E X P L O R AT I O N & P RO D U C T I O N

Exploration & Production

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Figures in millions of euros 2002 2001

Net crude oil sales (millions of barrels) 3.3 3.5Capital & exploration expenditures 236.2 266.4EBITDA 58.1 67.6EBIT 20.7 37.2

International UpstreamKey projects in international upstream in 2002 were chieflylocated in Algeria, Colombia and Yemen.

In Algeria, CEPSA’s operations were focused on the BerkineBasin, in the central eastern portion of the Algerian SaharaDesert, and in the Timimoun Basin, in the southwest.

In the Berkine Basin, Block 406 A, measuring 1,640 squarekilometers, CEPSA has stakes in two major oil fields knownas Rhourde El Khrouf (RKF) and Ourhoud (ORD), with aninterest of 100% and 39.756%, respectively.

RKF FieldThis field, the total reserves of which were estimated tocome to 125 million barrels of light crude oil, yielded 6.8million barrels in 2002, slightly less than the year before, dueto OPEC production restraints.Aggregate output since thefield’s start-up amounts to 40.7 million barrels.

Work during the year involved updating the developmentplan for the field, using information provided by a new wellthat came on stream, with promising results. Appraisalstudies to determine the effect on the level of reserves areexpected to be completed in the first half of 2003.

Likewise, other tests performed on the field confirm thepresence of hydrocarbons in geological formations thatwere previously identified but not appraised. Currently,several studies are underway to ascertain the likely impacton higher reserves.

The capital & exploratory spending program in the year,amounting to 1.6 million euros, was mainly targeted atoptimizing the facilities, enhancing safety and ensuringenvironmentally-sound operations.

ORD FieldThe most important discovery in the Saharan Berkine Basinand the second largest in Algeria, Ourhoud (ORD) straddlesblocks 404, 405 and 406 and is developed and operated asa unitized field by a consortium.

This field is located in an anticline 25 kilometers long and 6kilometers wide, and the structure is a three-way dipclosure with a fault bounding the eastern flank. Theproductive reservoir interval is located in fluvial sandstonesof the Upper Triassic Argilo-Gréseux Inférieur (TAG-I)formation, at a depth ranging from 2,800 to 3,100 meters,with a recorded net pay of between 30 and 60 feet.Totalrecoverable reserves of crude oil are estimated to be nearly1 billion barrels, with CEPSA’s net entitlement amounting to18% according to the production-sharing contract.

The development plan for this field is based on a series ofproduction wells, backed by a system of water injection andgas injection wells where the associated gas from the oilproduced and water are re-injected to enhance cruderecovery.The crude extracted from the wells is sent to thecentral processing facilities where it is desalinated,dehydrated and de-gasified.The dried and stabilized crudeoil is then stored and prepared for exporting.

The different projects that are part of the field’sdevelopment such as well drilling, production facilities, link-ups between the wells and the crude oil processing facilities,industrial structures, etc. have been completed considerablyahead of the schedules established with SONATRACH andthe contractors.

The Ourhoud field is managed from two centers, onelocated in Hassi Messaoud, where the offices of the GeneralManagement of the joint operations are situated, andanother in Ourhoud, where the Field’s Management as wellas all the operational personnel reside near the centralprocessing facilities.

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Throughout the year, 12 new production wells were drilledin this field, all of them yielding positive results and withcrude output in line with forecasts.

The facilities of the field came on stream in December2002, with first oil sales made in January 2003. Crude oilextraction will be phased, using three production trains, andthe total authorized plateau production rate of 230,000BOPD is slated to be reached in March 2003.

Timimoun BlocksCEPSA, in a consortium headed by TOTAL, was awarded anexploration & production permit on two gas blocks (325aand 329) in the Timimoun Basin in the southwestern partof Algeria in July 2002. CEPSA’s stake in the project comesto 15%.

According to the scheduled plan, seismic surveys will beconducted as of the first quarter of 2003.

Other International AreasIn Colombia, work was completed to appraise the oilpotential of exploration areas located in the LowerMagdalena River Valley and in Catatumbo-Río Zulia, andbased on the studies performed, the decision was made toconcentrate operations in an initial phase in a region knownas “Leoncito”, belonging to the second area, where a surveywas undertaken leading to the discovery of crude oil, withextensive production tests obtaining a level of 450 BOPD.The possibilities of commercial development of thisdiscovery are now being explored.

ECOPETROL, Empresa Colombiana de Petróleos,authorized CEPSA, in October 2002, to acquire theupstream assets belonging to the U.S. energy companyCMS, which has working interests in several blocks and fieldslocated in the Upper Magdalena River Valley.These fields arepotentially rich in oil and are already producing crude whichin the last quarter of the year generated roughly $2,000,000in revenues. Exploration activities in these blocks started upin early 2003.

In Yemen, CEPSA, with a 15% equity interest alongside otherpartners in a consortium led by PAN CANADIANPETROLEUM, signed an exploration contract in an areameasuring 2,590 square kilometers.The initial agreement,for a two-year period, may be extended in the event thatpreliminary studies turn out to be positive. At year-end,seismic acquisition in the area was practically completed.

Domestic UpstreamCIEPSA, a wholly-owned subsidiary of CEPSA, manages anddevelops oil and gas exploration and production activitiesin Spain, primarily in the off-shore Mediterranean“Casablanca” field, located in the Tertiary basin near thecoast of Tarragona.

Production in this field, in continuous decline, came to790,000 barrels of crude oil, with CIEPSA’s entitlement fromthe company’s stake coming to 100,257 barrels, generatingrevenues of 2.6 million euros.

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