserves 53,605 53,605
Other reserves 2,292,163 1,930,441
Prior years' profits - -
Profit for the year 612,242 686,818
Interim dividend paid during the year (147,166) (147,166)
Total shareholders' equity 3,508,083 3,220,937
Deferred income (Note 13) 16,704 42,560
Provisions for contingencies and charges (Note 14) 81,152 94,654
Non-current liabilities (Note 15)
Bank borrowings 52,167 159,147
Payable to Group companies and associates (Note 19) 30,099 149,966
Other payables 76,775 46,573
Uncalled capital payments payable 3 39
Total non-current liabilities 159,044 355,725
Current liabilities (Note 15)
Bank borrowings 48,067 122,559
Payable to Group companies and associates (Note 19) 2,140,835 1,568,821
Trade payables 495,733 366,454
Other non-trade payables (Note 2.c) 327,895 264,340
Accrual accounts 913 1,610
Total current liabilities 3,013,443 2,323,784
Provisions for contingencies and current charges (Note 22) 63 20,896
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 6,778,489 6,058,556
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CEPSA LEGAL DOCUMENTS6
INCOME STATEMENTS
for the years ended 31 December 2007 and 2006 (Notes 1, 2, 3 and 4).Compañía Española de Petróleos, S.A. (CEPSA).
DEBIT 2007 2006
Decrease in finished goods and work in process inventories 5,007 -
Procurements (Note 19) 14,335,256 13,990,445
Staff costs (Note 2.c) 205,115 205,107
Depreciation and amortisation charge 225,696 208,779
Change in operating provisions (5,653) 4,798
Other expenses (including oil and gas excise tax) (Note 2.c) 3,356,681 3,191,952
Total operating expenses 18,122,102 17,601,081
Profit from operations 669,857 730,139
Finance costs on debts to Group companies (Note 19) 41,631 42,248
Finance costs on debts to associates (Note 19) 4,010 2,698
Financial costs on debts to third parties and similar costs 11,431 14,821
Change in investment valuation allowances 9,060 (1,442)
Exchange gains 10,658 11,468
Total finance costs 76,790 69,793
Financial profit 255,568 215,553
Profit from ordinary activities 925,425 945,692
Change in intangible asset, property, plant and equipment and control portfolio allowances (Note 19) 3,002 (25,157)
Losses on intangible assets, property, plant and equipment and control portfolio (Note 19) 38,111 52,456
Extraordinary expenses (Note 19) 60,973 10,614
Total extraordinary losses 102,086 37,913
Extraordinary profit (Note 19) - 42,498
Profit before tax 879,378 988,190
Income tax (Note 16) 74,328 143,877
Other taxes (Note 16) 192,808 157,495
Profit for the year 612,242 686,818
(The accompanying Notes 1 to 27 are an integral part of these statements of income)
Thousands of Euros
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INCOME STATEMENTS
7
CREDIT 2007 2006
Sales and services on ordinary activities 16,390,687 16,038,831
Oil and gas excise tax charged on sales 2,342,454 2,233,069
Revenue (Note 19) 18,733,141 18,271,900
Increase in finished goods and work in progress inventories - 13,845
Work on non-current assets 24,572 25,944
Other operating income 34,246 19,531
Total operating income 18,791,959 18,331,220
Loss from operations - -
Income from equity investments (Note 19) 218,903 196,495
Income from other marketable securities and loans to Group companies and associates (Note 19) 50,437 35,359
Income from other marketable securities and non-current loans 12,088 9,464
Other interest and similar income 13,227 9,677
Exchange gains 37,703 34,351
Total finance income 332,358 285,346
Financial loss - -
Loss on ordinary activities - -
Gains on non-current asset disposals (Note 19) 31,439 640
Grants related to assets transferred to profit or loss (Note 19) 21,101 75,644
Extraordinary expenses (Note 19) 3,499 4,127
Total extraordinary income 56,039 80,411
Extraordinary loss (note 19) 46,047 -
Losses before tax - -
Thousands of Euros
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CEPSA LEGAL DOCUMENTS8
NOTES TO FINANCIAL STATEMENTS
for the years ended 31 December 2007 and 2006.Compañía Española de Petróleos, S.A. (CEPSA)
1. COMPANY ACTIVITIES
Compañía Española de Petróleos, S.A. (“CEPSA”), whose registered office is at Avenida del Partenón
12 (Campo de las Naciones), Madrid, was incorporated for an unlimited period of time on 26
September 1929, and is registered in the Madrid Mercantile Register in Volume 206 of the
Companies book, sheet 100, page 6045. Its employer identification number is A-28003119.
CEPSA’s company object is basically to carry on in Spain and abroad all manner of activities relating
to solid, liquid and gaseous hydrocarbons.
2. BASIS OF PRESENTATION OF THE FINANCIAL STATEMENTS
a) Fair presentation
The financial statements, which were prepared from CEPSA’s accounting records, are presented in
accordance with the Spanish National Chart of Accounts approved by Royal Decree 1643/1990, of
20 December and subsequent legislation, and accordingly, present fairly the Company’s net worth,
financial position and results of operations.
The 2007 financial statements, which were prepared by the Board of Directors at its meeting on 27
March 2008, will be submitted for approval by the shareholders at the next Annual General Meeting.
The shareholders at the General Meeting held in Madrid on 22 June 2007, approved the 2006
financial statements without any changes.
b) Comparative information
In accordance with the Spanish National Chart of Accounts, approved by Royal Decree 1643/1990,
of 20 December, the financial statements present, together with the figures for 2007, the
corresponding amounts for 2006.
c) Grouping of items
The balances "Accounts Receivable" and "Other Non-trade Payables" in the accompanying balance
sheets at 31 December 2007 and 2006 consist of the items detailed below:
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NOTES TO FINANCIAL STATEMENTS
9
The detail of the balances of "Staff Costs" and "Other Expenses" in the accompanying 2007 and
2006 income statements is as follows:
CURRENT ASSETS (ACCOUNTS RECEIVABLE) 2007 2006
Trade receivables for sales and services 1,077,847 760,135
Receivables from Group companies (Note 19) 1,233,110 984,652
Receivables from associates (Note 19) 50,843 53,525
Sundry accounts receivable 10,987 11,977
Tax receivables 11,231 12,934
Allowances (20,512) (27,280)
Total 2,363,506 1,795,943
CURRENT LIABILITIES (OTHER NON-TRADE PAYABLES) 2007 2006
Taxes payable 152,786 177,841
Other payables 170,875 80,372
Guarantees and deposits received 4,234 6,127
Total 327,895 264,340
STAFF COSTS 2007 2006
Wages, salaries and similar expenses 159,303 145,964
Pension contributions and provisions to pension allowances 3,408 18,599
Other employee benefit costs 42,404 40,544
Total 205,115 205,107
Thousands of Euros
Thousands of Euros
Thousands of Euros
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CEPSA LEGAL DOCUMENTS10
OTHER EXPENSES 2007 2006
Taxes other than income taxes 20,822 24,079
Excise tax on oil and gas borne 2,342,428 2,233,101
Transport and freight 192,814 178,959
Outside work, supplies and services 790,970 726,058
Other current operating expenses 4,854 4,018
Greenhouse gas emissions (Note 22) 63 21,809
Environmental expenses (Note 21) 4,730 3,928
Total 3,356,681 3,191,952
In compliance with the Spanish Accounting and Audit Institute (ICAC) Resolution of 25 March 2002,
approving the regulations for the recognition, valuation and reporting of environmental matters in
the financial statements, a breakdown is given of the environmental expenses for 2007 and 2006
included under “Other Operating Expenses” (see Notes 4-l and 21).
Thousands of Euros
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NOTES TO FINANCIAL STATEMENTS
11
3. DISTRIBUTION OF INCOME
The proposed distribution of 2007 profit that the Board of Directors will submit for approval by the
shareholders at the Annual General Meeting is as follows:
The dividend distributed out of 2007 profit is equal to EUR 1.25 per share. Of the total dividend
indicated above, an interim dividend of EUR 147,166 thousand, equal to EUR 0.55 per share, was paid
on 25 October 2007 and this amount is recognised under "Shareholders' Equity - Interim Dividend
Paid during the Year" in the accompanying balance sheet at 31 December 2007.
This dividend was approved by the Board of Directors on 27 September 2007, on the basis of the
accounting statement at 31 August 2007 (shown below), prepared in accordance with Article 216 of
the Consolidated Companies Law, evidencing the existence of sufficient liquidity for the distribution
of the aforementioned interim dividend.
Distributable profit
Distributable profit 612,242
Total distributable 612,242
Distribution to:
Dividends 334,469
Voluntary reserves 277,773
Total distributed 612,242
Thousands of Euros
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CEPSA LEGAL DOCUMENTS
The profit for the period after income tax shown in the foregoing accounting statement is the
Company’s distributable net profit at 31 August 2007. At that date the mandatory legal reserve was
at the required level, working capital, i.e. the difference between current assets and current liabilities,
amounted to EUR 1,329,768 thousand, and the Company had unused credit facilities amounting to EUR
596,582 thousand. The undrawn balances did not bear interest.
12
Individual Accounting Statement of CEPSAsupporting the interim dividend declared on 27 September 2007 31.08.07
ASSETS
Non-current assets
Intangible assets 607,152
Property, plant and equipment 1,216,382
Long-term investments 674,291
Total 2,497,825
Deferred charges 2,520
Current assets
Inventories 533,935
Accounts receivable 2,045,971
Short-term investments 1,489,972
Cash 20,539
Accrual accounts 11,771
Total 4,102,188
TOTAL ASSETS 6,602,533
SHAREHOLDERS' EQUITY AND LIABILITIES
Share capital and reserves 3,033,635
Profit for the period 509,933
Deferred income 22,155
Provisions for contingencies and charges 100,088
Non-current liabilities 164,302
Current liabilities 2,772,420
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 6,602,533
Thousands of Euros
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NOTES TO FINANCIAL STATEMENTS
13
4. ACCOUNTING POLICIES
The main accounting policies applied were as follows:
a) Intangible assets
Intangible assets, which are valued at acquisition cost or at the cost incurred in producing or developing
them, including staff, finance and other costs relating to projects carried out, are presented in the
accompanying balance sheets net of the related accumulated amortisation (see Note 7).
Research and development expenditure is amortised in full when the related project is completed,
regardless of its outcome, unless the technology developed is patented, in which case it is amortised over
13 years.
Oil exploration investments are recognised by the “successful efforts method”, and exploration costs are
expensed as incurred. Drilling costs are capitalised until it is determined whether they give rise to the
detection of exploitable reserves, at which time they start to be amortised, together with the field
development costs, on the basis of the reserves extracted with respect to the reserves proven to be
recoverable; if the reserves detected are not exploitable, the drilling costs are charged to income as soon
as this becomes known.
Production license rights are amortised at the same rates as those used to depreciate the production
units to which they relate. The other intangible assets are amortised on a straight-line basis over a
maximum of three years.
The rights under finance lease agreements, when there is no reasonable doubt that the purchase option
will be exercised, are recognised at the cost of the related assets and the total debt for lease payments
plus the amount of the purchase option are recognised as a liability. The difference between the two
amounts, which represents the finance costs on the transaction, is recognised as a deferred expense.
These rights are amortised at the same rate as the leased asset. When the purchase option is exercised,
the value of the rights recognised and the related accumulated amortisation are derecognised from
intangible assets and are recognised as part of the value of the acquired asset.
The accounting policies applied to greenhouse gas emission allowances are detailed in Note 4-m.
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CEPSA LEGAL DOCUMENTS
b) Property, plant and equipment
Property, plant and equipment acquired until 31 December 1996 is measured at cost, revalued where
appropriate, in accordance with the applicable asset revaluation laws. Subsequent additions are
recognised at cost. In both cases, the accumulated depreciation and specific-purpose allowances
recognised to cover losses were deducted.
If necessary, in accordance with Spanish accounting regulations, the values of property, plant and
equipment are definitively adjusted based on the amounts that are not recoverable through the
foreseeable generation of future income (see Note 8).
The costs of expansion, modernisation or improvements leading to increased productivity, capacity
or efficiency or to a lengthening of the useful lives of the assets are capitalised. The accounting
policies relating to environmental investments are detailed in Note 4-l. Repair, upkeep and
maintenance expenses are expensed currently.
Property, plant and equipment is depreciated basically using the straight-line method on the basis
of the estimated years of useful life of the various assets. The detail, by item, is as follows:
14
Years ofDEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT useful life
Buildings and other structures 33 to 50
Plant and machinery
Machinery, installations and fixtures 10 to 15
Furniture 10
Specialised complex installations
Units 12 to 15
Lines and networks 15
Tanks and spheres 20
Other items of property, plant and equipment 4 to 10
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NOTES TO FINANCIAL STATEMENTS
c) Marketable securities and other similar investments
Investments in marketable short- and long-term fixed-income and equity securities are recognised
at the lower of cost, revalued where appropriate, pursuant to the applicable asset revaluation laws,
and market. The market value of investments in unlisted companies was taken to be the underlying
carrying amount of the investments per the balance sheets of the investees, adjusted, where
appropriate, by the amount of the unrealised gains disclosed at the time of acquisition and still
existing at the present date. Unrealised losses (cost higher than market value) are recognised
under "Long-Term Investments - Allowances" in the accompanying balance sheets (see Note 9).
CEPSA’s financial statements do not reflect the effects of applying consolidation principles to its
equity investments. Under current company law CEPSA has been required to prepare consolidated
financial statements in accordance with International Financial Reporting Standards (IFRSs) since
2005.
The main aggregates of these consolidated financial statements are as follows:
15
ASSETS 2007 2006
Non-current assets 4,561,927 4,465,290
Current assets 4,878,599 4,258,430
TOTAL ASSETS 9,440,526 8,723,720
LIABILITIES 2007 2006
Shareholder equity 5,281,829 4,837,846
Non-current liabilities 1,183,275 1,356,388
Current liabilities 2,975,422 2,529,486
TOTAL LIABILITIES 9,440,526 8,723,720
Thousands of Euros
Thousands of Euros
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CEPSA LEGAL DOCUMENTS
d) Inventories
Crude oil and oil derivatives are measured at the lower of dollar-value LIFO cost and market. Crude
and oil derivatives in transit are measured at the cost at source plus direct costs incurred until
year-end. Replacement parts and supplies and other inventories are measured at the lower of
average acquisition or production cost and market (see Note 11).
Individual costs are allocated to refined products in proportion to the selling price thereof
(isomargin method).
Production cost is calculated as the sum of the acquisition cost of raw materials and other
consumables required, determined in accordance with the accounting policies of the Spanish Chart
of Accounts, the costs directly allocable to the product and the related costs and depreciation
charge corresponding to production facilities which are indirectly allocable to the product in
question, insofar as these costs relate to the production, manufacturing or construction period.
e) Deferred income
Grants related to assets are recognised at the amount granted. Non-refundable grants related to
assets are recognised under “Deferred Income” in the balance sheet and are allocated to income
on the basis of the years of useful life of the subsidised investments. Refundable grants related to
assets are recognised as non-current liabilities transformable into grants, and grants relating to
income are credited to income when earned.
The accounting policies applied to grants for greenhouse gas emission allowances are detailed in
Note 4-m.
f) Provisions for contingencies and charges
Provisions for pensions and similar obligations
The value of the obligations to employees and beneficiaries who are covered by in-house provisions
is calculated by the Company using actuarial individual capitalisation techniques in line with the
technical hypotheses in force in the market at year-end. The obligations provisioned basically relate
to employee benefit costs (see Note 14).
The accrued annual cost for obligations to employees and the financial effect of discounting the
related provisions are recognised under “Staff Costs” and “Finance Costs”.
16
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NOTES TO FINANCIAL STATEMENTS
Additionally, CEPSA externalised, through pension plans and/or life insurance, all the obligations for
death of spouse, death of parent, disability and retirement to its employees and their beneficiaries
in accordance with current legislation on the instrumentation of pension obligations.
Other provisions for contingencies and charges
CEPSA has recognised provisions for major repairs, of a multi-annual nature, of production units on
the basis of the projected cost of the next overhaul and of the period between two overhauls. It
has also recognised provisions for environmental risks, for taxes, for tax assessments issued by the
tax inspection authorities which have been signed on a contested basis by the Company and against
which appeals have been filed, and for third-party liability to cover possible obligations, all of which
are based on the best financial estimates.
Under current labour legislation, companies are required to pay termination benefits to employees
terminated without just cause. CEPSA does not have any collective redundancy procedure plans.
g) Classification of debt
Debts maturing at over 12 months from year-end were classified as non-current liabilities and the
remainder as current liabilities.
h) Income tax
The expense for income tax for each year is calculated on the basis of accounting profit before tax,
increased or decreased, as appropriate, by the permanent differences from taxable profit. Tax relief
and tax credits are treated as a reduction of the amount of income tax for the year in which they
are taken.
In the case of income attributed to the permanent establishment in Algeria, the tax expense is
recorded under “Other Taxes” in the income statement, in compliance with the Resolution of the
Spanish Accounting and Audit Institute (ICAC) of 9 October 1997, ruling no. 7.
Pursuant to the provisions of Personal Income Tax Law 35/2006, of 28 November, partially amending
Spanish Corporation Tax, Non-Resident Income Tax and Wealth Tax, the standard income tax rate
was established at 32.5% for 2007 and at 30% for 2008 and subsequent years. As a result of this
change deferred tax assets and liabilities and tax credits recognised in the balance sheet at 31
December 2006 and 2007 must be adjusted, with a balancing entry in profit/loss for each year, for
the estimated effect of the reduced tax rates in terms of the period in which the related tax
receivables and payables are realised.
17
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CEPSA LEGAL DOCUMENTS
CEPSA files tax returns on a consolidated basis with its subsidiaries, which meet the relevant legal
requirements, observing the Spanish Accounting and Audit Institute Resolution dated 9 October
1997, partially modified by the Spanish Accounting and Audit Institute Resolution dated 15 March
2002 (see Note 16).
i) Foreign currency transactions and balances
Transactions in foreign currencies are translated to euros at the exchange rates ruling at the
transaction date and the exchange differences arising at the date of settlement of the
transactions are charged or credited, as appropriate, to income.
Foreign currency balances at each year-end are translated to euros at the year-end exchange
rates or, where appropriate, at the hedged exchange rates. Exchange losses are recognised as an
expense under “Exchange Differences” in the income statement; in accordance with the accounting
principle of prudence, only realised exchange gains are allocated to income whereas exchange gains
relating to long-term financing are recognised under “Deferred Income”.
Exchange differences arising on foreign currency loans financing investments in the same
functional currency for which there are currency hedges (cash flow hedges) are recognised with a
balancing entry under “Deferred Income” or “Deferred Charges”, and are taken to income using the
same criteria as that used for the gains and losses on the hedged non-current assets (see Notes
13 and 23).
18
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NOTES TO FINANCIAL STATEMENTS
j) Recognition of income and expenses
Income and expenses are recognised on an accrual basis, i.e. when the actual flow of the related
goods and services occurs, regardless of when the resulting monetary or financial flow arises.
However, the Company only recognises realised income at year-end, whereas foreseeable
contingencies and losses, including possible losses, are recognised as soon as they become known.
In accordance with the legislation applicable to companies operating in the oil and gas industry, the
excise tax on oil and gas sales is recognised as part of the selling price and as an addition to cost
under “Revenue” and “Other Expenses”, respectively, in the income statement (see Note 2-c).
“Revenue” also includes the value of the hedging transactions for strategic stocks arranged with
other operators.
k) Hedging transactions
CEPSA uses certain hedging instruments and derivatives, including most notably futures contracts
with crude oil and product brokers, to hedge price risks relating to the monthly purchases and sales
of oil-based products. The transaction limits and the hedging instruments have been approved by
Company management and the monitoring process respects the separation of the performance
and control functions. Any differences between the market price at year-end and the deal price for
open transactions at year-end are generally charged to income (see Note 23).
For currency and interest rate risks, the transaction limits and hedging instruments (basically
forward currency transactions and interest rate swaps) have also been approved by Company
management and the monitoring process respects the separation of the performance and control
functions (see Notes 15, 18 and 23).
The gains or losses on hedging transactions are credited or charged to income symmetrically to the
revenues or costs arising on the hedged item.
19
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CEPSA LEGAL DOCUMENTS
l) Information on the environment
Per the Resolution dated 25 March 2002 of the Spanish Accounting and Audit Institute (ICAC),
environmental investments are defined as investments included in the Company's assets for use
in its business on a lasting basis which are mainly for the purpose of minimising the impact on the
environment and protecting and improving the environment, including the reduction or elimination
of pollution in the future caused by the operations performed by CEPSA.
Also, environmental expenses are deemed to be those incurred to prevent, reduce or repair
damage to the environment, i.e. the natural surroundings, as well as those relating to
environmental commitments.
With respect to provisions for environmental risks and obligations, CEPSA recorded provisions for
environmental actions to remedy the risk of gradual soil pollution, with a charge to extraordinary
expenses in the income statements. These provisions are quantified on the basis of in-house
estimates and technical studies. Also, CEPSA has taken out insurance policies to cover the third
party liability that might arise from sudden accidental pollution and gradual subsequent pollution
after 1 April 2002 (see Note 21).
m) Greenhouse gas emission allowances
In compliance with the commitments to reduce greenhouse gas emissions - the Kyoto Protocol -
assumed by the European Union in May 2002, various EU and national regulations were issued, which
led to the approval, by Royal Decree 60/2005, of 21 January, of the National Emission Allowance
Allocation Plan, which affects eleven industries including the oil refining industry and is in force for
the three-year period 2005-2007. Pursuant to this legislation, on 3 February 2005, the Ministry of
the Environment communicated the allocation for no consideration of emission allowances equal to
3,287 thousand tonnes of CO2 for the 2005-2007 period (see Note 22).
Pursuant to this legislation, CEPSA must deliver in the first few months of the following year CO2
emission allowances equal to the volume of emissions made during the year.
20
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NOTES TO FINANCIAL STATEMENTS
The emission allowances are recognised, in compliance with Spanish Accounting and Audit Institute
Resolution dated 8 February 2007, as non-amortisable intangible assets, measured at acquisition or
production cost, and are derecognised when delivered, transferred to third parties or when the
conditions stipulated for their expiration are met (see Note 22).
Allowances received for no consideration under the National Emission Allowance Allocation Plan are
measured at the market price prevailing at the beginning at the year to which they relate,
recognising deferred income as a balancing entry, which is taken to income as an extraordinary item
as the expenses arising from the actual emissions are incurred (see Notes 19 and 22).
If the market value of the emission allowances is lower than the carrying amount of the allowances
recognised under assets, the value of the allowances held is adjusted to market. Depending on
whether the allowances are acquired or received from the government, an appropriate allowance
for non-current asset decline in value would be recognised (reversible losses) or the value of the
intangible asset item would be adjusted (irreversible losses), respectively. In the second case
(allowances received from the government), the value of the deferred income would be adjusted and
a balancing item would be recognised under “Extraordinary Income” (see Notes 7, 13, 19 and 22).
The obligation to deliver emission allowances for the CO2 emissions made during the year is
recognised as the greenhouse gas emissions are made. These costs are charged to “Other
Operating Expenses” in the income statement and credited to a short-term provision until the
related emission allowances are delivered. The unit value to be assigned to the emissions is
determined by taking into account the following amounts:
• Firstly, the carrying amount of the emission allowances received for no consideration.
• Secondly, the cost of other emission allowances capitalised in the balance sheet.
• Lastly, where necessary, the most up-to-date estimate of the cost of acquisition of the remaining
allowances.
21
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CEPSA LEGAL DOCUMENTS22
5. MERGER BY ABSORPTION OF ETBE HUELVA, S.A.
At the respective Annual General Meetings of CEPSA and ETBE Huelva, S.A., held on 22 June 2007,
the shareholders unanimously adopted the resolution, among others, to formalise the merger by
absorption of the two companies and to establish 1 January 2007 as the date from which the
merger would take effect for accounting and business purposes.
At the date of approval of this proposal, CEPSA owned all the share capital of ETBE Huelva, S.A.,
represented by 45,204 fully paid registered ordinary shares of EUR 50 par value each. Since CEPSA
was the sole shareholder of ETBE Huelva, S.A., the merger of the two companies was carried out in
accordance with the provisions of Article 250 of the Consolidated Spanish Companies Law, as
approved by Royal Decree-Law 1564/1989, of 22 December.
The merger deed was executed on 5 September 2007 and registered in the Madrid Mercantile
Register in volume 22,313, book 0, sheet 68, section 8, page M-12689, entry no. 1283. By virtue of
this deed, ETBE Huelva, S.A. was dissolved without liquidation and all its rights and obligations were
transferred en bloc to the absorbing company CEPSA, by universal succession.
As a result of the foregoing, CEPSA’s 2007 financial statements include, from 1 January 2007, the
assets, liabilities, net worth and operations of the absorbed company. Also, with effect from that
date, the investment in the absorbed company’s securities, which had been recognised in CEPSA’s
books for a net value of EUR 2,782 thousand, was derecognised. (See Note 9)
Cepsa•IA07•Doc Legal_ing 13/6/08 13:28 Página 22
NOTES TO FINANCIAL STATEMENTS
Pursuant to the provisions of Article 93 of the Consolidated Spanish Corporation Tax Law as
approved by Royal Decree-Law 4/2004, of 5 March, the formal obligations addressed therein are
described below:
a) Year in which the transferor acquired the depreciable/amortisable assets
transferred.
The assets transferred were acquired by ETBE Huelva, S.A. over various years. CEPSA takes into
account the dates on which they were originally purchased or transferred to operations, for the
purpose of calculating the corresponding depreciation/amortisation.
b) Latest balance sheet of the transferor.
The balance sheet at 31 December 2006, approved by the shareholders at the Annual General
Meeting held on 22 June 2007, is shown below:
23
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BALANCE SHEET OF ETBE HUELVA, S.A. 31-12-06
ASSETS
Non-current Assets
Start-up costs (Note 6) 85
Intangible assets (Note 7) 1
Property plant and equipment (Note 8) 12,647
Total 12,733
Accounts receivable 261
Short term investments 299
Cash 41
Accrual accounts 30
Total 631
TOTAL ASSETS 13,364
SHAREHOLDERS' EQUITY AND LIABILITIES
Shareholders' equity (Note 12)
Share capital 2,260
Reserves
Legal reserves 452
Other reserves 7,127
Profit for the year 2,316
Total shareholders' equity 12,155
Deferred income (Note 13) 828
Payable to group companies and associates (143)
Trade payables 524
TOTAL LIABILITIES 13,364
CEPSA LEGAL DOCUMENTS24
Thousands of Euros
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Balance at ETBE Additions or Charge Disposals Balance at
2007 01.01.07 Merger Effect for the Year Transfers or Reductions 31.12.07
Start-up costs - 85 - - (85) -
NOTES TO FINANCIAL STATEMENTS
c) Assets recognised by the transferee company at a value other than that at
which they appeared in the transferor’s books.
All the assets, rights and obligations of ETBE Huelva, S.A. were included in CEPSA’s books at the
same value at which they appeared in the transferor’s books.
d) Subrogation to the transferor’s tax rights and obligations.
CEPSA availed itself of the tax regime established in Chapter VIII of Title VII of the Consolidated
Spanish Corporation Tax Law as approved by Royal Decree-Law 4/2004, of 5 March. The most
significant aspects of this tax regime are: the transfer of the transferor’s assets and liabilities to
the acquiring company is tax-exempt; any net worth increases or decreases that might arise in the
merger are excluded from the shareholders’ tax base; VAT is not applicable since the business
assets and liabilities are transferred en bloc; and no tax is incurred on the increase in urban land
value.
At the merger date, the transferor, ETBE Huelva, S.A., had no outstanding tax obligations or
benefits.
6. START-UP COSTS
The changes in this heading in 2007 were as follows:
25
Thousands of Euros
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7. INTANGIBLE ASSETS
The changes in intangible asset accounts in 2006 and 2007 were as follows:
Balance at Additions or Disposals Balance at
2006 01.01.06 Charge for the Year Transfers or Reductions 31.12.06
ASSETS
Research and development expenditure 18 4,480 (4,498) - -
Oil well drilling costs 996,993 78,737 - (3,563) 1,072,167
Concessions, patents and licenses 57,210 1,423 4,480 - 63,113
Goodwill 250 - - - 250
Computer software 75,444 4,584 (40) - 79,988
Rights on leased assets 57,171 - - - 57,171
Other project rights 571 - - - 571
Greenhouse gas emission allowances 27,449 74,172 - (79,360) 22,261
Total 1,215,106 163,396 (58) (82,923) 1,295,521
Accumulated depreciation and allowances
Oil well drilling costs (435,715) (104,306) - 3,470 (536,551)
Concessions, patents and licenses (38,178) (4,754) - - (42,932)
Goodwill (135) (25) - - (160)
Computer software (59,004) (5,237) - - (64,241)
Rights on leased assets (12,646) (2,835) - - (15,481)
Surface rights (76) (19) - - (95)
Total (545,754) (117,176) - 3,470 (659,460)
Net intangible assets 669,352 46,220 (58) (79,453) 636,061
Thousands of Euros
CEPSA LEGAL DOCUMENTS26
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Balance at ETBE Additions or Charge Disposals Balance at
2007 01.01.07 Merger Effect for the Year Transfers or Reductions 31.12.07
Assets
Research and development expenditure - - 4,847 (4,847) - -
Oil well drilling costs 1,072,167 - 83,168 - (6,240) 1,149,095
Concessions, patents and licenses 63,113 - 8,287 4,847 - 76,247
Goodwill 250 - - - - 250
Computer software 79,988 1 5,507 (218) 85,278
Rights on leased assets 57,171 - 249 - - 57,420
Other project rights 571 - - - - 571
Advances on Intangible Assets - - 91 - - 91
Greenhouse gas emission allowances 22,261 - 18,568 - (40,759) 70
Certified reductions of GHG emissions - - 535 - - 535
Total 1,295,521 1 121,252 (218) (46,999) 1,369,557
Accumulated depreciation and allowances
Oil well drilling costs (536,551) - (107,058) - 1,588 (642,021)
Concessions, patents and licenses (42,932) - (6,641) - - (49,573)
Goodwill (160) - (25) - - (185)
Computer software (64,241) - (5,117) - - (69,358)
Rights on leased assets (15,481) - (2,834) - - (18,315)
Surface rights (95) - (19) - - (114)
Total (659,460) - (121,694) - 1,588 (779,566)
Net intangible assets 636,061 1 (442) (218) (45,411) 589,991
Thousands of Euros
NOTES TO FINANCIAL STATEMENTS
27
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In 2006 and 2007 EUR 15,839 thousand and EUR 14,944 thousand, respectively, of staff, finance and
other costs relating basically to oil well drilling projects and computer software in progress in those
years were capitalised to intangible asset with a credit to “Work on Non-Current Assets” in the
accompanying income statements.
The direct and indirect costs incurred in research and development projects in progress were
recognised as additions to “Research and Development Expenditure”.
The detail of “Oil Well Drilling Costs” at 2007 and 2006 year-end, which includes exploration and
development investments at production fields, is as follows:
The investment recognised by CEPSA under “Computer Software” relates basically to acquisitions
made in order to upgrade computer software to the most recent market versions.
“Rights on Leased Assets” includes basically the investments for the acquisition under lease
contracts of four tanks of 50,000 m3 each for petrol storage and four tanks of 150,000 m3 each for
crude oil storage.
2007 2006 2007 2006
Production assets 66,401 63,986 100,014 94,205
Exploration costs 16,767 14,751 7,044 10,101
Total 83,168 78,737 107,058 104,306
Investments Depreciation
Thousands of Euros
CEPSA LEGAL DOCUMENTS28
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The main amounts concerning CEPSA’s lease contracts for the years ended 31 December 2007 and
2006 are as follows:
The CO2 emission allowances recognised in 2006 and 2007 for an amount of EUR 74,172 thousand
and EUR 18,568 thousand, respectively, relate to the allowances assigned for no consideration under
the National Emission Allowance Allocation Plans, and are equal to 3,287 thousand and 3,287
thousand tonnes, respectively (see Note 22).
CEPSA has a 1.373% share in the Spanish Carbon Fund for the purpose of financing various projects
that target greenhouse gas reduction and the sustainable development of developing countries. If
these projects are successful they will generate emission allowances. In 2007, EUR 535 thousand
were paid to the World Bank for CEPSA’s share and recognised as an addition under “Certified
Reductions of Greenhouse Gas (GHG) Emissions”.
At 31 December 2006 and 2007, the fully amortised intangible assets amounted to EUR 188,287
thousand and EUR 215,063 thousand, respectively.
2007 2006
Original cost (without purchase option) 55,138 54,908
Purchase option 1,795 1,776
Principal repaid 34,926 29,545
Accrual of deferred finance costs 50 42
Unamortised finance costs 2,086 3,153
Lease payments paid 43,351 39,342
Lease payments outstanding 24,138 30,334
Contract term (months) 123/124 123/124
Contract currency EUR EUR
Thousands of Euros
NOTES TO FINANCIAL STATEMENTS
29
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Thousands of Euros
Balance at Additions or Disposals Balance at
2006 01.01.06 Charge for the Year Transfers or Reductions 31.12.06
Assets
Land and buildings 35,649 - 1,297 (47) 36,899
Plant and machinery 2,161,266 - 232,240 (35,591) 2,357,915
Other fixtures, tools and furniture 14,062 - 292 - 14,354
Advances and non-current assetsin the course of construction 183,548 233,346 (270,596) - 146,298
Other items of property, plant and equipment 28,339 - 36,825 (584) 64,580
Total 2,422,864 233,346 58 (36,222) 2,620,046
Accumulated depreciation
Land and building (2,132) (36) - - (2,168)
Plant and machinery (1,415,198) (89,387) - 35,578 (1,469,007)
Other fixtures, tools and furniture (9,255) (1,106) - - (10,361)
Other items of property, plant and equipment (16,080) (1,074) - 467 (16,687)
Total (1,442,665) (91,603) - 36,045 (1,498,223)
Allowances (8,195) (100) - 616 (7,679)
Net items of property, plant and equipment 972,004 141,643 58 439 1,114,144
CEPSA LEGAL DOCUMENTS
8. PROPERTY, PLANT AND EQUIPMENT
The changes in this heading in 2006 and 2007 were as follows:
30
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Balance at ETBE Additions or Charge Disposals Balance at
2007 01.01.07 Merger Effect for the Year Transfers or Reductions 31.12.07
Assets
Land and buildings 36,899 - - 1,271 (31) 38,139
Plant and machinery 2,357,915 15,278 - 69,308 (1,078) 2,441,423
Other fixtures, tools and furniture 14,354 - - 1,574 - 15,928
Advances and non-current assets in the course of construction 146,298 - 279,860 (72,128) - 354,030
Other items of property, plant and equipment 64,580 - - 193 (120) 64,653
Total 2,620,046 15,278 279,860 218 (1,229) 2,914,173
Accumulated depreciation
Land and building (2,168) - 2 - 26 (2,140)
Plant and machinery (1,469,007) (2,631) (102,213) - 1,015 (1,572,836)
Other fixtures, tools and furniture (10,361) - (894) - - (11,255)
Other items of property, plant and equipment (16,687) - (812) - 111 (17,388)
Total (1,498,223) (2,631) (103,917) - 1,152 (1,603,619)
Allowances (7,679) - (70) - 946 (6,803)
Net items of property, plant and equipment 1,114,144 12,647 175,873 218 869 1,303,751
Thousands of Euros
NOTES TO FINANCIAL STATEMENTS
31
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CEPSA LEGAL DOCUMENTS
The Company’s work on non-current assets is recognised at production cost and includes, where
appropriate, staff and other costs incurred during the related construction period. EUR 10,105
thousand and EUR 9,628 thousand of costs were capitalised to property, plant and equipment in
this connection in 2006 and 2007, respectively, and these amounts were credited to “Work on
Non-Current Assets” in the accompanying income statements.
The additions to property, plant and equipment in 2006 and 2007, which amounted to EUR 233,346
thousand and EUR 279,860 thousand, respectively, relate basically to investments made at the
three refineries. Noteworthy in 2007 was the construction of new units at the Gibraltar-San
Roque refinery.
At 31 December 2006 and 2007, fully-depreciated property, plant and equipment amounted to
EUR 923,261 thousand and EUR 1,041,755 thousand, respectively. All the property, plant and
equipment are assigned to operating facilities, which contain equipment and materials that are
not depreciated for accounting purposes.
32
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NOTES TO FINANCIAL STATEMENTS
At 31 December 1996, CEPSA revalued its property, plant and equipment, including those of the
absorbed company Ertoil, S.A., by EUR 71,154 thousand, pursuant to the applicable asset
revaluation law (Royal Decree 2607/1996, of 20 December regulating the rules for asset
revaluations enacted by Royal Decree-Law 7/1996 of 7 June). This increase in value is being
depreciated (the depreciation charge is a tax-deductible expense) with a charge to income in
1997 and subsequent years based on the years of residual useful life of the revalued assets. The
revaluation made increased the property, plant and equipment depreciation charges for 2006 and
2007 by EUR 1,952 thousand and EUR 1,515 thousand, respectively. At the end of these years, the
increases in value yet to be depreciated amounted to EUR 11,064 thousand and EUR 9,549
thousand, respectively.
CEPSA has been granted administrative concessions by the Spanish State to use mooring
facilities, access and adjacent areas at the ports of Algeciras-La Línea, Santa Cruz de Tenerife
and Palos de la Frontera, which will revert to the State in 2022, 2009 to 2028 and 2008 to 2030.
CEPSA management expects all the concessions to be renewed on expiration of the concession
term and considers that it is not necessary to record a reversion reserve since the facilities are
adequately maintained and the related cost will have been depreciated in full for accounting
purposes during the concession term.
33
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CEPSA LEGAL DOCUMENTS
9. LONG- AND SHORT-TERM INVESTMENTS
The changes in 2006 and 2007 in “Long-Term Investments” were as follows:
34
Balance at Additions or Charge Disposals Balance at
2006 01.01.06 for the Year Transfers or Reductions 31.12.06
Assets
Investments in Group companies 442,093 43,674 226 - 485,993
Investments in associates 185,818 2,105 - - 187,923
Long-term investment securities 5,314 65 (226) (686) 4,467
Investments 633,225 45,844 - (686) 678,383
Loans to Group companies (Note 19) 335,764 656,290 - (335,764) 656,290
Loans to associates (Note 19) 12,852 9,340 - (4,762) 17,430
Other loans 64,583 4,353 - (30,016) 38,920
Loans 413,199 669,983 - (370,542) 712,640
Long-term deposits and guarantees given 4,378 16,241 - (8,862) 11,757
Total 1,050,802 732,068 - (380,090) 1,402,780
Allowances
Investments in Group companies (36,198) (2,468) - 7,763 (30,903)
Investments in associates (59,900) (2,457) - 23,251 (39,106)
Other (596) (7) - 594 (9)
Total (96,694) (4,932) - 31,608 (70,018)
Net long-term investments 954,108 727,136 - (348,482) 1,332,762
Thousands of Euros
Cepsa•IA07•Doc Legal_ing 13/6/08 13:28 Página 34
NOTES TO FINANCIAL STATEMENTS
35
Balance at ETBE Additions or Charge Disposals Balance at
2007 01.01.07 Merger Effect for the Year Transfers or Reductions 31.12.07
Assets
Investments in Group companies 485,993 (2,782) 23,392 - (3,006) 503,597
Investments in associates 187,923 - 2,000 - (1,893) 188,030
Long-term investment securities 4,467 - 45 - (3,311) 1,201
Investments 678,383 (2,782) 25,437 - (8,210) 692,828
Loans to Group companies (Note 19) 656,290 - 557,954 - (711,615) 502,629
Loans to associates (Note 19) 17,430 - 82,119 - (3,680) 95,869
Other loans 38,920 - 28,339 - (20,206) 47,053
Loans 712,640 - 668,412 - (735,501) 645,551
Long-term deposits and guarantees given 11,757 - 9,203 - (10,715) 10,245
Total 1,402,780 (2,782) 703,052 - (754,426) 1,348,624
Allowances
Investments in Group companies (30,903) - (7,532) - 2,177 (36,258)
Investments in associates (39,106) - (819) - 3,229 (36,696)
Other (9) - (8,377) - - (8,386)
Total (70,018) - (16,728) - 5,406 (81,340)
Net long-term investments 1,332,762 (2,782) 686,324 - (749,020) 1,267,284
Thousands of Euros
Cepsa•IA07•Doc Legal_ing 13/6/08 13:28 Página 35
CEPSA LEGAL DOCUMENTS
In relation to ownership interests in Group companies and associates, the most relevant addition is
that due to the subscription of the capital increase at CEPSA Egypt SA, B.V.
In 2007 and 2006 the Company recorded and used provisions to equate the cost recognised in its
financial statements to the underlying carrying amount of certain holdings for which the
circumstances provided for by accounting regulations are met (see Note 4-c).
In “Other Loans” CEPSA has recognised at 31 December 2007 and 2006, basically the deferred tax
assets arising from timing differences due to expenses incurred which, in principle, were not
deductible for tax purposes but will be deductible at medium- and long- term, up to a limit of ten
years. The detail of the balance of this heading is as follows:
The deferred tax assets were adjusted at 2006 and 2007 year-end on the basis of the best
estimate of the time of their reversal and the applicable income tax rate, in accordance with the
tax rate changes established by Law 35/2006 of 28 November (see Note 4-h).
The information on Group companies and associates is shown at the end of these notes to financial
statements (see Table I).
36
2007 2006
Long-term deferred tax assets 31,336 30,686
Receivable for non-current asset disposals 235 458
Other items 15,482 7,776
Total 47,053 38,920
Thousands of Euros
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NOTES TO FINANCIAL STATEMENTS
The changes in 2006 and 2007 in “Short-Term Investments” were as follows:
37
Balance at Additions or Charge Disposals or Balance at
2006 01.01.06 for the Year Reductions 31.12.06
Assets
Other short-term investment securities 72,027 - (62,026) 10,001
Equity investments 72,027 - (62,026) 10,001
Loans to Group companies (Note 19) 639,115 313,327 (652,920) 299,522
Loans to associates (Note 19) 47,177 54,926 (60,286) 41,817
Other loans 160,640 9,116,497 (9,189,700) 87,437
Loans 846,932 9,484,750 (9,902,906) 428,776
Short-term deposits and guarantees given 630 44 (465) 209
Total 919,589 9,484,794 (9,965,397) 438,986
Allowances
Short-term bad debts (60) - 60 -
Total (60) - 60 -
Net short-term investments 919,529 9,484,794 (9,965,337) 438,986
Thousands of Euros
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CEPSA LEGAL DOCUMENTS38
Balance at Additions or Charge Disposals or Balance at
2007 01.01.07 for the Year Reductions 31.12.07
Assets
Other short-term investment securities 10,001 - (10,001) -
Equity investments 10,001 - (10,001) -
Loans to Group companies (Note 19) 299,522 702,530 (416,462) 585,590
Loans to associates (Note 19) 41,817 73,202 (105,950) 9,069
Other loans 87,437 8,195,927 (8,252,625) 30,739
Loans 428,776 8,971,659 (8,775,037) 625,398
Short-term deposits and guarantees given 209 28 (74) 163
Total 438,986 8,971,687 (8,785,112) 625,561
Allowances
Short-term bad debts - - - -
Total - - - -
Net short-term investments 438,986 8,971,687 (8,785,112) 625,561
Thousands of Euros
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NOTES TO FINANCIAL STATEMENTS
The detail, by maturity, of the short- and long-term loans granted at 31 December 2006 and 2007
is as follows:
The average annual interest rate applied by CEPSA on loans to subsidiaries in 2006 and 2007 was
similar to the average cost of its borrowed funds for transactions of the same type (see Note 15).
39
2006 2007 2008 2009 2010 2011 Others Total
Loans to Group companies 299,522 656,290 - - - - 955,812
Loans to associates 41,817 3,680 5,250 1,500 7,000 - 59,247
Other loans 87,437 13,565 10,451 3,162 2,380 9,362 126,357
Total 428,776 673,535 15,701 4,662 9,380 9,362 1,141,416
Maturity
2007 2008 2009 2010 2011 2012 Others Total
Loans to Group companies 585,590 392,709 109,920 - - - 1,088,219
Loans to associates 9,069 48,874 39,995 7,000 - - 104,938
Other loans 30,739 17,074 6,877 6,236 6,261 10,605 77,792
Total 625,398 458,657 156,792 13,236 6,261 10,605 1,270,949
Maturity
Thousands of Euros
Thousands of Euros
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CEPSA LEGAL DOCUMENTS
10. DEFERRED CHARGES
The changes in "Deferred Charges" in 2006 and 2007 were as follows:
The deferred interest expenses relate to the lease contracts entered into by CEPSA (see Note 7).
40
Balance at Incurred Amortisation Balance at
2006 01.01.06 Expenses Charged to Profit 31.12.06
Deferred interest expenses 4,524 (418) (953) 3,153
Other deferred charges 1,097 (899) (38) 160
Total 5,621 (1,317) (991) 3,313
Balance at Incurred Amortisation Balance at
2007 01.01.07 Expenses Charged to Profit 31.12.07
Deferred interest expenses 3,153 (44) (1,023) 2,086
Other deferred charges 160 7 (79) 88
Total 3,313 (37) (1,102) 2,174
Thousands of Euros
Thousands of Euros
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NOTES TO FINANCIAL STATEMENTS
11. INVENTORIES
The detail of "Inventories" at 31 December 2007 and 2006 is as follows:
Pursuant to Directorate-General of Energy Policy and Mining resolution dated 26 October 2007,
CEPSA, as an operator authorised to distribute oil products, is required to maintain minimum safety
stocks to 53 days of sales of the preceding 12 months in the domestic market, excluding sales to
other wholesalers, and Corporación de Reservas Estratégicas (CORES) inspects and controls the
fulfilment of this obligation. Company management considers that it has been meeting this
obligation.
As indicated in Note 4-d, CEPSA uses the dollar-value LIFO valuation method to value its raw
material and commercial goods inventories.
Pursuant to the ICAC Resolution of 9 May 2000, establishing the methods for determining
production cost, it is hereby stated that the value using the weighted average price or weighted
average cost method at 2007 and 2006 year-end was EUR 635,092 thousand and EUR 481,019
thousand respectively, higher than the value obtained using the dollar-value LIFO valuation method.
41
Amount Amount
MT Thousands of � MT Thousands of �
Crude in oil tanks 1,003,292 122,227 1,240,356 204,682
Crude in transit 438,508 196,588 645,174 197,629
Other raw materials 427 846 455 882
By-products and recovered materials 13,991 2,104 21,344 2,974
Refined finished products 1,472,824 213,367 1,464,567 217,504
Materials and other inventories 74,075 68,403
Advances to suppliers 2,745 1,963
Allowances (140) (26)
Total 611,812 694,011
2007 2006
Thousands of Euros
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CEPSA LEGAL DOCUMENTS
12. SHAREHOLDERS’ EQUITY
The changes in 2006 and 2007 were as follows:
42
Share Share Revaluation Legal Other Profit for Interim
2006 Capital Premium Reserve Reserve Reserves the Year Dividend Total
Balance at 31.12.05 267,575 338,728 90,936 53,605 1,564,483 700,427 (147,166) 2,868,588
Distribution of profit
Gross dividend - - - - - (334,469) 147,166 (187,303)
Reserves - - - - 365,958 (365,958) - -
Profit for the year - - - - - 686,818 - 686,818
Interim dividend - - - - - - (147,166) (147,166)
Balance at 31.12.06 267,575 338,728 90,936 53,605 1,930,441 686,818 (147,166) 3,220,937
Share Share Revaluation Legal Other Profit for Interim
2007 Capital Premium Reserve Reserve Reserves the Year Dividend Total
Balance at 31.12.06 267,575 338,728 90,936 53,605 1,930,441 686,818 (147,166) 3,220,937
Distribution of profit
Gross dividend - - - - - (334,469) 147,166 (187,303)
Reserves - - - - 352,349 (352,349) - -
Other changes
ETBE merger effect - - - - 9,373 - - 9,373
Profit for the year - - - - - 612,242 - 612,242
Interim dividend - - - - - - (147,166) (147,166)
Balance at 31.12.07 267,575 338,728 90,936 53,605 2,292,163 612,242 (147,166) 3,508,083
Thousands of Euros
Thousands of Euros
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NOTES TO FINANCIAL STATEMENTS
Share capital
Fully subscribed and paid share capital amounted to EUR 267,574,941, and consisted of 267,574,941
book-entry shares of EUR 1 par value each.
Per the information provided by the members of the Board of Directors who are shareholders, at 31
December 2007, Total, S.A., Banco Santander, International Petroleum Investment Company (IPIC) and
Unión Fenosa, S.A. directly and indirectly owned 48.8%, 31.6%, 9.5% and 5.0%, respectively, of the share
capital of CEPSA.
CEPSA’s shares are traded on the continuous market on the four Spanish stock exchanges.
Legal reserve
Under the Consolidated Spanish Companies Law, 10% of net profit for each year must be
transferred to the legal reserve until the balance of this reserve reaches at least 20% of the share
capital. The legal reserve can be used to increase capital provided that the remaining reserve
balance does not fall below 10% of the increased share capital amount. Otherwise, until the legal
reserve exceeds 20% of share capital, it can only be used to offset losses, provided that sufficient
other reserves are not available for this purpose.
At 31 December 2007, CEPSA had recognised a legal reserve of EUR 53,605 thousand, i.e. 20% of
share capital. This legal reserve was recognised before the share capital was redenominated in
euros.
Share premium account
The Consolidated Spanish Companies Law expressly permits the use of the share premium balance
to increase capital and establishes no specific restrictions as to its use. There were no changes in
2007 or 2006 in the balance of this account, which amounted to EUR 338,728 thousand.
Revaluation reserve
This reserve, amounting to EUR 90,936 thousand, relates to the revaluations made pursuant to 1979
State Budget Law 1/1979, 1981 State Budget Law 74/1980 and Royal Decree-Law 7/1996 on asset
revaluations.
The full balances of the aforementioned revaluations relating to State Budget Law 1/1979 and State
Budget Law 74/1980, amounting to EUR 15,896 thousand and EUR 16,602 thousand, respectively, can
be transferred to unrestricted voluntary reserves.
43
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CEPSA LEGAL DOCUMENTS
The balance of the “Revaluation Reserve, Royal Decree-Law 7/1996” account, which amounts to EUR
58,438 thousand, is still subject to the restrictions contained in the legislation under which it was
recognised and can be used, free of tax, to eliminate recognised losses and to increase capital.
From 1 January 2007 (i.e. ten years after the date of the balance sheet reflecting the revaluation
transactions) the balance of this reserve can be taken to unrestricted reserves, provided that the
monetary surplus has been realised. The surplus will be deemed to have been realised in respect of
the portion on which depreciation has been taken for accounting purposes or when the revalued
assets have been transferred or derecognised.
At 31 December 2007, the unrestricted balance of this reserve amounted to EUR 38,203 thousand.
If this balance were used in a manner other than that provided for in Royal Decree-Law 7/1996, it
would be subject to tax.
44
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NOTES TO FINANCIAL STATEMENTS
13. DEFERRED INCOME
The changes in “Deferred Income” in 2006 and 2007 were as follows:
45
Balance at Additions/ Amortisation Balance at
2006 01.01.06 Reductions Depreciation Charged to Profit 31.12.06
Income from grants related to assets 3,913 245 - (1,400) 2,758
Income from grants for greenhouse gas emission allowances 1,437 74,172 (52,435) (21,809) 1,365
Deferred interest income 665 - - (220) 445
Exchange gains 41,645 17,138 - (27,807) 30,976
Other deferred income 7,288 - - (272) 7,016
Total 54,948 91,555 (52,435) (51,508) 42,560
Balance at ETBE Merger Additions/ Amortisation Balance at
2007 01.01.07 Effect Reductions Depreciation Charged to Profit 31.12.07
Income from grants related to assets 2,758 828 785 - (1,175) 3,196
Income from grants for greenhouse gas emission allowances 365 - 18,568 (19,863) (63) 7
Deferred interest income 445 - - - (167) 278
Exchange gains 30,976 - 6,424 - (30,922) 6,478
Other deferred income 7,016 - - - (271) 6,745
Total 42,560 828 25,777 (19,863) (32,598) 16,704
Thousands of Euros
Thousands of Euros
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CEPSA LEGAL DOCUMENTS
The additions to “Income from Grants for Greenhouse Gas Emission Allowances” include the market
value of the emission allowances assigned for no consideration for 2006 and 2007 at the time they
were assigned, and the “Amortisation Charged to Income” column relating to “Income from Grants
for Greenhouse Gas Emission Allowances” includes the value of the allowances assigned for CO2
emissions made in the year (see Note 22).
“Exchange Gains” includes:
•“Additions/Reductions”, which includes the differences relating to value adjustments arising
from the foreign currency financing of CEPSA’s investments in the Ourhoud field in Algeria which
give rise to currency risk hedging associated with this financing (cash flow hedge) (see Notes 4-
i and 23).
•“Amortisation Charged to Profit”, which includes the allocation to profit of these exchange gains
as described in the accounting policies (see Notes 4-i and 23).
“Other Deferred Income” includes a contract for the assignment of surface rights entered into
between CEPSA and Nueva Generadora del Sur, S.A., a 50%-owned investee, for the erection of a
combined cycle power plant.
46
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NOTES TO FINANCIAL STATEMENTS
14. PROVISIONS FOR CONTINGENCIES AND CHARGES
Provision for pensions and similar obligations
CEPSA’s pension obligations to employees and beneficiaries at 31 December 2007 and 2006, have
been externalised in full and instrumented in pension plans or insurance policies. Additionally, the
Company has recognised in-house provisions, using actuarial individual capitalisation techniques, to
cover other obligations to its employees (see Note 4-f).
The balances of this account in 2007 and 2006 and the changes therein were as follows:
“Other Amounts used and Payments” in 2007 and 2006 include payments of obligations which were
covered with in-house provisions and results on the initially recognised provision (see Note 4-f).
The balance at 31 December 2007, relates to the actuarial estimate of the obligations whose
externalization was not compulsory pursuant to Royal Decree 1.588/1999 of 15 October.
47
2007 2006
Beginning balance 10,335 11,127
Provisions
Finance costs 319 379
Staff costsOrdinary charges to in-house pension provisions and similar obligations 2,175 1,332
Amounts used
Other amounts used and payments (2,935) (2,503)
Ending balance 9,894 10,335
Thousands of Euros
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CEPSA LEGAL DOCUMENTS
Other provisions for contingencies and charges
The changes in 2006 and 2007 in “Other Provisions for Contingencies and Charges” were as follows:
The "Provision for Taxes Other than Income Tax” includes the provisions recognised by the Company
to cover possible tax contingencies arising from assessments which have been signed on a
contested basis.
The “Provision for Third-Party Liability” covers, in accordance with the accounting principle of
prudence, the foreseeable contingencies arising from CEPSA’s ordinary operations, which might
result from its relationships with third parties and with its employees. At 31 December 2007, the
main items related to contingencies arising from lawsuits in progress and to future tax
contingencies arising from the years open for review. The provision recognised in this connection
amounted to EUR 23,902 thousand.
48
Balance at Balance at
2006 01.01.06 Additions Amounts Used 31.12.06
Provision for taxes other than income tax 29,054 610 (5,666) 23,998
Provision for third-party liability 61,793 4,733 (20,189) 46,337
Provision for major repairs 25,380 7,236 (26,242) 6,374
Provision for environmental risks (Note 21) 7,010 1,830 (1,230) 7,610
Total 123,237 14,409 (53,327) 84,319
Balance at Balance at
2007 01.01.07 Additions Amounts Used 31.12.07
Provision for taxes other than income tax 23,998 636 (2,803) 21,831
Provision for third-party liability 46,337 53,821 (72,762) 27,396
Provision for major repairs 6,374 8,047 - 14,421
Provision for environmental risks (Note 21) 7,610 1,236 (1,236) 7,610
Total 84,319 63,740 (76,801) 71,258
Thousands of Euros
Thousands of Euros
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NOTES TO FINANCIAL STATEMENTS
The most significant additions and disposals included in 2007 concern those arising from the
European Commission’s Ruling in the disciplinary proceedings for the alleged involvement of a CEPSA
subsidiary in anti-competitive practices in the asphalt business, against which CEPSA and its
subsidiary have appealed at the EU courts.
The "Provision for Major Repairs" covers the expenses of periodic general overhauls at the
Company’s refineries.
15. ACCOUNTS PAYABLE (NON-TRADE PAYABLES)
The detail, by item and maturity, of the Company’s non-trade payables in the accompanying balance
sheets at 31 December 2006 and 2007 is as follows:
49
2006 2007 2008 2009 2010 2011 Others Total
Interest-bearing payables to Group companies and associates 783,223 149,966 - - - - 933,189
Non-interest-bearing payables to Group companies and associates 12,356 - - - - - 12,356
Bank borrowings 122,559 31,710 51,562 22,396 14,026 39,453 281,706
Other nontrade payables 264,340 1,413 3,286 3,562 4,163 34,149 310,913
Uncalled capital payments outstanding - - - - - 39 39
Total 1,182,478 183,089 54,848 25,958 18,189 73,641 1,538,203
Maturity
Thousands of Euros
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CEPSA LEGAL DOCUMENTS
CEPSA pays interest on the "Interest-Bearing Payables to Group Companies and Associates” at
market rates.
The “Non-Interest-Bearing Payables to Group Companies and Associates” relate basically to debts
with companies in the consolidated tax group for the projected income tax settlements to them for
each year.
“Bank Borrowings” at 31 December 2007 and 2006, included debts denominated basically in euros
and US dollars, the detail, by currency and maturity, being as follows:
50
2007 2008 2009 2010 2011 2012 Others Total
Interest-bearing payablesto Group companies and associates 1,159,509 - 30,099 - - - 1,189,608
Non-interest-bearing payables to Group companies and associates 3,070 - - - - - 3,070
Bank borrowings 48,067 33,017 12,877 4,530 1,743 - 100,234
Other nontrade payables 327,895 7,786 7,372 7,115 6,375 48,127 404,670
Uncalled capital payments outstanding - - - - - 3 3
Total 1,538,541 40,803 50,348 11,645 8,118 48,130 1,697,585
Maturity
Maturing at Maturing at
Short Term Long Term Total Short Term Long Term Total
In euros 46,235 28,872 75,107 44,046 120,603 164,649
In foreign currencies 1,504 23,295 24,799 77,150 38,544 115,694
Unmatured interest payable 328 - 328 1,363 - 1,363
Total bank borrowings 48,067 52,167 100,234 122,559 159,147 281,706
2007 2006
Thousands of Euros
Thousands of Euros
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NOTES TO FINANCIAL STATEMENTS
The average annual nominal interest rate on the loans received in euros was 3.71% in 2007 and 2.76%
in 2006. The interest rate on loans in foreign currencies was 5.43% in 2007 and 5.27% in 2006, not
taking into account the exchange rate effect. The overall average annual interest rate on the loans
received was 4.38% in 2007 and 3.93% in 2006, without the aforementioned effect.
In accordance with its foreign currency risk management policy (see Note 23), CEPSA has arranged
loans in US dollars to finance certain investments in non-current assets that generate cash flows
in US dollars and are accounted for as cash flow hedges.
At 31 December 2007 and 2006, CEPSA had unused credit facilities amounting to EUR 560.803
thousand and EUR 497,897 thousand, respectively, with several banks. The unused balance bears no
interest (see Note 23).
The debts maturing at long term recognised under “Other Non-trade Payables” comprise mainly
deferred tax liabilities amounting to EUR 13,221 thousand and EUR 12,658 thousand 2007 and 2006,
respectively. The short-term portion relates mainly to payables to public authorities in connection
with commercial and corporate taxes payable and debts for non-current asset purchases.
The deferred tax liabilities were adjusted at 2007 and 2006 year-end on the basis of the best
estimates at the time of settlement and the income tax rate then in force, pursuant to the tax rate
changes established by Law 35/2006, of 28 November (see Note 4-h).
51
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CEPSA LEGAL DOCUMENTS
16. TAX MATTERS
CEPSA files consolidated tax returns. The reconciliation of CEPSA’s profit before taxes to the
taxable income for Spanish corporation tax purposes for 2006 and 2007 is as follows:
52
2006 Increases Decreases Amount
Accounting profit for the year before tax 988,190
Income tax
Individual permanent differences 38,771 403,614 (364,843)
Individual temporary differences
Arising in the year 3,428 7,795 (4,367)
Arising in prior years 5,210 54,135 (48,925)
Individual taxable profit 570,055
Permanent differences in consolidation 2,138 141,089 (138,951)
Temporary differences in consolidation
Arising in prior years 1 8 (7)
Taxable profit 431,097
Thousands of Euros
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NOTES TO FINANCIAL STATEMENTS
The permanent differences arose mainly as a result of non-deductible expenses and income not
computable for tax purposes or of expenses and income that are computable for tax purposes in a
period exceeding ten years. The permanent differences recognised in 2006 and 2007 related basically
to profit attributed to the permanent establishment in Algeria, covered by the exemption regime,
provisions, fines, dividends distributed by Group companies, gains arising from asset transfers and
consolidation adjustments. In 2007 there was a gain of EUR 30,860 thousand under the Special Regime
for sales established in Royal Decree Law 6/2000. This gain was not included in the tax base, since the
conditions of Additional Provision no. 4 of the Consolidated Spanish Companies Law were met.
The temporary differences were due mainly to accrued expenses and income earned that will be
deductible for tax purposes in a period of less than ten years. The temporary differences recognised
in 2006 and 2007 arose from expenses resulting from the provisioning and discounting to present
value of supplementary pension obligations, which gave rise to increases of EUR 514 thousand in 2007
and EUR 530 thousand in 2006 relating to non-deductible period contributions and to decreases of
EUR 26,112 thousand in 2007 and EUR 26,991 thousand in 2006 relating to the payments made in those
years in connection with those commitments and to one-tenth of the reversal of the deferred tax
asset for the externalisation of past-service costs.
53
2007 Increases Decreases Amount
Accounting profit for the year before tax 879,378
Income tax
Individual permanent differences 130,259 475,431 (345,172)
Individual temporary differences
Arising in the year 2,231 7,253 (5,022)
Arising in prior years 4,920 41,249 (36,329)
Individual taxable profit 492,855
Permanent differences in consolidation 188 139,425 (139,237)
Temporary differences in consolidation
Arising in prior years 1 - 1
Taxable profit 353,619
Thousands of Euros
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CEPSA LEGAL DOCUMENTS
The balances recognised under “Deferred Tax Assets” and “Deferred Tax Liabilities” in 2007 and 2006
were as follows:
The balances of “Deferred Tax Assets” and “Deferred Tax Liabilities” at 31 December 2007 and 2006,
were adjusted pursuant to Personal Income Tax Law 35/2006, of 28 November, partially amending
Corporation Tax, Non-Resident Income Tax and Wealth Tax, reducing the standard 35% tax rate
gradually over two years to 32.5% in 2007 and 30% in 2008 and following years.
Deferred tax assets and liabilities decreased by EUR (452) thousand and EUR 368 thousand,
respectively in 2007 and EUR 4,463 thousand and EUR 2,184 thousand in 2006, as a result of the
adjustment arising from the estimated effect of the tax rate reduction, based on the period of
realisation of the tax receivables and payables.
54
2007 2006
Deferred tax assets 31,336 30,686
Deferred tax liabilities 15,659 14,777
Thousands of Euros
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NOTES TO FINANCIAL STATEMENTS
The detail of the calculation of the income tax expense for 2007 and 2006 is as follows:
In calculating the income tax expense for each year, CEPSA took into account the applicable tax
credits for dividend double taxation and investments and other tax incentives.
At 31 December 2007 and 2006, CEPSA did not have any material unused tax credits.
In 2007 and 2006 the income qualifying for the reinvestment tax credit amounted to EUR 578 and
EUR 477 thousand, respectively. This income was reinvested in 2007 and 2006.
55
2007 2006
Taxable profit 353,619 431,097
Gross tax payable 114,926 150,884
Tax relief 2,404 2,404
Tax credits taken 32,498 23,359
Net tax payable 80,024 125,121
Net generation of deferred tax assets 12,681 18,193
Net generation of deferred tax liabilities 758 461
Income tax expense 93,463 143,775
Adjustment of prior years' income tax expense and other items (18,315) (2,177)
Adjustment of deferred tax assets and deferred tax liabilities due to decrease in current tax rate (820) 2,279
Total income tax expense 74,328 143,877
Thousands of Euros
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CEPSA LEGAL DOCUMENTS
In 2007 and 2006 CEPSA took the following tax credits for environmental investments pursuant to
Article 35 of the Spanish Corporation Tax Law:
Also, pursuant to Article 94.1.a ("Tax Credit for Investment in the Canary Islands”) of Canary Islands
Tax Law 20/1991, the following tax credit for environmental investments in the Canary Islands was
taken:
CEPSA is taxed in Algeria on the income obtained from the prospection for and production of crude
oil from the “Berkine” Block 406 A oilfield, in the central eastern region of the Algerian Sahara, which
is attributed to its permanent establishment.
The tax on remuneration for production activities in force in Algeria is deemed to be of the same
nature as the Spanish corporation tax. The current tax rate is 38% on the gross annual
remuneration in barrels of Saharan Blend crude oil, withheld and settled through the Algerian state-
owned company Sonatrach, in the name and on behalf of CEPSA. New legislation, applicable since
August, was enacted in Algeria in 2006, introducing a new windfall profits tax. On this basis, CEPSA
estimated the expense to be borne in this connection, which is also included, together with the tax
on remuneration for production activities, under “Other Taxes” in the income statement. The
accrued taxes in this connection amounted to EUR 157,495 thousand and EUR 192,808 thousand in
2006 and 2007, respectively.
56
GENERAL TAX REGIME 2007 2006
Environmental investments 6,225 7,139
Tax Credit 498 714
CANARY ISLAND TAX REGIME 2007 2006
Environmental investments - 1,009
Tax Credit - 303
Thousands of Euros
Thousands of Euros
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NOTES TO FINANCIAL STATEMENTS
The tax inspection authorities reviewed the returns filed by CEPSA for various taxes, including the
excise tax on oil and gas, and issued tax assessments which were signed on a contested basis.
CEPSA filed the related appeals against these assessments with the appropriate courts. The
Company recognised a provision for the full amount of these assessments and for the related late-
payment interest accrued until 2007 year-end (see Note 14).
The years open for review are as follows:
In 2007 the High-Income Taxpayers Central Office of the State Tax Agency carried out the review
of the years from 2000 to 2004. At the date of these financial statements, no discrepancies in the
returns subject to review had been reported.
CEPSA management does not expect any additional material liabilities for which provisions have not
been recognised to arise as a result of the appeals filed or of inspection of the open years.
57
YEARS OPEN FOR REVIEW
Income Tax 2000 to 2007
Value Added Tax (VAT) and withholdings July 2002 to 2007
Special taxes and VAT on transactions treated as imports 2005 to 2007
Local and Autonomous Community Government taxes 2003 to 2007
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CEPSA LEGAL DOCUMENTS
17. DIRECTORS’ REMUNERATION AND OTHER BENEFITS
The remuneration (salaries, per diems and other remuneration) earned by CEPSA's directors
amounted to EUR 7,625 thousand in 2007 and EUR 13,961 thousand in 2006. Also, the Company has
not granted any advances or loans to its Board members.
Pursuant to Article 127 ter.4 of the Spanish Companies Law, introduced by Law 26/2003 of 17 July
which amends Securities Market Law 24/1988 of 28 July and the Consolidated Spanish Companies
Law, in order to reinforce the transparency of listed corporations, the directors have made the
disclosures to which the aforementioned Article refers.
Following is a detail of the companies engaging in an activity that is identical, similar or
complementary to the activity that constitutes the company object of Compañía Española de
Petróleos S.A. in which the members of the Board of Directors own equity interests, and of the
functions that they discharge thereat.
58
DIRECTOR Investee Line of Business % of Ownership Function
Mr. Pedro López Jiménez Unión Fenosa S.A. Energy 0.098% Chairman
Mr. Michel Bénézit TOTAL, S.A. Energy Not significant Member of the Executive Comitee
Mr. Fernando de Asúa TOTAL, S.A. Energy Not significant -
ENI Energy Not significant -
ERG Energy Not significant -
GALP Energía Energy Not significant -
REPSOL-YPF Energy Not significant
Mr. Juan Rodriguez Inciarte REPSOL-YPF Energy Not significant -
Mr. Humbert de Wendel TOTAL, S.A. Energy Not significant Director of Finance Division Corporate Development
Mr. Patrick Pouyanné TOTAL, S.A. Energy Not significant Director of Exploration andProduction Strategy and Research and Development
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NOTES TO FINANCIAL STATEMENTS
Also, pursuant to the aforementioned law, we set forth below the activities carried on by members
of the Board of Directors that are identical, similar or complementary to the activity that
constitutes the company object of Compañía Española de Petróleos S.A., except for those carried
on at other consolidated CEPSA Group companies.
59
System under Company through Position or
which the Activity which the Activity Function at the Company
DIRECTOR Line of Business is Performed is Performed Concerned
Mr. Murtadha Al Hashemi Integrated oil company As an employee IPIC OMV Aktiengesellschaft
Board Member
Mr. Michel Bénézit Integrated oil company As an employee TOTAL S.A. TOTAL, S.A. Managing Director of Refining and Marketing andExecutive Committee member
Mr. Jean Privey Integrated oil company As an employee TOTAL S.A. TOTAL, S.A. Director ofExploration and Productionfor Africa
Mr. Jacques Porez Integrated oil company As an employee TOTAL S.A. TOTAL S.A. Director of Southand West Europe Division,Refining and Marketing
Ms. Bernadette Spinoy Integrated oil company As an employee TOTAL S.A. TOTAL S.A.Styrene Director
Mr. Eric de Menten Integrated oil company As an employee TOTAL S.A. TOTAL, S.A. Director ofMarketing for Europe
Mr. Saeed Al Mehairbi Oil transport As an employee IPIC SUMED (Suez-MediterraneanPipeline) Deputy Chairman ofthe Board and Board Member
Mr. Saeed Al Mehairbi Oil transport As an employee IPIC COSMO OIL COMPANYBoard Member
Mr. Patrick Pouyanné Integrated oil company As an employee TOTAL S.A. TOTAL S.A.Exploration and ProductionStrategy and Research &Development Director
Mr. Humbert de Wendel Integrated oil company As an employee TOTAL S.A. TOTAL S.A.Director of Finance Division Corporate Development
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CEPSA LEGAL DOCUMENTS
The following Board members discharge director or executive offices at other Group companies
and associates.
60
Position or Function
DIRECTOR Corporate Name of the Subsidiary at the Company
Mr. Carlos Pérez de Bricio Olariaga Intercontinental Química, S.A. Chairman
Petroquímica Española, S.A. Chairman
Ertisa, S.A. Chairman
Petresa Canada, Inc Chairman
Interquisa Canada, L.P. Chairman
Deten Química, S.A. Chairman
Compañía Lógistica de Hidrocarburos CLH, S.A. Director
H.R.H. Carlos de Borbón-Dos Sicilias Petroquímica Española, S.A. Director
Mr. Dominique de Riberolles Petroquímica Española, S.A. Director
Ertisa, S.A. Director
Cepsa Estaciones de Servicio, S.A. Chairman
Intercontinental Química, S.A. Director
Petresa Canada, Inc Director
Interquisa Canada, L.P. Director
Cepsa International, B.V. Joint Director
Cepsa Gas Comercializadora S.A. Director
Cepsa Portuguesa Petróleos, S.A. Chairman
Compañía Logística de Hidrocarburos CLH, S.A. Director
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NOTES TO FINANCIAL STATEMENTS
The classification of Board members by type and gender is as follows:
61
TYPE OF DIRECTOR Women Men Women Men
Executive - 2 - 2
Non-executive shareholder representative 1 14 1 14
Non-executive independent - 2 - 2
Total 1 18 1 18
2007 2006
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CEPSA LEGAL DOCUMENTS62
Thousands of Euros
18. GUARANTEE COMMITMENTS TO THIRD PARTIES AND OTHER CONTINGENT
LIABILITIES
At 31 December 2007 and 2006, CEPSA had provided guarantees to various entities, mainly to
secure financing transactions for Group companies and supply contracts. The detail of these
guarantees is as follows::
With respect to 2007:
(1) (1) Includes guarantees amounting to EUR 62,381 thousand for subsidised loans arranged with
state agencies, which are recognised on the liability side of CEPSA’s balance sheet.
(2) Includes guarantees amounting to EUR 57,333 thousand for subsidised loans granted to
subsidiaries by state agencies, which are recognised on the liability side of the consolidated
balance sheet.
(3) These transactions have been recognised on the liability side of the consolidated Group’s
balance sheet.
(4) Includes bank guarantees for financial transactions relating to CEPSA (loans from EIB)
amounting to EUR 15,025 thousand, which are recognised on the liability side of CEPSA’s
balance sheet.
CEPSA management considers that the unforeseen liabilities, if any, which might arise from the
guarantees provided at 31 December 2007, would not be material.
At 31 December 2007, CEPSA had arranged forward exchange transactions hedging the sales
position in pounds sterling for GBP 5,520 thousand, and the purchase position in Japanese yen for
JPY 2,478,600 thousand.
2007 2006
Bank guarantees to public authorities as a result of CEPSA's business activities (1) 139,957 122,505
Guarantees provided by CEPSA to financial institutions:
As a result of guarantees issued by such institutions to public authorities for the operations of subsidiaries (2) 120,927 119,609
As a result of financial transactions of Group subsidiaries (3) 676,154 521,205
Other guarantees (4) 87,638 80,679
Total 1,024,676 843,998
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NOTES TO FINANCIAL STATEMENTS
19. INCOME AND EXPENSES
Revenue
The detail, by market, of CEPSA’s net ordinary sales in 2007 and 2006 is as follows:
Procurements
The detail of "Procurements" is as follows:
63
Product Services Product Services
Sales Provided Total Sales Provided Total
Spain 15,368,190 168,351 15,536,541 14,942,108 139,557 15,081,665
Other EU countries 674,166 2,628 676,794 687,016 1,361 688,377
All other countries 2,238,038 281,768 2,519,806 2,254,729 247,129 2,501,858
Total 18,280,394 452,747 18,733,141 17,883,853 388,047 18,271,900
2007 2006
2007 2006
Goods consumed
Purchases 1,167,093 1,178,677
Raw materials and other materials consumed
Purchases 13,080,252 12,901,464
Changes in inventories 77,860 (97,429)
Other external expenses 10,051 7,733
Total 14,335,256 13,990,445
Thousands of Euros
Thousands of Euros
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CEPSA LEGAL DOCUMENTS
Fees paid to auditors
The balance of “Independent Professional Services” under “External Services” in the accompanying
income statement for 2007, includes the fees for the audit of the Company’s and Consolidated
financial statements, amounting to EUR 443 thousand. This heading also includes fees for other
services billed by the auditors or by other entities related to the auditors, amounting to EUR 578
thousand.
Transactions with Group companies and associates
The detail of CEPSA’s transactions with Group companies and associates in 2006 and 2007 is as
follows:
64
Services Interest Services Interest Dividends
2006 Purchases Received Paid Sales Provided Collected Received
CEPSA EE.SS. 16 12,600 4,239 3,703,399 - 42 26,000
CEPSA INTERNATIONAL 9,559,398 4,356 28,832 2,399,704 - 15,351 -
CEPSA LUBRICANTES 1,887 1,136 138 18,763 - 11 3,800
ERTISA 31,918 212 - 327,530 - 2,719 10,000
INTERQUISA 8,804 1,921 - 70,465 - 2,565 18,200
INTERQUISA CANADA LP - - - - - 7,368 -
LUBRISUR 2,185 920 1 139,188 - 253 -
PETRESA 83,544 1,487 438 233,328 (2,060) 54 20,000
PROAS - 29 910 269,083 - - 9,700
Other companies 148,972 137,747 7,690 2,074,178 388 9,469 68,932
Total Group companies 9,836,724 160,408 42,248 9,235,638 (1,672) 37,832 156,632
CLH 9,428 99,930 - 5,098 - (5) 21,435
Other companies 50,545 28,505 387 443,275 - 1,786 18,261
Total associates 59,973 128,435 387 448,373 - 1,781 39,696
Other associated entities - 8 2,311 122 - 17 -
Total 9,896,697 288,851 44,946 9,684,133 (1,672) 39,630 196,328
Expenses Income
Thousands of Euros
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NOTES TO FINANCIAL STATEMENTS
65
Services Interest Services Interest Dividends
2007 Purchases Received Paid Sales Provided Collected Received
CEPSA EE.SS. 161 12,989 7,562 3,852,937 - - 54,999
CEPSA INTERNATIONAL 9,497,695 6,890 20,995 2,334,573 - 19,024 -
CEPSA LUBRICANTES 2,108 1,369 13 2,586 - 311 -
ERTISA 41,719 1,218 - 483,080 - 8,461 -
INTERQUISA 1,226 4,808 - 72,409 - 5,213 9,000
INTERQUISA CANADA LP - 29 - 1 - 7,255 -
LUBRISUR 3,312 1,157 324 131,035 - 45 24,692
PETRESA 23,274 1,530 1,324 183,464 (925) - 5,600
PROAS - 75 1,541 330,070 - - 2,654
Other companies 168,987 134,137 9,872 2,246,349 168 11,105 58,293
Total Group companies 9,738,482 164,202 41,631 9,636,504 (757) 51,414 155,238
CLH 6,832 102,328 - 8,731 - 5 59,648
Other companies 9,627 36,935 1,664 285,342 - 3,643 4,000
Total associates 16,459 139,263 1,664 294,073 - 3,648 63,648
Other associated entities - 10 2,346 59 - 25 -
Total 9,754,941 303,475 45,641 9,930,636 (757) 55,087 218,886
Expenses Income
Thousands of Euros
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CEPSA LEGAL DOCUMENTS
The detail of CEPSA’s balances with Group companies and associates at December 31, 2006 and
2007 is a follows:
66
Trade Accounts Non-Current Current
2006 Receivable Other Liabilities Liabilities
CEPSA EE.SS. 330,185 9,340 - 166,218
CEPSA GAS LICUADO 12,519 162,242 - 96
CEPSA INTERNATIONAL 162,845 281,981 149,966 770,167
CEPSA LUBRICANTES 549 1 - 8,460
CEPSA PORTUGUESA 470 99,761 - 690
CEPSA E.P. 559 - - 30,565
ERTISA 53,849 142,123 - 4,553
LUBRISUR 20,549 8,431 - 819
INTERQUISA 19,934 117,572 - 9,137
INTERQUISA CANADA LP 1,108 121,471 - -
PETRESA 33,688 15 - 34,334
PROAS 72,987 1,611 - 31,754
Other companies 275,410 11,269 - 285,747
Total Group companies 984,652 955,817 149,966 1,342,540
CLH 357 10 - 184,543*
Other companies 53,138 59,247 - 41,738
Total associates 53,495 59,257 - 226,281
Other associated entities 30 2 26,411 2,001
Total 1,038,177 1,015,076 176,377 1,570,822
* Including EUR 183,334 thousand relating to the excise tax on oil and gas which became payable in December 2006 and was paid over by CEPSA to the SpanishTreasury through Compañía Logística de Hidrocarburos CLH, S.A.
Asset Balances Liability Balances
Thousands of Euros
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NOTES TO FINANCIAL STATEMENTS
67
Trade Accounts Non-Current Current
2007 Receivable Other Liabilities Liabilities
CEPSA EE.SS. 387,929 6,465 - 218,473
CEPSA GAS LICUADO 19,493 143,511 - 86
CEPSA INTERNATIONAL 170,002 428,953 30,099 1,216,547
CEPSA LUBRICANTES 399 1,217 - 4,258
CEPSA PORTUGUESA 631 55,899 - 675
CEPSA E.P. 435 - - 34,164
ERTISA 87,598 189,113 - 10,208
LUBRISUR 27,486 4,579 - 2,271
INTERQUISA 20,939 114,505 - 4,151
INTERQUISA CANADA LP 0 111,095 - -
PETRESA 33,496 15 - 52,094
PROAS 103,974 1 - 42,726
Other companies 380,728 32,872 - 327,680
Total Group companies 1,233,110 1,088,225 30,099 1,913,333
CLH 945 7 - 182,491*
Other companies 49,894 104,938 - 45,010
Total associates 50,839 104,945 - 227,501
Other associated entities 4 6 16,076 1,779
Total 1,283,953 1,193,176 46,175 2,142,613
* Including EUR 183,334 thousand relating to the excise tax on oil and gas which became payable in December 2006 and was paid over by CEPSA to the SpanishTreasury through Compañía Logística de Hidrocarburos CLH, S.A.
Asset Balances Liability Balances
Thousands of Euros
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CEPSA LEGAL DOCUMENTS
Foreign currency transactions
In 2006 and 2007 CEPSA carried out the following foreign currency transactions in the course of
its ordinary commercial and financial operations (amounts expressed in equivalent euro value):
68
Other
2006 USD GBP Currencies Total
Sales 5,482,556 32,184 - 5,514,740
Purchases 2,085,079 490 - 2,085,569
Services provided 3,068 - - 3,068
Services received 197,456 658 14 198,128
Finance Income 52,181 157 - 52,338
Finance Costs 45,541 16 20 45,577
Other
2007 USD GBP Currencies Total
Sales 5,592,432 41,910 - 5,634,342
Purchases 2,450,972 759 1 2,451,732
Services provided 1,876 - - 1,876
Services received 187,337 773 36 188,146
Finance Income 50,618 3,366 79 54,063
Finance Costs 35,224 264 (120) 35,368
Equivalent Value in Thousands of Euros
Equivalent Value in Thousands of Euros
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NOTES TO FINANCIAL STATEMENTS
Extraordinary profit and loss
In 2006 and 2007 CEPSA carried out the following foreign currency transactions in the course of
its ordinary commercial and financial operations (amounts expressed in equivalent euro value):
69
Extraordinary Extraordinary Extraordinary Extraordinary
Expenses Income Expenses Income
Income from non-current assets
For greenhouse emissions allowances (Notes 4.m and 22) 37,733 - 52,435 -
Gains on disposal of other non-current assets 378 31,439 21 640
Provisions recorded 55,011 - 6,480 -
Expenses and indemnities arising from claims 4,062 1,101 1,757 3,275
Grants related to assets transferred to income for the year (Note 4.e)
For amortisation of greenhouse gas emissions (Notes 4.m, 13 and 22) - 19,863 - 52,435
For greenhouse gas emission allowances(Note 4.m, 13 and 22) - 63 - 21,809
Other grants related to assets - 1,175 - 1,400
Change in intangible asset, property, plant and equipment and control portfolio allowances 3,002 - (25,157) -
Other items 1,900 2,398 2,377 852
Total 102,086 56,039 37,913 80,411
2007 2006
Thousands of Euros
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CEPSA LEGAL DOCUMENTS
The extraordinary income relating to the gain on the disposal of the remaining non-current assets
arose mainly from adjustments to the contract sale prices of the shares of Compañía Logística de
Hidrocarburos, S.A. (CLH) sold in prior years.
In accordance with the accounting principle of prudence, CEPSA has recognised under "Provisions
Recorded" the amounts that might be required to cover expenses for unusual commitments and
liability arising in its dealings with third parties and with its staff and those arising from the
European Commission’s Ruling in the disciplinary proceedings for the alleged involvement of a CEPSA
subsidiary in anti-competitive practices in the asphalt business, against which CEPSA and its
subsidiary have appealed at the EU courts (see Note 14).
The “Change in Intangible Asset, Property, Plant and Equipment and Control Portfolio Allowances”
includes the net adjustments at the end of each year to the value of the assets under these
headings. (See Note 9).
70
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NOTES TO FINANCIAL STATEMENTS
20. EMPLOYEES
The average number of employees in 2007 and 2006, by professional category, was as follows:
At 31 December 2007 and 2006, the number of employees, by professional category and gender, was
as follows
71
PROFESSIONAL CATEGORY 2007 2006
Management 59 58
Department Heads 263 272
Other line personnel 1,227 1,185
Specialists/Assistants 1,357 1,334
Total 2,906 2,849
PROFESSIONAL CATEGORY Women Men Women Men
Management 1 56 1 55
Department Heads 32 226 28 237
Other line personnel 228 1,023 225 995
Specialists/Assistants 265 1,138 258 1,070
Total 526 2,443 512 2,357
2007 2006
Average Number of Employees
Number of Employees
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CEPSA LEGAL DOCUMENTS
21. INFORMATION ON THE ENVIRONMENT
The environmental information for 2006 and 2007 is as follows:
Environmental investments
In accordance with the definition contained in the Spanish Accounting and Audit Institute (ICAC)
Resolution of 25 March 2002, approving the rules for the recognition, measurement and disclosure
of environmental matters in financial statements, environmental investments were identified in
2002, for the purpose of this classification.
CEPSA considers that the main objective of certain investments, such as those made in the
hydrodesulphurisation units, is to adapt the gasoline and diesel specifications to market demand.
Therefore, although the aim of these units is also to reduce sulphur in these products in order to
comply with European environmental legislation, these units have not been specifically classified as
environmental facilities.
72
Balance at Additions/ Period Disposals/ Other Balance at
2006 01.01.06 Provisions Amounts Used Changes 31.12.06
Environmental assets 127,060 9,071 (55) 234 136,310
Accumulated depreciation of environmental non-current assets (71,926) (6,121) 55 3 (77,989)
Total 55,134 2,950 - 237 58,321
Balance at Additions/ Period Disposals/ Other Balance at
2007 01.01.07 Provisions Amounts Used Changes 31.12.07
Environmental assets 136,310 30,693 (36) 7,441 174,408
Accumulated depreciation of environmental non-current assets (77,989) (6,065) 36 (42) (84,060)
Total 58,321 24,628 - 7,399 90,348
Thousands of Euros
Thousands of Euros
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NOTES TO FINANCIAL STATEMENTS
Environmental provisions
“Provisions for Contingencies and Expenses” includes the provision to cater for the possible risk of
gradual land pollution, which is the only contingency not covered by the insurance policies taken out
by CEPSA. The amounts used in 2007 basically offset the extraordinary expenses arising from land
treatment.
73
Balance at Additions/ Period Disposals/ Balance at
2006 01.01.06 Provisions Amounts Used 31.12.06
Provisions for environmental contingencies and liabilities 7,010 1,830 (1,230) 7,610
Total 7,010 1,830 (1,230) 7,610
Balance at Additions/ Period Disposals/ Balance at
2007 01.01.07 Provisions Amounts Used 31.12.07
Provisions for environmental contingencies and liabilities 7,610 1,236 (1,236) 7,610
Total 7,610 1,236 (1,236) 7,610
Thousands of Euros
Thousands of Euros
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CEPSA LEGAL DOCUMENTS
“Other Services” includes mainly the expenses of EUR 2,662 thousand in 2006 and EUR 2,913
thousand in 2007 relating to the inerting of waste at the Company’s facilities.
“Extraordinary Expenses” includes the expenses relating to the adjustment of items for which
provisions had been recognised, included in the “Period Provisions” column in the foregoing
environmental provisions table.
74
2007 2006
Rent and charges 18 -
Repairs and upkeep 135 102
Transport 66 88
Other services 4,511 3,738
Total outside services 4,730 3,928
Extraordinary expenses 1,236 1,830
Total 5,966 5,758
Thousands of EurosEnvironmental expenses
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NOTES TO FINANCIAL STATEMENTS
22. INFORMATION ON GREENHOUSE GAS EMISSION
ALLOWANCES
The allowances assigned to CEPSA for no consideration during the period 2005 – 2007 were as
follows:
The assignment of allowances for no consideration each year is measured at the market price
prevailing at the time awarded, i.e. EUR 8.35/MT in 2005, EUR 22.35/MT in 2006 and EUR 5.86/MT in
2007. In 2006 and 2007 no allowances were purchased and no forward contracts referring to
allowances were traded.
At 2007 year-end the market price of the greenhouse gas emission allowances was EUR 0.02/mT.
Consequently, and in application of the criteria contained in the ICAC resolution mentioned earlier
(see Note 4-m), a decline in value of the allowances assigned for no consideration, recognised under
both “Intangible Assets” and “Deferred Income”, was recognised.
75
2005 2006 2007
Assigned allowances 3,287 3,287 3,287
Thousands of tons
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CEPSA LEGAL DOCUMENTS
The changes in 2006 and 2007 were as follows:
76
Greenhouse Tangible Deferred Provisions for
Gas Emission assets Income Current Cont.
Allowances (See note 7) (See note 13) and Expenses
Balance at 31.12.2005 103 27.449 1.437 26.012
Assignment for no consideration 3,287 74,172 74,172 -
Additions/period provisions - - - 21,809
Reductions/amounts used (3,190) (26,925) (21,809) (26,925)
Depreciation - (52,435) (52,435) -
Balance at 31.12.2006 200 22,261 1,365 20,896
MT Thousands of Euros
Greenhouse Tangible Deferred Provisions for
Gas Emission assets Income Current Cont.
Allowances (See note 7) (See note 13) and Expenses
Balance at 31.12.2006 200 22,261 1,365 20,896
Assignment for no consideration 3,287 18,568 18,568 -
Additions/period provisions - - - 63
Reductions/amounts used (3,139) (3,026) (63) (20,896)
Depreciation - (37,733) (19,863) -
Balance at 31.12.2007 348 70 7 63
MT Thousands of Euros
2006
2007
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NOTES TO FINANCIAL STATEMENTS
The value of the emissions made is recognised under “Other Operating Expenses” in the
accompanying income statement and a “Provision for Short-Term Contingencies and Expenses” was
recognised as a balancing item to cater for the obligation to deliver to the government the emission
allowances relating to each of the years. In 2006 CO2 emissions totalled 3,190 thousand tonnes, with
an equivalent value of EUR 21,809 thousand. In 2007 estimated CO2 emissions reached 3,139
thousand tonnes, with a value of EUR 63 thousand. The difference in the amount of the provision is
due mainly to the market price per tonne of CO2 at each year-end.
The use of the grant for allowances assigned for no consideration, which is recognised under
“Deferred Income” (see Note 13), gives rise to the allocation to extraordinary profit (see Note 19),
as the emissions are produced.
In 2006 and 2007 the estimated emissions were lower than the volume of allowances assigned for
each year and, accordingly, the Company had surplus allowances of 200 thousand tonnes in 2006
and 348 thousand tonnes in 2007. Company management does not expect any contingencies to arise
in this connection.
In 2008 the allowances relating to emissions made in 2007 will be delivered to the Spanish
government and the amount corresponding to such allowances will be derecognised from “Intangible
Assets” and “Provision for Short-Term Contingencies and Expenses”.
Company management does not expect any contingencies to arise in this connection.
77
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CEPSA LEGAL DOCUMENTS
23. RISK MANAGEMENT POLICY
CEPSA carries on its operations in environments subject to certain external factors that could
affect the manner in which transactions are performed and the results obtained therefrom.
The risks arising from the evolution of these external factors are managed by applying policies the
main purpose of which, per the strategy established by Company management, is to optimise the
ratio of costs to risks covered. In the strategic and budgetary planning processes the effect of
risks on the business segments is estimated and a sensitivity analysis is performed of the main
variables, with a view to gaining a comprehensive view of their impact.
The Chairman of the Board and Managing Director, the Managing Director, together with the
Directors of the respective divisions, oversee and monitor risks on a regular basis, and adjust risk
profiles, where necessary, depending on the circumstances.
The main risks can be grouped in the following categories:
Equity risks
The Company has taken out insurance to cover the risk of damage to property, including the
breakdown of machinery and the control of crude-oil wells involved in exploration and production;
the risk of personal injury to employees caused by occupational accidents; the risk of loss of profits
arising from damage to property; the risk of civil liability of both CEPSA and its employees during
the performance of work-related activities and deriving from damage to property or personal injury;
and the risk of loss or damage during the transport of crude oil, products and equipment.
Market risks
The nature of CEPSA’s businesses entails a certain degree of sensitivity to the changes in and
volatility of oil and gas prices, refining margins and energy product sales. In this connection the
Group's high degree of vertical integration, which has increased in recent years, is a strategy that,
of itself, mitigates the effects of economic cycles and their specific impact on the Group's business
units or areas.
In this sense, a rise in the level of crude oil prices has a positive impact on the earnings of the
Exploration and Production division. However, this impact can be dampened due to the application
of the clauses of the Production Sharing Contract (PSC)-type agreements and their effect on the
quantities of crude oil to be received by CEPSA and that are available for sale.
78
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NOTES TO FINANCIAL STATEMENTS
Fluctuations in crude oil prices also have an effect on product refining and marketing operations,
the scale of which depends, among numerous other factors, on the speed with which price changes
in energy products or base petrochemical products at source can be relayed to the international
and local finished goods markets.
With respect to fluctuations in prices of crude oil and oil products in international markets, CEPSA
arranges and operates a price risk hedging system that protects variations in stocks of crude and
oil products above and below levels of operating stock previously defined as stock at risk, from price
fluctuations. These fluctuations are hedged with Brent crude in the IPE futures market, where
excess operating stocks are offset by future sales and insufficient volume of operating stocks is
offset by future purchases.
Foreign currency, interest rate and other financial risks
The Company’s operations are exposed, in varying degrees, to risks of fluctuations in the financial
markets. The most serious risk arises from fluctuations in the euro exchange rate versus the US
dollar, the currency in which most crude oil and oil and petrochemical products are priced. A policy
has been established to hedge risks of this type.
From the operational standpoint, the corporate Finance and Risk Department centralises and
manages the foreign currency risk exposure of the Group companies’ net global foreign currency
cash flow position and also manages the recourse to financial markets for loans, investment of
surpluses and financial instruments.
In the case of foreign investments in long-term assets which will generate future cash flows in
foreign currencies, the Group minimises its foreign currency exposure by arranging financing in the
same currency, which hedges, to a certain extent, the foreign currency risk assumed in the cash
flows generated by such assets.
Operations are also sensitive to interest rate changes. The Group has arranged most of its debt at
floating rates, taking into account the low debt ratio and because it considers that this financing
method will entail a lower cost at long term.
79
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CEPSA LEGAL DOCUMENTS
In order to manage potential short-term fund requirements, the Company has credit facilities
available, the undrawn balance of which does not bear interest, as detailed in Note 15 of the notes
to the financial statements.
The banks with which CEPSA operates are leading Spanish and international entities of renown;
however, the counterparty risk in investments and financial instruments contracts is analysed.
Customer credit risks
Commercial credit and collection management is governed by internal rules and procedures, which
are periodically updated. These rules include the calculation of commercial credit limits for each
customer; the establishment of the most appropriate collection instruments; the steps to be taken
to collect past-due balances and the monitoring and control of the assigned credit limits.
CEPSA also uses risk analysis computer systems to process internal and external data in an
integrated and automated manner. Such data are assessed by applying the models established to
classify each customer’s commercial risk and assign the related credit limit. Insurance policies have
also been taken out to cover the risk of customer default in certain commercial areas.
80
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NOTES TO FINANCIAL STATEMENTS
24. INFORMATION ABOUT THE IMPACT OF THE TRANSITION TO NEW
ACCOUNTING STANDARDS.
Royal Decree 1514/2007 was published on 20 November 2007. This Royal Decree approved the new
Spanish National Chart of Accounts that came into force on 1 January 2008 and which must be
applied for all periods beginning on or after that date.
The Company has designed and is implementing a transition plan with a view to adapting to the new
accounting standards which includes, inter alia, analysing the differences in accounting rules and
standards, determining whether or not comparative information adapted to the new standards will
be presented and, consequently, the date of the opening balance sheet, selecting the accounting
rules and standards to be applied in the transition, training to personnel, and assessing the changes
that have to be made to the information systems and procedures.
At the date of preparation of these financial statements, the aforementioned plan was still at the
implementation phase and at present it is not possible to estimate fully, reliably and with all the
relevant information the potential effects of the transition.
25. EVENTS SUBSEQUENT TO YEAR-END
At the date of preparation of these financial statements, no significant events subsequent to 2007
year-end had taken place.
81
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CEPSA LEGAL DOCUMENTS
26. STATEMENTS OF CHANGES IN FINANCIAL POSITION
The 2007 and 2006 statements of changes in financial position are as follows:
82
SOURCE OF FUNDS 2007 2006
Funds obtained from operations 870,880 890,057
Grants related to assets and other deferred income 785 245
Non-current liabilities
A) Debt securities and other similar liabilities - -
B) Group companies 1,250 211,250
C) Associates - -
D) Other companies - -
E) Non-current assets and other suppliers 29,666 18,119
Non-current asset disposals/Disposal of:
A) Intangible assets 4,336 160
B) Property, plant and equipment 190 610
C) Long-term investments
1 Group companies 1,562 (25)
2 Associates 32,985 145
3 Other investments 3,311 253
Early amortisation or transfer to short-term of long-term investments
A) Group companies 245,668 111,912
B) Associates 3,680 4,762
C) Other investments 2,470 2,460
Deferred charges 43 6
Provisions for contingencies and expenses - -
Total funds obtained 1,196,826 1,239,954
Funds applied in excess of funds obtained (decrease in working capital) 20,536 219,466
Thousands of Euros
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NOTES TO FINANCIAL STATEMENTS
83
APPLICATIONS OF FUNDS 2007 2006
Non-current asset additions:
A) Intangible assets 102,684 89,224
B) Property, plant and equipment 279,860 233,346
C) Long-term investments
1 Group companies 70,770 520,967
2 Associates 84,119 12,045
3 Other investments 8,703 7,699
Deferred charges 840 762
Dividends 334,469 334,469
Repayment or transfer to short-term of long-term debt
A) Debt securities and other similar liabilities - -
B) Group companies 165,746 44,629
C) Associates - -
D) Other accounts payable 104,560 176,191
E) Non-current assets and other suppliers 24 232
Provisions for contingences and expenses 65,587 39,856
Total funds applied 1,217,362 1,459,420
Funds obtained in excess of funds applied (increase in working capital) - -
Thousands of Euros
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CEPSA LEGAL DOCUMENTS84
FUNDS OBTAINED FROM OPERATIONS 2007 2006
Net profit for the year 612,242 686,818
Depreciation and amortisation charge and non-current asset provisions 237,758 182,180
Amortisation of expenses 1,059 985
Net provisions for contingencies and expenses 52,085 146
Net provisions for contingencies and expenses, CO2 (17,807) 21,809
Losses on disposal of non-current assets 38,111 52,456
Gains on disposal of non-current assets (31,439) (640)
Grants related to assets transferred to profit (21,101) (75,644)
Deferred interest (167) (220)
Long-term exchange difference 178 152
Deferred income of associates (271) (272)
Deferred income tax 882 (1,363)
Prepaid income tax (650) 23,650
Total 870,880 890,057
Thousands of Euros
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NOTES TO FINANCIAL STATEMENTS
85
CHANGE IN WORKING CAPITAL Increases Decreases Increases Decreases
1. Inventories - 82,199 111,421 -
2. Accounts receivable 567,272 - - 40,184
3. Accounts payable - 663,472 175,956 -
4. Short-term investments 186,276 - - 480,543
5. Cash - 21,228 23,712 -
6. Accrual accounts - 7,185 - 9,828
Total 753,548 774,084 311,089 530,555
Change in working capital - 20,536 - 219,466
2007 2006
Thousands of Euros
27. EXPLANATION ADDED FOR TRANSLATION TO ENGLISH
These financial statements are presented on the basis of accounting principles generally accepted in
Spain. Certain accounting practices applied by the Company that conform with generally accepted
accounting principles in Spain may not conform with generally accepted accounting principles in other
countries.
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TABLE 1
Detail of companies in which CEPSA has significant direct holdings at December 31, 2007.
CEPSA LEGAL DOCUMENTS86
Registered Line of % of Share Capital Reserves & Net Cost of
Name Office Business Ownership Subscribed Paid Net Profit Investment
ASFALTOS ESPAÑOLES, S.A. C/ Orense, 34 Oil Refining for 50% 8,529 8,529 11,262 10,066
(ASESA) 4ª Planta. 28020 obtaining asphalt
Madrid. SPAIN products
ATLAS, S.A. COMBUSTIBLES C/ Playa Benitez, s/n. Oil and gas trading 100% 3,930 3,930 11,071 4,077
Y LUBRIFICANTES 51004 Ceuta. SPAIN
C.M.D. AEROPUERTOS Polígono Industrial Jet fuel distribution 60% 21,576 21,576 14,543 12,946
CANARIOS, S.L. Valle de Güimar
Manzana XIV,
parcelas 17 y 18
38509 Güimar
Santa Cruz de Tenerife. SPAIN
CEPSA AVIACIÓN, S.A. ES. Comb. Aviac. Oil and gas transport 100% 954 954 24,417 956
Camino de San Lázaro, s/n
Zona ind. Aeropuerto Tenerife
Norte Los Rodeos. 38206
San Cristobal de la Laguna
Santa Cruz de Tenerife. SPAIN
CEPSA COLOMBIA, S.A. Avda. Ribera del Loira, nº 50. Research and 100% 12,055 12,055 360 11,277
28042 Madrid. SPAIN exploration
CEPSA COMERCIAL C/ Embajadores Final, s/n. Oil and gas trading 100% 1,169 1,169 1,242 2,419
MADRID, S.A. (CECOMASA) Apartadero Santa Catalina
28018 Madrid. SPAIN
CEPSA E. P., Avda. Ribera del Loira, nº 50. Research and 100% 3,438 3,438 23,142 16,136
SOCIEDAD ANONIMA 28042 Madrid. SPAIN exploration
CEPSA EGYPT SA, B.V Amsteldijk 166 6Th Floor. Research and 100% 8,910 8,910 -9,827 12,128
1079 LH Amsterdam. exploration
THE NETHERLANDS
CEPSA GAS Avda. Partenón nº 12. Gas sale and 35% 3,060 3,060 12,233 1,071
COMERCIALIZADORA, S.A. 28042 Madrid. SPAIN distribution
CEPSA GAS LICUADO, S.A. Avda. Ribera del Loira, nº 50 Gas sale and 100% 36,752 36,752 54,838 42,012
1ª planta. 28042 distribution
Madrid. SPAIN
CEPSA ESTACIONES DE Avda. Partenón, 12. 28042 Service station 100% 82,043 82,043 158,540 120,017
SERVICIO, S.A. (CEPSA EE.SS.) Madrid. SPAIN operation
CEPSA INTERNATIONAL B.V. Steegoversloot 64. 3311 Oil and gas 100% 4,060 4,060 23,532 15,210
PR Dordrecht. trading
THE NETHERLANDS
CEPSA ITALIA, S.p.A. Viale Milanofiori Palazzo Petrochemicals 100% 6,000 6,000 8,879 6,934
A/6. 20090 Assago- trading
Milán. ITALY
CEPSA LUBRICANTES, Avda. Ribera del Loira 50 Lubricant trading 100% 15,000 15,000 27,716 15,025
S.A. (C.L.S.A.) 3ª planta. 28042
Madrid. SPAIN
CEPSA MARINE FUELS, S.A. Avda. del Partenón nº 10 Oil and gas trading 100% 25,060 25,060 18,849 25,060
(Campo de las Naciones)
1ª planta. 28042 Madrid. SPAIN
Equity
Thousands of Euros
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NOTES TO FINANCIAL STATEMENTS
87
Registered Line of % of Share Capital Reserves & Net Cost of
Name Office Business Ownership Subscribed Paid Net Profit Investment
CEPSA OPERACIONES Avda. de Anaga, nº 21. 38001 Corporate services 100% 60 60 11,919 60
MARINA-AVIACIÓN, S.A. Santa Cruz de Tenerife for bunkering- aviation
Tenerife. SPAIN. and oil transport
CEPSA PERU, S.A. Avda. Partenón, 12. 28042. Research and 100% 1,000 1,000 -154 1,000
Madrid. SPAIN exploration
CEPSA PORTUGUESA . Avda. Columbano Bordalo Oil and gas trading 96% 27,500 27,500 14,846 37,201
PETROLEOS, S.A Pinheiro, 108 3º. 1070-067
Lisbon. PORTUGAL
CEPSA QUÍMICA, S.A. Avda. del Partenón nº 12-14. Corporate Services 100% 60 60 -438 60
28042 Madrid. SPAIN
CEPSA UK, LTD. Audrey House 16 - 20 Petrochemicals trading 100% 136 136 8,622 154
Ely Place. EC1N 6SN
London. UK
CEPSA, S.A. Avda. del Partenón, 12. Corporate Services 100% 61 61 121 61
28042 Madrid. SPAIN
COMPAÑÍA LOGÍSTICA DE C/ Méndez Álvaro, nº 44 Oil product distribution 14% 84,070 84,070 202,014 61,821
HIDROCARBUROS CLH, S.A. Edificio 9 planta baja
28045 Madrid. SPAIN
DERIVADOS ENERGÉTICOS Avda. Partenón, 12 1ª Oil product distribution 100% 12,330 12,330 26,538 12,328
PARA EL TRANSPORTE Sector A. 28042
Y LA INDUSTRIA, S.A. (DETISA) Madrid. SPAIN
ERTISA, S.A. Avda. del Partenón, nº 12 Production and sale 100% 13,005 13,005 125,904 17,173
28042 Madrid. SPAIN of petrochemicals
INTERCONTINENTAL Avda. Partenón, 12 2ª Production and sale 100% 25,865 25,865 207,413 50,111
QUIMICA, S.A. (INTERQUISA) Sector D. 28042 of petrochemicals
Madrid. SPAIN
LUBRICANTES DEL SUR, S.A. Avda. Ribera del Loira, nº 50 Lubricant trading 100% 6,102 6,102 22,184 24,610
(LUBRISUR) 2ª planta. 28042
Madrid. SPAIN
NUEVA GENERADORA Avda. San Luis, nº 77 . Power generation 50% 96,000 96,000 29,175 71,100
DEL SUR, S.A. Edificio C 4ª planta
28033 Madrid. SPAIN
PETROQUÍMICA ESPAÑOLA, Avda. Partenón, 12 5ª Production and sale 100% 3,750 3,750 251,662 12,847
S.A. (PETRESA) Sector A. 28042 of petrochemicals
Madrid. SPAIN
PETRÓLEOS DE CANARIAS, Explanada de Tomás Quevedo, Bunkering services 100% 120 120 25,922 120
S.A. (PETROCAN) s/n. 35008 Las Palmas
de Gran Canarias
Gran Canaria. SPAIN
PRODUCTOS ASFÁLTICOS, Avda. Ribera del Loira, nº 50 Asphalt product sales 100% 3,150 3,150 8,424 5,312
S.A. (PROAS) 2ª planta. 28042
Madrid. SPAIN
PROPEL-PRODUTOS . Avda. Columbano Bordalo Supply point management 93% 224 224 2,621 1,356
DE PETROLEO, L.D.A Pinheiro, 108-3º. 1070-067 services
Lisbon. PORTUGAL
Equity
Thousands of Euros
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CEPSA LEGAL DOCUMENTS88
MANAGEMENT DISCUSSION & ANALYSIS
of 2007 for Compañía Española de Petróleos, S.A., CEPSA
A review of the environment in which CEPSA conducted its operations, as well as an explanation of
the progress of the Company’s activities in its different segments, the risks associated with its
businesses, its financial position and its research & development work and initiatives, can all be
found in the Management Discussion & Analysis of the CEPSA Group.
Likewise, the description therein of key events that took place subsequent to the end of the year
and the Consolidated Group’s future prospects and outlook are fully applicable to the parent
company CEPSA.
RESULTS
In 2007, CEPSA’s revenues from product sales mainly on the domestic market amounted to �18,733
million (�16,391 million excluding the excise tax on oil and gas charged to sales), up �461 million from
the year before. The cost of crude oil and product purchases increased by a similar amount - �345
million – totaling �14,335 million in the year.
Income from ordinary activities came to ?925 million, evidencing a slight decline of 2% compared to
2006. Extraordinary results had a negative impact on the earnings statement of �46 million.
After deducting corporate tax and other tax-related expenses, net income stood at �612 million,
sliding 11% from the year before.
Based on CEPSA’s 2007 earnings, the Board of Directors will submit a proposal to the Annual
General Meeting of Shareholders to approve a dividend distribution of �1.25 per share, the same as
the dividend paid out on 2006’s earnings.
This proposed dividend entails a disbursement of �334.5 million, equivalent to a payout ratio of
approximately 52% of consolidated attributable income before non-recurring items. Out of this
total figure, an interim dividend of �0.55 per share was distributed in 2007.
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MANAGEMENT DISCUSSION & ANALYSIS
89
FINANCIAL AND EQUITY POSITION
At December 31, 2007, CEPSA’s total net assets amounted to �6,778 million, �3,163 million of which
belonged to the net book value of long-term assets. At this same date, shareholders’ equity stood
at �3,508 million, financing 52% of net assets.
TRANSITION TO NEW INTERNATIONAL FINANCIAL REPORTING STANDARDS
Royal Decree 1514/2007 was published on November 20, 2007, authorizing the new Chart of
Accounts in Spain, which became effective January 1, 2008, and whose application is mandatory for
successive fiscal years.
The Company has drawn up and is putting a transition plan into place to adapt its financial
statements to these new accounting standards. Some aspects of the new plan include the analysis
of differences in accounting criteria and principles and their selection, workforce training courses
and the evaluation of required changes and modifications in information procedures and systems.
This plan is in the execution phase although for the time being, the Company is unable to fully and
reliably estimate the impacts arising out of this transition.
TREASURY STOCK
CEPSA and its Group of companies did not directly or indirectly repurchase, nor did it own, shares
of Compañía Española de Petróleos, S.A. in 2007.
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CEPSA LEGAL DOCUMENTS90
OTHER INFORMATION
Pursuant to the provisions of the amended Securities Market Act 6/2007, the following additional
information which is required to be reported by listed companies in their management reports is
included herein, as follows:.
a) Share Capital Structure
At December 31, 2007, the fully issued and paid-up share capital of Compañía Española de Petróleos,
S.A. amounted to �267,574,941, divided into 267,574,941 ordinary bearer shares, with a par value of
one (1) euro each.
All CEPSA shares carry equal voting and dividend rights and trade on all four Spanish Stock
Exchanges in the Continuous Market.
At December 21, 2007, there were no outstanding capital increases or convertible bonds.
b) Restrictions on the Transferability of Shares
There are no legal or by-law restrictions for acquiring or transferring shareholdings in the Company,
except as otherwise provided for by law.
c) Significant Holdings in the Share Capital
At December 31, 2007, the direct and indirect holders of significant interests in the share capital of
Compañía Española de Petróleos, S.A. were as follows:
Number of voting rights
Corporate name of shareholder Direct Indirect Accumulated % shareholding
Total S.A. 0 130,668,180 130,668,180 48.83%
Banco Santander 76,832,401 7,849,886 84,682,287 31.65%
International Petroleum Investment Company (IPIC) 25,513,560 - 25,513,560 9.54%
Unión Fenosa S.A. 13,378,980 - 13,378,980 5.00%
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MANAGEMENT DISCUSSION & ANALYSIS
d) Restrictions on Voting Rights
There are no legal or by-law restrictions on voting rights, except as otherwise provided for by law.
Nevertheless, Article 23 of the Company Bylaws states that right of admission to the Annual
General Meeting, with the number of votes entitled to each shareholder is reserved to those
shareholders of record who can demonstrate ownership of a minimum of sixty (60) shares, at least
five (5) days prior to the scheduled date of the Annual General Meeting on first call.
e) Shareholder Agreements
Compañía Española de Petróleos, S.A. is unaware of the existence of any agreements or concerted
actions among its shareholders.
f.1) Applicable Standards Regarding the Appointment and Replacement of
Members of the Board of Directors
Directors are appointed, ratified, re-elected or removed from office by the Annual Meeting.
Without prejudice to what is set forth in laws in force regarding the appointment of Directors
according to the system of proportionality, significant shareholders propose nominees to serve on
the Board, with the Board of Directors having express powers to co-opt members onto the Board
whenever vacancies arise and to accept, where applicable, resignations tendered by Directors, as
provided for in current regulations and the Company Bylaws.
Directors shall resign from their duties on the Board whenever, upon completion of the period for
which they were appointed, they are not re-elected by the first General, whether Ordinary or
Extraordinary, Meeting following completion of such period or the legal period for holding the Annual
Meeting that is supposed to approve the financial statements of the previous year has elapsed, or
whenever the Annual Meeting so decides, using the powers granted to them by law or in the
Company Bylaws.
Likewise, pursuant to the provisions of the Rules and Regulations of the Board of Directors,
Directors must relinquish their seats to the Board and tender, if this body deems it advisable, the
corresponding resignation in the following cases:
• In the event that they resign from the executive position with which their appointment is connected.
• In the event that they are involved in any of the cases of incompatibility or prohibition legally
provided for.
• In the event that they are convicted for a criminal offense.
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CEPSA LEGAL DOCUMENTS
f.2) Applicable Standards Regarding the Amendment of the Company Bylaws
As provided for in Articles 20 and 21 of the Company Bylaws, the Ordinary or Extraordinary General
Meeting of Shareholders shall have broad powers to deliberate on and pass resolutions regarding
the amendment of said Bylaws.
However, to be able to lawfully make any amendment to such Bylaws, shareholders who hold at least
fifty (50) percent of the outstanding voting shares of the Company must be present in person or
represented by proxy at the Meeting, while twenty five (25) percent of this voting capital shall
suffice for the second call, in order for the Meeting to have a valid quorum to transact the
aforesaid business.
When attended by shareholders representing less than fifty (50) percent of the outstanding shares
of capital stock of the Company entitled to vote, the resolutions to which the preceding paragraph
refer may only be validly adopted with the affirmative vote of two-thirds of the capital present in
person or by proxy at the Meeting (Article 28 of the Bylaws).
For such purposes, the Company will abide by the system set out in the Corporations Act, in Article
114 and subsequent articles.
g)Powers Assigned to the Board of Directors
Powers delegated to the Chief Executive Officers of Compañía Española de Petróleos, S.A. include
those set forth in the Company Bylaws, as well as other powers delegated by the Board that may
be required to govern and represent the Company and to undertake transactions involving
ownership, management, negotiation and engagement. CEPSA’s current two Chief Executive
Officers act jointly and severally.
The resolutions of the Board of Directors shall be adopted by an absolute majority of Board members
in attendance at a meeting and in cases of a tie, the Chairperson shall have the casting vote.
The Board of Directors is expressly authorized, as resolved by the Annual General Meeting of
Shareholders held on June 23, 2006, to adopt a resolution to increase the Company’s share capital,
without prior consent from the Annual Meeting, by means of new cash contributions to
shareholders equity, in an amount not exceeding �133,787,471.
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MANAGEMENT DISCUSSION & ANALYSIS
The Board of Directors may use this authorization once or several times and in the manner and
amount it deems advisable, within a period of five (5) years starting from the aforementioned date
of June 23, 2006, and is required to report on the resolution or resolutions adopted in the first
Annual Meeting held thereafter. The Board is likewise authorized to nullify, where applicable, the
unsubscribed portion of the capital increase (s) resolved under this authorization.
The Annual General Meeting of Shareholders held on May 28, 2004, authorized the Board of
Directors to be able to issue, under the terms and conditions established for these purposes in
current legislation, fixed-yield securities that are not convertible into shares of the Company within
a maximum five-year period and up to the limit of �300 million.
No authorization has been granted by the Annual Meeting to the Board of Directors to acquire
treasury stock.
h)Significant Agreements Entered Into by the Company
There are no significant agreements that have been entered into by the Company and that may
become effective, be amended or finalize in the case of a change of control in the Company as a
result of a public takeover bid on shares.
i) Agreements Between the Company and its Directors, Executive Officers or
Employees Regarding Severance Payments
There are no clauses of this kind in effect for directors, executive officers or employees, including
executive directors, in the event of resignation, dismissal or changes in control as a result of a public
takeover bid. In the event of dismissal, they shall be entitled to the same severance payment system
that they would have had in the case of coming under the collective labor agreement.
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