MADRID, Spain, Jan. 26 /PRNewswire-FirstCall/ -- - Repsol YPF today
announced expected downward revisions in its proved reserves of
1,254 million BOE. - These revisions relate primarily to natural
gas reserves. The majority are located in Bolivia (52%) and
Argentina (41%), along with smaller amounts in Venezuela and
elsewhere. - The revisions were mainly driven by changes in the
applicable legal framework in Bolivia, due to the new Hydrocarbon
Law and greater knowledge of certain fields in that country and
Argentina. - The revisions are currently expected to result in an
asset impairment charge of less than euro 50 million. Repsol YPF
anticipates 2005 earnings to be consistent with results for the
first three quarters. - Repsol YPF management has taken a number of
steps in the past year to enhance reserves booking procedures,
including the creation of an independent Reserves Control Group
separated from the business units. - The Audit Committee was
assigned last April the oversight responsibility for reserves
control, with the Reserves Control Group reporting directly to the
Audit Committee. - An independent review into the circumstances of
the revisions is being conducted by the Audit Committee. DETAILS
FOR THE CONFERENCE CALL Thursday, 26th January 2006 10.00h (Madrid)
09.00h (London) Dial in number for Spain: +34 917879672 Back Up
dial number: +34 914142012 Dial in number UK: 08002799163 Dial in
number US: 18667934275 See appendix for replay and the rest of
toll-free numbers Unique access Code: 90667008# DETAILS FOR THE
PRESS CONFERENCE Thursday, 26th January 2006 12.00h (Madrid) 11.00h
(London) Both the Conference Call and the Press Conference can be
seen on the company's website: http://www.repsolypf.com/ I.
ESTIMATED PROVED RESERVES REVISION In connection with the
determination of its worldwide proved oil and gas reserves (as
defined by the SEC) at December 31, 2005, Repsol YPF expects to
make downward revisions of 1,254 million barrels of oil equivalent
(BOE) against its previous estimates. This amount represents 25 %
of total proved reserves at December 31, 2004(1). The revisions
were made as the result of work conducted by teams which included
the company's Reserves Control Group as well as internal and
external professionals, under the supervision of the Audit
Committee of the Board of Directors. The Audit Committee assumed
last April the responsibility for the independent supervision of
reserves. This revision confirms the company's firm commitment to
rigor and independence for its internal control mechanisms. The
largest part of these revisions (52%), 659 million BOE, corresponds
to adjustments made for Bolivia, which has been especially affected
by uncertainties generated regarding the application of that
country's new Hydrocarbon Law; 509 million BOE (41%) as a result of
revisions in Argentina; and 86 million of BOE for the rest of the
world. The revisions announced today reflect the company's best
estimate; however, final proved reserve amounts may be subject to
revision in the event of further legal, commercial or operating
developments. Final proved reserve amounts at December 31, 2005
will also reflect additional ordinary course adjustments for
production, improved recovery, acquisitions, discoveries and
extensions. The company currently expects that the determination of
these adjustments will be completed by the end of February and will
not give rise to material additional adjustments. The detail of
affected fields by this revision is the following: Revision % over
M boe total rev. Sabalo 273.3 21.8% San Alberto 253.4 20.2%
Yapacani, Vibora y Sirari 75.1 5.9% Rio Grande 61.1 4.9% Other
Bolivia -4.3 - Total Bolivia (*) 658.6 52.5% Loma la Lata 251.8
20.2% Chihuido Sierra Negra 73.5 6.0% Ramos 36.5 2.9% Aguada Toledo
22.7 1.8% Other Argentina 124.7 9.9% Total Argentina 509.3 40.6%
Total Venezuela 58.6 4.7% Tin Fouye Tabankort 17.7 1.4% Other Rest
of World 10.0 0.8% Total Rest of World 27.7 2.2% 1,254 100% Note:
Individual field data is presented only for the ten fields with the
largest revisions. (*) Includes 333 million BOE relating to the
minority shareholders of Empresa Petrolera Andina, S.A. II. REASONS
BEHIND THE ESTIMATED RESERVES REVISION The bulk of the revisions
are attributable to two main factors: - Changes in the laws to
which company operations are subject in the jurisdictions in which
it operates. These changes have affected investment decisions and
will require modifications in the contractual arrangements between
company operations and the governments in these jurisdictions. In
particular, in Bolivia, the introduction of the new Hydrocarbon Law
has rendered future production at certain fields and several
development projects no longer commercially viable. In Venezuela,
negotiations are ongoing to transform existing commercial
arrangements into new joint ventures with PDVSA, which will have an
impact on the company's working interests. - Field performance and
other data, yielding a deeper understanding of the affected
reservoirs. An additional factor relates to the Argentine
Concession. Proved reserves expected to be produced based on
contract extensions contemplated in the Argentine Concession have
been eliminated because renewal of the concession is not reasonable
certain. Other normal annual revisions, including the impact of
changes in hydrocarbon prices on production sharing contracts
(PSCs), are expected to account for the remainder of the total. The
revisions relate mainly to natural gas fields that are largely
developed. Consequently proved developed reserves account for
approximately 75% of the total revisions. The specific reasons for
the revision in each of the main affected fields can be summarized
as follows: BOLIVIA The new Hydrocarbon Law, enacted in May 2005,
dramatically alters the applicable tax regime and the commercial
and operating environment for the oil and gas industry in Bolivia.
The main changes introduced by the law are: - An increase in
royalties from 18% to 50%. - Existing contracts with the government
must be made consistent with the terms of the new law but
implementing regulations, which would specify the nature and extent
of required changes, including key economic terms, have not been
issued. - Tightening restrictions on the ability to sell
hydrocarbon production. These changes have had a significant impact
on the anticipated economics of new development, affected the
commercial viability of many marginal fields, reduced the expected
profitability of existing production and introduced commercial
uncertainties that could affect the ability to fulfill existing
supply contracts in the future. New changes in the legal and, or
contractual framework, or the possibility that the Government
elects to receive royalties in kind in the future, instead of in
cash, as it is today, may modify the figures mentioned above. San
Alberto and Sabalo In the San Alberto and Sabalo fields, the
downward revision in proved reserves is mainly due to the following
reasons: - Although these fields have a short production history,
the decline in pressure in 2004 and 2005, together with new
volumetric calculations, has led to a reduction in the estimated
hydrocarbons in place for the purpose of estimating proved
reserves. - At the present time, there is inadequate legal
certainty to support a commitment to new investment in these
fields. Implementing regulations under the new Hydrocarbon Law have
not been published. These regulations will impact the profitability
of the new investments necessary to develop future facilities. -
Similarly, the change in the legal framework has created commercial
uncertainty with respect to the execution of new contracts
including contracts of gas to the Brazilian market after the
existing contract expires in 2019. Although there may still be
commercial justification for these future contracts, the legal
uncertainty, together with the need to make additional
infrastructure investments in order to supply the additional gas
volumes, brings the need to de-book the proved reserves associated
with these additional sales. - There has been a reduction of 526.7
million BOE. Yapacani, Vibora and Sirari As a result of the new
Hydrocarbon Law in Bolivia, and until the law's final provisions
are better understood, the following new investments in development
and infrastructure in these fields have been put on hold: - The
planned expansion of the gas treatment plant serving the Yapacani
field, which is necessary, among other things, to process gas
coming from this and other fields beyond 2006. - The increase in
the transportation capacity of the Boomerang area pipeline which
serves the Yapacani field. Reduction of volumes of LPG and gasoline
recovered by the Rio Grande plant as a result of reduced output
from the Yapacani gas treatment plant. These decisions have
resulted in negative revisions of proved reserves in these fields
equal to 75 million BOE. Rio Grande Production performance
following workovers that was significantly lower than expected has
led to a downward revision in the Rio Grande and other fields in
this region of 61 million BOE. ARGENTINA Loma La Lata As was
previously disclosed to the market, a downward revision of proved
reserves in the amount of 72.6 million BOE was recorded as of
December 31, 2004. The decline in pressure observed for this field
in 2004 and 2005 indicated that a portion of the initial gas in
place (IGIP) could not be recoverable with reasonable certainty
under present technical, economic and operating conditions. In
particular, the lack of balance between the pressures detected in
the various layers and zones of the field indicated a limited
interconnection between these layers and zones. Commercial
exploitation of those gas volumes without a connection to the
producing zones of the field will require the implementation of
non- conventional recovery methods, which would require pilot
testing in order to support the classification of the volumes as
proved reserves. All these reasons have lead to a downward revision
of 252 M boe in proved reserves. Chihuido de la Sierra Negra
Production performance of this field has been adversely affected by
multiple factors, including the effect of interrupted production in
late 2004 and problems with injector equipment, which has caused a
downward deviation in short- and medium-term production estimates.
This updated evaluation of field performance has led to a downward
revision of 38.5 million stb in proved reserves. Uncertainty
regarding the extension of the concession contract accounted for an
additional 35 million stb of the total revision for the field.
Ramos Balance of materials analysis incorporating the latest static
pressures observed for the field indicated a reduction in the IGIP,
which in turn resulted in a downward revision of previous estimates
of proved reserves of 36.5 million BOE. Aguada Toledo and Sierra
Barrosa This area has been used for underground gas storage during
the summer months. A reevaluation of the gas cap of the affected
reservoirs has led to downward revision in proved gas reserves of
22.7 million BOE. VENEZUELA Before the end of 2005, Repsol YPF and
the rest of companies holding operating service agreements in
Venezuela signed transitional agreements to replace their existing
contracts in the country with joint ventures with PDVSA. The final
terms of these joint ventures are still under negotiation, but
under Venezuelan law, PDVSA will hold a minimum 51% stake in the
new joint ventures. This change in the company's working interest
in the affected fields has resulted in a revision of 52.4 million
BOE. The bulk of the revision relates to the Mene Grande and
Quiamare la Ceiba fields. The rest of the revision is due to other
technical reasons. ALGERIA Tin Fouye Tabankort At TFT, proved
reserves in the main field have been reduced by 17.7 million BOE,
primarily reflecting the impact of higher year-end prices on
entitlements under the production sharing contract. III. ACCOUNTING
CONSEQUENCES Under IFRS (IAS 36), the downward revision in proved
reserves requires that we test the affected production assets for
impairment, which is determined on the basis of discounted expected
net cash flows. An initial estimate of the aggregate impairment
charge for the specific assets affected by the revisions as of
December 31, 2005 is less than euro 50 million. This estimated
impairment charge, as a percentage of our total production assets,
is much smaller than the reduction in reserves, as a percentage of
total reserves, mainly due to the following factors: - The
production assets affected by the reserve reduction are carried on
our books at a relatively low level compared to their recoverable
value due to current and expected high hydrocarbon prices. As a
result, even after the effect of the reserve reduction, the
remaining recoverable value of most of these assets continue to be
above their book value. - In addition, the decline in production at
the fields affected by the reserve reduction occurs predominantly
in the later years of field life. As a result, the reduction in the
present value of the net cash flows resulting from this decline is
substantially lessened. The above estimate is provisional and is
therefore subject to further revision following more detailed
analysis and the results of ongoing review by the Audit Committee.
Although unaudited, the estimated impairment charge has been
determined according to the same discounted cash flow methodology
used for similar assets in Repsol YPF�s historical unqualified
audited consolidated financial statements. It is too early to
provide the market with updated forecasts. We do not anticipate
that any such revisions will have a material effect on the
company's strategy over the next several years. IV. TASKS
UNDERTAKEN DURING 2005 Since the appointment of the new senior
management team, in January 2005, Repsol YPF has taken a number of
steps to enhance reserves controls and procedures, including: -
Creation of an independent Reserves Control Group in order to
separate the internal reserves audit function from the business
units. The Reserves Control Group is independent of the E&P
business and reports directly to Audit Committee on behalf of the
Board of Directors. - Assignment by the Board of Directors to the
Audit Committee of oversight responsibility for reserves controls.
- Preparation, with the assistance of an outside petroleum
engineering consultant, of a new internal Reserves Reporting
Manual. - Company-wide training in the new Reserves Reporting
Manual. - Implemented a triennial plan for external audit of the
reserves. - Commissioned audits by two external petroleum
engineering firms of the San Alberto and Sabalo fields (Bolivia)
and Loma La Lata (Argentina) V. AUDIT COMMITTEE REVIEW The
company's Audit Committee is conducting an independent review into
the facts and circumstances of the proved reserves revisions
discussed above. The Audit Committee has engaged independent
counsel to assist it in this process. The scope of the review will
be determined by the Audit Committee after further fact-finding.
Senior management of Repsol YPF is actively cooperating with the
Audit Committee review and expects to implement any recommendations
made at the conclusion of their review. DISCLAIMER This
presentation contains forward-looking statements that are subject
to risk factors associated with the oil, gas, power, chemicals and
renewable businesses. It is believed that the expectations
reflected in these statements are reasonable, but may be affected
by a variety of variables which could cause actual results or
trends to differ materially, including, but not limited to: price
fluctuations, actual demand, currency fluctuations, drilling and
production results, reserve estimates, loss of market, industry
competition, environmental risks, physical risks, the risks of
doing business in developing countries, legislative, fiscal and
regulatory developments including potential litigation and
regulatory effects arising from recategorization of reserves,
economic and financial market conditions in various countries and
regions, political risks, project delay or advancement, approvals
and cost estimates. In particular, this announcement also contains
forward-looking statements regarding expected revisions to previous
estimates of the proved oil and gas reserves of Repsol YPF and the
estimated financial impact of these revisions. These revisions are
being made in connection with the estimation of proved reserves at
December 31, 2005, which is an ongoing process. In addition, the
audit committee of Repsol YPF is conducting an independent review
of the circumstances regarding these revisions. Due to various
factors, many of which are beyond Repsol YPF's control, the final
estimates of proved reserves at December 31, 2005 or prior dates
may, however, differ materially from Repsol YPF's expectations
contained in this announcement. These factors include but are not
limited to changes in oil and gas prices, geological and operating
data derived from exploration and production activities,
technological developments, budgeting, investment and other
financial decisions that we and other oil and gas companies may
make, political events generally, changes in the applicable
political, legal, regulatory and tax environments in which we
operate, environmental risks, project delay or advancement, and
technical factors associated with the exploration and production of
hydrocarbons. In addition, the statements contained in this
announcement may be revised in light of the results of the
independent review being conducted by the audit committee. For a
further discussion of the factors that could affect our future
results, see "Risk Factors" in the company's Annual Report on Form
20-F for the year ended December 31st, 2004 on file with the US
Securities Exchange Commission. Cautionary Note to US Investors:
The United States Securities and Exchange Commission permits oil
and gas companies, in their filings with the SEC, to disclose only
proved reserves that a company has demonstrated by actual
production or conclusive formation tests to be economically and
legally producible under existing economic and operating
conditions. APPENDIX I Replay details Dial in on: +34 91 787 96 70
Pin number: 172170# TOLL FREE NUMBERS Argentina 08003330613
Australia 1800040997 Austria 0800677882 Belgium 080049550 Brazil
0800-8911838 Canada 18662707716 Croatia 0800223020 Denmark 80
883265 France 0805109710 Germany 08001301303 Greece 00800126626
Hong Kong 800933220 Hungary 0680018020 Finland 0800119008 Iceland
8008715 India 0008001006223 Ireland 1800931386 Israel 18009214431
Italia 800987182 Japan 0034800400728 Latvia 8002196 Lithuania
880030243 Mexico 001 8665047435 Netherlands 08009494554 Norway
80013804 Poland 008001114780 Portugal 800815259 South Africa
0800999536 South Korea 00308140644 Sweden 0200885105 Switzerland
0800000327 Taiwan 00801126773 UK 08002799163 Uruguay 00040190061 US
18667934275 Venezuela 08001005120 (1) As of the end of 2004,
consistent with the company's triennial plan for reserves review,
the external review was completed for all the fields by independent
petroleum engineers. Corporate Division of Communication Paseo de
la Castellana, 278-280 28046 Madrid Spain Tel. 34 913 488 100 34
913 488 000 Fax 34 913 142 821 34 913 489 494
http://www.repsolypf.com/ In North America: Robert Ferris
212-994-7505 FCMN Contact: Karen.Sheppard@RFBinder.com DATASOURCE:
Repsol YPF CONTACT: At the company, +34 913 488 100, +34 913 488
000, or fax, +34 913 142 821, or +34 913 489 494; or In North
America, Robert Ferris, +1-212-994-7505, Web site:
http://www.repsolypf.com/
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