Repsol YPF Strengthens Position in the Gulf of Mexico

Repsol YPF has reinforced its position in the Gulf of Mexico with the acquisition of a 28% interest in the deepwater Shenzi field from BP for US $2.145 million.

The field has estimated reserves of 350 million to 400 million barrels for the initial phase of the Plan of Development (POD) in the Southern Flank. Shenzi, located in the Green Canyon area, is already considered to be one of the largest fields in the deepwater Gulf of Mexico.

Additional potential reserves have been identified in the evaluation by Repsol YPF, and which comprises South Flank additional volumes, shallower reservoirs, improved performance and water injection and which could boost the South Flank's total reserves to 500 million boe.

Repsol YPF's evaluation team estimates that there are areas in the Northern Flank of the field that have geological characteristics similar to those of the Southern Flank. Exploration will begin in this area in the last quarter of 2006, and has a potential to be a project of similar size as the Southern Flank.

Once on stream this field is expected to raise Repsol YPF's production in the Gulf of Mexico to a total over 35,000 barrels of oil per day (bopd).

With the investment of EUR1.700 million in one of the oil industry's most profitable deepwater areas, Repsol YPF has consolidated its position in the Gulf of Mexico and made this one of the company's strategic growth areas.

This acquisition will increase the company's probable and proven reserves (2P) and will boost Repsol YPF's production in the Gulf of Mexico to a total over 35,000 barrels per day by 2009.

The Shenzi field is operated by BHP Billiton with a 44% interest and the third partner, besides Repsol YPF, is Hess Corporation, with 28%.

Strong Points of the Operation

Shenzi is not only one of the largest oil fields discovered to date in the deep waters of the Gulf of Mexico, but it is also considered to have the potential to become one of the largest oil fields in development in deep waters.

This field was discovered in 2002 and five appraisal wells (with numerous side-tracks) have been drilled to date on the Southern Flank of the structure. The operator has designed and approved a development plan for the Southern Flank of the field that should recover 350 million to 400 million barrels of oil in the initial phase. Commercial production is expected to begin mid year of 2009 at a gross rate of 100,000 bopd.

Additional phases for the Southern Flank development include the completion of oil-bearing shallower reservoirs and water injection, which should increase the quoted reserves for this southern portion of the field by at least a 20% to a total of around 500 million boe.

Also, the Northern Flank has been evaluated extensively by Repsol YPF technical experts. Exploration will begin in this area in the last quarter of 2006. According to the evaluations that have been realized in the Northern Flank, it has a similar potential as that of the Southern Flank.

Given the proximity between the Shenzi field and other Group assets it will be possible to jointly market the crude oil from both which arrive to the same delivery point, thereby optimizing commercialization volumes and revenues.

Gulf of Mexico, A Strategic Area for RepsoL YPF

The Gulf of Mexico is one of the deepwater areas with the highest exploration potential in the world; with total yet-to-find reserves estimated to be at least 20,000 million barrels. This zone also possesses an attractive and stable tax regime and has historically provided one of the largest returns on capital in the offshore oil industry.

Repsol YPF has held a significant activity in the Gulf of Mexico since 2003, and currently holds a stake in 85 exploration blocks, located in Green Canyon, Atwater Valley, Alaminos Canyon and Mississippi Canyon, being the operator of 45 of them. First production related to these assets will begin in 2007, with a net production for Repsol YPF of 7,500 bopd and 7.5 MSCF of gas per day.

The company strengthened its presence in the area this past April when it was awarded 4 high value exploration blocks in the Mississippi Canyon and Green Canyon areas.

The additional estimated reserves and production added by the Shenzi field acquisition consolidates Repsol YPF's position for growth in the Gulf of Mexico.

This is in line with Repsol YPF's Strategic Plan for Upstream, where the Gulf of Mexico has been defined, together with the North of Africa (Algeria and Libya) and Trinidad & Tobago, as one of the company's core business areas outside of Latin America. At the same time this operation reinforces Repsol YPF's sound portfolio of high potential assets.

Finally, the deal strengthens and expands the company's deepwater operation capabilities to place the Gulf of Mexico as an important investment target for Exploration & Production.

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