Letter from
the Chairman

Antonio Brufau Niubó

Dear shareholders,

Each year, the Annual Report gives me the chance to share some reflections on the evolution of the energy sector with you. On this occasion, I would like to tell you about why the companies that offer energy to society are undergoing such a deep and necessary transformation.

All over the world, energy companies have started exploring new, less traditional possibilities, and are changing the way they work. We are doing this with two aims in mind: to respond to growing energy demands and to continue doing this efficiently, while treating both the planet and society with respect.

One of our Company's strong points in order to achieve these objectives is the Exploration and Production business unit. Our global presences, and the quality and diversity of our assets mean that we are able to meet society's growing energy demands, both now and in the future. In 2017, the Company's net proved reserves amounted to 2.355 billion barrels of oil equivalent, and we had an organic reserve replacement ratio of 93%. These figures guarantee that we'll be able to carry on incorporating resources in order to maintain our leading role as an efficient, sustainable, and competitive energy provider for millions of people across the world.

To meet these objectives sustainably, we've been basing our Company's strategy around innovation and technology for a long time. For years, we have been strongly investing in R+D+I. We have an innovation model based on collaboration with technological partners to develop projects and investments in startups, which helps us to create new technologies and business models.

Innovation should be key to solving some of our society's biggest issues over the next few years, for example, improving air quality in cities. In my opinion, one of the most effective methods to achieve this would be to renovate the current vehicle fleet. In Spain, the vehicle fleet is particularly old and renewal would mean thousands of more efficient vehicles coming into circulation, with engines that reduce fuel consumption and emissions.

Alongside these measures, we at Repsol are convinced that the future lies in encouraging sustainable transportation. This is why we are investing in AutoGas, the most widely used alternative fuel in the world, with more than 26 million vehicles. We are the leading provider of this fuel in Spain.

Another pillar of our Company's strategy is digitalization, a tool that I feel is key to becoming more efficient and better at what we do using solutions like cloud computing, artificial intelligence, the Internet of Things (IoT), or big data. Incorporating the latest digital and data management technologies enables us to find, produce, and supply energy resources in a profitable way that respects the environment and improves the success rate of our exploratory projects.

At Repsol, we know that all of the changes happening in the energy sector are achievable and necessary, but we also understand that we must tackle them in a sustainable way. This is why we have chosen to set 15 improvement objectives for 2020 in areas such as ethics and transparency, people, operational safety, the environment, climate change, and innovation and technology. All of them are based on the UN's Sustainable Development Goals for 2030.

We are also very committed to a circular economy — a production and consumption model based on the sustainable management of resources, processes, and waste products. This model reduces the consumption of raw materials and encourages the reuse of waste in other sectors of the economy. In 2017, we set up over 100 circular economy projects, mainly linked to energy efficiency, finding alternative resources, or shrinking our carbon footprint.

With regards to environmental conservation, I would like to point out the work that we are doing to combat climate change, one of the biggest challenges of our time. At Repsol, we feel that our sector should be part of the solution to climate change. Since 2006, we have reduced our CO2 emissions by 4.5 million metric tons thanks to our investments to improve the energy efficiency of our operations and products through innovation and technology.

Another key part of our carbon strategy is our commitment to natural gas. We believe that this fuel provides a fantastic opportunity to reduce CO2 emissions on a large scale, as it produces half as many emissions as coal. This means that it is very important to substitute coal with natural gas in electricity generation. Our Company has spent years investing in this energy source, which now makes up 74% of our reserves.

The higher percentage of natural gas in the energy mix confirms that hydrocarbons will continue to play an important role in the coming decades. We are convinced that no source of energy should be ruled out a priori in the transition to a low-emissions future, as society needs an increasing amount of energy. If we want to ensure that emission reduction is compatible with economic growth and job creation, all sources of energy will be necessary in varying measures in the medium-term.

Our future lies in becoming a global, multi-energy provider that is capable of offering everyone the energy they need at any given time in a secure, competitive, and sustainable manner. I strongly believe that we are on the way to achieving this thanks to the hard work and commitment of our human team.

Thank you all for believing in us.

Chairman sign

Antonio Brufau Niubó