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CEPSA Legal Documentsand Corporate Governance Report

Togetheralong the way

2009

CEPSA | CEPSA Legal Documents and Corporate Governance Report

Documentación Legaldel grupo CEPSA

Informe de Auditoría Externa . .58

Cuentas Anuales Consolidadas . . . . . . . . . . . . . . .60

Balances de Situación . . . . . . . .60

Cuentas de Pérdidas Y Ganancias . . . . . .62

Estados de Flujos de Efectivo . . . . . . . . . . . . . . . . .63

Estados de Cambios en el Patrimonio Neto . . . . . . . .64

Memoria . . . . . . . . . . . . . . . . . . .66

Informe de Gestión Consolidado . . . . . . . . .146

Legal Documents

Annual Corporate Governance Report

Report from Independent Auditors 4

Balance Sheets 6

Statements of Income 8

Statements of Changes in Equity 9

Cash Flow Statements 10

Notes to the Financial Statements 12

Management Discussion & Analysis 82

A- Ownership Structure 86

B- Corporate GovernanceStructure 91

C- Related-party transactions 108

D- Risk Control Systems 110

E- Shareholder Meetings 116

F- Level of Compliance withCorporate Governance Recommendation 120

G- Other information interest 134

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| CEPSA Legal Documents and Corporate Governance Report

Report from Independent AuditorsCompañía Española de Petróleos, S.A. (CEPSA)

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Cuentas Anuales | Informe Anual 2009 |

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Balance Sheetsat 31 December 2009 and 2008 (Notes 1, 2, 3 and 4)Compañía Española de Petróleos, S.A. (CEPSA)

ASSETS Notes 2009 2008(thousands of euros)

Non-current assets 4,494,523 4,252,911 Intangible assets (Note 5) 90,438 96,700 Property, plant and equipment (Note 6) 2,623,952 2,248,148

Land and buildings 38,807 35,928 Plant and machinery 1,454,405 1,437,313 Property, plant and equipment in the course of construction and advances 1,130,740 774,907

Investments in Group companies and associates 1,746,370 1,865,758 Equity instruments (Note 8) 1,270,126 1,272,124 Loans to third parties (Note 17) 476,236 593,623 Other financial assets (Note 17) 8 11

Non-current financial assets (Note 8) 9,655 10,614 Equity instruments 1,217 1,172 Loans to third parties 6,013 6,983 Other financial assets 2,425 2,459

Deferred tax assets (Note 14) 24,108 31,691

Current assets 3,691,569 3,110,611Inventories (Note 10) 992,991 882,589 Trade and other receivables (Note 2.e) 1,768,503 1,501,813 Current investments in Group companies and associates (Note 17) 536,226 476,563 Current financial assets (Note 8) 8,838 6,230 Current prepayments and accrued income 2,433 4,763 Cash and cash equivalents (Note 2.e) 382,578 238,653

Total assets 8,186,092 7,363,522

(The accompanying Notes 1 to 24 are an integral part of these balance sheets)

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CEPSA Legal Documents and Corporate Governance Report

(The accompanying Notes 1 to 24 are an integral part of these balance sheets)

SHAREHOLDERS' EQUITY AND LIABILITIES Notes 2009 2008(thousands of euros)

Shareholders' equity (Note 11) 4,145,684 3,997,851 Shareholders' equity 4,128,338 3,989,900

Registered share capital 267,575 267,575 Share premium 338,728 338,728 Reserves

Legal reserves 53,605 53,605 Other reserves 3,169,447 3,153,364

Profit for the year 406,013 283,658 Interim dividend (107,030) (107,030)

Grants, donations or gifts and legacies received 17,346 7,951 Non-current liabilities 1,248,217 1,053,261 Long-term provisions (Note 12) 45,376 46,763 Bank borrowings (Note 13) 1,044,305 807,780 Payable to Group companies and associates (Note 17) 31,884 31,730 Deferred tax liabilities (Note 14) 120,104 160,168 Non-current accruals and deferred income 6,548 6,820 Current liabilities 2,792,191 2,312,410 Short-term provisions (Note 12) 36,225 50,017 Bank borrowings (Note 13) 598,423 420,083 Payable to Group companies and associates (Note 17) 794,498 859,834 Trade and other payables (Note 2.e) 1,361,859 980,412 Current accruals and deferred income 1,186 2,064

Total shareholders' equity and liabilities 8,186,092 7,363,522

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Statements of Incomefor the years ended 31 December 2009 and 2008 (Notes 1, 2, 3 and 4)Compañía Española de Petróleos, S.A. (CEPSA)

CONTINUING OPERATIONS Notes 2009 2008(thousands of euros)

Revenue (Note 16) 14,127,848 20,251,089 Sales 13,681,024 19,684,587 Services 446,824 566,502

Changes in inventories of finished goods and work in progress (23,724) (187,228)In-house work on non-current assets 14,329 13,141 Procurements (Note 16) (10,107,355) (16,107,536)Other operating income 4,778 7,609

Non-core and other current operating income 2,953 7,399 Income-related grants transferred to profit or loss 1,825 210

Staff costs (Note 2.e) (210,003) (222,653)Other operating expenses (Note 2.e) (3,275,399) (3,412,302)Depreciation and amortisation charge (226,808) (216,675)Allocation to profit or loss of grants related to non-financial assets and other grants (Note 11) 49,265 77,694 Excessive provisions 1,146 - Impairment and gains or losses on disposals of non-current assets (12,860) (26,816)

Impairment and other losses (1,380) - Gains or losses on disposals and other (11,480) (26,816)

Other gains or losses (Note 16) (7,463) (5,479)Profit from operations 333,754 170,844

Finance Income 294,599 371,702 From investments in equity instruments 252,260 287,264

Group companies and associates (Note 8) 252,256 287,260 Third parties 4 4

From marketable securities and other financial instruments 31,086 74,297 Group companies and associates (Note 17) 18,786 60,863 Third parties 12,300 13,434

Capitalisation of finance costs 11,253 10,141 Finance Costs (28,704) (68,026)

On debts to Group companies and associates (Note 17) (10,411) (45,791)On debts to third parties (16,971) (20,151)Interest cost relating to provisions (1,322) (2,084)

Change in fair value of financial instruments (441) 2,504 Held-for-trading financial assets/liabilities and other (441) 2,504

Exchange losses (Note 15) 21,563 (57,160)Impairment and gains or losses on disposals of financial instruments (11,305) (674)

Impairment and other losses (16,276) (12,095)Gains or losses on disposals and other 4,971 11,421

Financial profit 275,712 248,346

Profit before tax 609,466 419,190 Income tax (Note 14) (12,379) 95,320 Other taxes (Note 14) (191,074) (230,852)Profit/loss for the year from continuing operations 406,013 283,658

Profit for the year 406,013 283,658

(The accompanying Notes 1 to 24 are an integral part of these income statements)


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(The accompanying Notes 1 to 24 are an integral part of this statement of changes in equity)

Statement of Changes in Equity for the years ended 31 December 2009 and 2008 Compañía Española de Petróleos, S.A. (CEPSA)

A) STATEMENT OF RECOGNISED INCOME AND EXPENSE 2009 2008(thousands of euros)

Profit/Loss per income statement 406,013 283,658

Income and expenses recognised directly in equityArising from cash flow hedges - 948 Grants, donations or gifts and legacies received 62,687 85,571 Tax effect (18,806) (25,957)Total income and expenses recognised directly in equity 43,881 60,562

Transfers to profit or loss Arising from cash flow hedges - (7,426)Grants, donations or gifts and legacies received (49,265) (77,694)Tax effect 14,779 25,537 Total transfers to profit or loss (34,486) (59,583)

Total statement of recognised income and expense 415,408 284,637

B) STATEMENT OF TOTAL CHANGES IN EQUITY(thousands of euros)

Grants,Donations

Share Capital Share Profit for (Interim Valuation or Gifts andRegistered Premium Reserves the year Dividend) Adjustm. Legacies Received Total

Begining balance 2008 267,575 338,728 2,819,111 722,326 (147,166) 4,535 2,437 4,007,546 Total recognised income and expense - - - 283,658 - (4,535) 5,514 284,637 Transactions with shareholders or owners - - - (334,468) 40,136 - - (294,332)( - ) Dividends paid - - - (334,468) 40,136 - - (294,332)Other changes in equity - - 387,858 (387,858) - - - -

Ending balance 2008 267,575 338,728 3,206,969 283,658 (107,030) - 7,951 3,997,851

Begining balance 2009 267,575 338,728 3,206,969 283,658 (107,030) - 7,951 3,997,851 Total recognised income and expense - - - 406,013 - - 9,395 415,408 Transactions with shareholders or owners - - - (267,575) - - - (267,575)( - ) Dividends paid - - - (267,575) - - - (267,575)Other changes in equity - - 16,083 (16,083) - - - -

Ending balance 2009 267,575 338,728 3,223,052 406,013 (107,030) - 17,346 4,145,684

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Statement of Cash Flows for the years ended 31 December 2009 and 2008Compañía Española de Petróleos, S.A. (CEPSA)

CASH FLOWS FROM OPERATING ACTIVITIES 2009 2008(thousands of euros)

Profit/Loss for the year before tax 609,466 419,190

Adjustments for (560,716) 494,900 Depreciation and amortisation charge 226,808 216,675 Impairment losses 17,656 34,935 Changes in provisions (475,012) 478,493 Recognition of grants in prof it or loss (49,265) (1,504)Gains/Losses on derecognition and disposal of non-current assets 11,480 643 Gains/Losses on derecognition and disposal of f inancial instruments (4,971) (11,421)Finance income (294,599) (354,053)Finance costs 27,382 70,708 Exchange dif ferences (20,374) 54,863 Changes in fair value of financial instruments (+/-) 451 - Other income and expenses (272) 5,561 Changes in working capital 708,900 466,832 Inventories 402,521 (66,275)Trade and other receivables (246,229) 885,277 Other current assets 70,646 838,918 Trade and other payables 402,629 (728,785)Other current liabilities 79,333 (462,303)Other cash flows from operating activities 23,320 (21,439)Interest paid (16,623) (68,482)Dividends received 264,260 275,264 Interest received 28,779 66,418 Income tax recovered (paid) (254,781) (294,639)Other payments (proceeds) (-/+) 1,685 -

Cash flows from operating activities 780,970 1,359,483

(The accompanying Notes 1 to 24 are an integral part of this statement of cash flows)


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CASH FLOWS FROM INVESTING ACTIVITIES 2009 2008(thousands of euros)

Payments due to investment (710,029) (1,811,040)Group companies and associates (61,388) (1,274,711)Intangible assets (7,525) (4,945)Property, plant and equipment (640,119) (530,787)Other f inancial assets (997) (597)Proceeds from disposal 5,477 62,682 Group companies and associates 3,951 62,274 Intangible assets 481 - Property, plant and equipment 744 288 Other f inancial assets 301 120 Cash flows from investing activities (704,552) (1,748,358)

CASH FLOWS FROM FINANCING ACTIVITIES 2009 2008(thousands of euros)

Proceeds and payments relating to equity instruments 6,325 235 Grants, donations or gifts and legacies received 6,325 235 Proceeds and payments relating to financial liability instruments 331,109 899,277 Issue of:

Bank borrowings 491,025 910,425 Borrowings from Group companies and associates - 1,408 Other borrowings - 11,705

Repayment of:Bank borrowings (159,916) (24,215)Other borrowings - (46)

Dividends and returns on other equity instruments paid (269,973) (291,934)Dividends (269,973) (291,934)Returns on other f inancial instruments (-) - -

Cash flows from financing activities 67,461 607,578

Effect of exchange rate changes 46 -

Net increase/decrease in cash and cash equivalents 143,925 218,703

Cash and cash equivalents at beginning of year 238,653 19,950 Cash and cash equivalents at end of year 382,578 238,653

(The accompanying Notes 1 to 24 are an integral part of this statement of cash flows)

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Notes to the Financial Statements for the years ended for the years ended 31 December 2009 and 2008.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 lasNaciones), Madrid, was incorporated for an unlimited period of time on 26 September 1929, and is registered in theMadrid Mercantile Register in Volume 206 of the Companies book, sheet 100, page 6045. Its employer identificationnumber is A-28003119.

CEPSA’s company object is basically to carry on in Spain and abroad all manner of activities relating to solid, liquid andgaseous hydrocarbons.

The Company is the head of a group of subsidiaries and is obliged under current legislation to prepare consolidatedfinancial statements separately. The consolidated financial statements of the CEPSA Group for 2009 were formallyprepared by the directors at the Board of Directors’ Meeting held on 25 February 2010. The consolidated financialstatements for 2008 were approved by the shareholders at CEPSA’s Annual General Meeting held on 26 June 2009 andwere filed at the Madrid Mercantile Registry.

The accompanying financial statements do not reflect the changes in value of the Company’s ownership interests in theaforementioned subsidiaries, that would arise from the application of consolidation principles in accordance withInternational Financial Reporting Standards (EU-IFRSs). The main aggregates of these consolidated financialstatements are as follows (thousands of Euros):

ASSETS 2009 2008

Non-current assets 5,707,341 5,545,539Current assets 4,639,891 4,105,507

Total assets 10,347,232 9,650,866

LIABILITIES 2009 2008

Shareholder equity 5,352,792 5,205,072Non-current liabilities 1,732,703 1,730,151Current liabilities 3,261,737 2,715,643

Total liabilities 10,347,232 9,650,866

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2. BASIS OF PRESENTATION OF THE FINANCIAL STATEMENTS

a) Fair presentation

The accompanying financial statements, which were prepared from the Company’s accounting records, are presentedin accordance with the Spanish National Chart of Accounts approved by Royal Decree 1514/2007 and, accordingly, presentfairly the Company’s equity, financial position, results of operations and cash flows for the related year. These financialstatements are presented in thousand of euros (unless stated otherwise).

These financial statements, which were formally prepared by the Company’s directors, will be submitted for approvalby the shareholders at the Annual General Meeting, and it is considered that they will be approved without any changes.The financial statements for 2008 were approved by the shareholders at the Annual General Meeting held on 26 June2009.

b) Non-obligatory accounting principles applied

No non-obligatory accounting principles were applied. Also, the directors formally prepared these financial statementsby taking into account all the obligatory accounting principles and standards with a significant effect thereon. Allobligatory accounting principles were applied.

c) Key issues in relation to the measurement and estimation of uncertainty

In preparing the accompanying financial statements estimates were made by the Company’s directors in order tomeasure certain of the assets, liabilities, income, expenses and obligations reported herein. These estimates relatebasically to the following:

- The assessment of possible impairment losses on certain assets (see Note 4-c).

- The assumptions used in the actuarial calculation of pension and other obligations to employees (see Note 4-n).

- The useful life of property, plant and equipment and intangible assets (see Notes 4-a and 4-b).

- The fair value of certain financial instruments (see Note 4-f).

- The calculation of provisions (see Note 4-k).

- The calculation of Income Tax (see Note 4-i).

- The calculation of exploitable crude oil reserves in the Exploration and Production areas.

Although these estimates were made on the basis of the best information available at 2009 year-end, events that takeplace in the future might make it necessary to change these estimates (upwards or downwards) in coming years.Changes in accounting estimates would be applied prospectively.

d) Comparative information

The information relating to 2008 included in these notes to the financial statements is presented for comparisonpurposes with that relating to 2009.

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e) Grouping of items

Certain items in the balance sheet, income statement, statement of changes in equity and statement of cash flows aregrouped together to facilitate their understanding; however, whenever the amounts involved are material, theinformation is broken down in the related notes to the financial statements.

The balances of “Trade and Other Accounts Receivable”, “Cash and Cash Equivalents” and “Trade and Other Payables”in the accompanying balance sheets at 31 December 2009 and 2008 consist of the items detailed below (thousands ofEuros):

Current Assets 2009 2008(Trade and other receivables)

Trade receivables for sales and services 601,231 557,812 Receivables from Group companies (Note 17) 1,095,520 820,030 Receivables from associates (Note 17) 51,625 64,027 Sundry accounts receivable 9,627 9,924 Employee receivables 1,458 1,438 Current tax assets (Note 14) 7,843 46,406 Other receivables from public authorities 1,199 2,176 Total 1,768,503 1,501,813

Current Assets 2009 2008(Cash and cash equivalents)

Cash 23,175 4,506 Cash equivalents 359,403 234,147 Total 382,578 238,653

Current Liabilities 2009 2008(Trade and other payables)

Payable to suppliers 335,934 181,170 Payable to Group companies (Note 17) 539,847 329,418 Payable to associates (Note 17) 203,042 192,645 Sundry accounts payable 148,775 173,160 Staff costs 8,159 11,025 Current tax liability (Note 14) 15,290 1,574 Other payables to public authorities 109,076 90,668 Advances received on orders 1,736 752 Total 1,361,859 980,412


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The detail of the balances of "Staff Costs" and "Other Operating Expenses" in the accompanying 2009 and 2008 income state-ments is as follows (thousands of euros):

Staff costs 2009 2008

Wages, salaries and similar expenses 166,488 170,311 Pension contributions and provisions to pension allowances (Note 16) 43,515 52,342 Total 210,003 222,653

Other Operating Expenses 2009 2008

External Services 919,573 1,031,704 Taxes other than income tax 2,305,341 2,308,978 Losses, impairment and change in operating allowances 4,183 10,188 Other current operating expenses 46,302 61,432 Total 3,275,399 3,412,302

In compliance with the Spanish Accounting and Audit Institute (ICAC) Resolution of 25 March 2002, approving the regulations forthe recognition, valuation and reporting of environmental matters in the financial statements, a breakdown is given of the environ-mental expenses for 2009 and 2008 included under "Other Current Operating Expenses" (see Notes 4-m and 18).

f) Changes in accounting policies and correction of errors

In 2009 there were no significant changes in the accounting policies used with respect to the policies used in 2008.

g) Correction of errors

In preparing the accompanying financial statements no significant errors were detected that would have made it necessary to re-state the amounts included in the financial statements for 2008.

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3. DISTRIBUTION OF PROFIT

The proposed distribution of 2009 profit that the Board of Directors will submit for approval by the shareholders at the AnnualGeneral Meeting is as follows (thousands of Euros):

Distributable profit

Profit for the year 406,013 Total 406,013

Distribution

Dividends 214,060 Equity interim dividends(1) 107,030 Complementary dividends(2) 107,030

To voluntary reserves 191,953 Total distributed 406,013

(1) 0.40 per share was paid from 14 December 2009(2) 0.40 per share

Of the amount of dividends, interim dividends totalling EUR 107,030 thousand were already paid in 2009, and this amountis recognised under “Equity – Interim Dividend” in the accompanying balance sheet.

This dividend was approved by the Board of Directors on 25 November 2009, on the basis of the accounting statementat 31 October 2009 (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 (thousands ofeuros):

ASSETS Accounting statement at 31.10.09

Non-current assets 3,994,590 Intangible assets 104,019 Property, plant and equipment 2,572,890 Investments in Group companies and associates 1,282,415 Total non-current financial assets 10,797 Deferred tax assets 24,469

Current assets 3,995,745 Inventories 1,118,979 Trade and other receivables 1,674,776 Current investments in Group companies and associates 982,880 Current financial assets 3,248 Current prepayments and accrued income 3,887 Cash and cash equivalents 211,975

Total assets 7,990,335


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SHAREHOLDERS' EQUITY AND LIABILITIES Accounting statement at 31.10.09

Shareholders' equity 4,236,623 Shareholders' equity

Capital and reserves 3,829,355 Prof it/loss for the year 383,603

Grants, donations or gifts and legacies received 23,665

Non-current liabilities 1,105,396 Long-term provisions 46,233 Bank borrow ings 703,901 Payable to Group companies and associates 231,958 Deferred tax liabilities 116,710 Non-current accruals and deferred income 6,594

Current liabilities 2,648,316 Short-term provisions 39,248 Bank borrowings 435,407 Payable to Group companies and associates 854,362 Trade and other payables 1,314,912 Current accruals and deferred income 4,387

Total shareholders' equity and liabilities 7,990,335

The profit for the period after income tax shown in the foregoing accounting statement is the Company’s distributablenet profit at 31 October 2009. At that date the mandatory legal reserve was at the required level, working capital, i.e. thedifference between current assets and current liabilities (eliminating short-term provisions and current accruals anddeferred income), amounted to EUR 1,387,177 thousand, and the Company had unused credit facilities amounting to EUR597,536 thousand. The undrawn balances did not bear interest.

4. ACCOUNTING POLICIES AND MEASUREMENT BASES

The principal accounting policies and measurement bases used by CEPSA in the preparation of its financial statementsfor 2009 and 2008, prepared in accordance with the Spanish National Chart of Accounts, were as follows:

a) Intangible assets

As a general rule, intangible assets are recognised initially at acquisition or production cost and are subsequentlymeasured at cost less any accumulated amortisation and any accumulated impairment losses. These assets areamortised over their years of useful life (see Notes 4-c and 5).

a.1) Research and development expenditure:

CEPSA recognises research expenditure as an expense in the year in which it is incurred. Development expenditure iscapitalised if the following conditions are met:

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- It is specifically itemised by project and the related costs can be clearly identified

- There are sound reasons to foresee the technical success and economic and commercial profitability of the relatedprojects

Assets thus generated are amortised on a straight-line basis over their years of useful life (over a maximum period offive years). If there are doubts as to the technical success or economic profitability of the related project, the amountscapitalised are recognised directly in profit or loss.

a.2) Intellectual property

Under this account the amounts paid for the acquisition of title to or the right to use the related items, or for theexpenses incurred in registration of the rights developed by the Company are recognised. These amounts are amortisedat the same rates as those used to depreciate the industrial units to which they relate.

CEPSA owns the registered trademarks and industrial designs with which it performs a portion of its trade transactions.Based on an analysis of all the relevant factors, Company management considers that there is no foreseeable limit tothe period over which this trademark is expected to generate net cash inflows for the Company and, therefore, thetrademark was classified as an intangible asset with an indefinite useful life. Accordingly, it is not amortised, but ratherit is tested for impairment using the methodology described below. This indefinite useful life classification is reviewedat each reporting date and is consistent with the Company’s related business plans.

a.3) Computer software

CEPSA recognises under “Computer Software” the costs incurred in the acquisition and development of computerprograms. Computer software maintenance costs are recognised with a charge to the income statement for the yearin which they are incurred. Computer software is amortised on a straight-line basis over a maximum of three years.

a.4) Other assets

Surface rights are amortised over average periods of twenty years, in accordance with the agreements executed for thistype of operations. Other intangible assets are amortised on a straight-line basis over a maximum of three years.

The accounting policies applied to greenhouse gas emission rights are detailed in Note 4-r.

b) Property, plant and equipment

b.1) Exploration and production assets

Investments in exploration and production are recognised by the “successful efforts” method, whereby the accountingtreatment of the various costs incurred is as follows:

Exploration costs and investments in areas with unproven reserves

Exploration costs are charged to income as incurred. Acquisitions of exploration rights are capitalised and feasibilityanalyses and impairment tests, if any, are performed periodically on a field-by-field basis based on the results ofexploration (see Note 4-c). Exploration rights are amortised over a period not exceeding the term of the contract. In thecase of the discovery of proven reserves, the carrying amount is transferred to “Investments in Areas with ProvenReserves”.


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Drilling costs are capitalised temporarily until it is determined whether proven reserves have been discovered, in whichcase they are transferred to “Investments in Areas with Proven Reserves”. Conversely, if the results are negative, therelated costs are charged to income.

Investments in areas with proven reserves

Investments relating to the acquisition of proven reserves, the development of fields and the construction of productionplants, as well as the estimated present value of abandonment costs, are capitalised and depreciated over the estimatedlife of the field based on the proven and recoverable reserves extracted (unit-of-production method) at the beginningof each year.

With respect to joint production contracts, this calculation is based on the proportion of production and reservesassigned to the Company taking account of the estimates based on the contractual clauses.

Impairment tests are performed periodically for each field and any impairment losses are recognised in the incomestatement (see Note 4-c).

b.2) Other items of property, plant and equipment

Property, plant and equipment are initially recognised at acquisition or production cost and are subsequently reducedby the related accumulated depreciation and by any impairment losses recognised, as indicated in Notes 4-c and 6.

Property, plant and equipment upkeep and maintenance expenses are recognised in the income statement for the yearin which they are incurred. However, the costs of improvements leading to increased capacity or efficiency or to alengthening of the useful lives of the assets are capitalised.

For non-current assets that necessarily take a period of more than twelve months to get ready for their intended use,the capitalised costs include such borrowing costs as might have been incurred before the assets are ready for theirintended use and which have been charged by the supplier or relate to loans or other specific-purpose or general-purpose borrowings directly attributable to the acquisition or production of the assets.

In connection with the administrative concessions granted to CEPSA by the Spanish government for various uses,entailing obligations of dismantling or restoration, the Company does not expect to incur costs of any kind since itanticipates renewing all the concessions upon their expiry (see Note 6).

In-house work on non-current assets is measured at accumulated external costs plus in-house costs, determined onthe basis of in-house materials consumption, direct labour and general manufacturing costs calculated usingabsorption rates similar to those used for the measurement of inventories.

Assets acquired before 31 December 1996, are measured at cost, revalued and adjusted, where appropriate, pursuantto the related legislation.

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CEPSA depreciates its property, plant and equipment using the straight-line method, at annual depreciation ratesbased on the years of estimated useful life of the related items, as follows:

Depreciation of property, plant and equipment Years of useful life

Buildings and other structures 33 a 50Plant and machinery

Machinery, installations and fixtures 10 a 15Furniture 10

Specialised complex installationsUnits 12 a 15Lines and networks 15 Tanks and spheres 20

Other items of property, plant and equipment 4 a 10

c) Impairment of assets

At the reporting date (in the case of goodwill or intangible assets with an undefined useful life), or whenever there isany indication of impairment (in the case of other assets), CEPSA performs impairment tests to assess whether thereis any indication of impairment that reduces the recoverable amount of such assets to below their carrying amount (seeNotes 4-a and 4-b).

Recoverable amount is the higher of fair value less costs to sell and value in use. The recoverable amounts arecalculated for each cashgenerating unit, although in the case of property, plant and equipment, wherever possible, theimpairment tests are performed individually for each asset.

Each year a business plan by market and line of business, generally covering a period of several years, is prepared foreach cash-generating unit. The main components of this plan are earnings projections and investment and workingcapital projections. Other variables affecting the calculation of the recoverable amount are the discount rate to be usedand the cash flow growth rate used to extrapolate the cash flow projections.

The projections are prepared on the basis of past experience and of the best estimates available, which are consistentwith the information obtained from external sources.

The business plans thus prepared are reviewed and ultimately approved by the Executive Committee/Board of Directors.

If an impairment loss has to be recognised for a cash-generating unit to which all or part of an item of goodwill hasbeen allocated, the carrying amount of the goodwill relating to that unit is written down first. If the loss exceeds thecarrying amount of this goodwill, the carrying amount of the other assets of the cash-generating unit is then reduced,on the basis of their carrying amount, down to the limit of the highest of the following values: fair value less costs tosell; value in use; and zero. Impairment losses are recognised as an expense under “Impairment and Gains or Losseson Disposals of Non-Current Assets” in the income statement.


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When an impairment loss subsequently reverses (not permitted in the specific case of goodwill), the carrying amountof the asset or cashgenerating unit is increased to the revised estimate of its recoverable amount, but so that theincreased carrying amount does not exceed the carrying amount that would have been determined had no impairmentloss been recognised in prior years. A reversal of an impairment loss is recognised as income.

d) Leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks andrewards incidental to ownership of the leased asset to the lessee. All other leases are classified as operating leases(see Note 7).

d.1) Finance leases

In finance leases in which the Company acts as the lessee, the cost of the leased assets is presented in the balancesheet, based on the nature of the leased asset, and, simultaneously, a liability is recognised for the same amount. Thisamount will be the lower of the fair value of the leased asset and the present value, at the inception of the lease, of theagreed minimum lease payments, including the price of the purchase option, when it is reasonably certain that it willbe exercised. The minimum lease payments do not include contingent rent, costs for services and taxes to be paid byand reimbursed to the lessor. The total finance charges arising under the lease are allocated to the income statementfor the year in which they are incurred using the effective interest method. Contingent rent is recognised as an expensefor the period in which it is incurred.

Leased assets are depreciated, based on their nature, using similar criteria to those applied to the items of property,plant and equipment that are owned.

d.2) Operating leases

Expenses resulting from operating leases are charged to income in the year in which they are incurred.

Any collection or payment that might be made when arranging an operating lease will be treated as a prepaid leasecollection or payment which will be allocated to profit or loss over the lease term in accordance with the time patternin which the benefits of the leased asset are provided or received.

e) Asset exchange transactions

“Asset Exchange” means the acquisition of property, plant and equipment or intangible assets in exchange for thedelivery of other nonmonetary assets or a combination of monetary and non-monetary assets.

As a general rule, the asset received in an asset exchange transaction with commercial substance is recognised at thefair value of the asset given up, plus, where appropriate, any monetary consideration paid. The valuation differences thatarise on derecognition of the asset given up in the exchange are recognised in the income statement.

Assets received in an exchange that lacks commercial substance are recognised at the carrying amount of the assetgiven up plus, where appropriate, any monetary consideration paid, up to the limit of the fair value of the asset receivedif this is lower.

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f) Financial instruments

f.1) Financial assets

The financial assets held by CEPSA are classified in the following categories:

- Loans and receivables: financial assets arising from the sale of goods or the rendering of services in the ordinarycourse of the Company’s business, or financial assets which, not having commercial substance, are not equityinstruments or derivatives, have fixed or determinable payments and are not traded in an active market.

- Held-for-trading financial assets: assets acquired with the intention of selling them in the near term and assets thatform part of a portfolio for which there is evidence of a recent actual pattern of short-term profit-taking. Thiscategory also includes financial derivatives that are not financial guarantees (e.g. suretyships) and that have not beendesignated as hedging instruments. (See Note 4.f.3)

- Equity investments in Group companies, associates and jointly controlled entities: Group companies are deemed tobe those related to the Company as a result of a relationship of control and associates are companies over whichthe Company exercises significant influence. Jointly controlled entities include companies over which, by virtue ofan agreement, the Company exercises joint control with one or more other venturers.

- Available-for-sale financial assets: these include debt securities and equity instruments of other companies thatare not classified any of the aforementioned categories.

Initial recognition

Financial assets are initially recognised at the fair value of the consideration given, plus any directly attributabletransaction costs.

Subsequent measurement

- Loans and receivables are measured at amortised cost net of any impairment losses.

- Held-for-trading financial assets and those classified as at fair value through profit or loss are measured at fair valueand the gains and losses arising from changes in fair value are recognised in the net profit or loss for the year.

- Investments in Group companies and associates and interests in jointly controlled entities are measured at cost net,where appropriate, of any accumulated impairment losses. These losses are calculated as the difference betweenthe carrying amount of the investments and their recoverable amount. Recoverable amount is the higher of fairvalue less costs to sell and the present value of the future cash flows from the investment. Unless there is betterevidence of the recoverable amount, it is based on the value of the equity of the investee, adjusted by the amount ofthe unrealised gains existing at the date of measurement (including any goodwill).

- Available-for-sale financial assets are measured at fair value and the gains and losses arising from changes in fairvalue are recognised in equity until the asset is disposed of or it is determined that it has become (permanently)impaired, at which time the cumulative gains or losses previously recognised in equity are recognised in the net profit


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or loss for the year. In this regard, impairment is deemed to exist (permanent) if the market value of the asset hasfallen by more than 40% over a period of 18 months without the value having recovered.

At least at each reporting date CEPSA tests financial assets not measured at fair value through profit or loss forimpairment. Objective evidence of impairment is considered to exist when the recoverable amount of the financial assetis lower than its carrying amount. When this occurs, the appropriate write-down is recognised in the income statement.

As regards the valuation adjustments of trade and other receivables, CEPSA recognises a write-down when thereceivable is over six months past-due or when the Company’s Legal Advisory Department takes legal action in orderto obtain collection settlement.

CEPSA derecognises a financial asset when it expires or when the rights to the cash flows from the financial assethave been transferred and substantially all the risks and rewards of ownership of the financial asset have beentransferred, such as in the case of firm asset sales, factoring of trade receivables in which the Company does not retainany credit or interest rate risk.

However, the CEPSA does not derecognise financial assets, and recognises a financial liability for an amount equal tothe consideration received, in transfers of financial assets in which substantially all the risks and rewards of ownershipare retained, such as in the case of bill discounting and with-recourse factoring.

f.2) Financial liabilities

Financial liabilities include accounts payable by the CEPSA that have arisen from the purchase of goods or services inthe normal course of the business and those which, not having commercial substance cannot be classed as derivativefinancial instruments.

Accounts payable are initially recognised at the fair value of the consideration received, adjusted by the directlyattributable transaction costs. These liabilities are subsequently measured at amortised cost.

CEPSA derecognises financial liabilities when the obligations giving rise to them cease to exist.

f.3) Derivative financial instruments

CEPSA uses hedging instruments and derivatives, including most notably futures contracts with crude oil andproduct brokers, to hedge the price risks arising from the monthly purchases and sales of oil-based products. Thetransaction limits and the defined hedging instruments have been approved by Company management and themonitoring process respects the separation of the performance and control functions.

For foreign currency and interest rate risks, the transaction limits and products arranged (basically forward currencytransactions and interest rate swaps) have also been approved by Company management and the monitoringprocess respects the separation of the performance and control functions (see Notes 9, 13 and 22).

All derivatives, irrespective of whether or not they have been designated as hedging instruments, are recognised inthe accompanying balance sheets at their fair value.

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The fair value of derivative instruments is calculated using price quotations. Where there are no price quotations thecash flows are discounted using the applicable yield curve of the underlyings for the term of the derivatives andoption pricing models for derivative options.

Foreign currency hedge contracts are measured using the price quotations for foreign currency hedges and theunderlying yield rates calculated on the basis of the related interest rates at contract expiry.

The changes in the fair value of these derivative instruments are recognised through profit or loss (See Note 22).

g) Inventories

Inventories are measured at the lower of acquisition or production cost and net realisable value. Trade discounts,rebates, other similar items and interest included in the face value of the related payables are deducted in determiningthe costs of purchase.

Production cost includes the costs of direct materials and, where applicable, direct labour and production overheads.

Net realisable value is the estimated selling price less the estimated costs of completion and costs to be incurred inmarketing, selling and distribution.

The cost of inventories is assigned by using the weighted average cost formula.

The Company recognises the appropriate write-downs as an expense in the income statement when the net realisablevalue of the inventories is lower than acquisition or production cost.

In the case of refined products, the costs incurred are allocated in proportion to the selling price of the related products(isomargin method), due to the complexity of allocating production costs to each item.

h) Foreign currency transactions

CEPSA’s functional currency is the euro. Transactions in currencies other than the euro are deemed to be “foreigncurrency transactions” and are recognised by applying the exchange rates prevailing at the transaction date and theexchange differences arising at the date of settlement of the transactions are charged or credited, as appropriate, toincome.

Monetary assets and liabilities denominated in foreign currencies are recognised at each year-end in euros at theexchange rates then prevailing or at the hedged exchange rates, if any. Any resulting gains or losses are recogniseddirectly in the income statement in the year in which they arise.

i) Income tax

Tax expense (tax income) comprises current tax expense (current tax income) and deferred tax expense (deferred taxincome).


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The current income tax expense is the amount payable by the Company as a result of income tax settlements for agiven year. Tax credits and other tax benefits, excluding tax withholdings and pre-payments, and tax loss carryforwardsfrom prior years effectively offset in the current year reduce the current income tax expense.

The deferred tax expense or income relates to the recognition and derecognition of deferred tax assets and liabilities.These include temporary differences measured at the amount expected to be payable or recoverable on differencesbetween the carrying amounts of assets and liabilities and their tax bases, and tax loss and tax credit carryforwards.These amounts are measured at the tax rates that are expected to apply in the period when the asset is realised or theliability is settled.

Deferred tax liabilities are recognised for all taxable temporary differences, except for those arising from the initialrecognition of goodwill or of other assets and liabilities in a transaction that is not a business combination and affectsneither accounting profit (loss) nor taxable profit (tax loss), and except for those associated with investments insubsidiaries, associates and joint ventures in which the Company is able to control the timing of the reversal of thetemporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax assets, on the other hand, are only recognised to the extent that it is considered probable that the Companywill have sufficient taxable profits in the future against which it will be possible to recover them.

Deferred tax assets and liabilities arising from transactions charged or credited directly to equity are also recogniseddirectly in equity.

At each accounting close the deferred tax assets recognised are reviewed and appropriate adjustments are made wherethere are doubts as to their future recoverability. Likewise, at each accounting close the deferred tax assets that havenot been recognised in the balance sheet are assessed and are recognised to the extent that their recovery againstfuture taxable profits has become probable.

Pursuant to Additional Provision 28th of the Consolidated Corporation Tax Law, the tax effect arising from charges andcredits to reserve accounts treated as expenses or income, as a result of first application of the 2007 Spanish NationalChart of Accounts, was included at a third of the amount thereof (EUR 443,510 thousand) in taxable profit for 2008 and2009 income tax purposes. The remaining two thirds (EUR 221,755 thousand) will be included in taxable profit in the 2010income tax returns (see Note 14).

j) Revenue and expense recognition

Revenue and expenses are recognised on an accrual basis, i.e. when the actual flow of the related goods and servicesoccurs, regardless of when the resulting monetary or financial flow arises. Revenue is measured at the fair value of theconsideration received, net of discounts and taxes.

Revenue from sales is recognised when the significant risks and rewards of ownership of the goods sold have beentransferred to the buyer, and the Company neither continues to manage the goods nor retains effective control overthem.

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“Net Revenue” does not include the value of exchanges of strategic stocks arranged with other operators.

In accordance with the legislation applicable to companies operating in the oil and gas industry, the excise tax on oiland gas sales is recognised as part of the selling price and as an addition to cost under “Revenue” and “Other OperatingExpenses”, respectively, in the consolidated income statement.

Revenue from the rendering of services is recognised by reference to the stage of completion of the transaction at theend of the reporting period, provided the outcome of the transaction can be estimated reliably.

Interest income from financial assets is recognised using the effective interest method and dividend income isrecognised when the shareholder's right to receive payment has been established. Interest and dividends from financialassets accrued after the date of acquisition are recognised as income.

k) Provisions and contingencies

When preparing the financial statements the Company’s directors made a distinction between:

- Provisions: credit balances covering present obligations arising from past events with respect to which it is probablethat an outflow of resources embodying economic benefits that is uncertain as to its amount and/or timing will berequired to settle the obligations.

- Contingent liabilities: possible obligations that arise from past events and whose existence will be confirmed onlyby the occurrence or non-occurrence of one or more future events not wholly within the Company’s control.

The financial statements include all the provisions with respect to which it is considered that it is more likely than notthat the obligation will have to be settled. Contingent liabilities are not recognised in the financial statements, butrather are disclosed, unless the possibility of an outflow in settlement is considered to be remote.

Provisions are measured at the present value of the best possible estimate of the amount required to settle or transferthe obligation, taking into account the information available on the event and its consequences. Where discounting isused, adjustments made to provisions are recognised as interest cost on an accrual basis.

The compensation to be received from a third party on settlement of the obligation is recognised as an asset, providedthat there are no doubts that the reimbursement will take place, unless there is a legal relationship whereby a portionof the risk has been externalised as a result of which the Company is not liable; in this situation, the compensation willbe taken into account for the purpose of estimating the amount of the related provision that should be recognised.

l) Termination benefits

Under current legislation, CEPSA is required to pay termination benefits to employees terminated under certainconditions. Therefore, termination benefits that can be reasonably quantified are recognised as an expense in the yearin which the decision to terminate the employment relationship is taken. The accompanying financial statements do notinclude any provision in this connection, since no situations of this nature are expected to arise.


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m) Information on the environment

Per the Resolution dated 25 March 2002 of the Spanish Accounting and Audit Institute (ICAC), environmental investmentsare defined as investments included in the Company's assets for use in its business on a lasting basis which are mainlyfor the purpose of minimising the impact on the environment and protecting and improving the environment, includingthe reduction or elimination of pollution in the future caused by the operations performed by the Company.

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 actionsto remedy the risk of gradual soil pollution, with a charge to “Other Operating Expenses” in the income statements.These provisions are quantified on the basis of in-house estimates and technical studies. Also, CEPSA has taken outinsurance policies to cover the third party liability that might arise from sudden accidental pollution and gradualsubsequent pollution (see Note 18).

n) Pension and similar obligations

CEPSA has the following pension obligations to employees and their beneficiaries:

Long-term defined contribution benefits

- Pension obligations funded by the occupational pension plans assigned to the CEPSA Group, Pensions Fund. Thesepension plans entitle participants to receive benefits for retirement or, where appropriate, for death or disability, asspecified in the plans. The plans take the form of hybrid plans and combine defined contribution plans, which coverretirement - whereby the sponsor makes periodic contributions-, and defined benefit plans which cover benefits fordeath or disability through an annually renewable policy arranged with an insurance company -whereby the sponsorundertakes to fulfil the contributions corresponding to the pension plans. Accordingly, these contingencies shouldbe considered to be a defined contribution plan. The vested amount of the contingency assumed by the sponsor iscovered each year with the annual contribution, which is recognised under “Staff Costs” in the income statement.

- Life insurance. A defined contribution obligation instrumented through an insurance policy which establishes theright of the insured to receive retirement benefits or, where appropriate, benefits for death or disability. Thecontributions made by the policyholder are made as a supplement to the pension plan, or due to the fact that thecommitments to employees exceed the maximum contributions to pension plans.

- Annuity income for retired employees. These are obligations prior to the arrangement of pension plans, whichentitle personnel or their beneficiaries to receive supplementary social security pension benefits in the event ofretirement, death or permanent disability. This commitment has been externalised in full through the relatedinsurance policies.

The adjustments to arise from according to the commitments, are recognised as expenses or income for the year, asappropriate, and their amount was not material.

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Long-term defined benefit considerations

- There is an obligation to a certain group of employees for the payment of an annuity monetary consideration arisingfrom the withdrawal of company stores. Actuarial studies are performed annually, based on life expectancy tables(PEMF2000) with a discount rate of 4% and salary increases anticipated at 2%, and the actuarial gains and lossesare recognised as income or expenses, as appropriate. The annual accrual of obligations to employees and theinterest cost on the funds are recognised under “Staff Costs” and “Finance Costs”.

o) Grants, donations or gifts and legacies received

The Company accounts for grants, donations or gifts and legacies received as follows:

- Non-refundable grants, donations or gifts and legacies related to assets: these are measured at the fair value ofthe amount or the asset received, based on whether or not they are monetary grants, and they are taken to incomein proportion to the period depreciation taken on the assets for which the grants were received or, where appropriate,on disposal of the asset or on the recognition of an impairment loss except for grants received from shareholdersor owners, which are recognised directly in equity and do not give rise to the recognition of any income.

- Refundable grants: while they are refundable, they are recognised as a liability.

- Grants related to income: grants related to income are credited to income when granted, unless their purpose is tofinance losses from operations in future years, in which case they are allocated to income in those years. If grantsare received to finance specific expenses, they are allocated to income as the related expenses are incurred.

p) Joint ventures

CEPSA accounts for its interests in joint ventures by recognising in its balance sheet the share corresponding to it, inproportion to its ownership interest, of the jointly controlled assets and of the jointly incurred liabilities. Also, itrecognises in the income statement its share of the income earned and expenses incurred by the joint venture. Inaddition, the proportional part corresponding to the Company of the related items of the joint venture are included inthe statement of changes in equity and the statement of cash flows.

q) Related party transactions

CEPSA performs all its transactions with related parties at market prices. Also transfer prices are appropriatelysupported and accordingly, the Company's directors do not consider that any significant risks that could give rise tomaterial liabilities in the future exist in this connection.

r) Greenhouse gas emission rights

In compliance with the commitments to reduce greenhouse gas emissions - the Kyoto Protocol - assumed by theEuropean Union in May 2002, various EU and national regulations were issued, which led to the approval, by RoyalDecree 60/2005, of 21 January, of the National Emission Rights Allocation Plan, which affects eleven industries includingthe oil refining industry. Pursuant to this legislation, the Ministry of the Environment communicated the allocation forno consideration of emission rights equal of CO2 for the 2005-2007 period. On 1 January 2008, the new National Planfor the 2008 to 2012 period came into force. (see Note 21)


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Pursuant to this legislation, in the first few months of the following year CEPSA must deliver CO2 emission rights equalto the volume of the emissions made during the year.

The emission rights are recognised in compliance with Spanish Accounting and Audit Institute Resolution dated 8February 2006 and adapted to the standards of the Spanish National Chart of Accounts of 16 November 2007.

In the caption "Intangible assets" not depreciable, the rights are valued according to the purchase price or cost ofproduction, giving up of the time of delivery, are transferred to third parties or the conditions marked for expiration. (Seenote 21)

Rights received for no consideration under the National Emission Rights Allocation Plan are measured at the marketprice prevailing at the beginning at the year to which they relate, recognising a government grant related to assets asa balancing entry, which is taken to income as an exceptional item as the expenses arising from the actual emissionsare incurred. (see Note 21)

If the market value of the emission rights is lower than the carrying amount of the rights recognised under assets, thevalue of the rights held is adjusted to market. Depending on whether the rights are acquired or received from thegovernment, an appropriate impairment loss on the non-current asset would be recognised (reversible losses) or thevalue of the intangible asset item would be written down (permanent losses). In the second case (rights received fromthe government), the value of government grants related to assets would be adjusted with a balancing entry in“Allocation to Profit or Loss of Grants Related to Non-financial Non-current Assets and Other Grants” (see Notes 5, 11and 21).

The obligation to deliver emission rights for the CO2 emissions made during the year is recognised as the greenhousegas emissions are made. These costs are charged to “Other Operating Expenses” in the income statement and creditedto a short-term provision until the related emission rights are delivered. The unit value to be assigned to the emissionsis determined by taking into account the following amounts:

• Firstly, the carrying amount of the emission rights received for no consideration.

• Secondly, the cost of other emission rights capitalised in the balance sheet.

• Lastly, where necessary, the most up-to-date estimate of the cost of acquisition of the remaining rights.

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5. INTANGIBLE ASSETS

The changes in “Intangible Assets” in 2008 and 2009 were as follows (in thousands of Euros):

2008

Balance at Additions or charges Retirements Balance at01.01.08 for the year Transfers or disposals 31.12.08

AssetsConcessions 58 - - - 58 Patents and licences 36,778 602 (125) - 37,255 Computer software 85,278 4,501 (33) - 89,746 Other intangible assets 1,000 - (428) - 572 Advances on intangible assets 91 - - - 91 Greenhouse gas emission rights 70 80,011 - (26,236) 53,845 Certified reductions of GHG emissions 535 - - - 535 Total 123,810 85,114 (586) (26,236) 182,102

Accumulated amortisation and impairment losses Concessions (58) - - - (58)Patents and licences (10,040) (1,869) - - (11,909)Computer software (69,358) (3,944) - - (73,302)Other intangible assets (495) (19) 381 - (133)Total (79,951) (5,832) 381 - (85,402)

Net intangible assets 43,859 79,282 (205) (26,236) 96,700


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2009

Balance at Additions or charges Retirements Balance at01.01.09 for the year Transfers or disposals 31.12.09

AssetsConcessions 58 - - - 58 Patents and licences 37,255 3,114 9 - 40,378 Computer software 89,746 4,222 (119) - 93,849 Other intangible assets 572 - - - 572 Advances on intangible assets 91 (91) - - - Greenhouse gas emission rights 53,845 56,808 - (68,994) 41,659 Certified reductions of GHG emissions 535 7,011 - - 7,546 Total 182,102 71,064 (110) (68,994) 184,062

Accumulated amortisation and impairment lossesConcessions (58) - - - (58)Patents and licences (11,909) (2,379) - - (14,288)Computer software (73,302) (4,444) - - (77,746)Other intangible assets (133) (19) - - (152)Total (85,402) (6,842) - - (92,244)

Accumulated depreciationCertified reductions of GHG emissions - (1,380) - - (1,380)Total - (1,380) - - (1,380)

Net intangible assets 96,700 62,842 (110) (68,994) 90,438

In 2008 and 2009 EUR 3,183 thousand and EUR 4,143 thousand, respectively, of staff, finance and other costs relatingbasically to computer software developed in those years were capitalised to intangible assets with a credit to “In-HouseWork on Non-Current Assets” in the accompanying income statements. The rest of the investment recognised by CEPSAunder “Computer Software” relates basically to acquisitions made in order to upgrade computer software to the mostrecent market versions.

The CO2 emission rights recognised in 2008 and 2009 for an amount of EUR 80,011 thousand and EUR 56,808 thousand,respectively, relate to the rights assigned for no consideration under the National Emission Rights Allocation Plans, andare equal to 3,519 thousand and 3,565 thousand tonnes, respectively. The 2007 assignment was reviewed with thedelivery of rights equal to a further 211 K/Mt., which are included in the additions for 2008. (see Note 21)

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CEPSA has a 1.373% share in the Spanish Coal Fund for the purpose of financing various projects that target greenhousegas reduction and the sustainable development of developing countries. If these projects are successful they willgenerate emission rights. In 2009, EUR 280 thousand were paid to the World Bank for CEPSA’s share and recognisedas an addition under “Certified Reductions of Greenhouse Gas (GHG) Emissions”.

In 2009 Cepsa entered into various trading contracts whereby it delivered CO2 emission allowances received for noconsideration (EUAs), equivalent to 500 Mt. and worth EUR 7,552 thousand and received certified emission reductions(CERs) in exchange, equivalent to the same amount of tonnes for EUR 6,731 thousand, generating an inflow for CEPSAof EUR 821 thousand.

The disposals in 2008 and 2009 related mainly to the delivery of CO2 emission allowances to the Spanish GreenhouseGas Emission Allowances Registry (RENADE) for the emissions produced in preceding years, respectively.

At 2008 and 2009 year-end CEPSA had the following fully amortised intangible assets still in use (in thousands of euros):

2008 Gross carrying amount

Concessions 58Patents and licences 7,160Computer software 66,585Total 73,803


Concessions 58Patents and licences 7,831Computer software 71,533Total 79,422

At year-end CEPSA’s non-current assets were not subject to any guarantees or any other circumstance of a substantivenature affecting them.

At the end of 2009 CEPSA had firm computer software purchase commitments amounting to EUR 422 thousand, (endof 2008: EUR 71 thousand).

The Company’s only assets of indefinite useful life are its registered trademarks and industrial designs. Note 4.a.2) onmeasurement bases details the circumstances on which the indefinite useful life assessment of the asset is based. At2008 and 2009 year-end these assets recognised in “Intangible Assets” amounted to EUR 48 thousand and EUR 48thousand, respectively.


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6. PROPERTY, PLANT AND EQUIPMENT

The changes in this heading in 2008 and 2009 were as follows (in thousands of euros):

2008

Balance at Additions or changes Retirements Balance at01.01.08 for the year Transfers or disposals 31.12.08

AssetsLand and buildings 38,139 - 137 - 38,276 Plant and machinery 2,520,924 - 171,452 (14,843) 2,677,533 Investments in areas with proven reserves 1,088,947 - 11,512 (10) 1,100,449 Investments in areas with unproven reserves 50,245 - (10,276) (15,857) 24,112 Furniture 15,928 - 361 - 16,289 Computer hardware 16,799 - 459 - 17,258 Transport equipment 1,012 - 119 (267) 864 Other property, plant and equipment 46,842 - 1,249 - 48,091 Property, plant and equipment in the course ofconstruction and advances 354,280 595,482 (174,855) - 774,907 Total 4,133,116 595,482 158 (30,977) 4,697,779

Accumulated amortisation and impairment lossesLand and buildings (2,140) (29) - - (2,169)Plant and machinery (1,601,018) (116,928) (13) 11,661 (1,706,298)Investments in areas with proven reserves (593,540) (91,057) (11,293) 3 (695,887)Investments in areas with unproven reserves (38,577) (1,085) 11,293 15,857 (12,512)Furniture (11,255) (1,089) 13 - (12,331)Computer hardware (16,268) (512) - - (16,780)Transport equipment (637) (145) - 185 (597)Other property, plant and equipment (484) - - - (484)Total (2,263,919) (210,845) - 27,706 (2,447,058)

Accumulated depreciationLand and buildings (179) - - - (179)Plant and machinery (2,394) - - - (2,394)Total (2,573) - - - (2,573)

Net items of property, plant and equipment 1,866,624 384,637 158 (3,271) 2,248,148

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2009(thousands of euros)

Balance at Additions or changes Retirements Balance at01.01.09 for the year Transfers or disposals 31.12.09

AssetsLand and buildings 38,276 43 2,920 (52) 41,187 Plant and machinery 2,677,533 - 223,965 (16,083) 2,885,415 Investments in areas with proven reserves 1,100,449 - 12,014 - 1,112,463 Investments in areas with unproven reserves 24,112 - 232 - 24,344 Furniture 16,289 - 43 (180) 16,152 Computer hardware 17,258 - 1,463 - 18,721 Transport equipment 864 - 433 (266) 1,031 Other property, plant and equipment 48,091 - - - 48,091 Property, plant and equipment in the course ofconstruction and advances 774,907 596,793 (240,960) - 1,130,740 Total 4,697,779 596,836 110 (16,581) 5,278,144

Accumulated amortisation and impairment lossesLand and buildings (2,169) (32) - - (2,201)Plant and machinery (1,706,298) (132,612) 21 15,067 (1,823,822)Investments in areas with proven reserves (695,887) (85,573) - - (781,460)Investments in areas with unproven reserves (12,512) (68) - - (12,580)Furniture (12,331) (1,002) 487 180 (12,666)Computer hardware (16,780) (493) (508) - (17,781)Transport equipment (597) (186) - 158 (625)Other property, plant and equipment (484) - - - (484)Total (2,447,058) (219,966) - 15,405 (2,651,619)

Accumulated depreciationLand and buildings (179) - - - (179)Plant and machinery (2,394) - - - (2,394)Total (2,573) - - - (2,573)

Net items of property, plant and equipment 2,248,148 376,870 110 (1,176) 2,623,952

The Company’s in-house 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 20,099 thousand and EUR 21,440 thousandof costs were capitalised to property, plant and equipment in this connection in 2008 and 2009, respectively, and theseamounts were credited to “Capitalisation of finance costs” and “Work on Non-Current Assets” in the accompanyingincome statements.

The additions to property, plant and equipment in 2008 and 2009, amounting to EUR 595,482 thousand and EUR 596,836thousand, respectively, related mainly to investments in the fields in Algeria and to new refinery units aimed atincreasing, enhancing and flexibilising the production processes, including most notably the construction of new units


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at the La Rábida refinery, under the distillation capacity expansion plan, new units for the production of middle distillatesand other petrochemical products, a new sulphur recovery plant and the construction of a new electricity combined heatand power unit; new vacuum and hydrogen units at the Gibraltar-San Roque refinery and, in general, improvements inthe industrial facilities to minimise the impact on the environment and enhance safety in the course of activities.

Disposals, retirements or reductions in 2009 included the delivery through a contribution in kind of supply facilities inthe form of 28 dock fuel pumps in order to subscribe to the capital increase of Petropesca, S.A., a CEPSA Groupcompany, and compulsory purchase of land relating to the Tenerife refinery disposals of land transport vehicles givingrise to a gain on such disposals and retirements of EUR 67 thousand and EUR 636 thousand, respectively.

In 2009 and 2008 CEPSA did not capitalise dismantling costs, rehabilitation or retirement.

At 31 December 2008 and 2009 CEPSA had investments in property, plant and equipment located in various prospectingfields in Algeria, as detailed below (in thousands of euros):

2008

Gross carrying amount Accumulated Depreciation Net carrying amount

Investments in areas with proven reserves 1,100,449 (695,887) 404,562 Investments in areas with unproven reserves 24,112 (12,512) 11,600 Furniture 80 (20) 60 Computer hardware 1 - 1 Transport equipment 63 (20) 43 Property, plant and equipment in the course ofconstruction and advances 69,490 - 69,490 Total 1,194,195 (708,439) 485,756

2009

Gross carrying amount Accumulated Depreciation Net carrying amount

Investments in areas with proven reserves 1,112,463 (781,460) 331,003 Investments in areas with unproven reserves 24,344 (12,580) 11,764 Furniture 122 (51) 71 Computer hardware 12 (1) 11 Transport equipment 64 (34) 30 Property, plant and equipment in the course ofconstruction and advances 113,173 - 113,173 Total 1,250,178 (794,126) 456,052

All the material assets are assigned to operating facilities and are not depreciated for accounting purposes in the setsof equipment and materials in which they are included.

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At 31 December 2008 and 2009, fully-depreciated property, plant and equipment still in use were as follows (in thousandsof euros):


Land and buildings 1,727 Plant and machinery 1,024,166 Investments in areas with proven reserves 62,533 Investments in areas with unproven reserves 12,513 Furniture 7,570 Computer hardware 15,944 Transport equipment 163 Other property, plant and equipment 484 Total 1,125,100


Land and buildings 1,727 Plant and machinery 1,074,712 Investments in areas with proven reserves 63,586 Investments in areas with unproven reserves 12,581 Furniture 7,815 Computer hardware 16,616 Transport equipment 163 Other property, plant and equipment 484 Total 1,177,684

At year-end CEPSA had no non-current assets subject to guarantees or to any other circumstance of a substantivenature that may affect them.

At 31 December 2008 and 2009 CEPSA has received grants to be used in refinery plants, totalling EUR 4,786 and EUR5,225 thousand, respectively from the Ministry of Tourism and Trade, and totalling EUR 110 thousand and EUR 1,217thousand, respectively from the Andalusia Autonomous Community Government and also EUR 539 thousand and EUR128 thousand, respectively, from the Ministry of Science and Innovation for research and development projects. (see Note11)

At the 2008 and 2009 year-end CEPSA had firm property, plant and equipment purchase commitments for EUR 447,228thousand and EUR 220,805 thousand, respectively. These commitments relate mainly to the following projects:increased distillation capacity and the production of middle distillates at la Rábida refinery, new vacuum units for thehydrogen plant, increase in petrochemical products and new vacuum and mild hydrocracking units at the Gibraltar-SanRoque refinery as well as improvements to infrastructure and installations.

As indicated in Note 7, at the end of 2008 and 2009 the Company held various items of property, plant and equipmentunder finance leases.


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CEPSA takes out insurance policies to cover the possible risks to which its property, plant and equipment are subject(see Note 22).

At 31 December 1996, CEPSA revalued its property, plant and equipment, including those of the absorbed companyErtoil, S.A., by EUR 71,154 thousand, pursuant to the applicable asset revaluation law (Royal Decree 2607/1996, of 20December regulating the rules for asset revaluations enacted by Royal Decree-Law 7/1996 of 7 June). This increase invalue is being depreciated (the depreciation charge is a taxdeductible expense) with a charge to income in 1997 andsubsequent years based on the years of residual useful life of the revalued assets. The revaluation made increased theproperty, plant and equipment depreciation charges for 2008 and 2009 by EUR 1,515 thousand and EUR 751 thousand,respectively. At the end of these years, the increases in value yet to be depreciated amounted to EUR 8,434 thousandand EUR 7,789 thousand, respectively.

CEPSA has been granted administrative concessions by the Spanish State to use mooring facilities, access and adjacentareas at the ports of Algeciras-La Línea, Santa Cruz de Tenerife and Palos de la Frontera, which will revert to the Statein 2022, between 2009 and 2028 and between 2018 and 2065, respectively. CEPSA management expects all theconcessions to be renewed on expiration of the concession term and considers that it is not necessary to record areversion reserve since the facilities are adequately maintained and the related cost will have been depreciated in fullfor accounting purposes during the concession term.

7. LEASES

Leasing

CEPSA has acquired the use of certain assets through finance and operating leases.

The main items of property, plant and equipment acquired under finance lease are four tanks of 50,000 m3 each forpetrol storage and four tanks of 150.000 m3 for crude oil storage.

At 2008 and 2009 year-end CEPSA, as the lessee under finance leases, had recognised the following assets acquiredunder finance lease (in thousands of euros):

2008

Cost Depreciation Net Value

Plant 56,749 (20,679) 36,070Computer hardware 255 (64) 191Total 57,004 (20,743) 36,261

2009

Cost Depreciation Net Value

Plant 56,753 (23,497) 33,256Computer hardware 409 (160) 249Total 57,162 (23,657) 33,505

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The future expiries of the amounts payable under finance leases at 31 December 2008 and 2009 are as follows (inthousands of euros):

2008

Plant Computer Hardware Total

Lease payments payable2009 5,871 107 5,978 2010 6,281 98 6,379 2011 3,822 11 3,833 2012 1,437 - 1,437 Future payments 17,411 216 17,627

Less interest (962) (10) (972)

Present value of minimum lease payments 16,449 206 16,655

Contingent rent recognised in income 986 23 1,009

2009

Plant Computer Hardware Total

Lease payments payable2010 6,281 143 6,424 2011 3,822 57 3,879 2012 1,437 32 1,469 2013 - - - Future payments 11,540 232 11,772

Less interest (467) (3) (470)

Present value of minimum lease payments 11,073 229 11,302

Contingent rent recognised in income 287 6 293


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Operating leases

The detail of the assets under operating leases and the future expiries of the related amounts payable at 31 December2008 and 2009 are as follows (in thousands of euros):

2008

Transport Computer Buildings Plant equipment Hardware Other Total

Lease payments payable2009 10,851 143 84,893 1,331 - 97,2182010 10,134 146 84,843 1,099 - 96,2222011 9,750 149 52,967 805 - 63,6712012 9,750 151 52,899 554 - 63,3542013 9,667 154 38,313 1 - 48,135Other expiries 6,403 158 184,474 - - 191,035Future payments 56,555 901 498,389 3,790 559,635

Contingent rent recognised in income 375 - - - 375

2009

Transport Computer Buildings Plant equipment Hardware Other Total

Lease payments payable2010 10,108 637 81,806 1,292 164 94,0072011 8,214 640 75,524 1,114 164 85,6562012 5,737 643 75,228 974 164 82,7462013 5,638 646 58,587 267 164 65,3022014 3,639 649 21,186 103 164 25,741Other expiries 9 491 63,558 49 3,287 67,394Future payments 33,345 3,706 375,889 3,799 4,107 420,846

Contingent rent recognised in income (140) - 4,507 361 - 4,728

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8. FINANCIAL ASSETS (NON-CURRENT AND CURRENT)

Non-current financial assets

The breakdown of “Non-current Financial Assets”, by nature and category, for 2009 and 2008 is as follows (in thousandsof euros):

Current Financial Instruments

Types Equity Instruments Debt Securities and other financial assets Total

Cathegories 2009 2008 2009 2008 2009 2008

Loans and receivables - - 8,438 9,442 8,438 9,442

Assets at fair value through profit or loss 1,217 1,172 - - 1,217 1,172

Total 1,217 1,172 8,438 9,442 9,655 10,614

At 2009 and 2008 year-end “Loans and Receivables” mainly included non-current non-trade loans to finance customerinstallations and longterm guarantees of EUR 1,924 thousand and EUR 1,966 thousand, respectively. The remainder islong term non-trade receivables for financing facilities for customer loyalty. In 2009, CEPSA also recognised under thisheading an account receivable, which was renegotiated with the customer, for which a periodic monthly paymentschedule until 2014 was established.

“Available-for-Sale Financial Assets” mainly reflects the fair value of the permanent investments in equity instrumentsat companies not listed on official stock exchanges.

At 31 December 2008 and 2009, as there were no firm long-term sales commitments to third parties.

The changes arising from impairment losses recognised in “Non-Current Financial Assets” in 2009 and 2008 were asfollows (in thousands of euros):

2008

Impairment losses at Impairment losses Impairment losses at01/01/2008 in 2008 31/12/2008

Loans and receivables 8,361 (2,831) 5,530Assets at fair value through profit or loss 25 46 71Total 8,386 (2,785) 5,601

2009


Loans and receivables 5,530 (4,502) 1,028Assets at fair value through profit or loss 71 - 71Total 5,601 (4,502) 1,099


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The detail by maturity of “Non-Current Financial Assets” at 31 December 2008 and 2009 is as follows (in thousands ofeuros):

Maturing inSubsequent

2008 2010 2011 2012 2013 Year TotalLoans and receivables 1,287 1,259 1,169 1,163 4,564 9,442 Assets at fair value through profit or loss - - - - 1,172 1,172 Total 1,287 1,259 1,169 1,163 5,736 10,614

Maturing inSubsequent

2009 2011 2012 2013 2014 Year TotalLoans and receivables 2,879 1,221 1,213 1,207 1,918 8,438 Assets at fair value through profit or loss - - - - 1,217 1,217 Total 2,879 1,221 1,213 1,207 3,135 9,655

Current financial assets

The breakdown of the balances of financial instruments, by nature and category, for 2009 and 2008 is as follows (inthousands of euros):

Current Financial Instruments

Types Derivatives Debt Securities and other financial assets Total

Cathegories 2009 2008 2009 2008 2009 2008

Assets at fair value through profit or loss 237 2,210 - - 237 2,210

Loans and receivables - - 8,601 4,020 8,601 4,020

Total 237 2,210 8,601 4,020 8,838 6,230

At 2009 and 2008 year-end “Assets at Fair Value through Profit or Loss” reflects derivative financial instruments usedto hedge foreign currency and interest rate financial risks (basically forward currency transactions and interest rateswaps). These derivatives are recognised as an asset when their fair value is positive and as a liability when it is negative.

The changes arising from impairment losses recognised in “Non-Current Financial Assets” in 2009 and 2008 were asfollows (in thousands of euros):

2008


Loans and receivables - 2,862 2,862Total - 2,862 2,862

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2009


Loans and receivables 2,862 7,033 9,895Total 2,862 7,033 9,895

The fair value of these financial derivatives was estimated by discounting the cash flows associated therewith, takinginto account the interest rates and exchange rates prevailing at the balance sheet dates and including the differencesarising due to the credit risk terms and conditions of each instrument. In the case of some derivative instruments themarket value furnished by the banks was also used as a supplementary component.

Group companies and associates

The main information relating to Group companies and associates at 2008 and 2009 year-end is as follows (in thousandsof euros):

2008

Write down/% of Registered Write-up Accrued Net

ownership cost of the year Write down investment Dividends

ASFALTOS ESPAÑOLES, S,A, 50,00% 17,869 17,869 ATLAS, SA COMBUSTIBLES Y LUBRIFICANTES 99,98% 4,077 4,077 4,690 CEPSA COLOMBIA, S,A, 99,96% 548,394 22,188 548,394 CEPSA EGYPT, SA, B,V, 100,00% 38,100 (22,569) (29,841) 8,259 CEPSA EP, S,A, 99,99% 16,136 16,136 3,558 CEPSA ESTACIONES DE SERVICIO S,A, 99,99% 120,017 120,017 126,754 CEPSA GAS LICUADO, S,A, 99,99% 42,012 42,012 CEPSA INTERNACIONAL B,V, 100,00% 15,210 15,210 2,250 CEPSA LUBRICANTES, S,A, 99,99% 15,025 15,025 6,184 CEPSA MARINE FUELS, S,A, 99,99% 25,060 25,060 14,342 CEPSA PORTUGUESA PETRÓLEOS S,A, 99,99% 125,957 125,957 CEPSA QUIMICA, S,A, 99,90% 80,192 80,192 38,574 CMD AEROPUERTOS CANARIOS, S,L, 60,00% 12,946 12,946 4,474 COMPAÑÍA LOGÍSTICA DE HIDROCARBUROS CLH, S,A, (*) 14,15% 86,299 86,299 39,615 DERIVADOS ENERGÉTICOS PARA EL TRANSPORTE Y LA INDUSTRIA, S,A, 99,99% 12,328 12,328 1,608 LUBRICANTES DEL SUR, S,A, 99,99% 24,610 24,610 9,661 MEDGAZ S,A, 20,00% 5,932 5,932 NUEVA GENERADORA DEL SUR,S,A, 50,00% 71,100 71,100 13,600 PETROPESCA, S,L, 99,99% 6,892 6,892 465 PLASTIFICANTES DE LUTXANA, S,A, 99,99% 6,258 6,258 PRODUCTOS ASFÁLTICOS, S,A, 99,99% 5,312 5,312 Other investments 29,669 (1,000) (7,430) 22,239 21,485

Total 1,309,395 (1,381) (37,271) 1,272,124 287,260


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2009

Write down/% of Registered Write-up Accrued Net

ownership cost of the year Write down investment Dividends

ASFALTOS ESPAÑOLES, S,A, 50,00% 17,869 17,869 ATLAS, SA COMBUSTIBLES Y LUBRIFICANTES 99,98% 4,077 4,077 4,453 CEPSA COLOMBIA, S,A, 99,96% 548,394 548,394 CEPSA EGYPT, SA, B,V, 100,00% 38,100 (992) (30,833) 7,267 CEPSA EP, S,A, 99,99% 16,136 16,136 4,461 CEPSA ESTACIONES DE SERVICIO S,A, 99,99% 120,017 120,017 93,204 CEPSA GAS LICUADO, S,A, 99,99% 42,012 42,012 CEPSA INTERNACIONAL B,V, 100,00% 15,210 15,210 CEPSA LUBRICANTES, S,A, 99,99% 15,025 15,025 CEPSA MARINE FUELS, S,A, 99,99% 25,060 25,060 19,734 CEPSA PORTUGUESA PETRÓLEOS S,A, 99,99% 125,957 125,957 CEPSA QUIMICA, S,A, 99,90% 80,192 80,192 16,636 CMD AEROPUERTOS CANARIOS, S,L, 60,00% 12,946 12,946 COMPAÑÍA LOGÍSTICA DE HIDROCARBUROS CLH, S,A, (*) 14,15% 86,299 86,299 31,000 DERIVADOS ENERGÉTICOS PARA EL TRANSPORTE Y LA INDUSTRIA, S,A, 99,99% 12,328 12,328 30,319 LUBRICANTES DEL SUR, S,A, 99,99% 24,610 24,610 14,366 MEDGAZ S,A, 20,00% 5,932 5,932 NUEVA GENERADORA DEL SUR,S,A, 50,00% 71,100 71,100 PETROPESCA, S,L, 99,99% 6,892 6,892 4,555 PLASTIFICANTES DE LUTXANA, S,A, 99,99% 6,258 6,258 253 PRODUCTOS ASFÁLTICOS, S,A, 99,99% 5,312 5,312 15,942 Other investments 29,669 (1,006) (8,436) 21,233 17,333

Total 1,309,395 (1,998) (39,269) 1,270,126 252,256

(*) Compañía Logística de Hidrocarburos S.A. has 2.54% of all the shares comprising its share capital listed on the fourSpanish stock markets. And, using the closing quotation price of December 2009 as reference, which was 40,50 pershare. The other Group companies are not listed.

The average annual interest rate applied by CEPSA on loans to subsidiaries in 2008 and 2009 was similar to the averagecost of its borrowed funds for transactions of the same type (see Note 13).

In relation to ownership interests in Group companies and associates, there has not been relevant changes in 2009, the mostrelevant changes in 2008 were due to:

- The merger of Petroquímica Española S.A., Intercontinental Química S.A. and Ertisa S.A. into Cepsa Química, S.A.

- The subscription of the capital increase at Cepsa Colombia, S.A.

- The acquisition of shares of Total Portugal Petróleos S.A.

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- CEPSA’s acquisition of 4.14% of Cepsa Portuguesa de Petróleos, S.A. from PROPEL- Productos de Petróleo LDA inorder to subsequently perform the merger by absorption of Total Portugal S.A. into Cepsa Portuguesa, S.A., increasingits share capital until it was established at EUR 30,000 thousand (see Table I).

In 2009 and 2008 impairment losses were recognised to adjust the cost of ownership interests in Group companies andassociates recognised in the financial statements to the recoverable amount as the present value of the future cash flowsarising from the investment.

Table I (in the final pages of these explanatory notes) contains a detail of companies holding direct significant ownershipinterests in CEPSA at 31 December 2009, a breakdown of their equity and information on their activity.

Joint ventures

Set forth below is a detail of the main joint ventures operated as jointly-controlled ventures and assets, in which CEPSAhas an ownership interest. The accompanying financial statements include the assets, liabilities, expenses and incomein proportion to the Company’s percentage of ownership.

2008Joint Sales in

Venture thousands Joint Venture Holdings Country Operator Line of Bussiness % of Ownership Assets of euros

Exploration andOurhoud Field Algeria Sonatrach Production 39,76% 801,407 499,423

Total Exploration & Exploration andTimimoun Block Algeria Production Algerie Production 11,25% 24,113 - Total 825,520 499,423

2009Joint Sales in

Venture thousands Joint Venture Holdings Country Operator Line of Bussiness % of Ownership Assets of euros

Exploration andOurhoud Field Algeria Sonatrach Production 39,76% 822,368 495,294

Total Exploration & Exploration andTimimoun Block Algeria Production Algerie Production 11,25% 24,345 - Total 846,713 495,294

Revenue from the RKF and Ourhoud oilfields is obtained on a unit basis, thus optimising the rights generated by theexploitation of the two fields.

The Timimoun block has not yet produced revenue since it is still at the development stage.


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9. DERIVATIVE FINANCIAL INSTRUMENTS

Pursuant to the risk management policies explained in Note 22, CEPSA uses derivative financial instruments to hedgethe foreign currency and commodity price risks to which future cash flows are exposed.

The types of derivatives normally used are forward contracts to hedge foreign currency risk, swap contracts to hedgeinterest rates and future and swap contracts to hedge commodity price risk. These derivatives mature in less than amonth, which means that the change in their fair value resulting from changes in the assumptions used for theirmeasurement is scantly material.

These derivatives were not designated as hedging instruments since they do not meet all the requirements to qualifyfor hedge accounting, established in the Spanish National Chart of Accounts.

At 2008 and 2009 year-end CEPSA had arranged derivative financial instruments with the following characteristics (inthousands of euros):

2008

Fair value Notional or Contractual Valuel

Foreign currency forward contracts 1,732 6,660Interest rate swaps 478 251,491Total 2,210 258,151

2009

Fair value Notional or Contractual ValuelInterest rate swaps 237 242,954Oil product futures 65 1,119Oil product swaps 521 (4,672)Total 823 239,401

The notional amounts of the contracts entered into do not reflect the actual risk assumed by CEPSA, since theseamounts only constitute the basis on which the derivative’s settlement calculations were made.

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10. INVENTORIES

The detail of "Inventories" at 31 December 2009 and 2008 is as follows (in thousands of euros):

2009 2008

Crude in oil tanks 392,586 368,546 Crude in transit 66,691 133,115 Other raw materials 1,113 1,142 By - products and recovered materials 6,629 1,225 Refined finished products 432,424 804,099 Materials and other inventories 91,615 82,288 Advances to suppliers 2,136 5,300 Allowances (203) (513,126)Total 992,991 882,589

Pursuant to the resolution of the Directorate-General of Energy Policy and Mines, dated 26 October 2007, as an operatorauthorised to distribute oil products, CEPSA is required to maintain minimum safety stocks of certain productsequivalent to 50 days of sales of the preceding 12 months in the domestic market for 2009, which was established in2008 in 53 days, excluding sales to other wholesalers, compliance with which is inspected and monitored by Corporaciónde Reservas Estratégicas (CORES). Company management considers that it has been meeting this obligation.

As indicated in Note 4-g, CEPSA uses the weighted average cost formula to measure its inventories of raw materialsand goods held for resale.

In 2009 and 2008, CEPSA recognised impairment losses of EUR 103 thousand and EUR 513,021 thousand on itsinventories of raw materials and finished goods, respectively, based on their net realisable value and recognised EUR100 thousand and EUR 105 thousand in cost of consumables used and the replacement of certain items due to technicalobsolescence, respectively.

At the end of 2009 CEPSA had inventory purchase commitments amounting to EUR 1,827 thousand (2008: EUR 3,161thousand).

At the end of 2009 and 2008 CEPSA had leased to third parties stocks of 109,082 Mt and 166,354 Mt, respectively.

11. EQUITY AND SHAREHOLDERS’ EQUITY

Share capital and Share premium

Fully subscribed and paid share capital amounted to EUR 267,574,941, and consisted of 267,574,941 book-entry sharesof EUR 1 par value each.


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Per the information provided by the members of the Board of Directors who are shareholders, at 31 December 2009,Total, S.A., and International Petroleum Investment Company (IPIC), directly and indirectly owned 48.83% and 47.06%,respectively, of CEPSA’s share capital.

CEPSA’s shares are traded on the continuous market on the four Spanish stock exchanges.

The Consolidated Spanish Companies Law expressly permits the use of the share premium balance to increase capitaland establishes no specific restrictions as to its use. There were no changes in 2009 or 2008 in the balance of thisaccount, which amounted to EUR 338,728 thousand.

Legal reserve

Under the Consolidated Spanish Companies Law, 10% of net profit for each year must be transferred to the legalreserve until the balance of this reserve reaches at least 20% of the share capital. Such reserve can be used toincrease capital provided that the remaining reserve balance does not fall below 10% of the increased share capitalamount. Otherwise, until the legal reserve exceeds 20% of share capital, it can only be used to offset losses, providedthat sufficient other reserves are not available for that purpose.

At 31 December 2009, CEPSA had recognised a legal reserve of EUR 53,605 thousand.

Revaluation reserve

This reserve, amounting to EUR 90,936 thousand, relates to the revaluations made pursuant to 1979 State Budget Law1/1979, 1981 State Budget Law 74/1980 and Royal Decree-Law 7/1996, of 7 June, on asset revaluations, this amount hasnot changed in 2009 and 2008.

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 voluntaryreserves.

The balance of the “Revaluation Reserve, Royal Decree-Law 7/1996” , of 7 June, account, which amounts to EUR 58,438thousand, 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) thebalance 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 foraccounting purposes or when the revalued assets have been transferred or derecognised.

At 31 December 2009, the unrestricted balance of this reserve amounted to EUR 52,043 thousand. If this balance wereused in a manner other than that provided for in Royal Decree-Law 7/1996, it would be subject to tax.

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Grants

The information on the grants received by the Company, which form part of equity, net of the tax effect, and on theamounts taken to income in this connection, for 2008 and 2009, is as follows (in thousands of euros):

2008

Balance at Transfer to Balance atBody Sphere 01/01/2008 Increases Income 31/12/2008

Grants receivedMinistry of Tourism and Trade State government 236 4,786 (415) 4,607 Ministry of Economy and Finance State government 1,418 - (657) 761 Ministry of Science and Innovation State government - 539 (4) 535 Ministry of the Environment and Rural andMarine Affairs (Note 21) State government 7 80,011 (76,190) 3,828 Andalusia Autonomous Community Autonomous CommunityGovernment Government 1,820 110 (303) 1,627 European Union Directorate-General XII Science International - 125 (125) - Total 3,481 85,571 (77,694) 11,358

Tax effect Ministry of Tourism and Trade State government (71) (1,436) 125 (1,382)Ministry of Economy and Finance State government (425) - 197 (228)Ministry of Science and Innovation State government - (162) 1 (161)Ministry of the Environment and Rural andMarine Affairs (Note 21) State government (2) (24,003) 22,857 (1,148)Andalusia Autonomous Community Autonomous CommunityGovernment Government (546) (33) 91 (488)European Union Directorate-General XII Science International - (37) 37 - Total (1,044) (25,671) 23,308 (3,407)

Net grants 2,437 59,900 (54,386) 7,951


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2009

Balance at Transfer to Balance atBody Sphere 01/01/2009 Increases Income 31/12/2009

Grants receivedMinistry of Tourism and Trade State government 4,607 5,225 (359) 9,473 Ministry of Economy and Finance State government 761 - 163 924 Ministry of Science and Innovation State government 535 128 (62) 601 Ministry of the Environment and Rural andMarine Affairs (Note 21) State government 3,828 56,117 (48,660) 11,285 Andalusia Autonomous Community Autonomous CommunityGovernment Government 1,627 1,217 (347) 2,497 European Union Directorate-General XII Science International - - - - Total 11,358 62,687 (49,265) 24,780

Tax effect Ministry of Tourism and Trade State government (1,382) (1,568) 108 (2,842)Ministry of Economy and Finance State government (228) - (49) (277)Ministry of Science and Innovation State government (161) (38) 19 (180)Ministry of the Environment and Rural andMarine Affairs (Note 21) State government (1,148) (16,835) 14,597 (3,386)Andalusia Autonomous Community Autonomous CommunityGovernment Government (488) (365) 104 (749)European Union Directorate-General XII Science International - - - - Total (3,407) (18,806) 14,779 (7,434)

Net grants 7,951 43,881 (34,486) 17,346

CEPSA considers that in 2008 and 2009 all the requirements to ensure that the grants received are not repayable havebeen met.

12. PROVISIONS AND CONTINGENCIES

Provisions

The detail of the long-term provisions in the accompanying balance sheet and of the main changes therein in 2008 and2009 is as follows (in thousands of euros):

2008

Balance atLong-term provisions Balance at 01/01/08 Additions Interest Cost Amounts Used 31/12/08

Long-term employee benefit obligations 11,011 2,335 364 (3,067) 10,643 Actuaciones medioambientales 7,610 1,475 - (1,475) 7,610 Other provisions 51,377 6,481 1,721 (31,069) 28,510 Total 69,998 10,291 2,085 (35,611) 46,763

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2009

Balance atLong-term provisions Balance at 01/01/09 Additions Interest Cost Amounts Used 31/12/09

Long-term employee benefit obligations 10,643 2,281 348 (2,941) 10,331 Actuaciones medioambientales 7,610 - - - 7,610 Other provisions 28,510 (33) 975 (2,017) 27,435 Total 46,763 2,248 1,323 (4,958) 45,376

The detail of the short-term provisions in the accompanying balance sheet and of the main changes therein in 2008 and2009 is as follows (in thousands of euros):

2008

Short-term provisions Balance at 01/01/08 Additions Amounts used Balance at 31/12/08

Provision for Greenhouse Gas Emissions 63 50,017 (63) 50,017 Total 63 50,017 (63) 50,017

2009

Short-term provisions Balance at 01/01/09 Additions Amounts used Balance at 31/12/09

Provision for Greenhouse Gas Emissions 50,017 36,276 (50,068) 36,225 Total 50,017 36,276 (50,068) 36,225

Provisions for employee benefit obligations

a) Long-term defined contribution obligations

a.1) Defined contribution obligations expense

The amounts recognised by CEPSA in 2009 and 2008 relating to the defined contribution obligations expense are asfollows (in thousands of euros):

2009 2008

Retirement (Pension Plan) 5,337 7,371Life insurance 3,355 2,798Total 8,732 10,169


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a.2) Long-term provisions and obligations to employees

At 31 December 2009 and 2008, the accrued contributions payable in this regard amounted to EUR 1,740 thousand andEUR 2,057 thousand, respectively, and these amounts are recognised under “Long-Term Provisions – Provisions forLong-Term Employee Benefit Obligations and Other Provisions” in the accompanying balance sheet.

b) Long-term defined benefit obligations

The net amounts of income and expenses recognised in the income statement and the changes in defined benefitobligations on the liability side of the balance sheet in 2009 and 2008 are as follows (in thousands of euros):

2009 2008

Beginning balance 10,017 9,894 Provisions

Finance costs 337 336 Staff costs. Ordinary contributions to in-house funds and similar obligations

Provisions for contingencies and other risks 150 150 Amounts used

Other amounts used and payments (332) (363)Ending balance 10,172 10,017

The main assumptions used to determine the pension obligations and post-employment benefits under CEPSA’s plansare as follows:

2009 2008

Discount rate 4% 4%Expected salary increase rate 2%-2.5% 2%-2.5%Mortality tables PEMF2000 PEMF2000

Provisions for environmental costs

The information relating to 2008 and 2009 is as follows (in thousands of euros):

2008

Balance at 01/01/08 Additions Amounts Used Balance at 31/12/08

Provisions for environmental contingencies and liabilities 7,610 1,475 (1,475) 7,610 Total 7,610 1,475 (1,475) 7,610

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2009

Balance at 01/01/09 Additions Amounts Used Balance at 31/12/09

Provisions for environmental contingencies and liabilities 7,610 - - 7,610 Total 7,610 - - 7,610

The provision for environmental initiatives covers the expenses arising from the potential risk of gradual land pollution,which is the only contingency not covered by the insurance policies taken out by CEPSA. The amounts used in 2008basically offset the extraordinary expenses arising from land treatment.

Other provisions

The detail of the changes in 2008 and 2009 and of the balances at each year-end is as follows (in thousands of euros):

2008

Balance atBalance at 01/01/08 Additions Adjustments Amount Used 31/12/08

Provision for taxes other than income tax 36,367 - 645 (24,384) 12,628 Provision for third-party liability 7,280 2,440 - (6,684) 3,036 Provisions for other expenses 7,730 4,041 1,075 - 12,846 Total 51,377 6,481 1,720 (31,068) 28,510

2009

Balance atBalance at 01/01/08 Additions Adjustments Amount Used 31/12/08

Provision for taxes other than income tax 12,628 - 437 (1,565) 11,500 Provision for third-party liability 3,036 (33) - (1) 3,002 Provisions for other expenses 12,846 - 538 (451) 12,933 Total 28,510 (33) 975 (2,017) 27,435

The provision “For Taxes” reflects the amounts recognised by the Company to cover possible tax contingencies arisingfrom the assessments signed on a contested basis.

The provisions “For Other Liabilities” and “For Other Expenses” cover the contingencies arising from CEPSA’s ordinaryoperations from its relationships with third parties.

CEPSA’s directors consider that the provisions recorded in the accompanying balance sheet cover adequately the risksrelating to litigation, arbitration proceedings and other transactions described in this Note and, accordingly, they do notexpect any liabilities in addition to those disclosed to arise.

In view of the nature of the contingencies covered by these provisions, it is not possible to determine a reasonableschedule for the related payments, if any.


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13. FINANCIAL LIABILITIES

Non-current financial liabilities

The detail of “Non-Current Payables” at 2009 and 2008 year-end is as follows (in thousands of euros):

Non-current financial instruments

Bank Borrowings and DerivativesTypes Finance Leases and Other Total

Cathegories 2009 2008 2009 2008 2009 2008

Payables 964,028 734,987 80,277 72,793 1,044,305 807,780

Total 964,028 734,987 80,277 72,793 1,044,305 807,780

At 31 December 2008 and 2009, as there were no firm long-term purchase commitments to third parties.

The detail, by maturity, of “Non-Current Payables” at 31 December 2008 and 2009 is as follows (in thousands of euros):

Maturing in2008 2010 2011 2012 2013 Resto TotalBank borrowings 103,313 226,509 56,314 - 337,678 723,814 Financial lease creditors 6,053 3,704 1,416 - - 11,173 Other financial liabilities 3,317 4,827 6,729 8,012 49,908 72,793 Total 112,683 235,040 64,459 8,012 387,586 807,780

Maturing in2009 2011 2012 2013 2014 Resto TotalBank borrowings 206,495 345,001 20,000 68,362 318,972 958,830 Financial lease creditors 3,750 1,448 - - - 5,198 Other financial liabilities 4,761 6,772 7,056 8,487 53,201 80,277 Total 215,006 353,221 27,056 76,849 372,173 1,044,305

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Current financial liabilities

The detail of “Current Payables” at 2009 and 2008 year-end is as follows (in thousands of euros):

Current financial instruments

Bank Borrowings andTypes Finance Leases Derivatives and Other Total

Cathegories 2009 2008 2009 2008 2009 2008

Payables 458,740 262,735 139,683 157,348 598,423 420,083

Total 458,740 262,735 139,683 157,348 598,423 420,083

The average annual nominal interest rate on the loans received in euros was 1.27% in 2009 and 4.12% in 2008. Theinterest rate on loans in foreign currencies was 0.80% in 2009 and 2.96% in 2008, not taking into account the exchangerate effect. The overall average annual interest rate on the loans received was 1.07% in 2009 and 3.61% in 2008, withoutthe aforementioned effect. The fair value of these financial liabilities coincides basically with their carrying amount asthey relate mainly to loans at variable interest rates.

At 31 December 2009 and 2008, CEPSA had unused credit facilities amounting to EUR 594,696 thousand and EUR 376,617thousand, respectively, arranged with various banks. The unused balance bears no interest. (see Note 22)

14. TAX MATTERS

The detail of current balances receivable from and payable to public authorities is as follows (in thousands of euros):

Debtors balance 2009 2008

Tax Authority debtor for income tax 713 40,109Tax Authority debtor for VAT and IGIC 673 1,300Others 7,656 7,173Total 9,042 48,585

Creditors balance 2009 2008

Tax Authority creditor for income tax 15,290 1,574Tax Authority creditor for VAT and IGIC 83,095 65,282Tax Authority creditor for fuel retail sales tax 5,342 5,460Organisms of Social Security creditors 3,205 3,174Others 17,434 16,752Total 124,366 92,242


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CEPSA files consolidated income tax returns. The reconciliation of CEPSA’s profit before tax to the taxable profit forSpanish corporation tax purposes for 2008 and 2009 is as follows (in thousands of euros):

2008

Increases Decreases Amount

Accounting profit for the year before tax 419,190

Income taxIndividual permanent differences 35,609 354,341 (318,732)Individual temporary differences

Arising in the year 11,733 8,737 2,996 Arising in prior years 241,745 39,522 202,223

Individual taxable profit 305,677

Permanent differences in consolidation 1,000 240,888 (239,888)

Taxable profit 65,789

2009


Accounting profit for the year before tax 609,466

Income taxIndividual permanent differences 34,255 288,304 (254,049)Individual temporary differences

Arising in the year 6,992 68,032 (61,040)Arising in prior years 232,263 28,582 203,681

Individual taxable profit 498,058

Permanent differences in consolidation 831 209,365 (208,534)

Taxable profit 289,524

The permanent differences arose mainly as a result of non-deductible expenses and income not computable for taxpurposes or of expenses and income that are computable for tax purposes in a future. The permanent differencesrecognised in 2008 and 2009 related basically to profit attributed to the permanent establishment in Algeria, coveredby the exemption regime, provisions, fines, dividends distributed by Group companies, gains arising from asset transfersand consolidation adjustments. In 2008 and 2009 an impairment loss on a participating loan granted to Cepsa Perú wasestimated at EUR 11,320 thousand and EUR 11,747 thousand, respectively, which was not deductible, (pursuant to Article1.2. of the Consolidated Corporation Tax Law).

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The temporary differences were due mainly to accrued expenses and income earned that will be deductible for taxpurposes in a future. The temporary differences recognised in 2008 and 2009 arose from expenses resulting from theprovisioning and discounting to present value of supplementary pension obligations, which gave rise to increases of EUR514 thousand in 2008 and EUR 499 thousand in 2009 relating to non-deductible period contributions and to decreasesof EUR 18,207 thousand in 2008 and EUR 4,432 thousand in 2009 relating to the payments made in those years inconnection with those commitments and to one-tenth of the reversal of the deferred tax asset for the externalisationof past-service costs in 2008. The increases and decreases in 2008 and 2009, as permitted under Additional Provision28 of the Consolidated Corporation Tax Law, relate to the tax effect of charges or credits to the reserve accounts of itemspreviously treated as income or expenses, as a result of the first application of the 2007 Spanish National Chart ofAccounts. One third (EUR 221,754 thousand) of these amounts was included in taxable income.

The detail of the taxes recognised directly in equity in 2008 and 2009 is as follows (in thousands of euros):

2008


Deferred taxesArising in the year

Grants 25,672 - 25,672 Other - cash flow hedge 285 285 -

Arising in prior yearGrants - 23,308 (23,308)Other - cash flow hedge - 1,944 (1,994)

Total deferred taxes 25,957 25,537 420

Total taxes recognised directly in equity 25,957 25,537 420

2009


Deferred taxesArising in the year

Grants 18,806 - 18,806 Other - cash flow hedge - - -

Arising in prior yearGrants - 14,780 (14,780)Other - cash flow hedge - - -

Total deferred taxes 18,806 14,780 4,026

Total taxes recognised directly in equity 18,806 14,780 4,026


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The detail of the calculation of the income tax expense for 2009 and 2008 is as follows (in thousands of euros):

2008


Recorded profit (before tax) 419.190 Income Tax rate 30% 125.757 Permanent differences 10.983 178.569 (167.586)Tax credits applied (29.160)Relief (4.504)Tax expenditure adjustment. Prior years (5.442)Change in temporary differences due to change in tax rate 975 Fiscal provisions (15.360)Total tax expense (95.320)

2009


Resultado contable (antes de impuestos) 609.466 Income Tax rate 30% 182.840 Permanent differences 10.525 149.301 (138.776)Tax credits applied (23.669)Relief (2.404)Tax expenditure adjustment. Prior years (5.612)Change in temporary differences due to change in tax rate - Fiscal provisions - Total tax expense 12.379

In calculating the income tax expense for each year, CEPSA took into account the applicable tax credits for dividenddouble taxation and investments, as well as other tax incentives.

The detail of the deferred tax assets recognised in 2009 and 2008 is as follows (in thousands of euros):

Temporary differences (Deferred tax assets) 2009 2008

Non-current assets 6,853 8,552Current assets 1,173 3,237Pension funds 8,953 11,698Provision for contingencies and charges 7,146 8,221Other (17) (17)Total deferred tax assets 24,108 31,691

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The deferred tax assets indicated above were recognised because the Company’s directors considered that, based ontheir best estimate of the Company’s future earnings, including certain tax planning measures, it is probable that theseassets will be recovered.

The detail of the deferred tax liabilities recognised in 2009 and 2008 is as follows (in thousands of euros):

Temporary differences (Deferred tax liabilities) 2009 2008

Non-current assets 29,583 25,232Current assets 66,171 131,529Current liabilities 24,350 3,407Total deferred tax liabilities 120,104 160,168

At 2009 and 2008 year-end CEPSA did not have any unused tax assets for tax loss carryforwards.

The amounts regularised based on the estimated effect of the reduction in rates with respect to the period in which thereceivables and payables will be realised, the adjusted amounts implied a reduction of EUR 109 thousand in deferredtax liabilities and a reduction of EUR 1,084 thousand in deferred tax assets in 2008.

In 2009 and 2008 CEPSA took the following tax credits for environmental investments pursuant to Article 35 of theSpanish Corporation Tax Law (in thousands of euros):

General Tax Regime 2009 2008

Environmental investments 21,087 41,031Tax Credit 843 2,462

Also, pursuant to Article 94.1.a ("Tax Credit for Investment in the Canary Islands”) of Canary Islands Tax Law 20/1991, of7 June, the following tax credit for environmental investments in the Canary Islands was taken (in thousands of euros):

Canary Island Tax Regime 2009 2008

Environmental investments - 21Tax Credit - 5

At 31 December 2009 and 2008 CEPSA did not have any material unused tax credits.


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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 permanentestablishment.

The tax on remuneration for production activities in force in Algeria is deemed to be of the same nature as the Spanishcorporation 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. Newlegislation, 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 onremuneration for production activities, under “Other Taxes” in the income statement. The tax chargeable in thisconnection amounted to EUR 191,074 thousand and EUR 230,852 thousand in 2009 and 2008, respectively.

The tax inspection authorities reviewed the returns filed by CEPSA for various taxes, including the excise tax on oil andgas and income tax, and issued tax assessments, which were signed on a contested basis. CEPSA filed the relatedappeals against these assessments at the appropriate courts. The Company recognised a provision for the full amountof these assessments and for the related late-payment interest accrued until 2009 year-end (see Note 12) and paid theassessments for income tax, amounting to EUR 350 thousand.

Under current legislation, taxes cannot be deemed to have been definitively settled until the tax returns filed have beenreviewed by the tax authorities or until the four-year statute-of-limitations period has expired. At 2009 year-end the taxinspection of 2000 to 2004 for all taxes concluded, without giving rise to any discrepancies regarding the returns underreview that could give rise to unprovisioned liabilities. CEPSA has 2005 onwards open for review for income tax and theother taxes applicable to it. The Company’s directors consider that the aforementioned taxes have been settled correctlyand that, therefore, even if discrepancies arose with respect to its interpretation of current legislation in its tax treatmentof transactions, any potential liabilities, should they arise, would not have a material effect on the accompanyingfinancial statements.

In the opinion of the Company´s Directors and its tax advisors, transactions with related parties are carried at marketvalue, transfer prices are adequately supported and it is estimated that there are significant risks in this aspect ofthose resulting liabilities for future consideration for the company.

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15. FOREIGN CURRENCY BALANCES AND TRANSACTIONS

The detail of the of the most significant balances and transactions in foreign currency, valued at the year-end exchangerate and the average exchange rates for the year, is as follows (in thousands of euros):

2009 2008

Receivable accounts 436,384 276,291 Loans signed 107,953 122,457 Other assets 18,413 28,589

Accounts payable 150,498 33,303 Bank borrowings 471,182 535,367 Other liabilities 411,194 341,413

Sales 3,931,355 5,630,190 Purchases 937,100 1,410,916 Services provided 538 672 Services received 180,464 200,908 Finance Income 18,371 42,272 Finance Costs 7,795 110,511

The detail, by class of financial instrument, of the exchange differences recognised in profit for the year in 2008 and 2009is as follows (in thousands of euros):

2008

For transactions For balancefinished in the year pending of maturity Total

Financial AssetsCredits 11,376 64,317 75,693 Others 2,032 (4,918) (2,886)

Total financial assets 13,408 59,399 72,807

Financial liabilitiesBank debt (3,587) (47,543) (51,130)Debt securities and other liabilities (10,700) (70,142) (80,842)Others 380 1,625 2,005

Total financial liabilities (13,907) (116,060) (129,967)


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2009

For transactions For balancefinished in the year pending of maturity Total

Financial AssetsCredits 7,308 (22,405) (15,097)Others (1,229) 12,115 10,886

Total financial assets 6,079 (10,290) (4,211)

Financial liabilitiesBank debt (5,283) 21,094 15,811 Debt securities and other liabilities (1,310) 13,048 11,738 Others 1,572 (3,347) (1,775)

Total financial liabilities (5,021) 30,795 25,774

The functional currency of CEPSA’s Exploration and Production business is the US dollar (see Notes 6 and 8).

16. INCOME AND EXPENSES

Importe neto de la cifra de negocios

La distribución del importe neto de la cifra de negocios correspondiente a los ejercicios 2009 y 2008, distribuida porcategorías de actividades y por mercados geográficos, es la siguiente (en thousands of euros):

2009 2008Product Services Product Services

Sales Provided Total Sales Provided Total

National market 11,646,512 185,994 11,832,506 16,957,684 202,559 17,160,243 Rest European Union market 403,969 2,234 406,203 587,456 2,313 589,769 Rest of the world market 1,630,543 258,596 1,889,139 2,139,447 361,630 2,501,077 Total 13,681,024 446,824 14,127,848 19,684,587 566,502 20,251,089

The value of shares arising from strategic stock exchanges arranged by other operators not included in “Revenue” in2009 and 2008 amounted to EUR 153,389 thousand and EUR 1,197,278 thousand, respectively.

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Procurements

The detail of the balances of “Cost of Goods Held for Resale Used” and “Cost of Raw Materials and Other ConsumablesUsed” in 2009 and 2008 is as follows (in thousands of euros):

2009 2008

Goods consumedPurchases 754,801 953,899

Raw materials and other materials consumedPurchases 9,479,445 14,882,124 Changes in inventories (137,290) 261,148

Other external expenses 10,399 10,365 Total 10,107,355 16,107,536

The value of exchanges of strategic stocks arranged with other operators not included in "Net Revenue" in 2009 and2008 amounted to EUR 154,465 thousand and EUR 1,275,393 thousand, respectively.

Detail of purchases by origin

The detail, by origin, of the purchases made by CEPSA in 2009 and 2008 is as follows (in thousands of euros):

2009 2008

National 1,866,715 2,699,284 Intra-Community 626,567 1,037,965 Import 7,751,363 12,109,139 Total purchases according origin 10,244,645 15,846,388

Employee benefit costs

The detail of “Employee Benefit Costs” in 2009 and 2008 is as follows (in thousands of euros):

2009 2008

Employer social security costs 34,693 34,105 Pension contributions and provisions to pension allowances (1,463) 5,806 Other employee benefit costs 10,285 12,431 Total employee benefit costs 43,515 52,342


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Other results

The detail of “Other Results” in the income statements is as follows (in thousands of euros):

2009 2008

Expenses Income Expenses Income

Expenses and compensation for accidents 6,723 119 3,025 402 Environmental contingencies 837 - 1,475 - Penalties and fines 711 3 863 - For litigation and other disputes (33) - 2,440 - Indemnity for loss of profits - - - 241 Exceptional income due to bad debt recovery - 11 - - Other indemnities - 424 - 656 Excessive penalties relating to income tax - 218 - 1,025 Total 8,238 775 7,803 2,324

17. RELATED PARTY TRANSACTIONS AND BALANCES

Related party transactions

CEPSA performs its transactions with related parties on an arm’s length basis.

In 2008 and 2009, CEPSA performed related party transactions in relation to the following items (in thousands of euros):

2008

Other Group Companies Associates and Others TotalPurchases (12,081,051) (77,136) (12,158,187)Services received (182,692) (152,739) (335,431)Interest paid (41,035) (4,756) (45,791)Sales 10,377,431 651,689 11,029,120 Services provided (162) - (162)Interest collected 52,034 8,829 60,863 Dividends received 232,851 54,409 287,260 Total (1,642,624) 480,296 (1,162,328)

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2009

Other Group Companies Associates and Others Total

Purchases (7,383,651) (88,603) (7,472,254)Services received (157,238) (143,837) (301,075)Interest paid (7,369) (3,042) (10,411)Sales 7,888,219 469,381 8,357,600 Services provided (50) 2 (48)Interest collected 12,208 6,578 18,786 Dividends received 220,430 31,826 252,256 Total 572,549 272,305 844,854

Related party balances

In addition, at the end of 2008 and 2009, CEPSA held the following balances with related parties (in thousands of euros):

2008


Non-current financial assets and investments 1,647,475 218,283 1,865,758Equity instruments 1,086,401 185,723 1,272,124Loans to companies 561,068 32,555 593,623Other financial assets 6 5 11

Trade receivables 820,030 64,027 884,057Current financial assets and investments 316,691 159,872 476,563

Equity instruments - - - Loans to companies 316,691 147,872 464,563Derivatives - - - Other financial assets - 12,000 12,000

Non-current payables (31,507) (223) (31,730)Current payables (743,930) (115,904) (859,834)Trade payables (329,418) (192,645) (522,063)

Total 1,679,341 133,410 1,812,751


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2009


Non-current financial assets and investments 1,499,558 246,812 1,746,370Equity instruments 1,084,403 185,723 1,270,126Loans to companies 415,149 61,087 476,236Other financial assets 6 2 8

Trade receivables 1,095,520 51,625 1,147,145Current financial assets and investments 346,494 189,732 536,226

Equity instruments - - - Loans to companies 345,833 189,732 535,565Derivatives 661 - 661Other financial assets - - -

Non-current payables (31,884) - (31,884)Current payables (781,058) (13,440) (794,498)Trade payables (539,847) (203,042) (742,889)

Total 1,588,783 271,687 1,860,470

Remuneration of directors and senior executives

The detail of the remuneration received by the directors at CEPSA in 2009 and 2008, classified by concepts, is as follows(in thousands of euros):

2009 2008

Fixed remuneration 800 1,054 Variable remuneration 218 310 Attendance fees 288 307 Remuneration per By-laws 3,603 3,603 Other items 12 1,844 Pension funds and plans: contributions 943 750 Total 5,864 7,868

On 27 June 2008 the executive chairman retired and vacated his position, which was taken up by a non-executivechairman.

Pursuant to Article 127 ter.4 of the Spanish Companies Law, introduced by Law 26/2003 of 17 July which amendsSecurities Market Law 24/1988 of 28 July and the Consolidated Spanish Companies Law, in order to reinforce thetransparency of listed corporations, the directors have made the disclosures to which the aforementioned Article refers.

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Following is a detail of the companies engaging in an activity that is identical, similar or complementary to the activitythat constitutes the company object of Compañía Española de Petróleos S.A. in which the members of the Board ofDirectors own equity interests, and of the functions that they discharge thereat.

Director Investee Line of Business % of Ownership Function

Member of the Executive Committee and General

Not significant Manager of Refining D, Michel Bénézit TOTAL, S,A, Energy and Marketing

General manager of corporatedevelopment - Financial

D, Humbert de Wendel TOTAL, S,A, Energy Not significant Division General manager of Explorationand Production Research and

D, Patrick Pouyanné TOTAL, S,A, Energy Not significant Development StrategyGeneral Manager of

D, Eric de Menten TOTAL, S,A, Energy Not significant Marketing EuropeGeneral Manager of Styrene-

Dña, Bernadette Spinoy TOTAL, S,A, Energy Not significant Polymer purchase logistics

Also, pursuant to the aforementioned law, we set forth below the activities carried on by members of the Board ofDirectors that are identical, similar or complementary to the activity that constitutes the company object of CompañíaEspañola de Petróleos S.A., except for those carried on at other consolidated CEPSA Group companies.

Director Line of Business System under wich Company through wich the Position or Function at thethe Activity is Performed Activity is Performed Company Concerned

Member of the Executive Committee and General

Integrated oil Manager of Refining and D, Michel Bénézit company As an employee TOTAL, S,A, Marketing

General Manager of Integrated oil Styrene-Polymer purchase

Dña, Bernadette Spinoy company As an employee TOTAL,S,A, logisticsGeneral manager of

D, Murtadha Al Hashmi Oil transport As an employee IPIC Financial DivisionIntegrated oil General Manager

D, Eric de Menten company As an employee TOTAL, S,A, of Marketing EuropeGeneral manager of Exploration and Production

Integrated oil Research and Development D, Patrick Pouyanné company As an employee TOTAL, S,A, Strategy

Proyect management D, Saeed Al Mehairbi Oil transport As an employee IPIC division director

General manager of Integrated oil corporate development -

D, Humbert de Wendel company As an employee TOTAL, S,A, Financial DivisionD, Khadem Al Qubaisi Oil transport As an employee IPIC Chief Executive Officer

Director of Strategy D, David Forbes Oil transport As an employee IPIC Deparment


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The following Board members discharge director or executive offices at other Group companies and associates.

Director Corporate Name of the Subsidiary Position or Function at the Company

D,Dominique de Riberolles CEPSA Química, S,A, ChairmanCEPSA Gas Comercializadora, S,A, DirectorCEPSA Estaciones de Servicio, S,A, ChairmanCEPSA Chimie Bécancour ChairmanPetresa America, Inc, DirectorInterquisa Canada Inc, DirectorCEPSA Chimie Montréal ChairmanDeten Química, S,A, ChairmanCompañía Logistica de Hidrocarburos, CLH, S,A, Director

At 31 December 2009 and 2008, the Board of Directors was made up of 13 members, one of whom was a woman and 12were men.

In 2008 the remuneration received by senior executives who are not executive board members at CEPSA amounted toEUR 6,535 thousand. That relating to 2009, by item, was as follows (in thousands of euros):

Board of Directors Remuneration

Fixed remuneration 4,295Variable remuneration 740Other items 532Pension funds and plans: contributions 1,733Total 7,300

Senior executives receive an annual fixed and variable remuneration payment. The latter is calculated as a percentageof the fixed remuneration, with said percentage being conditional upon the level of achievement of the objectivesestablished for the year. These objectives, which are subject to measurement and control systems, are determined onthe basis of the earnings of the Consolidated Group, occupational safety rates, operating aspects of the business, suchas the performance of projects pursuant to established criteria relating to price, quality and deadline, and individualperformance

The number of members of senior executive has changed from 14 to 15 in 2009.

The Company has not granted any advances or loans to its Board members or to senior executives.

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Financial structure

The Company is the Parent of the CEPSA Group, whose consolidated financial statements may be viewed on its website(www.cepsa.com). The CEPSA Group is organised and manages its businesses in four areas:

- Exploration and Production, which includes the oil and gas prospecting and production activities.

- Refining and Distribution, covering supply, refining and distribution.

- Petrochemicals, which includes their production, distribution and marketing.

- Gas and Electricity, comprising the production of electricity from combined heat and power sources, its distributionand retailing, together with natural gas.

There are also various support and functional areas that provide across-the-board services to Group companies. Inthis respect the Group’s financial structure hinges on its Corporate Finance and Risk Department, which centralisesand manages, inter alia, the net global cash flow position of the various Group companies and also manages recourseto financial markets for loans and the investment of surpluses, selecting the best financing alternative in each case,all in compliance with the established policies and under the supervision of the Group’s senior executives.

18. INFORMATION ON THE ENVIRONMENT

At the end of 2008 and 2009 CEPSA had the following significant items of property, plant and equipment which it usedfor minimising environmental impact and for protecting and improving the environment, classified in accordance withtheir use (in thousands of euros):

2008

Gross carrying amount Accumulated Depreciation Net carrying amountWater 53,729 (31,074) 22,655 Air 210,892 (58,025) 152,867 Waste 522 (312) 210 Soil/ground water 477 (104) 373 Others/Noise 5,858 (478) 5,380 Total 271,478 (89,993) 181,485

2009

Gross carrying amount Accumulated Depreciation Net carrying amountWater 63,775 (32,946) 30,829 Air 230,593 (61,040) 169,553 Waste 630 (338) 292 Soil/ground water 714 (115) 599 Others/Noise 7,081 (672) 6,409 Total 302,793 (95,111) 207,682


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Also, the expenses incurred in 2008 and 2009 (including in-house resources), and expenditure for the purpose ofprotecting and improving the environment, by the purpose thereof, were as follows (in thousands of euros):

Expenses Investment2009 2008 2009 2008

Water 17,516 12,998 5,137 4,379 Air 24,301 21,967 25,447 81,843 Waste 2,190 1,416 110 50 Soil/ground water 1,296 1,497 377 - Others/Noise 5,659 6,970 2,783 2,623 Total 50,962 44,848 33,854 88,895

The contingencies covered by provisions for environmental action in 2008 and 2009 were as follows (in thousands ofeuros):

2008

Balance at 01/01/08 Additions Amounts used Balance at 31/12/08Provisión para riesgos y obligaciones medioambientales 7,610 1,475 (1,475) 7,610 Total 7,610 1,475 (1,475) 7,610

2009

Balance at 01/01/08 Additions Amounts used Balance at 31/12/08Provisión para riesgos y obligaciones medioambientales 7,610 - - 7,610 Total 7,610 - - 7,610

In accordance with the definition contained in the Spanish Accounting and Audit Institute (ICAC) Resolution, approvingthe rules for the recognition, measurement and disclosure of environmental matters in financial statements,environmental investments were identified for the purpose of this classification.

In order to contribute to sustainable development CEPSA has programmes in place for the ongoing improvement of itsproduction processes, the reduction of waste water, the elimination of spills and the management of waste. To achievethis it has implemented and keeps updated an environmental management system, an instrument that enables it tocomply with its statutory obligations and to enhance the aforementioned areas on an ongoing basis. CEPSA’senvironmental investments reflect the commitments it has acquired through its environmental targets.

The most significant environmental assets recognised by CEPSA under “Plant” are: plants for the recovery of sulphur,plants for the treatment of amino acids and acidified water, waste water treatment plants (chemical and biological) andtechnical improvements to equipment, production plants and to target enhanced energy efficiency and the reductionof COV and NOx emissions.

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Company management does not expect any contingencies to arise in connection with its actions in this respect.However, it has arranged insurance policies to cover potential risks that could arise from its activities, except for thatof gradual soil pollution, the only contingency not covered in the insurance policies. CEPSA has therefore recogniseda provision in this connection totalling EUR 7,610 thousand (see Note 12).

19. OTHER DISCLOSURES

Emplyees

The average number of employees in 2009 and 2008, by category, was as follows:

Profesional Category 2009 2008(Average Number of Employees)

Management 53 57Departament Heads 257 256Other line personal 1,259 1,250Specialists / Assistants 1,511 1,478Total 3,080 3,041

The headcount at 31 December 2009 and 2008, by category and gender, was as follows:

Profesional Category and gender

2009 2008Categoría profesional Men Women Men Women

Management 53 1 56 1Departament Heads 225 35 217 33Other line personal 1,046 229 1,026 219Specialists / Assistants 1,250 250 1,278 232Total 2,574 515 2,577 485

Fees paid to auditors

The balance of “Independent Professional Services” under “External Services” in the accompanying income statementfor 2009, includes the fees for the audit of the Company’s individual and the Groups consolidated financial statements,amounting to EUR 727 thousand. The heading also includes fees for other services billed by the auditors amounting toEUR 40 thousand. In 2008 the fees for the audit of the financial statements amounted to EUR 749 thousand and the feesfor other services billed by the auditors or other entities related to the auditors amounted to EUR 181 thousand.


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20. OFF-BALANCE SHEET AGREEMENTS

Guarantee commitments to third parties and other contingent liabilities

At 31 December 2009 and 2008, CEPSA had provided guarantees to various entities, mainly to secure financing to Groupcompanies and in connection with supply contracts. The detail of these guarantees is as follows (in thousands of euros):

2009 2008

Bank guarantees to public authorities as a result of CEPSA’s business activities(1) 154,690 147,559 Guarantees provided by CEPSA to finantial institutions

As a result of guarantees issued by such institutions to public authorities for the operationsof subsidiaries (2) 110,161 114,993 As a result of financial transactions of Group subsidiaries (3) 445,546 581,046

Other guarantees 69,190 56,934 Total 779,587 900,532

As regards 2009::

(1) Includes guarantees provided to public authorities totalling EUR 75,166 thousand relating to subsidised loans andwhich had already been recognised on the liability side of CEPSA’s balance sheet.

(2) Includes guarantees of EUR 50,528 thousand in connection with subsidised loans granted to subsidiaries by publicauthorities and which had already been recognised on the liability side of the consolidated balance sheet.

(3) These transactions had already been recognised on the liability side of the consolidated Group’s balance sheet.

CEPSA management does not consider that any unforeseen liabilities that could arise from the guarantees providedat 31 December 2009 would be material.

21. INFORMATION ON GREENHOUSE GAS EMISSION RIGHTS

The delivery of all the rights assigned under the 2005-2007 plan were registered in the Spanish National GreenhouseGas Emission Rights Registry (RENADE). On 1 January 2008, the new national plan for the 2008 to 2012 period came intoforce.

The rights assigned to CEPSA for no consideration during the period 2005 – 2009 were as follows:

(thousands metric tons)

2005 2006 2007 2008 2009

Assigned allowances 3,287 3,287 3,287(1) 3,519(1) 3,5651) In 2008 rights equivalent to 211 thousands Mt of CO2 relating to 2007 due to re-assignment under the 2005/2007 plan were delivered.

The assignment of rights 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, EUR 22.73/Mt in 2008 and EUR 15.74/Mt in 2009.

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In 2008 no rights were purchased and no forward contracts referring to rights were traded, In 2009, 500 Mt were tradedin contracts whereby allocated allowances (EUAs) were exchanged for certified emissions (CERs), generating an inflowof cash of EUR 820 thousand for CEPSA.

At 2009 year-end the market price of the greenhouse gas emission rights was EUR 12.28/Mt. Consequently, and inapplication of the criteria contained in the ICAC resolution mentioned earlier (see Note 4-r), an impairment on therights assigned for no consideration was recognised under both “Intangible Assets” and “Grants, Donations or Giftsand Legacies Received”.

The changes in 2008 and 2009 were as follows:

2008

MT thousand of eurosGreenhouse Gas Tangible assets Deferred Income Provisions for Current

Emission Allowances (See note 5) ((See note 111) Contingencies and Expenses

Balance at 31.12.2007 3,482 70 7 63 Assignment for no consideration 3,730 80,011 80,011 - Additions/period provisions - - - 50,017 Reductions/amounts used (3,693) (74) (50,017) (63)Depreciation - (26,162) (26,173) -

Balance at 31.12.2008 3,519 53,845 3,828 50,017

2009

MT thousand of eurosGreenhouse Gas Tangible assets Deferred Income Provisions for Current

Emission Allowances (See note 5) (See note 11) Contingencies and Expenses

Balance at 31.12.2008 3,519 53,845 3,828 50,017 Assignment for no consideration 3,565 56,117 56,117 - Additions/period provisions 46 691 - 36,276 Reductions/amounts used (3,296) (50,336) (37,554) (50,068)Cer`s exchange (7,552)Depreciation (11,106) (11,106)Balance at 31.12.2009 3,834 41,659 11,285 36,225

The value of the emissions made is recognised under “Other Operating Expenses” in the accompanying incomestatement and a “Short-Term Provision” was recognised as a balancing item to cater for the obligation to deliver to thegovernment the emission rights relating to each of the years. In 2008 and 2009, emissions were estimated at 3,693 Mt,with a value of EUR 50,017 thousand and at 3,240 Mt with a value of EUR 30,276 thousand, respectively.


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The use of the grant for rights assigned for no consideration, which is recognised under “Grants, Donations or Gifts andLegacies Received” (see Note 11), gives rise, as the emissions are produced, to recognition under “Allocation to Profitor Loss of Grants Related to Non-financial Non-current Assets and other Grants” in the income statement.

In 2008 and 2009 the estimated emissions were lower than the volume of rights assigned for each year and, accordingly,the Company had surplus rights of 250 thousand tonnes in 2008 and 325 thousand tonnes in 2009. Companymanagement does not expect the final certification of the rights taken into account to give rise to any significantliabilities.

In 2010 the rights relating to emissions made in 2009 will be delivered to the Spanish government and the amountcorresponding to such rights will be derecognised from “Intangible Assets” and “Short-Term Provision”.

Company management does not expect any contingencies to arise in this connection.

22. RISK MANAGEMENT POLICY

Main risks associated with the CEPSA's operations

The CEPSA carries on its activities in environments marked by a series of external factors, the changes in which couldaffect the manner in which operations are performed and the results obtained therefrom. These activities are managedthrough the application of policies whose main objective, in accordance with the strategy established by the Company’smanagement, is the optimisation of the ratio of costs to risks covered.

The strategic and budget planning processes involve estimating the effect of business risks and a sensitivity analysisis performed for the main variables in order to gain comprehensive insight on their impact.

CEPSA publishes an annual Corporate Governance Report which contains, among other matters, an extensivebreakdown of the economic, social and environmental actions performed and on their contribution to sustainabledevelopment. The 2008 Report was prepared in accordance with the directives of the Global Reporting Initiative (GRI).

The Executive Committee, the Managing Director, together with the Directors of the respective divisions, supervise andmonitor risks on a regular basis, and adjust risk profiles, where necessary, depending on the circumstances. In the areaof environmental protection, safety and quality, the basic function of the P.A.S.C.A.L. Committee is to periodically reviewthe risks of this type and to propose, where appropriate, measures aimed at compliance or change. In the field ofinformation security, a Corporate Security Committee is entrusted with monitoring and fostering compliance withinformation security measures.

CEPSA has established risk control systems that may affect investments and developing activities, which are appropriateto the Group's risk profile.

The main risks to which the Group is exposed can be grouped in the following categories:

Market risks

The nature of CEPSA’s businesses entails a certain degree of sensitivity to the changes in and volatility of oil and gasprices, 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 theirspecific impact on the Group's business units or areas.

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In this respect it is to be noted that a rise in the level of crude oil prices has a positive impact on the earnings of theExploration and Production division. However, this impact can be dampened due to the application of the clauses of theProduction Share Contract (PSC)-type agreements and their effect on the quantities of crude oil to be received by CEPSAand that are available for sale.

Fluctuations in crude oil prices also have an effect on product refining and marketing operations, the scale of whichdepends, among numerous other factors, on the speed with which price changes in energy products or basepetrochemical products at source can be relayed to the international and local finished goods markets.

In accordance with the sensitivity analysis performed, at 31 December 2009 and 2008, a 10 dollars increase in a similardates in the price of a barrel of oil would lead to an approximate increase in net profit without the effect of Non-Recurring elements, of EUR 34 and EUR 48 million respectively. Also, a 10 dollar cents increase in the refining marginper barrel would imply approximate growth in the aforementioned aggregate of EUR 9 million in both years.

With respect to fluctuations in prices of crude oil and oil products in international markets, CEPSA arranges andoperates a price risk hedging system that protects from price fluctuations variations in stocks of crude and oil productsabove and below levels of operating stock previously defined as stock at risk and reviewed annually to ensure thatstrategic stock and minimum operating stock requirements are met. These fluctuations are hedged with Brent crudein the IPE futures market, where excess operating stocks are offset by future sales and insufficient volume of operatingstocks is offset by future purchases.

Capital Management, Foreign currency, interest rate and other financial risks

The CEPSA's operations are exposed, in varying degrees, to risks of fluctuations in the financial markets.

The maintenance of a sound capital structure and adequate risk control are prime objectives of the Group, as it allowsthem to tackle any possible changes in economic and industry-based circumstances and, above all, ensures readinessto take on developments and new profitable business opportunities which may act as an additional driver of growth andcontribute significant value for shareholders.

The most serious risk arises from fluctuations in the euro exchange rate versus the US dollar, the currency in whichcrude oil, and oil and petrochemical products are priced, with respect to the euro. Exposure to this kind of risk is hedgedin accordance with the Group's internal policy. From the operational standpoint, is centralised and managed the foreigncurrency risk exposure of the Group companies’ net global foreign currency cash flow position.

Also in the Group is centralised the managing of the recourse to financial markets for loans, investment of surplusesand financial instruments.

In the case of foreign investments in long-term assets which will generate future cash flows in foreign currencies, theGroup minimises its foreign currency exposure by arranging financing in the same currency. This means that the foreigncurrency financing covers, to a certain extent, the foreign currency risk arising from the future cash flows generatedby these assets.

At 31 December 2009 and 2008 net debt in dollars amounted to USD 465,084 million and USD 531,724 million,representing 28.31% and 43.30% respectively of total consolidated debt.


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In accordance with the sensitivity analysis performed, at 31 December 2009 and 2008, a 5 cents depreciation of thedollar against the euro would lead to an approximate decrease in net profit without the effect of Non-Recurring elementsof EUR 29 million and EUR 32 million respectively and an increase in equity, excluding the aforementioned effect onprofit, of EUR 18 million and EUR 19 million respectively.

Operations are also sensitive to interest rate changes. CEPSA has arranged most of its debt at floating rates, taking intoaccount the low debt ratio and because it considers that this financing method will entail a lower cost at long term.

In relation to liquidity risk management, in order to manage potential short-term fund requirements, the Company hascredit facilities available, as detailed in Note 13 of the notes to the financial statements and available Treasury, to theundrawn balance of which does not bear interest.

The banks with which the Group operates are leading Spanish and international entities of renown; however, thecounterparty risk in investments and financial instruments contracts is analysed.

Industrial risks, prevention and safety

The safety control system applied is included in the “Risk Prevention Manual” and its “Basic Standards”, in accordancewith the OHSAS 18.001-2007 international specifications. Also in place are action procedures that reflect the standardsdeveloped in accordance with best practices, which ensure the maximum possible level of safety, paying specialattention to the elimination of risk at source. The objective of this system is ongoing improvement in risk reduction,focused on various activities, such as work planning, the analysis and monitoring of corrective actions derived fromincidents and accidents, internal audits, periodic inspections of the facilities and supervision of maintenance work andoperations.

Environmental risks

Certain of the CEPSA ’s activities have an impact on the environment through emissions into the air, water, soil andground water and also through the production and management of waste. Since 2007 this type of impacts are regulatedby the Integrated Pollution Prevention and Control Directive and its transposition into Spanish Law 16/2002. In thisconnection, all the Group’s industrial plants were awarded their Integrated Environmental Permits, which involverigorous control over their processes with the aim of minimising impact on the environment. Nevertheless, for manyyears now, one of Cepsa's longstanding primary objectives has been to minimise the impact of its activities on theenvironment in which it operates its industrial plants, which is reflected in its internal environmental protection policiesand is regulated by the Basic Environmental Standards.

A summary of the measures adopted in order to minimise impacts, by area, is as follows:

• Air – Internal procedures are applied with the aim of controlling and managing impacts and control networks havebeen implemented, in relation to both emissions and inmissions, consisting of continuous measurements. The dataobtained is sent in real time to the competent authority.

• Discharges into waterways – CEPSA has industrial waste treatment plants at all of its facilities which allow wastedischarged into waterways to be controlled and significantly reduces the impact on the environment. As in the caseof air emissions, the data relating to the parameters of industrial waste are sent in real time to the competent authorityand environmental controls are also performed on both the waterways and sediments.

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• Soil/ground water – All the facilities are equipped with piezometric control networks which show the state of the soiland ground water at any given time and allow prompt measures to be taken in the event of an incident, thusminimising the impact on this area.

• Waste – In its activities Cepsa has established a preventative policy regarding the production of waste, encouragingits reduction, reuse, recycling and recovery with the aim of protecting the environment and human health.

• Protection against Accidental Marine Pollution – The Group carries out all the actions geared towards compliance withthe provisions of the Domestic Contingency Plan for Accidental Marine Pollution and those specified in internalprocedures for the prevention and solution of this type of pollution. The Group carries out all the actions required toimprove the operations of the maritime terminals or facilities, minimising the risk arising from activities.

• Exploration and crude oil production - In its operations in Algeria, CEPSA applies strict environmental criteria inorder to minimise the impact of its activities with the utmost respect for the natural environments in which it operatesand the indigenous communities in these areas.

Since 1995, Cepsa has been carrying out analyses and assessments of the environmental risks of its activities with theaim of managing and controlling them in order to reduce possible incidents which could lead to significant impacts onthe environment or biodiversity. In this connection, the aforementioned analyses were carried out at various Groupplants which were adapted to UNE 150008:2008 standard on Analysis and Assessment of Environmental Risks, abenchmark standard in Spain.

Also, all of Cepsa's large industrial plants are equipped with environmental management systems certified by externalbodies. The primary objective is to obtain certification for the few activities which are still uncertified.

In this connection, claims may be filed against the CEPSA by affected parties for environmental damage caused by itsoperations inside or outside of its facilities. As far as it is currently aware, management considers that the accountingprovisions recognised in this connection and the insurance policies arranged will cover all possible outcomes.Management has yet to determine, on the basis of the related legislation to be enacted, the amount of the financialguarantees that could be required as a result of the application of the Regulation partially implementing theEnvironmental Liability Law at certain of the Group’s plants.

The amounts of the financial guarantees will be determined as soon as the regulations implementing the law and theenvironmental liability regulations are enacted.

Also, certain of the Group’s production facilities must comply with the requirements of the regulations affectinggreenhouse gas emissions. In 2008 and 2009 the emissions from the plants affected by this regulation, verified byAENOR, were, overall, slightly less than the allowances granted under the National Allocation Plan.

Equity risk

The Company has taken out insurance to cover the risk of damage to property, including the breakdown of machineryand the control of crude-oil wells involved in exploration and production; the risk of loss of profits arising from damageto property; third-party liability of both CEPSA and its employees or directors during the performance of activities andderiving from damage to property or personal injury to third parties or employees caused by occupational accidents andthe risk of loss or damage during the transport of crude oil, products and equipment.


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Customer credit risks

Commercial loans and collections are managed in accordance with periodically updated “Internal Regulations andProcedures”. This regulation determines commercial credit limits for each customer, establishes the most appropriatecollection instruments, includes the actions to be performed for managing default and the monitoring and control ofthe assigned credit limits.

The Group also uses risk analysis computer systems to process internal and external data in an integrated andautomated manner. Such data are assessed by applying the models established to classify each customer’s commercialrisk and assign the related credit limit. Insurance policies have also been taken out to cover the risk of customer defaultin certain commercial areas.

Following is a detail of past-due receivables that had not been provisioned and of total unmatured receivables, includedunder "Trade and Other Receivables" (see Note 2.e) at the end of 2009 and 2008 (in thousands of euros):

Maturity 2009 2008

Not maturity debt 566,570 541,897 0-30 days maturity debt 37,498 44,624 31-90 days maturity debt 12,547 20,749 90-180 days maturity debt 3,259 7,072 More than 180 days maturity debt 1,484 3,414 Total 621,358 617,756

As discussed previously, credit insurance policies have been arranged that cover the risk of default on a portion of thepast-due receivables that have not been provisioned. Also, guarantees have been provided that cover another portionthereof.

Risks related to the security of information.

CEPSA has a security organisation in charge of ensuring the availability, integrity, confidentiality and auditability of theinformation required for the correct performance of the Group's activities with an adequate level of risk and cost.

The Group has an Information Security Management System based on the reduction of risk, which was awarded thehighest ISO 27001 international certification.

Other risks

CEPSA has various litigation in process in relation to its business, including tax and competition disputes and is alsosubject to tax inspections for the years still open for review.

Although the final outcome of these matters cannot be foreseen, the Group’s management considers that, based oncurrent information, the provisions recognised adequately cover risks of this nature.

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The audits of income tax for 2000 to 2004 of the CEPSA Tax Group were completed in the first quarter of 2008 and nodiscrepancies arose in the tax returns reviewed which might give rise to liabilities for which provisions had not beenrecognised.

Risks relating to changes in the legislation applicable to the activities and/or industry

The activities carried on by the Group, in Spain or abroad, are subject to various legislation. Any amendments madethereto could affect the structure under which activities are performed and the results generated by operations.

The industry in which CEPSA operates is basically governed by Oil and Gas Industry Law 34/1998 of 7 October, RoyalDecree Law 15/1999, of 1 October, approving measures for the liberalisation, structural reform of and enhancedcompetitiveness in the oil and gas industry; Law 16/2002 on Integrated Prevention and Control of Pollution, Royal DecreeR.D. 1716/2004, of 23 July regulating the obligation to maintain minimum security stocks, the diversification of naturalgas supplies and Corporación de Reservas Estratégicas de Productos Petrolíferos (Corporation of Strategic Reservesof Oil-based Products); Royal Decree 398/1996, of 1 March, and implementing regulations on the specifications of petroland diesel for vehicles; Royal Decree Law 6/2000, of 23 June, on urgent measures for enhancing competitiveness in thegoods and services markets; Law 9/2006, of 28 April, on the assessment of the effects of certain environmental plansand programmes; Royal Decree 61/2006, of 31 January, setting the specifications for petrol, diesel, fuel oil and liquidpetroleum gases, which regulates the use of certain biofuels and the sulphur content of fuels for seafaring vessels;Royal Decree 679/2006, of 2 June, regulating the management of used oils; Royal Decree 1370/2006, of 24 November,approving the 2008-2012 Spanish National Allocation Plan for greenhouse gas emission allowances; EU Council Decisionof 14 October 2004 concerning the conclusion, on behalf of the European Community, of the Stockholm Convention onPersistent Organic Pollutants; Directive 2008/1/EC of the European Parliament and of the Council of 15 January 2008concerning integrated pollution prevention and control, known as the IPPC Directive; Environmental Liability Law26/2007 of 23 October, transposing Directive 2004/35/CE of the European Parliament and of the Council of 21 April 2004;and Royal Decree 2090/2008, of 22 December, approving the regulations partially implementing the aforementionedRoyal Decree 1/2008, on environmental impact assessment, Law 34/2007 on air quality and air protection.

As regards environmental matters, CEPSA has implemented the “Basic Environmental Regulations” and the proceduresimplementing them, the objectives of which include compliance with the applicable legal requirements. CEPSA alsostrengthens its commitment to environmental protection with the implementation of its “Biodiversity Regulations”,regulating the measures to be taken to conserve the habitats and species in the environments in which it carries on itsactivities.

It is to be noted that Cepsa has implemented an environmental management system, certified under the UNE-EN ISO14001 standard and Regulation (EC) No 761/2001 of the European parliament and of the Council, of 19 March 2001,allowing voluntary participation by organisations in a Community eco-management and audit scheme (EMAS), at themajority of its business centres by outside entities accredited by ENAC (Spanish National Accreditation Entity).

In the field of occupational risk prevention CEPSA’s “Basic Occupational and Industrial Risk Prevention Regulations”not only comply with the statutory requirements, but also include other principles considered necessary to achievehigh safety standards in its business areas. Its “Corporate Management Manual for the prevention of occupational andindustrial risks” and other procedures ensure the correct operation of the production process, from the design of itsfacilities to the marketing of products.


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Risks materialising in 2009

In 2009 no significant asset losses due to accident took place. Furthermore, doubtful receivables from sales tocustomers improved compared to 2008 and were appropriately provisioned.

The implementation of ongoing improvements to the risk control systems is producing a gradual reduction in accidents,particularly in the area of occupational safety, borne out by the accident frequency rate (number of accidents leadingto absence from work per million hours worked), which was 1.90 in 2009.

23. EVENTS SUBSEQUENT TO YEAR-END

At the date of preparation of these financial statements, no significant events subsequent to 2009 year-end that couldalter or have any effect of the financial statements presented had taken place.

24. EXPLANATION ADDED FOR TRANSLATION TO ENGLISH

These financial statements are presented on the basis of accounting principles generally accepted in Spain. Certainaccounting practices applied by the Company that conform with generally accepted accounting principles in Spain maynot conform with generally accepted accounting principles in other countries.

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Detail of companies in which CEPSA has significant direct holdings at December 2009:,(Thousands of euros)

EquityCapital

Net Cost of Name Registered Office Line of Business % of Ownership Sub-scribed Paid Net Profit Investment

Oil Refining ASFALTOS ESPAÑOLES, C/ Orense, 34 4ª Planta, for obtaining S,A, (ASESA) 28020 MADRID, ESPAÑA asphalt products 50% 8,529 8,529 14,236 17,869ATLAS, S,A, C/ Playa Benitez, s/n,COMBUSTIBLES Y 51004 CEUTA, LUBRIFICANTES ESPAÑA Oil and gas trading 100% 3,930 3,930 11,195 4,077

Polígono Industrial Valle de Güimar Manzana XIV, parcelas 17 y 18, 38509 Güimar

C,M,D, AEROPUERTOS Santa Cruz de Tenerife, CANARIOS, S,L, ESPAÑA Jet fuel distribution 60% 21,576 21,576 12,622 12,946

ES, Comb, Aviac, Camino de San Lázaro, s/n Zona ind, Aerop, Tenerife Norte Los Rodeos, 38206 San Cristobal de la Laguna - Sta, Cruz de Tenerife, Oil and gas

CEPSA AVIACIÓN, S,A, ESPAÑA transport 100% 954 954 29,760 956

Avda, Ribera del Loiranº 50, 28042 Research and

CEPSA COLOMBIA, S,A, MADRID, ESPAÑA exploration 100% 21,856 21,856 571,232 548,394CEPSA COMERCIAL C/ Embajadores Final, s/n, MADRID, S,A, Apartadero Santa Catalina, (CECOMASA) 28018 MADRID, ESPAÑA Oil and gas trading 100% 1,169 1,169 1,551 0CEPSA E, P,, Avda, Ribera del Loira, nº 50, Research SOCIEDAD ANONIMA 28042 MADRID, ESPAÑA and exploration 100% 3,438 3,438 20,512 16,136

Amsteldijk 166 6Th Floor,1079 LH Amsterdam, Research

CEPSA EGYPT SA, B,V, Netherlands and exploration 100% 10,000 10,000 6,432 7,267CEPSA ESTACIONES DE SERVICIO Avda, Partenón, 12, Service station S,A, (CEPSA EE,SS,) 28042 MADRID, ESPAÑA operation 100% 82,043 82,043 292,795 120,017CEPSA GAS Avda, Partenón nº 12, Gas sale COMERCIALIZADORA, S,A, 28042 Madrid, ESPAÑA and distribution 35% 3,060 3,060 22,066 1,071

Avda, Ribera del Loira, CEPSA nº 50 1ª planta, Gas sale GAS LICUADO, S,A, 28042 MADRID, ESPAÑA and distribution 100% 36,752 36,752 84,466 42,012

Beurs - World Trade CentreOffice 668 Beursplein 37,

CEPSA 3011 AA Rótterdam, INTERNATIONAL B,V, The Netherlands Oil and gas trading 100% 4,060 4,060 34,529 15,210CEPSA LUBRICANTES, Avda, Ribera del Loira 50 3ª, S,A, (C,L,S,A,) 28042 MADRID, ESPAÑA Lubricant trading 100% 15,000 15,000 31,519 15,025

Avda, del Partenòn nº 10 CEPSA MARINE (Campo de las Naciones) 1ª, FUELS, S,A, 28042 Madrid, ESPAÑA Oil and gas trading 100% 25,060 25,060 14,486 25,060

Avda, de Anaga, nº 21, 38001 Corporate services for CEPSA OPERACIONES Santa Cruz de Tenerife bunkering- aviation MARINA-AVIACIÓN, S,A, (Tenerife), ESPAÑA and oil transport 60 60 10,295 60


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Detail of companies in which CEPSA has significant direct holdings at December 2009: (contuinue)(Thousands of euros)

EquityCapital

Net Cost of Name Registered Office Line of Business % of Ownership Sub-scribed Paid Net Profit Investment

Avda, Partenón, 12, Research and CEPSA PERU, S,A, 28042 Madrid, ESPAÑA exploration 100% 933 933 -22,585 0

Rua General Firmino Miguel, CEPSA PORTUGUESA nº 3 Torre 2 2º andar, PETROLEOS, S,A, 1600-100 LISBOA, PORTUGAL Oil and gas trading 100% 30,000 30,000 87,247 125,957

Production Avda, del Partenón nº 12-14, and sales of

CEPSA QUÍMICA, S,A, 28042 MADRID, ESPAÑA petrochemicals 100% 60 60 672,003 80,192Avda, del Partenón, 12, Corporate

CEPSA, S,A, 28042 MADRID, ESPAÑA Services 100% 61 61 77 61COMPAÑÍA LOGÍSTICA DE HIDROCARBUROS C/ Titán, nº 13, Oil product CLH, S,A, 28045 MADRID, ESPAÑA distribution 14% 84,070 84,070 117,882 86,299DERIVADOS ENERGÉTICOS PARA EL TRANSPORTE Y LA INDUSTRIA, Avda, Partenón, 12 1ª Sector A, Oil product S,A, (DETISA) 28042 MADRID, ESPAÑA distribution 100% 12,330 12,330 31,745 12,328

Avda, Ribera del Loira, LUBRICANTES DEL SUR, nº 50, 2ª planta, S,A, (LUBRISUR) 28042 MADRID, ESPAÑA Lubricant trading 100% 6,102 6,102 9,691 24,610

Avda, San Luis, NUEVA GENERADORA nº 77 Edificio C 4ª planta, DEL SUR, S,A, 28033 Madrid, ESPAÑA Power generation 50% 96,000 96,000 54,914 71,100

Explanada de Tomás Quevedo,PETRÓLEOS s/n, 35008 Las Palmas DE CANARIAS de Gran Canarias S,A, (PETROCAN) (GRAN CANARIA), ESPAÑA Bunkering services 100% 120 120 57,447 120

Avda, del Partenón, nº 12 Campo de las Naciones, Sale of fuel and

PETROPESCA, S,L, 28042 Madrid, ESPAÑA lubricant 100% 2,000 2,000 6,907 6,892Avda, Ribera del Loira,

PRODUCTOS ASFÁLTICOS, nº 50 2ª planta, Asphalt S,A, (PROAS) 28042 MADRID, ESPAÑA product sales 100% 3,150 3,150 19,167 5,312

Avda, Columbano Bordalo Supply point PROPEL-PRODUTOS Pinheiro, 108-3º, 1070-067 management DE PETROLEO, L,D,A, LISBOA, PORTUGAL services 93% 224 224 4,514 1,356

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Management Discussion & Analysis Management Discussion & Analysisof 2009 for Compañía Española de Petróleos, S.A.

A review of the environment in which CEPSA conducted its operations, as well as an explanation of the progress of thecompany’s activities in its different segments, the risks associated with its businesses, its financial position and itsresearch & development work and initiatives, can all be found in the Management Discussion & Analysis of the CEPSAGroup.

Likewise, the description therein of key events that took place subsequent to the end of the year and the ConsolidatedGroup’s future prospects and outlook are fully applicable to the parent company CEPSA.

RESULTS

At December 31, 2009, CEPSA’s revenues from product sales mainly on the domestic market amounted to ¤14,128million (¤11,847 million excluding the excise tax on oil and gas charged to sales), down ¤6,123 million from the sameperiod a year ago. The cost of crude oil and product supplies and procurements decreased by a similar amount, ¤6,000million, totaling ¤10,107 million in the year.

Pre-tax income came to ¤609.5 million, climbing 45% from 2008’s figure. After deducting corporate tax and other tax-related expenses, net income stood at ¤406 million, rising 43% from the year before.

Pre-tax income in the so-called “adjusted statement”, valuing inventory at replacement cost, stood at ¤421.9 million,falling 40.7% from 2008.

FINANCIAL AND EQUITY POSITION

At December 31, 2009, CEPSA’s total net assets amounted to ¤8,186 million, ¤4,495 million of which belonged to thenet book value of long-term assets. At this same date, shareholders’ equity stood at ¤4,146 million, financing 51% ofnet assets.

TREASURY STOCK

Neither CEPSA nor any of the companies making up the CEPSA Group directly or indirectly acquired, sold or ownedshares of Compañía Española de Petróleos, S.A. in 2009.

OTHER INFORMATION

Pursuant to the provisions of the amended Securities Market Act 6/2007, the following additional information which isrequired to be reported by listed companies in their management reports is included herein, as follows:


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a) Share Capital Structure

The fully issued and paid-up share capital of Compañía Española de Petróleos, S.A. at December 31, 2009 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 theContinuous Market.

At December 31, 2009, 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 otherwiseprovided for by law.

c) Significant Holdings in the Share Capital

At December 31, 2009, the direct and indirect holders of significant interests in the share capital of Compañía Españolade Petróleos, S.A. were as follows:

Number of voting rightsCorporate name of shareholder Direct Indirect Accumulated % shareholding

Total S.A.* - 130,688,240 130,668,240 48.83%International Petroleum Investment Company (IPIC) 125,926,376 - 125,926,376 47.06%

*Through Odival, S.A.

Changes in the shareholding structure that took place in the year were as follows:

Corporate name of shareholder Date of transaction Description of transaction

Banco Santander, S.A. 30/07/2009 Shareholding fell below 3%Unión Fenosa, S.A. 30/07/2009 Shareholding fell below 3%International Petroleum Investment Company (IPIC) 30/07/2009 Shareholding over 45%

d) Restrictions on Voting Rights

There are no legal or by-law restrictions on voting rights, except as otherwise provided for by law. Nevertheless, Article23 of the Company Bylaws states that right of admission to the Annual General Meeting, with the number of votes eachshareholder is entitled to, is reserved to those shareholders of record who can demonstrate ownership of a minimumof sixty (60) shares, at least five (5) days prior to the scheduled date of the Annual General Meeting on first call.

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e) Shareholder Agreements

Compañía Española de Petróleos, S.A. is unaware of the existence of any agreements or concerted actions among itsshareholders.

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 whatis set forth in laws in force regarding the appointment of Directors according to the system of proportionality, significantshareholders propose nominees to serve on the Board, with the Board of Directors having express powers to co-optmembers 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 be elected for five-year terms and need not be shareholders of the Company.

Directors shall resign from their duties on the Board whenever, upon completion of the period for which they wereappointed, they are not re-elected by the first General, whether Ordinary or Extraordinary, Meeting following completionof such period or the legal period for holding the Annual Meeting that is supposed to approve the financial statementsof the previous year has elapsed, or whenever the Annual Meeting so decides, using the powers granted to it by law orin the Company Bylaws.

Likewise, pursuant to the provisions of the Rules and Regulations of the Board of Directors, Directors must relinquishtheir seats to the Board and tender, if this body deems it advisable, the corresponding resignation in the followingcases:

- 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

Directors affected personally by proposed appointments, re-elections, resignation or removals shall abstain from takingpart in discussions dealing with such matters.

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 ofShareholders 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) percentof the outstanding voting shares of the Company must be present in person or represented by proxy at the Meeting, whiletwenty five (25) percent of this voting capital shall suffice for the second call, in order for the Meeting to have a validquorum to transact the aforesaid business.

When attended by shareholders representing less than fifty (50) percent of the outstanding shares of capital stock ofthe Company entitled to vote, the resolutions to which the preceding paragraph refer may only be validly adopted withthe 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 shall abide by the system set out in the Corporations Act, in Article 144 and subsequentarticles.


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g) Powers Assigned to the Board of Directors

Powers delegated to the Chief Executive Officer of Compañía Española de Petróleos, S.A. include those set forth in theCompany Bylaws, as well as other powers delegated by the Board that may be required to govern and represent theCompany and to undertake transactions involving ownership, management, negotiation and engagement.

The resolutions of the Board of Directors shall be adopted by an absolute majority of Board members in attendance ata 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 June23, 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.

The Board of Directors may use this authorization once or several times and in the manner and amount it deemsadvisable, within a period of five (5) years starting from the aforementioned date of June 23, 2006, and is required toreport on the resolution or resolutions adopted in the first Annual Meeting held thereafter. The Board is likewiseauthorized to nullify, where applicable, the unsubscribed portion of the capital increase(s) resolved under thisauthorization.

The Annual General Meeting of Shareholders held on June 26, 2009, renewed the authorization granted to the Boardof 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 tothe 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, beamended 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 the Chief ExecutiveOfficer, in the event of resignation, dismissal or changes in control as a result of a public takeover bid. In the event ofdismissal, they shall be entitled to the same severance payment system that they would have had in the case of comingunder the collective labor agreement.

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Annual corporate governance report PUBLICLY-TRADED COMPANIES ISSUER IDENTIFICATIONEND OF BUSINESS YEAR: 31/12/2009BUSINESS I.D.: A-28003119Corporate name: COMPAÑÍA ESPAÑOLA DE PETRÓLEOS, S.A.MODEL OF THE ANNUAL CORPORATE GOVERNANCE REPORT FOR PUBLICLY-TRADED COMPANIES

A. OWNERSHIP STRUCTURE

A.1. Company Share Capital

Date of Most Recent Change Share Capital in Euros Number of Shares Number of Voting Rights

June 2, 1999 (*) 267,574,941 267,574,941 267,574,941

(*) Reduction of the share capital by 451,356.28 euros, for purposes of its re-denomination in this currency, by virtue of the resolution adopted at the Annual Meeting held on April 22, 1999, and notari-zed on June 2, 1999 through a deed issued by the Notary Public of Madrid, Ignacio Solís Villa.

State whether there are different classes of shares with different associated rights.

The Company does not have different classes of shares with different associated rights.

A.2. Breakdown of direct and/or indirect owners of significant shareholdings in the Company’sshare capital at the end of the year, excluding board members

At December 31, 2009, the owners of significant direct and/or indirect shareholdings in CEPSA’s capital were as follows:

Corporate Name Number of Direct Voting Number of Indirect % of Total of Shareholder Rights Voting Rights (*) Voting Rights

Total, S.A. 0 130,668,240 48.834International Petroleum Investment Company 125,926,376 0 47.062

(*) Through:

Held Through: Corporate Name of Indirect Corporate Name of Number of % of Total Owner of Shareholding Direct Owner of Shareholding Direct Voting Rights Voting Rights

Total, S.A. ODIVAL, S.A. 130,668,240 48.834


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Changes in the Company’s shareholding structure during the year:

Corporate Name of Shareholder Date of Transaction Description of Transaction

Banco Santander, S.A. 30/07/2009 Shareholding fell below 3%Unión Fenosa, S.A. 30/07/2009 Shareholding fell below 3%International Petroleum Investment Company 30/07/2009 Shareholding exceeded 45%

A.3 Members of the Board of Directors who hold voting rights on Company shares

Number of Direct Voting Number of Indirect % of Total Voting lName of Director Rights Voting Rights (*) Rights

Mr. Santiago Bergareche Busquet 100 0 0Mr. Dominique de Riberolles 100 0 0Mr. José Manuel Otero Novas 100 0 0Mr. Murtadha Al Hashemi 60 0 0Mr. Saeed Al Mehairbi 60 0 0

% of total voting rights held by members of the Board of Directors 0.000

Members of the Board of Directors holding option rights on shares of CEPSA::

No Director has option rights on shares of the Company.

A.4 Family, commercial, contractual or corporate relationships among owners of significantshareholdings, insofar as the Company is aware of them, except in cases in which they areimmaterial or are the result of routine business.

CEPSA is unaware of the existence of relationships of this nature.

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A.5 Commercial, contractual or corporate relationships between owners of significantshareholdings and the Company and/or its Group, except in cases in which they are immaterialor are the result of routine business.

Nombre o denominación social relacionados Tipo de relación Breve descripción

TOTAL, S.A. Contractual TOTAL E&P ALGERIE (a subsidiary of TOTAL) and CEPSA haveinterests in natural gas exploration & production activities inAlgeria, specifically in the Timimoun Basin (37.75%/11.25%,respectively).

TOTAL, S.A. Corporate CEPSA and TOTAL have stakes in CEPSA GASCOMERCIALIZADORA (35%/35%, respectively), engaged in thecommercialization of natural gas.

TOTAL, S.A. Contractual Technical assistance agreement between CEPSA E.P. (asubsidiary of CEPSA) and TOTAL in oil and natural gasexploration & production activities.

TOTAL, S.A. Contractual Technical cooperation agreement between PROAS (a subsidiaryof CEPSA) and TOTAL regarding R&D activities for bitumentechnologies. They also have a licensing agreement for themanufacture and sale of “Styrelf” products in Spain andPortugal.

TOTAL, S.A. Contractual CEPSA LUBRICANTES, S.A. and TOTAL LUBRIFIANTS, S.A. (asubsidiary of TOTAL) have set up the company GAEL for jointlynegotiating the purchase of additives and components needed toproduce lubricants and for cooperating on projects in connectionwith technical research and development of automotive andindustrial lubricants.

TOTAL, S.A. Commercial As a result of CEPSA’s acquisition of TOTAL’s distributionactivities in Portugal, TOTAL LUBRIFIANTS S.A. (a subsidiary ofTOTAL) and CEPSA PORTUGUESA have an agreement todistribute TOTAL’s lubricant brands in Portugal..

IPIC Corporate CEPSA and IPIC have stakes of 50% each in CEPSA MAGHREB, acompany which, through its 70% shareholding in PETROSUD, isinvolved in marketing energy products in Morocco.

A.6 Shareholder Agreements reported to the Company that may affect it pursuant to what is setforth in Article 112 of the Securities Market Act

CEPSA is unaware of the existence of any agreements among shareholders of the Company.

State whether the Company is aware of any concerted actions among its shareholders.

CEPSA is unaware of the existence of any concerted actions among its shareholders.

In the event that any changes or termination of such agreements or concerted actions may have taken place, indicatethis expressly.

Not applicable.


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A.7 State whether there is any individual or corporation that exercises or may exercise controlover the Company pursuant to Article 4 of the Securities Market Act.

According to information received by the Company, in enforcement of the provisions of RD 1362/2007 of October 19th,no shareholder directly or indirectly meets the requirements exacted by Article 4 of Securities Market Act 24/1988 ofJuly 28th, nor do any of them meet the conditions set forth under section 1 of Article 42 of the Code of Commerce.

A.8 Treasury Stock

Neither CEPSA nor any of the companies of the Group directly or indirectly purchased shares of Compañía Españolade Petróleos, S.A. in 2009, nor did they own any such securities at year-end.

At year-end..

Number of Direct Shares Number of Indirect Shares (*) Total % of Share Capital

0 0 0.000

Breakdown of significant changes, pursuant to the provisions of RD 1362/2007, that took place in the year:

Increase/(decrease) in treasury stock during the period 0

A.9 Terms and conditions of any authorizations granted by the Annual Meeting to the Board ofDirectors to undertake acquisitions and/or transfers of treasury stock

CEPSA’s Annual Meeting has not granted any powers to the Board of Directors to buy, sell or transfer treasury stock.

A.10 Legal or bylaw restrictions on the use voting rights, as well as legal restrictions on theacquisition or transfer of holdings in the share capital. State whether there are legalrestrictions on the use of voting rights.

There are no legal or by-law restrictions on voting rights, nor are there any for acquiring or transferring shares in theCompany, except as otherwise provided for by law. Nevertheless, Article 23 of the Company Bylaws states that right ofadmission to the Annual General Meeting, with the number of votes each shareholder is entitled to (one share, one vote),is reserved to those shareholders 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.

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A.11 State whether the Annual Meeting has adopted measures to neutralize public takeoverbids, pursuant to Act 6/2007.

The Annual Meeting of Shareholders of Compañía Española de Petróleos, S.A. has not passed any resolutions regardingthe adoption of preventive measures to neutralize or thwart takeover bids, pursuant to Act 6/2007.


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B. CORPORATE GOVERNANCE STRUCTURE

B.1 Board of Directors

B.1.1 Maximum and minimum number of Directors pursuant to the Company Bylaws

Maximum number of directors 30Minimum number of directors 10

B.1.2 Board of Directors

The configuration of the Board of Directors at December 31, 2009 was as follows:

Name of Company Position on the Date of First Date of Most Recent Election Name of Director He or She Represents Board Appointment Appointment Procedure

D. Santiago Bergareche Busquet Independent Chairman 27.06.2008 26.06.2009 Annual MeetingD. Michel Bénézit TOTAL, S.A. Vice Chairman 30.03.2006 23.06.2006 Annual MeetingD. Khadem Al Qubaisi IPIC Vice Chairman 01.10.2009 01.10.2009 Co-optionD. Dominique de Riberolles Executive Chief Executive Officer 20.03.2003 27.06.2008 Annual MeetingD. HRH Carlos de Borbón Independent Director 29.04.1987 22.06.2007 Annual MeetingD. Bernadette Spinoy TOTAL, S.A. Director 20.03.2003 27.06.2008 Annual MeetingD. José Manuel Otero Novas Independent Director 29.03.2005 27.05.2005 Annual MeetingD. Murtadha Al Hashemi IPIC Director 23.09.2005 23.06.2006 Annual MeetingD. Eric de Menten TOTAL, S.A. Director 23.06.2006 22.06.2007 Annual MeetingD. Patrick Pouyanné TOTAL, S.A. Director 22.06.2007 22.06.2007 Annual MeetingD. Saeed Al Mehairbi IPIC Director 27.09.2007 27.06.2008 Annual MeetingD. Humbert de Wendel TOTAL, S.A. Director 27.09.2007 27.06.2008 Annual MeetingD. David Forbes IPIC Director 01.10.2009 01.10.2009 Co-option

Total number of directors at December 31, 2009 13

Indicate the resignations/departures from the Board of Directors that took place during the year:

Name of Director Type of Director at the Time of Resignation/Departure Date ofResignation/Departure

D. Pedro Lopez Jiménez Shareholder representative 27.05.2009D. Fernando de Asúa Álvarez Shareholder representative 01.10.2009D. Juan Rodriguez Inciarte Shareholder representative 01.10.2009D. Alfredo Sáenz Abad Shareholder representative 01.10.2009D. Ernesto Mata López Shareholder representative 01.10.2009D. José Luis Leal Maldonado Independent 01.10.2009D. Joël Vigneras Shareholder representative 01.10.2009D. Jean-Luc Guiziou Shareholder representative 01.10.2009

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B.1.3 Breakdown of the Board of Directors.

Executive Directors:

Name of Director Nominating Body Position in Organizational Structure of the Company

D. Dominique de Riberolles Nomination and Compensation Committee Chief Executive Officer

Total number of Executive Directors 1% of total Board 7,692

Non-Executive Shareholder Representative Directors:

Name of Significant Shareholder that He or Name of Director Nominating Body She Represents or that Nominated Him or Her

D. Michel Bénézit Nomination and Compensation Committee TOTAL, S.A.D. Khadem Al Qubaisi Nomination and Compensation Committee IPICDña. Bernadette Spinoy Nomination and Compensation Committee TOTAL, S.A.D. Murtadha Al Hashemi Nomination and Compensation Committee IPICD. Eric de Menten Nomination and Compensation Committee TOTAL, S.A.D. Patrick Pouyanné Nomination and Compensation Committee TOTAL, S.A.D. Saeed Al Mehairbi Nomination and Compensation Committee IPICD. Humbert de Wendel Nomination and Compensation Committee TOTAL, S.A.D. David Forbes Nomination and Compensation Committee IPIC

Total number of non-executive shareholder representative directors 9% of total Board 69.231

Independent Directors::

Name of Director Nominating Body Professional Background

D. Santiago Bergareche Busquet Nomination and Compensation Committee Financial and economics expertHRH Carlos de Borbón-Dos Sicilias Nomination and Compensation Committee Financial expertD. José Manuel Otero Novas Nomination and Compensation Committee Legal expert

Total number of independent directors 3% of total Board 23.077

State any changes, where applicable, that took place during the year in the classification of directors.

No changes in the classification of directors took place in 2009.

B.1.4 State the reasons, where applicable, for the appointment of shareholder representative directors at therequest of shareholders whose ownership in the share capital is less than 5%.


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No shareholder representative directors were appointed at the request of shareholders whose ownership in theshare capital of the Company is less than 5%.

State whether the Board of Directors disregarded formal requests for Board presence made by shareholders whoseownership in the share capital is equal to or greater than others whose call for such presence was met with theappointment of shareholder representative directors.

No requests of this kind were made.

B.1.5 Indicate whether any director left his/her seat on the Board prior to the completion of his/her term, if thedirector explained the reasons thereof to the Board and through which channels, and, in the event that thedirector sent a letter of explanation to the entire Board, please state below at least the reasons that were given:

Name of Director Reason for Departure

D. Alfredo Sáenz Abad Sale of stake held by Banco Santander, on behalf of which this director served on the BoardD. Fernando de Asúa Álvarez Sale of stake held by Banco Santander, on behalf of which this director served on the BoardD. Juan Rodríguez Inciarte Sale of stake held by Banco Santander, on behalf of which this director served on the BoardD. Ernesto Mata López Sale of stake held by Banco Santander, on behalf of which this director served on the BoardD. Pedro López Jiménez Resignation from his position on the basis of which he was elected to serve on CEPSA’s

Board, and in fulfillment of the Resolution of February 11, 2009 handed down by the NationalCompetition Commission regarding the Gas Natural/Unión Fenosa S.A. transaction and Arti-cle 26 of CEPSA’s Board Rules and Regulations

D. José Luis Leal Maldonado Change in the Company’s shareholding structure.D. Joël Vigneras Reduction of the number of Board members representing TOTAL as a result of the reduction

of the size of CEPSA’s BoardD. Jean-Luc Guiziou Reduction of the number of Board members representing TOTAL as a result of the reduction

of the size of CEPSA’s Board

B.1.6 Indicate the powers, if any, delegated to the Chief Executive Officer(s).

Name of Chief Executive Officer Brief Description

D. Dominique de Riberolles Delegated powers include those set forth in the Company Bylaws, as well as other pow-ers delegated by the Board that may be required to govern and represent the Companyand to undertake transactions involving ownership, management, negotiation and en-gagement.

B.1.7 Members of the Board of Directors that are likewise board members or executives of other companies thatbelong to the group of the listed company.

Name of Director Name of Group Subsidiary Position

D. Dominique de Riberolles CEPSA Química, S.A. ChairmanCEPSA Gas Comercializadora, S.A. Board memberCEPSA Estaciones de Servicio, S.A. ChairmanCEPSA Chimie Bécancour ChairmanPetresa America, Inc. Board memberInterquisa Canada Inc. Board memberCEPSA Chimie Montréal ChairmanDeten Química, S.A. Chairman

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B.1.8 State the members of the Board of Directors of the Company who are also members of the Boards ofDirectors of other companies listed on official securities markets in Spain, apart from the Group, that have beennotified to the Company.

Name of Director Name of Listed Company Position

D. Santiago Bergareche Grupo Ferrovial Vice ChairmanGAMESA Corporación Tecnológica, S.A. DirectorVOCENTO, S.A. DirectorDINAMIA Capital Privado, Sociedad de Capital Riesgo, S.A. Chairman

D. Dominique de Riberolles Compañía Logística de Hidrocarburos, CLH, S.A. Director

HRH Carlos de Borbón - Dos Sicilias Reyal-Urbis, S.A. Director

B.1.9 Rules established by the Company regarding the number of boards on which its Directors are allowed toserve.

Article 30 of the Rules and Regulations of the Board of Directors states that: “Directors who perform actions thatmay involve competition with the Company in its geographical area of business, or provide their professional servicesas a Director of companies whose total or partial purpose is similar to the Company’s or that compete with it in asignificant or steady manner, within the aforementioned geographical area, must disclose such actions or servicesto the Company.”

CEPSA does not have any explicit rules limiting the number of boards on which its Directors may serve.

B.1.10 With reference to recommendation 8 of the Unified Code, state the general policies and strategies of theCompany that the Board reserves to itself for plenary approval.

Yes No

Investment and funding policies YesDefinition of the structure and organization of the Group of Companies YesCorporate Governance policies YesCorporate Social Responsibility policies YesThe strategic business plan and annual management and budgetary targets YesExecutive management compensation and performance appraisal policies YesRisk control and management policies, as well as the periodic monitoring of internal information and control systems YesDividend payout and treasury stock policies, and in particular, their limits Yes


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B.1.11 Fill in the following tables on the aggregate Directors’ compensation accrued during the year.

A) IN CEPSA.

Compensation Components Thousands of Euross

Fixed pay 800Variable pay 218Attendance fees 288Bylaw stipulated fees 3,603Stock options and/or other financial instruments 0Miscellaneous components 12TOTAL 4,921

Other Benefits Thousands of Euross

Advances 0Loans granted 0Pension schemes: contributions 13Pension schemes: liabilities incurred 930Life insurance premiums 0Guarantees 0TOTAL 943

B) FOR BELONGING TO THE BOARDS OF DIRECTORS AND/OR EXECUTIVE MANAGEMENT OF OTHER COMPANIESOF THE GROUP

Compensation Components Thousands of Euross

Fixed pay 0Variable pay 0Attendance fees 0Bylaw stipulated fees 0Stock options and/or other financial instruments 0TOTAL 0

Other Benefits Thousands of Euros

Advances 0Loans granted 0Pension schemes: contributions 0Pension schemes: liabilities incurred 0Life insurance premiums 0Guarantees 0TOTAL 0

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C) TOTAL COMPENSATION BY TYPES OF DIRECTORS:(Thousands of euros)

Types of Directors CEPSA Other CEPSA Group companies

Executive 1,309 0Non-executive shareholder representative 2,882 0Non-executive independent 530 0Other non-executive 200 0TOTAL 4,921 0

D) OUT OF NET INCOME ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT COMPANY:(Thousands of euros)

Total Directors’ compensation 4,921Total Directors’ compensation/Consolidated net income attributable to shareholders of the parent company (in %) 1.31

B.1.12 IIdentify Senior Managers or Executive Officers who are not likewise Executive Directors of the Board andindicate the total compensation accrued to them during the year.

Name Position

D. Fernando Maravall Herrero Senior Vice President – Exploration & Production, Natural Gas & Corporate Management *D.Pedro Miró Roig Senior Vice President – Corporate Technical DivisionD. Fernando Iturrieta Gil Senior Vice President – PetrochemicalsD. Juan Rodríguez Fidalgo Senior Vice President – Human Resources, Legal Affairs & Property Asset ManagementD. José E. Aranguren Escobar Senior Vice President – Strategy & ControlD. Miguel de Mármol Senior Vice President – Commercial OperationsD. Federico Bonet Pla Vice President – SpecialtiesD. Luis Calderón Castro Vice President – Communications & Institutional Relations D. Francisco Calderón Pareja Vice President – Marketing – Motor and Other FuelsD. Iñigo Diaz de Espada Soriano Vice President – Supply & TradingD. José Maria García Aguado Vice President – RefiningD. Jaime Berbés Paronella Vice President – TechnologyD. Federico Molina Félix Vice President – Operations – CEPSA QuímicaD. Carlos Navarro Navarro Vice President – Commercial Planning & DistributionD. Luis Travesedo Loring Vice President – Exploration & Production* Ignacio Gómez Martínez held the position of SVP of the Corporate Technical Division until his retirement on April 18, 2009

Total compensation of Executive Managers (in thousands of euros) 7,300


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B.1.13 Provide an itemized list of the Guarantee or “golden parachute” clauses for senior managers, includingexecutive directors, of the Company or its Group, that cover possible dismissals or changes in control. Statewhether these contracts have to be reported and/or approved by the Company or Group’s governing bodies.

There are no clauses of this kind in effect in the Company. However, all the senior managers, including the executivedirectors on the Board, are guaranteed that, in the event of dismissal, they will be entitled to the same severancepayment system that they would have had in the case of coming under the collective labor agreement.

Number of beneficiaries of the aforementioned clauses 10Board of Directors Annual Meeting

Body authorizing these clauses Yes No

Is the Annual Meeting informed of such clauses? No

B.1.14 Explain the process to determine compensation for members of the Board of Directors, and whereapplicable, the relevant clauses contained in the Company Bylaws.

Compensation for Board members is determined based on the proposal made by the Nomination and CompensationCommittee.

Article 29 of the Board Rules and Regulations states that: ”Directors’ compensation shall be governed by provisionsset forth in the Company’s By-laws and laws in force.”

Article 51 of the Bylaws sets forth that “The Company’s earnings shall be determined according to the after-taxresults recorded in the yearly Financial Statements duly approved by the Annual General Meeting of Shareholders.

Such cash earnings shall be assigned annually as follows:

1ª) To cover the obligatory assignments to legal reserves and, where appropriate, voluntary reserves that may havebeen established.

2ª) To distribute an initial dividend to the shareholders.

3ª) To award compensation for the performance of their associated duties to the members of the Board ofDirectors by virtue of their appointment as Board members either by the Annual Meeting or by the Board itselfthrough the system of co-option.

Compensation referred to in the foregoing section shall be paid based on a profit-sharing system and as abylaw stipulated fee. This payment shall be made up of two components: a) a yearly fee or retainer and b)attendance fees.

Attendance fees shall be paid in advance and charged to the year’s profits.

The specific amount assigned for the aforementioned components to each Board member shall be determinedby the Board of Directors. For such purposes, the duties performed by each Director on the Board per se andhis or her membership on the various sub-committees and attendance of their respective meetings shall betaken into account.

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The aggregate annual amount of the compensation referred to in this section shall be equivalent to 2 percent ofthe Company’s yearly profits, although the Board itself may renounce such compensation partially or in fullwhenever it deems it appropriate.

Notwithstanding the above, Directors shall also be entitled to receive other compensation (salaries, incentives,bonuses, pension plans, insurance and severance payments), following the corresponding proposal by theNomination and Compensation Committee and by resolution of the Board of Directors, which may beconsidered reasonable for the performance of other duties in the Company, apart from the oversight anddecision-making responsibilities performed as rank-and-file members of the Board.

4ª) The remainder, if any, may be assigned by the Annual Meeting of Shareholders, as proposed by the Board, toincrease the dividend to be paid to the shareholders, establish free reserves and/or for other purposes in thebest interest of the Company.”

State whether the Board, in a plenary session, has reserved itself the right to approve the following decisions:

Yes No

Upon proposal of the CEO, the appointment and possible dismissal of senior managers, as well as their severance conditions. YesDirectors’ compensation, as well as, in the case of Executive Directors, any additional payments for their executive duties and other terms and conditions to be included in their contracts. Yes

B.1.15 State whether the Board of Directors approves a detailed compensation policy and explain what decisions itmakes in this regard.

Breakdown, where applicable, of the fixed components of attendance fees for members of the Board and their sub-committees and an estimate of the overall yearly fixed pay arising out of these items YesVariable pay components YesMain features of pension and annuity systems, with an estimate of their yearly amount or cost YesConditions that must by honored in the contracts of those persons who exercise executive management duties such as executive directors Yesi

B.1.16 State whether the Board submits a report on the compensation policy for directors to the Annual Meetingfor a consultative vote. If so, explain the aspects of the report on the compensation policy approved by the Boardfor future years, the most significant changes in this policy compared to the policy applied during the year and anoverall summary of how the compensation policy was applied during the year. Describe the role of theCompensation Committee and, if external advisors were engaged, the identity of such consultants.

No.

Were external advisors used? No


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B.1.17 Members of the Board of Directors of the Company that are likewise members of the Boards of Directors orSenior Managers of companies that have significant shareholdings in the listed Company and/or entities of yourGroup.

Name of Significant Name of Director Shareholder PositionD. Michel Bénézit TOTAL, S.A. Executive Committee member; President - Refining

& MarketingDña. Bernadette Spinoy TOTAL,S.A. Senior Vice President – Styrenics – Logistics pro-

curement of polymersD. Murtadha Al Hashmi IPIC Finance Division ManagerD. Eric de Menten TOTAL, S.A. Senior Vice President - Marketing Europe D. Patrick Pouyanné TOTAL, S.A. Senior Vice President – Strategy, Business Develop-

ment and R&D – E&P D. Saeed Al Mehairbi IPIC Manager - Project Management DivisionD. Humbert de Wendel TOTAL, S.A. Senior Vice President - Corporate Development, Fi-

nance DivisionD. Khadem Al Qubaisi IPIC Managing DirectorD. David Forbes IPIC Strategy Director

Provide a detailed explanation, where applicable, of significant affiliations or relationships apart from thoseaddressed in the foregoing section, that link Board members to significant shareholders and/or entities of yourgroup.

No affiliations other than those listed above exist between significant shareholders and/or entities of the CEPSAGroup.

B.1.18 Modifications introduced during the year in the Rules and Regulations of the Board of Directors.

No changes were made in the year to the Board Rules and Regulations.

B.1.19 Procedures for appointing, re-electing, evaluating and removing Directors. List the competent bodies,procedures and formalities to be followed and criteria used in each of these procedures.

Pursuant to Article 33 of the Company Bylaws and Article 23 of the Board Rules and Regulations, Directors areappointed, ratified, re-elected or removed from office by the Annual Meeting.

Without prejudice to the application of the provisions included under Article 137 of the amended Companies Actregarding the appointment of Directors according to the system of proportional representation, proposals to appoint,re-elect and remove Directors submitted by the Board of Directors to the Annual Meeting and the resolutions to co-opt directors to be adopted by the Board, shall first be formulated, studied and approved by the Nomination andCompensation Committee (Article 18 of the Board Rules and Regulations).

Directors shall be elected for a period of five (5) years. At the end of their term, the Directors may be re-elected onceor more times by the Annual Meeting; each of these re-elections shall grant the Director a new term, which shall notexceed five (5) years. (Article 34 of the Company Bylaws and Article 25 of the Board Rules and Regulations).

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Being a shareholder of the Company is not a pre-requisite for being elected to the Board of Directors (Article 33 ofthe Company Bylaws and Article 24 of the Board Rules and Regulations).

There are no procedures in place for the evaluation of Directors’ performance.

B.1.20 State the circumstances under which Directors are required to resign.

Directors shall resign from their seats on the Board whenever, at the end of their term, they have not been re-elected by the first Annual Meeting, whether Ordinary or Extraordinary, held immediately thereafter or wheneverdetermined by the Annual Meeting using the powers legally conferred to it by applicable legislation or by theCompany Bylaws. Likewise, pursuant to the provisions of Article 26 of the Rules and Regulations of the Board ofDirectors, Directors must relinquish their seats to the Board and tender, if this body deems it advisable, thecorresponding 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.

B.1.21 Explain whether the duties of chief executive of the Company are held by the Board’s Chairperson. Whereapplicable, state the measures taken to limit the risks involved in having the offices of Chairperson and ChiefExecutive Officer held by the same person.

The Chairman of the Board is an Independent Director. The duties of chief executive of the Company are held by theChief Executive Officer (Executive Director) and not by the Chairman of the Board.

State and, where appropriate, explain whether there are rules allowing one of the independent directors to be able tosummon a Board meeting or include new items on the agenda so as to coordinate and voice the concerns of non-executive directors and to direct their development by the Board of Directors.

Although no specific rules have been established in this regard, since the Chairman is one of the IndependentDirectors, he is entitled, according to the Bylaws, to summon Board meetings, determine the items on the agenda ofsuch meetings and lead discussions within the Board.

B.1.22 Are qualified or enhanced majorities, other than the legally-required majorities, needed for certain types ofdecisions?

No.

B.1.23 Explain whether there are specific requirements, apart from those required for Directors, for beingappointed Chairperson.

No.

B.1.24 State whether the Chairperson has a casting vote.

Article 44 of the Company Bylaws stipulates that the resolutions of the Board of Directors must be adopted by anabsolute majority and in cases of a tie, the Chairperson shall have the casting vote.


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B.1.25 State whether the Bylaws of Board Rules and Regulations establish any age limits for Directors

No.

B.1.26 State whether the Bylaws or Board Rules and Regulations establish limits to the terms of office forIndependent Directors.

No.

B.1.27 In the case of few or no female Directors, explain the reasons thereof and the initiatives adopted to remedythe situation.

Currently, the percentage of female members out of total members of the Board of Directors is 7.7%.

CEPSA does not have any special mechanisms to encourage the selection of its Board members based on gender.Directors are appointed by the Board as proposed by the shareholders of the Company, based on their professionalprofile, regardless of gender.

In particular, state whether the Nomination and Compensation Committee has established any procedures to ensurethat the selection of candidates does not contain any hidden biases against female directors and deliberately seekcandidates meeting the required profile.

No.

B.1.28 State whether there are formal procedures for proxy authorizations and voting at Board meetings. Provide abrief explanation, where applicable.

According to Article 43 of the Company Bylaws, all Directors may grant proxy authorizations to other attending Boardmembers to represent them at Board meetings, specifying this in writing for each meeting called. No attendingDirector may hold more than three (3) proxy authorizations.

B.1.29 State the number of Board Meetings held in the year. Likewise, indicate, where applicable, how many timesthe Board met during the year in absence of the Chairperson.

Number of meetings of the Board of Directors 10Number of meetings of the Board of Directors in absence of the Chairperson 0

Number of meetings of the Board sub-committees held in the year.

Number of Audit Committee meetings 5Number of Nomination and Compensation Committee meetings 3

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B.1.30 State the number of Board meetings held in the year without the attendance of all of its members. Thiscalculation should take into account proxies authorized without specific instructions.

Number of non-attendances by Directors during the year 1% of non-attendances out of total votes during the year 0.6%

B.1.31 State whether the individual and consolidated financial statements that are presented for the approval ofthe Board are certified beforehand.

Yes. :

Where applicable, identify the person(s) who has (have) certified the individual and consolidated financial statementsof the Company to be filed by the Board.

Name PositionD. Dominique de Riberolles Chief Executive Officer D. José E. Aranguren Escobar Senior Vice President of Strategy & Control

B.1.32 Established mechanisms, if any, to prevent individual or consolidated financial statements approved by theBoard from being presented to the Annual Meeting with a qualified auditors’ report.

CEPSA publishes, together with its individual and consolidated financial statements for the year, the letters ofopinion from the independent auditors. Taking the last twelve years as a reference, the reports issued by theindependent auditors contained no limitations of scope, qualifications or reservations whatsoever.

B.1.33 Is the Corporate Secretary also a Director on the Board?

No.

B.1.34 Explain the appointment and removal procedures for the Secretary of the Board, indicating whether his/herappointment or removal is notified by the Nominations Committee and approved by the Board in a plenarymeeting.

Appointment and Removal ProcedureNo specific procedure has been established.Article 39 of the Company Bylaws nonetheless sets forth that the Board shall also appoint a Secretary and, if appropriate, one ormore Vice Secretaries, who shall substitute the former in his or her absence or inability to act. The Secretary as well as the ViceSecretary or Secretaries may or may not be Directors, and therefore, are not required to be Company shareholders.Does the Nominations Committee report on the appointment? YesDoes the Nominations Committee report on the removal? YesIs the Board required to approve the appointment in a plenary meeting? YesIs the Board required to approve the removal? Yes


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Is it the Corporate Secretary’s duty to take special care in overseeing that corporate governance recommendationsare fulfilled?

Yes. According to Article 13 of the Board Rules and Regulations, the Secretary shall devote particular attention to theformal and material legality of the Board’s actions and ensure that its governing rules and procedures are observedand regularly reviewed.

B.1.35 Indicate, where applicable, whether there are any mechanisms established by the Company to safeguardthe independence of auditors, financial analysts, investment banks and rating agencies.

Article 47 of the Bylaws grants the following powers and duties to the Audit Committee: “To handle dealings withindependent auditors to receive information on such matters that may jeopardize their independence.”

B.1.36 State whether the Company has changed its independent auditing firm during the year. Where applicable,identify the incoming and outgoing auditors.

The Company did not change its independent auditors in 2009.

If there were any discrepancies with the outgoing auditors, please explain what they involved.

Not applicable.

B.1.37 State whether the firm of auditors provides any non-audit services to the Company and/or ConsolidatedGroup, and if so, state the amount of fees for such work and the percentage it represents of total fees invoiced tothe Company and/or Group.

Yes.

Company roup Total

Fees for non-audit services (thousands of euros) 40 49 89Fees for non-audit services/total amount invoiced by the auditing firm (in %) 5% 5% 5%

B.1.38 State whether the report from the auditors on the financial statements has any reservations orqualifications. If so, indicate the reasons provided by the Chairperson of the Audit Committee to explain thecontent and scope of such reservations and qualifications.

The report from the independent auditors on the 2009 financial statements was issued with no reservations orqualifications whatsoever.

B.1.39 Indicate the number of consecutive years that the current auditing firm has conducted audits of thefinancial statements of the Company and/or its Group. Also state the percentage represented by the number ofyears audited by the current auditing firm out of the total number of years in which the financial statements wereaudited.

The information provided below refers to the fiscal years from 1989 (Act 19/1988 of July 12th on Accounts Auditing,states in its First Additional Provision that it is mandatory for independent audits to be conducted on the financial

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statements of companies that, meeting certain requisites - one of which is to be a listed company – begin their fiscalyears subsequent to the aforementioned date) up to 2009, inclusive.

Company Group

Number of consecutive years 20 20

Company Groupo

Number of years audited by the current auditing firm/Number of years that the Company has been audited (in %) 90,9 90,9

B.1.40 Indicate significant shareholdings of members of the Board of Directors of the Company in the capital ofentities that have the same, similar or complementary type of activity as that of the Company or its Group, and thathave been reported to the Company. Likewise, state the positions held or functions performed in such entities.

Name of Director Company % of Holding Position

D. Michel Bénézit TOTAL, S.A. Less than 0.01 Executive Committee member and Presi-dent – Refining & Marketing

D. Humbert de Wendel TOTAL, S.A. Less than 0.01 Senior Vice President – Corporate Develop-ment, Finance Division

D. Patrick Pouyanné TOTAL, S.A. Less than 0.01 Senior Vice President – Strategy, BusinessDevelopment and R&D – E&P

D. Eric de Menten TOTAL, S.A. Less than 0.01 Senior Vice President - Marketing EuropeDña. Bernadette Spinoy TOTAL, S.A. Less than 0.01 Senior Vice President – Styrenics – Logis-

tics procurement of polymers

B.1.41State whether a procedure exists for Directors to be provided with outside counsel or expert assistance.

No.

B.1.42 State, and where applicable, provide details, on the existence of procedures for Directors to be providedwith the necessary information beforehand to prepare the meetings of governing bodies with sufficient time.

Prior to each Board meeting, the members receive a detailed report related to the economic-financial data andactivities of the Company and its Consolidated Group as well as other reports on investments and significant mattersin connection with the progress of the Company and its Group. The Chairmen of the Board sub-committees presentthe most significant matters dealt with at the meetings of the these bodies to the Board of Directors for theirdiscussion and eventual adoption of resolutions, where applicable.

B.1.43 State and, where applicable, provide details on whether the Company has established rules or proceduresthat require Directors to notify and, where appropriate, resign in cases in which they may damage or underminethe standing, credibility and reputation of the Company.

Yes.


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Specifically, Article 37 of the Company Bylaws states that “the duties of the office of Director must be performed withthe diligence of a respectable businessman and loyal representative or fiduciary”.

Furthermore, Article 26 of the Board Rules and Regulations states as follows: “Notwithstanding what is provided forby law, the Directors must relinquish their seats to the Board and formalize, if this body deems it advisable, thecorresponding 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.”

B.1.44 State whether any of the Board members has notified the Company of being involved in a lawsuit or if anycourt proceedings have been filed against him or her for any of the offences listed in Article 124 of the CompaniesAct.

No

Indicate whether the Board of Directors has analyzed the case. If so, explain the grounds for the decision reachedon whether or not the Director should remain on the Board.

No.

B.2 Board Committees.

B.2.1 List all the Board committees and their members.

Audit Committee:Name Position Type of Director

D. Saeed Al Mehairbi Member Non-Executive Shareholder Representative D. Humbert de Wendel Member Non-Executive Shareholder Representative

Nomination and Compensation Committee:Name Position Type of Director

D. Santiago Bergareche Busquet Chairman IndependentD. Michel Bénézit Member Non-Executive Shareholder Representative D. Khadem Al Qubaisi Member Non-Executive Shareholder Representative

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B.2.2 State whether the following duties and responsibilities are assigned to the Audit Committee:

Yes No

To supervise the preparation and integrity of the financial information for the Company, and, where applicable, its group of companies, reviewing compliance with regulatory requirements and legal provisions, the scope of the consolidation perimeter and the correct application of accounting principles. SíTo periodically review the internal control and risk management systems so that key risks can be properly pinpointed, managed and reported on. SíTo ensure the independence and efficacy of internal audit; propose the selection, appointment, re-appointment and, where applicable, removal of the internal audit manager; propose a budget for the internal audit service; receive periodic information on its activities; and ensure that senior management is aware of the conclusions and recommendations contained in such reports. SíTo establish and supervise a mechanism that allows employees to confidentially, and if considered appropriate, anonymously report any irregularities they notice within the Company that may be of potential importance, especially financial and accounting irregularities. NoTo submit to the Board proposals for selection, appointment, re-appointment and replacement of the independent auditors and the terms and conditions of their engagement. SíTo regularly receive information from the independent auditors on the audit plan and the progress and outcome of its execution, verifying that senior management is duly aware of its recommendations. SíTo ensure the independence of the externally-hired auditing firm. SíIn the case of groups of companies, to help the group auditors take charge of the audits of the companies belonging to the group.. Sí

B.2.3 Describe the rules of organization and procedure, as well as duties and responsibilities, assigned to each ofthe Board committees.

The Audit Committee meets at least on a quarterly basis to deal with matters coming under its authority: to report, atthe Annual Meeting of Shareholders, on any matters that may properly be brought before such Meeting in connectionwith its duties and responsibilities; to propose to the Board of Directors, for approval of the Annual Meeting, theappointment of Independent Auditors, their contractual conditions, the scope and extent of their professional duties,where appropriate, the cancellation or renewal of their term; to supervise the internal auditing services of the Company;to oversee the financial information processes and internal control systems of the company; to handle dealings withindependent auditors to receive information on such matters that may jeopardize their independence and any othermatters related to the process of auditing the financial statements, as well as any other notifications provided for inaccount auditing legislation and technical auditing standards; to oversee compliance with laws and regulationsregarding financial information and ensure that the quarterly financial statements of the parent company CEPSA andthe CEPSA Group reported to the Board of Directors are consistent with the communication released to markets; toreport to the Board of Directors on the performance and results of their work; and, generally speaking, to examine andstudy any activity or matter that the Board of Directors may determine to be related to the above.

The Nomination and Compensation Committee, on the other hand, does not meet on a regular basis, given that itsfunctions do not require it to do so. In all cases, advance notices are sent to convene the meetings of these Committees,accompanied by their respective agendas, and where applicable, the documents required to discuss certain matters.Its duties are to provide information and formulate proposals and recommendations regarding nominations, re-elections, removals and compensation of members of the Board of Directors, as well as on the general compensationand incentive policies for Board members and Senior Managers of the Company, and to formulate reports and proposalsto the Board on the decisions to be adopted in the event of a conflict of interest.


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B.2.4 Indicate the powers assigned to each committee to make recommendations, issue opinions and, whereapplicable, delegate powers.

Name of Committee Brief Description

Audit Committee The powers assigned to this Committee are set out in section B.2.3Nomination and Compensation Committee The powers assigned to this Committee are set out in section B.2.3

B.2.5 Indique, en su caso, la existencia de regulación de las Comisiones del Consejo, el lugar en que estándisponibles para su consulta, y las modificaciones que se hayan realizado durante el ejercicio. A su vez, seindicará si de forma voluntaria se ha elaborado algún informe anual sobre las actividades de cada Comisión

Indicate, where applicable, if there are any rules and regulations for the Board Committees, where they are availablefor consultation and any changes or amendments made during the year. Likewise indicate whether an annual reporton the activities of each Committee has been prepared on a voluntary basis.

All of these documents are available through CEPSA’s Shareholder Service Office, Avenida del Partenón, 12, 28042Madrid, at the toll-free telephone number 900 10 12 82, at the e-mail address [email protected] or throughthe Company’s website at: http://www.cepsa.com/corporativo/pages/c_3_3.htm.

CEPSA prepares an annual report on the activities of the Audit Committee.

B.2.6 State whether the composition of the Executive Committee reflects the proportions of the different types ofDirectors on the Board.

Not applicable.

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C. RELATED-PARTY TRANSACTIONS

C.1 State whether the Board, in a plenary session, has reserved itself powers to approve, basedon a favorable report from the Audit Committee or any other entrusted with such a task, thetransactions in which the Company engages with its directors, significant shareholders orshareholders with Board representation, or parties related to them:

Yes.

C.2. Provide a breakdown of the relevant transactions made during the year that involve atransfer of resources or obligations between companies or entities of the Group and theCompany’s significant shareholders.

Name of Significant Group Nature of Type of Shareholder Company Relationship Transaction Amount

Receipt of services Banco Santander, S.A. (1) Grupo CEPSA. Commercial and financial expenses 7,364Banco Santander, S.A. (1) Grupo CEPSA Commercial Financial income 4,947

Dividends and other Banco Santander, S.A. (1) Grupo CEPSA Corporate distributed profits 50,870

Purchase of goods TOTAL, S.A. Grupo CEPSA Commercial (completed or in progress) 659,200

Dividends and other TOTAL, S.A. Grupo CEPSA. Corporate distributed profits 130,668

Sale of goods (completed TOTAL, S.A. Grupo CEPSA. Commercial or in progress) 181,721International Petroleum Dividends and other Investment Company Grupo CEPSA Corporate distributed profits 65,679

Purchase of goods (completed Unión Fenosa, S.A. (1) Grupo CEPSA. Commercial or in progress) 26,535

Sale of goods (completed Unión Fenosa, S.A. (1) Grupo CEPSA. Commercial or in progress) 6,701

Dividends and other Unión Fenosa, S.A. (1) Grupo CEPSA. Corporate distributed profits 8,027

(1) During the period these entities were considered “related parties”, due to their significant shareholdings in the Company.


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C.3 Provide a breakdown of the relevant transactions involving a transfer of resources orobligations between the Company or entities of its Group, and the Directors or SeniorManagers of the Company.

None.

C.4 Provide a breakdown of the relevant transactions made by the Company with othercompanies belonging to its same Group provided they are not eliminated in the process ofconsolidation and are not part of the Company’s routine business.

None.

C.5 C.5. Indicate whether any Directors were involved in any conflicts of interests during theyear, as defined in Article 127.3 of the Companies Act.

None.

C.6 List the mechanisms established to identify, determine and settle possible conflicts ofinterests between the Company and/or its Group and its Directors, Executive Managers orsignificant shareholders.

Article 31 of the Board Rules and Regulations states accordingly that: “Directors who accept any executive position inanother company or entity that may pose a conflict of interest shall inform the Board of Directors through itsChairperson. The Directors shall refrain from participating in debates that involve matters in which they have a personalinterest, either directly or indirectly. Personal interest shall also be understood to mean when the matter affects amember of the Director’s family or a company controlled by the Director; personal interest shall not be understood tomean instances in which the matter affects the company that is a shareholder of the Company for whom the Directorwas named or group of companies to which such shareholder may pertain. No Director shall be able to personallyundertake commercial operations with the Company, nor may he or she guarantee any operations that are arrangedbetween the Company and third parties. He or she may, however, jointly engage in such operations with the Companyvis-à-vis third parties and also take part in company operations. Directors who directly or indirectly engage inprofessional transactions that may involve a conflict of interest must notify the Board of Directors."

C7 Is more than one company of the Group listed on Spain’s Stock Exchanges?

No.

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D. RISK-CONTROL SYSTEMS

D.1 Describe the general risk policies of the Company and/or Group, listing and evaluating therisks covered by the system, along with an explanation of the extent to which such systems aretailored to the profile of each type of risk.

The CEPSA Group’s activities are exposed to a series of external risks and factors that can affect the way operationsare conducted and the results obtained thereof. These activities are managed through the implementation of policiesthat primarily seek to optimize the ratio between costs and covered risks, consistent with the strategy established bythe Group’s Executive Management.

As part of the planning and budgetary processes, the effects of business risks are assessed and a sensitivity analysisis made for key variables, in order to have a complete and comprehensive view of their impact on the Group.

Each year, CEPSA publishes a Corporate Responsibility Report that contains, among other matters, a broad and detaileddescription of the actions carried out by the CEPSA Group in social, economic and environmental areas and itscontribution to sustainable development throughout the year. The 2008 Report was prepared following the G3 Guidelinesof the Global Reporting Initiative (GRI).

D.2. Indicate whether any of the different types of risks facing the company and/or its Group(operational, technological, financial, legal, reputational, tax, etc) have materialized during theyear.

No material asset or equity losses occurred during the year. On the other hand, trends in doubtful trade debts improvedfrom the previous year and the appropriate allowances were made in this connection.

The implementation of ongoing improvements in risk control systems is enabling the Company to steadily reduce thefrequency of accidents, particularly in the area of occupational safety, and noteworthy is that the frequency rate (numberof lost-workday injuries for each million hours worked) fell from 4.65 in 2008 to 3.59 in 2009, meaning a year-on-yeardecline of more than 22%.

D.3. Indicate whether there is any committee or other governing body in charge of establishingand supervising control mechanisms.

Yes.

If so, provide an explanation of its duties and functions.

Name of committee or body:

The Board of Directors through the Audit Committee, the Chief Executive Officer as well as the Executive Managers ofthe different business divisions, regularly supervise and control risks, and adapt, wherever feasible, their profile toprevailing circumstances. In the area of Environmental Affairs, Safety and Quality, CEPSA’s PA.S.CAL (EnvironmentalProtection, Safety and Quality) Committee’s basic function involves the periodic review of the CEPSA Group’s


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environmental, occupational health and safety and quality management and its associated risks, proposing any neededchanges or adjustments. In the area of Information Security, there is a Corporate Security Committee whose aim is tomonitor and oversee implementation of information security measures.

Description of duties and functions:

The CEPSA Group has established risk control systems that may affect the development of the Company’s investmentsand activities and which are consistent with the Group’s risk profile.

The key risks encompassed in the “Control System” are as follows:

Property & casualty risks:

The CEPSA Group is insured against risks involving material damages, including machinery failures and the control ofcrude exploration and production wells; injuries to workers from occupational accidents; loss of profit stemming frommaterial damages; civil liability, both for the companies of the CEPSA Group as well as their employees and advisorsin performing their jobs and arising from material damages or personal injuries either to third parties or to companypersonnel as a result of occupational accidents; and loss or damage in the transportation of crude oil, products andequipment.

Customer credit risks:

The CEPSA Group has established a commercial credit and collection management policy, regulated through its“Internal Standards and Procedures” that are periodically updated, which include determining commercial credit limitsfor each customer; establishing the appropriate collection instruments; laying out procedures to follow in case ofdefaults; and monitoring and controlling assigned credit limits.

Furthermore, computerized risk analysis systems are used to globally manage and automate internal and externaldata, evaluating them by applying models established for classifying each customer’s commercial credit risk and theassignment of their credit limit. Notwithstanding the above, insurance policies have been arranged to cover the risk ofcustomer payment defaults in certain commercial areas.

Financial, exchange and interest rate risk:

The Group’s activities, to varying degrees, are exposed to risks stemming from movements on financial markets.

The Company strives to maintain a sound financial and equity position and the appropriate risk controls to be able tosuccessfully overcome challenging or shifting scenarios in the oil industry and global marketplace, and particularly tohave the funds available to capitalize on future developments and attractive new business opportunities that will providea springboard and momentum for further growth and yield significant long-term, sustainable value for its shareholders.

The Group’s businesses are, to a large extent, sensitive to fluctuations in the exchange rate between the euro and theUS dollar, which is the currency in which most crude oil and petroleum and chemical products are priced. The Groupstrives to minimize the impact of this exchange risk on commercial transactions carried out. From an operational pointof view, the Company centralizes and manages exchange risk from the net overall cash flow position in foreigncurrencies of all the Group’s companies.

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The arrangement of financing options and risk hedging instruments, as well as the investment of surplus funds, arealso centralized in the Group.

In the case of foreign investments in fixed assets which generate future cash flow in foreign currencies, the Groupseeks to minimize its exchange risk exposure by financing these capital expenditures in the same functional currency.In other words, its debt in foreign currencies to some extent covers the exchange risk exposure it has from cash flowgenerated by these assets.

The Company’s activities are also sensitive to interest rate fluctuations. As a result, the Group has arranged most ofits financial debt at a floating rate, bearing in mind its currently low debt ratio, the stable environment for interest ratesin euros and the fact that it considers that this financing model will entail a lower cost over the long run.

In order to manage liquidity risks, the CEPSA Group maintains credit facilities and surplus cash to ensure it will be ableto handle its current financial liabilities and meet any funding needs that may arise.

The CEPSA Group works with leading and highly-reputable Spanish and international financial entities, although itadditionally analyzes the counterpart risk of negotiating investments and financial instruments.

Industrial risks, prevention and safety:

The CEPSA Group has a safety management system as stated in its “Risk Prevention Manual” and “Basic Regulations”,pursuant to international OHSAS 18001-2007 standards. Likewise, it has established procedures to follow, reflectingindustry-wide, generally-accepted best practices, that guarantee the highest possible levels of safety, paying specialattention to the elimination of risks at source. The system in place is aimed at ongoing improvement in risk reduction,relying on a number of activities, such as work planning, analysis and monitoring of remedial actions related to incidentsand accidents, internal auditing, routine inspections of facilities and supervision of maintenance and operational work.

Environmental risks:

Some of the CEPSA Group’s operations generate impacts on the environment, such as those related to emissions ofair pollutants and discharges into waterways, soil and groundwater as well as during the production and disposal ofwastes. Since 2007, these impacts have been regulated by the IPPC (Integrated Pollution Prevention and Control)Directive, which has been transposed into Spanish legislation by Act 16/2002. Accordingly, all of the CEPSA Group’smajor industrial facilities have been awarded Integrated Environmental Authorizations which entail rigorous control overits processes with the aim of minimizing environmental impacts. Notwithstanding the above, one of CEPSA’s keypriorities throughout the years has been to conduct its industrial operations in a safe and environmentally-friendlymanner, as reflected in its internal Environmental Protection policy and governed by its Basic Environmental Rulesand Regulations.

In short, measures adopted to minimize environmental impacts, by categories, are the following:

• Air emissions – Internal procedures are applied to manage and control impacts and control networks have beenput into place for both inmissions and emissions, using measuring stations whose data are reported to theauthorities in real time.


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• Water discharges – Industrial effluent treatment plants have been deployed at all industrial sites to control waterdischarges, thereby considerably minimizing their impact. As in the case of air emissions, data on industrial effluentparameters are provided to the authorities in real time; and measures are implemented to control the receptorbody, both as regards waters and sediments.

• Soils/Groundwater – All of the Group’s industrial plants have piezometer networks to allow ongoing monitoring ofthe condition of soils and groundwater, enabling a rapid response to any possible incidents and as a result,minimizing their impacts.

• Wastes – CEPSA has established a preventive policy with regard to the production of wastes which encourages thereduction, reuse, recycling and recovery of wastes in order to enhance environmental protection and the safety andhealth of surrounding communities.

• Accidental Marine Pollution – Measures are put into effect to comply with the provisions contained in InternalContingency Plans for Marine Pollution Accidents (PICCMA) and in internal procedures to prevent and control thistype of pollution. Steps are taken to improve the operational capabilities of Maritime Terminals and Facilities,minimizing risks inherent in their activities.

• Crude oil exploration & production – In its upstream operations in Algeria, Colombia, Egypt and Peru, the CEPSAGroup applies stringent environmental principles, guidelines and strategies to minimize the impact of its activitiesand ensure utmost respect to the environment and the surrounding indigenous communities where it conducts itsbusinesses.

Since 1995, CEPSA has been proactively working on the analysis and assessment of environmental risks stemmingfrom its activities in order to ensure their effective management and control, reducing possible incidents that may leadto significant impacts on the environment and its biodiversity. In this respect, these tests and reviews were conductedat the Group’s various plants and sites, all of which are compliant with UNE 150008:2008 standards on EnvironmentalRisk Analysis and Assessment, the benchmark standard in Spain.

Additionally, all of the CEPSA Group’s major industrial facilities have environmental management systems certified byindependent accrediting agencies. One of its key priorities at this time is to complete the certification of the fewremaining activities that are still not in possession of this accreditation.

The CEPSA Group may be a party to claims or litigation in connection with environmental damages caused by itsactivities both within and outside its sites and facilities. Although future costs are indeterminable, based on currently-available knowledge, Management feels that these contingencies are adequately covered with the accounting provisionscreated for such purposes and different kinds of liability insurance policies. Depending on future legislation in thisregard, the specific amounts of the financial guarantee that may arise as a result of the enforcement of the regulationsunder the Environmental Responsibility Law in certain Group facilities have yet to be determined.

The amounts covered by the financial guarantees will be specified as soon as the provisions of the law and the rulesand regulations of environmental responsibility are developed.

Additionally, a number of the Group’s productive facilities are required to comply with regulations that affect greenhousegas emissions. Both in 2008 and 2009, emissions from all the plants and units affected by this legislation, and whichhave been verified by AENOR, were slightly lower than the volume of emission allowances assigned in the NationalAllocation Plan.

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Market risks:

The very nature of the businesses engaged in by the CEPSA Group involves a certain degree of sensitivity to prevailingtrends and volatility in oil and gas prices and refining and marketing margins. Accordingly, the Group’s high level ofvertical integration, strengthened in recent years, is one tool that can enable the Company to counteract and, if possible,override the cyclicality of the oil industry and ease the effects this can have on one or another of the Group’s differentsegments or areas.

For instance, an increase in crude oil prices has a positive impact on upstream earnings, even though the extent of thiseffect can be limited by the application of contractual terms and conditions under Production-Sharing Contracts (PSC)and their constraints on the amount of crude available for sale.

Fluctuations in the price of crude oil can likewise have an effect on refining and marketing operations, the dimensionsof which are mostly determined by how swiftly these price changes can be passed along to international and localfinished product markets.

As regards risks associated with price trends for crude oil and products on global markets, the CEPSA Group maintainsand operates a comprehensive hedging system that insures it against the impact of price volatility and crude andproduct inventory variations as compared to a previously-defined level of inventory that is reviewed on a yearly basiscovering the minimum strategic stock and operating requirements. These variations are hedged on the Brent IPEfutures market, with forward sales offsetting surplus volumes of targeted inventory, and forward purchases offsettingvolumes that stand below the targeted inventory.

Risks Related to Changes and Developments in Regulations Applicable to Petroleum-related Activities and/or theOil Industry

The Group’s businesses both in Spain and abroad are subject to a wide variety of laws and regulations. Any changesthat may arise can affect these activities both in their structure and their earnings and results.

Information Security Risks

CEPSA has a security organization in place to guarantee the availability, integrity, confidentiality and auditability of theinformation required to ensure the smooth development and progress of the Group’s activities and with the acceptablecost and risk.

The Company has an Information Security Management System based on minimizing security risks, which has beenawarded international ISO 27001 certification.

D.4 Identification and description of the processes of compliance with regulations that affectthe Company and/or its Group.

The energy sector in which CEPSA conducts its businesses is basically governed by Hydrocarbons Act 34/1998 of October7th; RDL 15/1999 of October 1st, approving measures to deregulate the market, implement structural reforms andincrease competition in the oil and gas sector; RD 16/2002, on Integrated Pollution Prevention and Control; RD 1716/2004of July 23rd regulating the obligation to maintain minimum security stocks of petroleum products, the diversificationof natural gas supplies and the Corporation for Strategic Reserves of petroleum products; RD 398/1996 of March 1st andsubsequent regulations on automotive gasoline and diesel specifications; RDL 6/2000 of June 23rd on urgent measuresto intensify competition in markets for goods and services; Act 9/2006, of April 28th on the evaluation of the effects ofcertain environmental plans and programs; RD 61/2006 of January 31st setting gasoline, diesel, fuel oil and LPG


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specifications and regulating the use of certain bio-fuels and the sulfur content in specific marine fuels; RD 679/2006,of June 2nd, regulating used oils management; RD 1370/2006 of November 24th, which approves Spain’s GHG emissiontrading allowances for 2008-2012; EU Council Decision of October 14, 2004, regarding the signature, on behalf of theEuropean Community, of the Stockholm Convention on Persistent Organic Pollutants; European Directive 2008/1EC,passed by the European Parliament and Council on January 15, 2008, concerning integrated pollution prevention andcontrol (IPPC); Act 26/2007 of October 23rd on environmental responsibility which transposes Directive 2004/35/EC ofthe European Parliament and Council of April 21, 2004; RD 2090/2008 of December 22nd approving Regulations thatpartially develop the aforementioned Act; RD Law 1/2008 on environmental risk assessment and Act 34/2007 on airquality and atmospheric protection.

In environmental matters, CEPSA has included the requisites of applicable legislation in its “Basic EnvironmentalRegulations” and “Internal Procedures”. Likewise CEPSA has strengthened its commitment to the environment throughthe development of its “Biodiversity Regulations” which regulate measures to be adopted to preserve habits and speciesin communities where the Company operates.

Noteworthy is that CEPSA has implemented an environmental management system, certified according to UNE-EN ISO14001 and Regulation 761/2001 of the European Parliament and Council regarding the voluntary participation oforganizations in an Environmental Management and Audit System (EMAS), in most of its activity centers by independentagencies which in turn are accredited by the Spanish Ministry of Industry, Tourism and Commerce’s ENAC (NationalAccreditation Bureau). As for petrochemicals in the CEPSA Group, the Company has voluntarily adhered to theResponsible Care® scheme, a proactive program put into practice by the worldwide chemical industry to demonstratethe strides made by leading businesses in the areas of health, safety and the environment, through associated codesand regulations.

With regard to occupational risk prevention, CEPSA has a set of “Basic Rules for Industrial and Occupational RiskPrevention” which apart from complying with legislation in this area, also include guiding principles and policies neededto achieve the highest standards of safety in its operations; the “Corporate Management Manual for the Prevention ofIndustrial and Occupational Risk Prevention”; and other action guidelines that guarantee solid safety performance inthe entire productive process, from plant design to product marketing.

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E. SHAREHOLDER MEETINGS

E.1 Indicate and, where applicable, give details on whether there are any differences vis-à-visthe minimum requirements provided for in the Companies Act with the regard to quorums forholding Annual Meetings.

There are no differences vis-à-vis the minimum requirements set forth in the Companies Act.

E.2 Indicate, and where applicable, provide details on whether there are any differencescompared to the system established under the Companies Act with regard to the adoption ofcorporate resolutions.

There are no differences compared to the system provided for in the Companies Act.

E.3 List the rights of shareholders with regard to Annual Meetings apart from thoseestablished in the Companies Act.

The Company Bylaws do not provide for any special shareholder rights apart from those already set out in theCompanies Act.

E.4. Indicate, where applicable, the measures adopted to encourage shareholder participationat Annual Meetings.

The following measures, among others, have been adopted:

• To provide information on an ongoing basis through the Shareholder Service Office.

• To reply to requests that, in using their legally-recognized rights to information, shareholders make in writing in duetime prior to the date of the AGM.

• To distribute, as of the time that the AGM notice is published, the annual report and any other legally-requiredinformation at the Company’s head offices, its branch offices and in venues specifically arranged for this purpose.

• To provide proxy cards and electronic voting for all shareholders via the internet.

• To provide free parking at the venue of the AGM for shareholders who use their own vehicles.

• To offer a complimentary gift item to shareholders present in person or by proxy at the AGM.


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E.5 State whether the Chairperson of the Annual Meeting is likewise the Chairperson of theBoard of Directors. Explain, where applicable, any measures adopted to guarantee theindependence and proper conduct of Annual Meetings.

The Annual Meeting is presided by the Chairman of the Board, whose actions shall comply with applicable legislation,the provisions of the Company Bylaws and the Rules and Regulations for Shareholder Meetings which describes theworking procedures of the Annual Meeting.

Therefore, the independence and proper conduct of the AGM are deemed to be guaranteed.

E.6 State whether any amendments were introduced in the Rules and Regulations ofShareholder Meetings during the year.

The Company’s Annual General Meeting of Shareholders held on June 26, 2009, approved, by a majority vote, theamendment of Article 9 of the AGM Rules regarding advance notification to call Shareholders’ Meetings. The wordingof this Article was changed to the following:

“The notice convening Shareholders’ Meetings shall be issued at least one month prior to the date on which it isscheduled to be held on first call.

The notices shall be published in the "Official Gazette of the Mercantile Registry" and in at least one of the majornewspapers in the province where the Company has its registered offices. The notice shall likewise be available throughthe internet, on the company’s website at www.cepsa.com.

The notice of such meeting shall state whether it is an Ordinary or Extraordinary Meeting or both; its purpose; theAgenda or list of items to be discussed; the date and time of the meeting on first and second call, and the venue. A periodof at least twenty-four hours must elapse between the first and second call.

If a Shareholders’ Meeting, duly convened, is not able to be held on first call, and the notice itself does not state thedate of the second call, the latter should be announced following the same rules and requisites of public disclosure asfor the first call, within fifteen (15) days following the date of the Shareholders’ Meeting not held, and at least eight (8)days prior to the date on which the Meeting on second call is to be held.

Shareholders who represent at least five per cent of the company’s share capital may request the publication of anaddendum to the Annual Meeting notice, including one or more items of the Agenda.

The addendum to the notice shall be published at least 15 days prior to the scheduled date of the Annual Meeting. Thisright shall be exercised by ensuring that the proper and reliable notification is received at the corporate head officeswithin five days following the publication of the notice. Failure to publish the addendum to the notice within the legally-established period shall nullify the AGM.”

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E.7. Provide attendance figures and data for Annual Meetings held in the year.

AGM Date % of Shareholders Present in % of Shareholders Represented Person by Proxy % of Electronic Votes % of Distance Votes Total

June 26, 2009 87.156 9.525 0 0 96.6811

E.8 Briefly indicate the resolutions adopted in Annual Meetings held during the year andpercentage of votes cast to adopt each resolution..

2009 Annual General Meeting of Shareholders (the only AGM held in the year):

June 26, 2009, on first call, in Madrid, Auditorium “B” of the Municipal Convention Center, Avda. de la Capital de EspañaMadrid, s/nº (Campo de las Naciones), 28042 Madrid.

RESOLUTIONS ADOPTED:

Summary of Proposals Submitted to a Vote of Shareholders Votes in Favor Votes Against Abstentions

To study and approve the 2008 Financial Statements and Management Discussion & Analysis for CEPSA and its Consolidated Group, as well as the Proposal for CEPSA’s Profit Distribution and the Company’s executive management. 258,694,927 630 0To ratify the appointment of Santiago Bergareche Busquet as a Director of the Company. 258,689,704 5,853 0To ratify the appointment of Joël Vigneras as a Director of the Company. 258,101,062 594,495 0To ratify Jean-Luc Guiziou as a Director of the Company. 258,104,575 590,982 0To re-elect Juan Rodriguez Inciarte as a Director of the Company. 258,100,881 594,676 0To re-elect Ernesto Mata López as a Director of the Company. 258,100,881 594,676 0To renew, where applicable, the authorization granted to the Board of Directors of the Company to issue non-convertible fixed-yield securities, underthe terms and conditions established for these purposes in legislation in force. 258,694,325 1,232 0To amend Articles 26 and 51 of the Company Bylaws and Article 9 of the AGM Rules and Regulations. 258,693,577 630 1,350To reappoint Deloitte, S.L., for a one-year period, as the independent auditors to examine and review the 2009 financial statements for CEPSA and its Consolidated Group 258,682,325 13,232 0To delegate powers to the Board of Directors, or the person or persons on the Board that it may so designate, to notarize the resolutions passed at the Annual Meeting by a public deed. 258,694,307 0 1,250


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E.9 State the minimum number of shares, if any, needed to attend Annual Meetings andwhether there are any restrictions on such attendance in the Bylaws.

Article 23 of the Company Bylaws states that the right of admission to the Annual Meeting shall be granted to allshareholders who can demonstrate ownership of a minimum of sixty (60) shares, at least five (5) days prior to thescheduled date of the Annual Meeting on first call. All shares have the same voting rights (each share is entitled to onevote).

E.10 Indicate and explain the policies pursued by the Company with regard to proxy voting atAnnual Meetings.

The admission tickets for the AGM include the items on the Agenda and the voting instructions for each one of them.The Company applies what is provided for in Article 25 of its Bylaws and Article 13 of the Rules and Regulations ofShareholder Meetings, which state that shareholders may appoint other shareholders to represent their shares, andsuch proxy holders should be able to cast not only the votes they are entitled to, but also those of the shareholders theyare representing. Proxies shall be appointed specifically for each Annual Meeting and must be authorized in writing orby the means of remote communication that comply with the requisites contained in the aforementioned articles..

E.11 State whether the Company is aware of the policies of institutional investors with regard totheir involvement or non-involvement in corporate decisions.

No, the Company is unaware of any such involvement.

E.12 State the address and means of access to corporate governance contents on theCompany’s website.

The Corporate Governance Report can be obtained either directly at the AGM, by requesting it via postal mail from theShareholder Service Office, CEPSA, Avenida del Partenón 12, 28042 Madrid, by calling the toll-free telephone number900 10 12 82, by e-mail at [email protected], or by logging on to the Company’s website at “ www.cepsa.com”,“information for shareholders”, “corporate governance”, “Corporate Governance Report”,http://www.cepsa.com/corporativo/pages/c_3_3_9.htm.

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F. LEVEL OF COMPLIANCE WITH CORPORATE GOVERNANCERECOMMENDATIONSRecommendation 1.- The Bylaws of listed companies should not impose an upper limit on the votes that can be castby a single shareholder, or impose other restrictions that could hinder the takeover of the Company by means of sharepurchases on the securities market.

The Company complies with this recommendation

Recommendation 2.- Whenever a parent and its subsidiary company are listed on the Stock Exchange, both shouldclearly define

a) The type of business or activity they each engage in and any business dealings between them, as well as betweenthe subsidiary and other group companies.

b) The mechanisms in place to ultimately settle possible conflicts of interest.

Not applicable.

Recommendation 3.- Even when mercantile legislation does not expressly require it, any decisions involving a structuralor corporate change in the Company should be submitted to the Annual General Meeting for approval, particularly thefollowing:

a) The transformation of listed companies into holding companies through the process of “subsidiarization”, i.e.,reassigning to subsidiaries core activities that were previously carried out by the originating firm, even though thelatter retains full control of the former;

b) The acquisition or sale of key operating assets, whenever this would effectively alter the corporate purpose;

c) Transactions that effectively add up to the Company’s liquidation.

The Company complies with this recommendation.

Recommendation 4.- Detailed proposals of the resolutions to be adopted at the Annual Meeting, including informationreferred to in Recommendation 28, should be disclosed and made available at the same time as the publication of theAGM notice.


Recommendation 5.- Separate votes should be cast at the AGM on materially separate issues, so that shareholders mayexpress their preferences in each case. This rule should particularly apply in the following cases:

a) The appointment or ratification of directors, with separate voting on each candidate;

b) In the case of amendments to the Bylaws, each article or groups of articles that are materially separate should bevoted on individually.



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Recommendation 6. Companies should allow split votes so that brokers or custodians who are shareholders of recordand but act on behalf of different clients can issue their votes according to the instructions of such clients.


Recommendation 7. - The Board of Directors should perform its duties with unity of purpose and independentjudgment, affording all shareholders the same treatment and consideration. It should be guided at all times by theCompany’s best interests and accordingly, strive to maximize its value over time.

It should likewise ensure that the Company abides by applicable laws and regulations in its dealings with stakeholders;fulfils its obligations and covenants in good faith; respects the customs and good practices of the sectors and territorieswhere it does business; and upholds any additional social responsibility principles it has voluntarily adhered to.


Recommendation 8.- Que el Consejo asuma, como núcleo de su misión, aprobar la estrategia de la Compañía y laorganización precisa para su puesta en práctica, así como supervisar y controlar que la Dirección cumple los objetivosmarcados y respeta el objeto e interés social de la Compañía. Y que, a tal fin, el Consejo en pleno se reserve lacompetencia de aprobar:

a) The policies and strategies of the Company and in particular:

I) The strategic or business plan, as well as annual management and budgetary targets;

II) Investment and funding policies;

III) The definition of how the companies of the Group should be structured;

IV) Corporate governance policies;

V) Corporate social responsibility policies;

VI) Executive management compensation and performance appraisal policies;

VII) Risk control and management policies, as well as the periodical monitoring of internal information andcontrol systems.

VIII) Dividend pay-out and treasury stock policies, in particular with regard to their limits.

b) The following decisions:

I) At the proposal of the Company’s chief executive officer, the appointment and possible removal of executivemanagers, as well as their severance conditions;

II) Directors’ compensation, and any additional compensation awarded to executive directors for their executiveduties and responsibilities and other terms and conditions included in their contracts;

III) Financial information that the Company, as a listed company, is required to disclose;

IV) Any and all kinds of investments and/or transactions that, due to their amount or special features, may beregarded as strategic, except where the AGM is specifically entrusted with the task of approving them;

V) Creation or acquisition of shares in special-purpose entities or with registered offices in countries or territoriesconsidered to be tax havens, as well as any other transactions or operations of a similar kind whose complexitymay jeopardize or undermine the Group’s transparency.

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c) Transactions between the Company and its directors, its significant shareholders and/or shareholders with Boardrepresentation, or parties related to them (“related-party transactions”).

Nevertheless, this Board authorization may not be required in related-party transactions that simultaneously meetthe following three conditions:

1. They are governed by standard contracts applied on an across-the-board basis to a large number of clients andcustomers;

2. They are made at market rates that are generally set by suppliers of goods and services;

3. They are worth less than 1% of the Company’s yearly revenues.

The aforementioned powers assigned to the Board may not be delegated with the exception of those mentioned in b)and c), which may be delegated to the chosen Committee in urgent cases and subsequently ratified by the Board in aplenary meeting.


Recommendation 9. - The Board of Directors should be the right size to make it work effectively and encourage thegreatest participation of its members, and therefore it would be advisable to have no less than five and no more thanfifteen members.


Recommendation 10.- In the Board’s composition, non-executive shareholder-representative and independentdirectors should represent a broad majority of the Board members and the number of executive directors should bethe minimum required, consistent with the complexity of the corporate Group and the percentage of the share capitalheld by executive directors.


Recommendation 11. – If there are any non-executive directors who cannot be classified as shareholder representativeor independent, the Company should explain the reasons thereof and their ties with either the Company, its executivemanagers and/or its shareholders.

Not applicable.

Recommendation 12.- Among non-executive directors, the ratio between shareholder representative and independentdirectors should reflect the existing proportion between the share capital represented by shareholder-representativedirectors and the remaining share capital.

The strict interpretation of this principle of proportionality may be relaxed so that the percentage of shareholderrepresentative directors is in fact greater than what would strictly correspond to the total percentage of capital theyrepresent, in the following cases:

1. In large-cap companies where few or no equity holdings attain the legal threshold for being considered significantshareholdings, despite the considerable sums actually invested.

2. Whenever this involves companies in which a plurality of shareholders are represented on the Board but suchshareholders otherwise have no ties among them.



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Recommendation 13. – Independent directors should account for at least one third of the total number of Boardmembers.

The Company does not comply with this recommendation.

At December 31, 2009, the Company had 3 independent directors, out of a total of 13 members, accounting for 23.1%of total Board members, bearing in mind that more than 95% of the share capital is directly or indirectly held by twoshareholders with Board representation.

Recommendation 14. - The Board should explain the type of each directorship to the Annual Meeting of Shareholdersrequested to appoint these directors or ratify their appointment. This should be confirmed or reviewed on a yearly basisin the Corporate Governance Report, after being verified by the Nominations Committee. This report should likewisedisclose the reasons for the appointment of shareholder representative directors at the request of shareholders whosestake in the Company’s share capital is less than 5%; and it should furthermore explain the reasons for rejecting, whereapplicable, formal requests for Board presence made by shareholders whose equity stakes are equal to or greater thanthose of others whose requests for shareholder-representative directorships were met.


Recommendation 15.- If there are few or no female directors, the Board should explain the reasons thereof and theinitiatives taken to remedy this situation, and in particular, the Nominations Committee should take the proper stepsto ensure that, whenever vacancies arise:

a) The selection process for filling such vacancies has no hidden gender bias;

b) The Company makes a conscientious and deliberate effort to include women candidates who meet the desiredprofessional background and requisites.

The Company partially complies with this recommendation.

There is one female director serving on CEPSA’s Board, accounting for 7.7% of the total of 13 members.

Recommendation 16. - The Chairperson, who is responsible for ensuring that the Board runs smoothly and efficiently,should strive to guarantee that all the Board members receive sufficient information prior to the meetings; encouragethe directors to engage in discussion and actively participate in the meetings, safeguarding their freedom to take astand on the issues brought before them and to express their opinions; and organize and coordinate regular and timelyevaluations of the Board, or where appropriate, of the Company’s Chairman or Chief Executive Officer, with thechairpersons of the respective Board sub-committees.


As regards the periodic evaluation of the Board, taking into account the high caliber, expert background and extensiveknowledge of all the Board members, the Company believes that there is no need to carry out a yearly performanceappraisal of either the Board, the Chairperson or the CEO.

Recommendation 17. - Whenever the Chairperson of the Board is also the Company’s chief executive officer, one of theindependent directors should be authorized to request that a Board meeting be summoned or to include new items onthe agenda; coordinate and voice the concerns of non-executive directors and oversee the Board’s evaluation of itsChairperson.

Not applicable.

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Recommendation 18.- The Board Secretary should do his or her best to ensure that the Board’s actions:

a) Abide by the spirit and letter of the law and their enforcing regulations, including those issued by regulatoryagencies;

b) Meet the provisions of the Corporate Bylaws and the Rules and Regulations for Shareholder Meetings, the Boardof Directors and any others that the Company may have;

c) Keep in mind any recommendations on good corporate governance contained in this Unified Code that the Companyhas adhered to.

And, in order to safeguard the independence, impartiality and professionalism of the Secretary, his or her appointmentand removal should be proposed by the Nominations Committee and approved by the Board in a plenary meeting; andfurthermore, the appointment and removal procedure should clearly be specified in the Rules and Regulations of theBoard of Directors.


The Board is currently reviewing the possible inclusion of a procedure to appoint and remove the Secretary in the BoardRules and Regulations..

Recommendation 19. - The Board should meet as frequently as needed to properly carry out its functions, following apre-established schedule of meetings and issues drawn up at the beginning of the year, allowing each director topropose the inclusion of additional unforeseen items on the agenda.


Recommendation 20. - Non-attendance at Board meetings should be limited to strictly unavoidable circumstances andshould be specified in the Annual Corporate Governance Report. Whenever proxies are required, they should be grantedwith the proper voting instructions.


Recommendation 21. – Whenever the Secretary or directors express concerns about a specific proposal or, in the caseof directors, on the progress of the Company and such concerns are not resolved within the Board, the personexpressing them may request that they be recorded in the minutes.


Recommendation 22. – . The Board, in a plenary meeting, should evaluate the following points on a yearly basis:

a) The quality and efficiency of the Board’s stewardship;

b) Based on a report submitted by the Nominations Committee, how well the Chairman and Chief Executive Officerhave carried out their duties;

c) The performance of the sub-committees on the basis of the reports provided by such committees.


Recommendation 23. – All directors should be able to exercise their rights to receive any additional information theyrequire on matters that come under the Board’s authority. Unless the Bylaws or Board regulations determine otherwise,such requests should be addressed to the Chairperson or the Secretary.



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Recommendation 24. - All the directors should be entitled to rely on the Company for the counsel and guidance neededto perform their duties. Furthermore, the Company should provide the suitable channels for the directors to exercisethis right, which under special circumstances may include external counsel or assistance at the Company’s expense.


According to the Board Rules and Regulations, only the Audit Committee and the Nomination and CompensationCommittee are entitled to request this external counsel and assistance.

Recommendation 25. - The Company should establish an induction program to familiarize new Directors with the firm,and its corporate governance rules, as promptly and broadly as possible. The Company should also offer its directorsrefresher or professional development programs whenever circumstances so advise.


Recommendation 26.- Companies should require Directors to dedicate sufficient time and effort to their Board dutiesin order to ensure they are performed effectively and therefore:

a) Directors should inform the Nominations Committee of their other professional obligations, in case these interferewith the dedication and commitment required for their duties on the Company’s Board;

b) Companies should lay down rules on the number of Boards their directors are allowed to serve on..


Given the commitment and dedication of all the Board members, the Company believes that establishing rules to limitthe number of Boards they can serve on is unwarranted.

Recommendation 27.- The proposal to appoint or re-elect Directors submitted to the Annual Meeting by the Board, aswell as provisional appointments by co-option, should be approved by the Board:

a) Upon proposal by the Nominations Committee with regard to independent directors.

b) On the basis of a report from the Nominations Committee in the case of the remaining Board members.


Recommendation 28.- Que la Sociedad haga pública a través de su página web, y mantenga actualizada, la siguienteinformación sobre sus Consejeros:

a) Professional and biographical background;

b) Other Boards on which they serve, whether or not they belong to listed companies;

c) An indication as to whether the directorship is executive, shareholder representative or independent, stating, in thesecond case, the shareholder which they represent and to whom they are affiliated;

d) The date of their first and subsequent appointments, and;

e) Shares and/or share options held in the Company.


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Recommendation 29.- Independent Directors should not serve as such for more than 12 consecutive years..


Recommendation 30.- Shareholder representative directors should resign whenever the shareholders they representsell their entire stake in the Company. In the event that such shareholders reduce their stakes, the number ofshareholder representatives they are entitled to should likewise be reduced in the same proportion.


Recommendation 31.- The Board of Directors should not propose the removal of any independent director prior to thecompletion of his or her term of office as specified in the Bylaws, except where just cause is determined by the Board,based on a report from the Nominations Committee. In particular, just cause will be presumed whenever the Directoris in breach of his or her fiduciary duties or has engaged in any of the circumstances listed in section III.5 (Definitions)of this Code.

The removal of independent directors may also be proposed whenever takeover bids, mergers or similar corporatetransactions lead to changes in the shareholding structure of the Company, in order to meet the proportionality criteriaset out in Recommendation 12.


Recommendation 32.- Companies should establish rules requiring directors to inform the Board, and where applicable,resign under any circumstances that may jeopardize the credibility and good standing of the Company and in particular,require that they report any criminal charges brought against them, and the status of any subsequent court or legalproceedings.

If a director is indicted or brought to trial for any of the crimes stated in Article 24 of the Corporations Act, the Boardshould examine the matter as promptly as possible, and depending on the particular circumstances, decide whetheror not he or she should be called on to resign. The Board should also reasonably disclose all such decisions in theAnnual Corporate Governance Report.


Recommendation 33. - All directors should clearly express their disagreement or disapproval whenever they believethat a proposed resolution submitted to the Board may go against the Company’s best interests. In particular,independent and other directors unaffected by the conflict of interest should challenge any decision that may go againstthe interests of shareholders not represented on the Board.

Whenever the Board adopts significant or reiterated resolutions on issues on which a director has expressed seriousconcerns or reservations, said director should draw the pertinent conclusions and if he chooses to resign over suchmatter, he should explain the reasons for leaving in a letter, as referred to in the following recommendation.

This recommendation should also be applicable to the Secretary of the Board, even if he or she does not hold adirectorship.



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Recommendation 34.- If directors leave their office before the end of their term, they should explain the reasonsthereof in a letter sent to all the Board members. Notwithstanding the publication of such resignation as a significantevent, the reasons for the resignation must be disclosed in the Annual Corporate Governance Report.


Recommendation 35.- The Company’s compensation policy, as approved by the Board, should specify at least thefollowing points:

a) Amount of fixed components, with a breakdown, where applicable, of Board and sub-committee meetingattendance fees, and an estimate of the associated fixed yearly pay for board members;

b) Performance-related components, including, in particular:

i) The types of directors to which they apply, as well as an explanation of the ratio of variable-to-fixed paycomponents;

ii) Performance appraisal criteria to calculate an entitlement to the award of shares, share options or any otherperformance-related components;

iii) Key parameters and grounds for any yearly bonus schemes or other non-cash benefits or perquisites; and

iv) An estimate of the sum total of variable payments arising from the proposed compensation policy, based onthe level of compliance with pre-set targets or benchmarks.

c) Key features of pension and insurance schemes (for example, supplementary pensions, life insurance plans andother arrangements), with an estimate of their total amount or equivalent yearly cost;

d) Conditions that the employment contracts of executive directors and senior managers must honor, including:

i) Duration;

ii) Notification periods; and

iii) Any other clauses regarding hiring bonuses, as well as compensation or golden parachute clauses due to earlytermination or rescission of the contractual relationship between the Company and the executive director.


Recommendation 36. – Compensation involving awards of stock in the Company or companies of the Group, optionawards or share-based incentives, non-equity incentive plans or pension/retirement schemes should be strictly limitedto executive directors.

Share awards are excluded from this limitation whenever directors are required to maintain them until the end of theirterm of office.

Not applicable.

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Recommendation 37.- Non-executive directors’ remuneration should sufficiently compensate them for theircommitment and dedication, qualifications and the responsibilities involved in the performance of their duties, but notbe so high as to compromise their independence.

The Company complies with this recommendation

Recommendation 38.- In the case of performance-based pay or incentive plans, deductions should be calculated forany possible qualifications contained in the independent auditors’ report that may reduce earnings.


Recommendation 39.- In the case of variable or earnings-based pay, compensation policies should include technicalsafeguards to ensure that they reflect the professional performance of the beneficiaries and not just the generalprogress of the markets or the Company’s sector, or other similar circumstances.


Recommendation 40. - The Board should submit a report on the directors’ compensation policy to the consultative voteof the Annual Meeting, as a separate item on the agenda. This report should be made available to shareholders eitherseparately or in any other manner the Company deems advisable.

The aforementioned report should focus on the compensation policy the Board has approved for the current year, withreference, as the case may be, to the policy planned for future years. It will address all the issues referred to inRecommendation 35, except those cases that may involve the disclosure of commercially-sensitive information. Itshould also highlight the most significant changes in the Company’s compensation policy compared to the previous yearand include a broad summary of how the policy was applied over the year concerned.

The Board should also report to the Annual Meeting on the role of the Nominations Committee in designing the policyand, if outside counsel was sought, the identity of the external advisors or consultants hired for such purposes.


The directors’ compensation policy is established by the Nomination and Compensation Committee within the limitsset forth in the Company Bylaws.

The itemized compensation components, attendance fees and bylaw stipulated fees are provided in this CorporateGovernance Report and made available to all shareholders.

The Executive Director’s compensation is likewise determined by the Nomination and Compensation Committee andits components are included in this Corporate Governance Report for shareholders’ information.

Taking into account that over 95% of the Company’s share capital is represented on the Board of Directors, in additionto 3 independent directors, the submission of a report on the directors’ compensation policy to a vote of the AnnualMeeting is deemed to be unwarranted.


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Recommendation 41.- The Notes to the Financial Statements should list the individual compensation packages forDirectors during the year, including:

a) Individualized breakdown of each Director’s compensation, in particular:

i) Attendance fees and other fixed payments associated with directorships;

ii) Additional compensation for acting as Chairperson or member of a Board Committee;

iii) Any payments made under profit-sharing schemes or bonuses and the reason for granting them;

iv) Contributions on behalf of Directors to defined-contribution pension plans, or any increase in directors’ vestedrights in the case of contributions to defined benefit schemes;

v) Any severance packages agreed or paid out;

vi) Any compensation they receive as directors of other group companies;

vii) Compensation received by executive directors in conjunction with their senior management positions;

viii) Any kind of compensation other than those listed above, regardless of its nature or the company makingsuch payment, especially when it is considered a related-party transaction or when its omission would detractfrom a true and fair view of the total compensation received by the Director.

b) A breakdown of shares, stock options or share-based incentives awarded in the year to the directors, itemized by:

i) Number of shares or options awarded in the year, and the terms set for exercising the options;

ii) Number of options exercised in the year, specifying the number of shares involved and the executed price;

iii) Number of options outstanding at year-end, specifying their price, date and other exercise conditions;

iv) Any change in the year in the exercise terms of previously-awarded options.

c) Information on the relationship in the previous year between the compensation awarded to executive directors andthe Company’s earnings or any other performance measure.


The Company considers that the grouped information given in both the Annual Report and the Annual CorporateGovernance Report on Directors’ compensation is sufficient enough for shareholders to be apprised of whatcompensation Board members receive, and that there is no need for an individualized disclosure.

Recommendation 42. – In cases in which the Company has an Executive Committee, the breakdown of its members bydirector category should reflect that of the Board, and the Board’s Secretary should act as this Committee’s Secretary.

Not applicable.

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Recommendation 43.- The Board should be kept fully apprised of the business transacted and resolutions adopted bythe Executive Committee and all of the Board members should receive copies of the minutes of Executive Committeemeetings.

Not applicable.

Recommendation 44. - In addition to the mandatory existence of an Audit Committee, pursuant to the Securities MarketAct, the Board of Directors should form a committee, or two separate committees, for Nominations and Compensation.

The rules governing the composition and working procedures of the Audit Committee and the Nomination andCompensation Committee should be set forth in the Rules and Regulations of the Board of Directors, and include thefollowing:

a) The Board should appoint members of such committees taking into account the background, expertise andexperience of its directors and the duties and responsibilities of each Committee; discuss their proposals andreports; and oversee and evaluate their work, reporting back to the first full Board meeting held thereafter;

b) Such committees should be exclusively made up of non-executive directors, having a minimum of three members.Executive directors or senior managers may also attend meetings at the express invitation of the committees;

c) Committees should be chaired by an independent director;

d) They may engage outside experts or consultants whenever they feel this is necessary for the performance of theirduties;

e) Meeting proceedings should be recorded in the minutes and sent to all the Board members.


The Board of Directors has set up an Audit Committee and Nomination and Compensation Committee from among itsmembers, with the working procedures and powers provided for in Articles 17 and 18 of the Board Rules and Regulations.The aforementioned Committees are composed exclusively of non-executive directors. The Chairman of the Nominationand Compensation Committee is an independent director.

Recommendation 45.- The task of overseeing compliance with internal codes of conduct and corporate governancerules should be entrusted to the Audit Committee, the Nomination and Compensation Committee, or if they existseparately, the Compliance or Corporate Governance Committees.


The Board of Directors is the body that oversees compliance with corporate governance rules.

Recommendation 46. – The members of the Audit Committee, particularly its Chairperson, should be appointed takinginto consideration their knowledge and background in accounting, auditing and risk management.


Recommendation 47. – Listed companies should have an internal audit function, under the supervision of the AuditCommittee, to ensure the proper operation of internal reporting and control systems.



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Recommendation 48. – The internal audit manager should present an annual work program to the Audit Committee,directly report on any incidents arising during its implementation and submit an activities report at the end of each year..


Recommendation 49.- The control and risk management policy should at least specify:

a) The different types of risks (operational, technological, financial, legal, reputational…) faced by the Company,including, with regard to financial or economic risks, contingent liabilities and other off-balance-sheet risks;

b) The levels of risk that the Company considers acceptable;

c) The measures established to mitigate the impact of identified risks, should they actually materialize;

d) The internal control and reporting systems that will be applied to oversee and manage these risks, includingcontingent liabilities and off-balance-sheet risks.


Recommendation 50. – The Audit Committee’s role and sphere of influence should be:

1º. With regard to internal control and reporting systems:

a) To supervise the preparation and integrity of the financial information for the Company, and, where applicable, itsgroup of companies, reviewing compliance with regulatory requirements and legal provisions, the scope of theconsolidation perimeter and the correct application of accounting principles.

b) To periodically review the internal control and risk management systems so that key risks can be properlypinpointed, managed and reported on.

c) To ensure the independence and efficacy of internal audit; propose the selection, appointment, re-election and,where applicable, removal of the internal audit manager; propose a budget for the internal audit service; receiveperiodic information on its activities; and ensure that senior management is aware of the conclusions andrecommendations contained in such reports;

d) To establish and supervise a “whistle-blowing” mechanism that allows employees to confidentially, and ifconsidered appropriate, anonymously report any irregularities they notice within the Company that may be ofpotential importance, especially financial and accounting irregularities.

2º. With regard to the independent auditors:

a) To submit to the Board proposals for selection, appointment, re-appointment and replacement of the independentauditors and the terms and conditions of their engagement;

b) To regularly receive information from the independent auditors on the audit plan and the progress and outcome ofits execution, verifying that senior management is duly aware of its recommendations.

c) To ensure the independence of the external auditors and accordingly:

i) To ensure that the Company reports any change in the auditing firm to the Spanish Securities MarketCommission (CNMV), accompanied by a statement on the possible existence of discrepancies that may havearisen with the outgoing auditing firm, and if so, the reasons thereof.

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ii) To ensure that the Company and the independent auditors respect and honor prevailing standards on theprovision of non-auditing services, the limits on the focus of the auditors’ business, and generally speaking,any other existing standards aimed at guaranteeing the auditors’ independence

iii) To examine the circumstances leading to the resignation, where applicable, of the independent auditors, if thisshould happen.

d) In the case of groups of companies, to help the group auditors take charge of the audits of companies belongingto the group.


With regard to item 1.d on establishing a “whistle-blowing” mechanism that allows employees to report any irregularitiesthey notice within the Company that may be of potential importance, the possibility of implementing this in the CEPSAGroup is being studied.

Recommendation 51.- The Audit Committee should be entitled to meet with any of the Company’s employees or seniormanagers, and to summon them without the presence of another senior manager.


Recommendation 52.- The Audit Committee should provide information on the following items referred to inRecommendation 8 prior to any related resolutions passed by the Board:

a) The financial information that the Company, as a publicly-traded company, must disclose periodically. Thecommittee should ensure that interim financial statements are prepared using the same accounting principles asthe yearly statements and, accordingly, may ask the independent auditors to conduct a limited review.

b) The creation or acquisition of shares in special-purpose entities or entities with registered offices in countries orterritories regarded as tax havens, and any other similar transactions or operations whose complexity couldjeopardize the group’s transparency.

c) Related-party transactions, except in cases in which their review has been entrusted to another supervision andoversight committee.


Recommendation 53.- The Board of Directors should strive to avoid having the financial statements that it formulatesbe presented to the Annual Meeting with reservations or qualifications in the auditors’ report; otherwise, both thechairperson of the Audit Committee and the auditors should provide a clear explanation to shareholders on the natureand extent of such reservations or qualifications.


Recommendation 54. – The majority of the members of the Nominations Committee – or Nomination andCompensation Committee, as the case may be – should be independent directors.


CEPSA’s Nomination and Compensation Committee is composed of one independent director who acts as Chairpersonand two members who are the Vice-Chairmen of the Company and are non-executive shareholder representativedirectors appointed by shareholders who represent over 95% of the share capital..


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Recommendation 55.- The Nominations Committee should have the following duties in addition to those set out inforegoing recommendations:

a) Evaluate the skills, knowledge and experience required on the Board, define the roles and capabilities required ofthe candidates to fill each vacancy accordingly and decide on the time commitment and dedication needed forthem to properly carry out their duties;

b) Examine or plan, in the manner deemed advisable, the succession of the Chairperson and Chief Executive Officer,and where applicable, make proposals to the Board so that such succession takes place in an orderly and well-planned way;

c) Report on appointments and removals of senior managers as proposed to the Board by the Chief Executive Officer;

d) Inform the Board on gender-diversity issues as explained in Recommendation 14 of this Code.


Recommendation 56.- The Nominations Committee should consult with the Chairperson and Chief Executive Officer,especially with regard to matters involving executive directors.

Any Board member may ask the Nominations Committee to consider potential directorship candidates to fill vacanciesarising on the Board.


For obvious reasons, the Nomination and Compensation Committee determines the compensation awarded to theExecutive Director without consulting him.

Recommendation 57.- The Compensation Committee should have the following duties in addition to those listed inforegoing recommendations, namely:

a) To make proposals to the Board of Directors regarding:

i) Compensation policies for directors and senior managers;

ii) Additional compensation and other contractual conditions for executive directors;

iii) Basic contractual conditions for senior managers.

b) To oversee compliance with the compensation policies set by the Company.


Recommendation 58.- The Compensation Committee should consult with the Company’s Chairperson and ChiefExecutive Officer, especially in connection with matters involving executive directors and senior managers.


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G. OTHER INFORMATION OF INTERESTList and explain the contents of any relevant principles or aspects of corporate governance applied by the Company thathas not been covered in this report.

This section may include any other relevant information, clarification or particularity related to previous sections of thereport, insofar as they are significant and not reiterative.

Specifically indicate whether the Company is subject to corporate governance legislation applicable in countries otherthan Spain and, if so, include the mandatory information to be disclosed whenever this is different from what is requiredin this report.

In corporate governance matters, CEPSA is strictly subject to the laws of Spain.

BINDING DEFINITION OF INDEPENDENT DIRECTOR:

Indicate whether any of the Independent Directors has or has had any material relationship with the Company, itssignificant shareholders and/or its executive or senior managers, as defined in section 5 of the Unified Code of GoodGovernance, that may compromise or influence his or her independence in the discharge of his or her duties:

No

This Corporate Governance Report has been approved by the Company’s Board of Directors at its meeting held onFebruary 25, 2010.

This Report has been unanimously approved by all the Board members present in person or by proxy. None of themembers abstained or voted against its approval.

Madrid, February 25, 2010


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