Annual Report • May 21, 2009
Annual Report
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ANNUAL REPORT AND ACCOUNTS 2008 GALP ENERGIA
ANNUAL REPORT AND ACCOUNTS 2008 GALP ENERGIA
This translation of the Portuguese document was made only for the convenience of non-Portuguese speaking shareholders. For all intents and purposes, the Portuguese version shall prevail.
Galp Energia is an integrated operator that is present throughout the whole oil and natural gas value chain and is increasingly active in renewable energy sources. Its activities are expanding strongly worldwide and are predominantly located in Portugal, Spain, Brazil, Angola, Venezuela, Mozambique, Cape Verde, Guinea-Bissau, Swaziland, Gambia and East Timor.
PERFORMANCE INDICATORS 2008
15,062M€
2007: 12,557 M€ Gas & Power
693M€
2007: 620 M€
$$
+ \, 12\%
$$
Operating profit $2\%$
25% 20% 55% Exploration & Production Refining & Marketing
ANNUAL REPORT AND ACCOUNTS 2008 GALP ENERGIA
2007: 418 M€
RCA: Replacement cost adjusted (Non audited)
We are an energy company. We explore, develop and produce oil and natural gas in four continents. We supply energy every day to millions of people.
The Exploration & Production business segment has projects all over the world. The exploration activity is growing fast, especially in Angola and Brazil with the recent relevant discoveries in the Santos Basin. Production is currently concentrated in Angola.
Galp Energia's exploration and production activities have a high profi le in the world. In two years Galp Energia was able to increase 18 times its reserves and contingent resources, which currently amount to 2,141 million boe. This resource base has enough capacity to support production for 388 years at the levels of 2008. Its portfolio of 44 projects is the backup of the ambitious long-term goal of achieving 150 thousand barrels of oil a day.
Exploration: Angola, Brazil, Venezuela, Mozambique, East Timor and Portugal Development: Brazil and Angola Production: Angola
Net entitlement production (Mbbl) Reserves and contingent resources (Mbbl)
1,509 service stations
The Refi ning & Marketing business segment transforms crude oil into refi ned products that Galp Energia predominantly distributes in its own network, mainly in the Iberian Peninsula. Galp Energia also has a growing presence in the biofuels area, an activity considered perfectly integrated in its current core business.
Nigeria Major oil and gas supplier of Galp Energia.
One exploration and production project. Oil products distribution network with 28 service stations.
Angola
Present in this country since 1982. Only country currently producing, with a total accumulated crude production of 28 million barrels.
East Timor Five exploration and production projects.
The activities of Galp Energia's Gas & Power business segment are focused on the import, distribution and sale of natural gas and the production of electricity through cogeneration plants.
The sale activities of natural gas are focused on markets with high growth where Galp Energia hopes to double its sales from 6 bcm to 12 bcm, based on projects of natural gas consumption of the power area.
Natural gas supply: Algeria and Nigeria Natural gas distribution: Portugal Marketing of natural gas: Portugal and Spain Electric power generation: Portugal
Natural gas sales (Mm3 ) Power generation (GWh)
The only refi ning Company in Portugal, with a refi ning capacity of 310 thousand barrels a day. Soon, the conversion project of the refi ning complex will allow Galp Energia to give a better response to the demand for diesel in the Iberian Peninsula and to enhance its production profi le. The distribution network reached over 1,500 service stations at the end of 2008 after the acquisition of Agip's and ExxonMobil's Iberian operations and constituted an important connection point in the
integration of refi ning and marketing operations.
Crude supply: Nigeria, Brazil, Saudi Arabia, Algeria and Libya Refi ned products exports: Spain, United States, Great Britain, and Netherlands Refi ning: Portugal
Marketing of oil products: Portugal, Spain, Angola, Mozambique, Swaziland, Cape Verde, Guinea-Bissau and Gambia
"2008 was another excellent operating and fi nancial year, with new projects, new sales records and all employees' commitment. The results we have achieved in 2008 lead me to envision Galp Energia's future with optimism."
2008 performance was possible thanks to everyone's involvement, a well-defi ned vision of the future and a great ambition
Financial 2008 was another excellent operating and fi nancial year, with net profi t at replacement cost of €478 million. This performance was possible thanks to everyone's involvement, a well-defi ned vision of the future and a great ambition. Indeed, on top of being the clear leader in Portugal, Galp Energia aims to position itself in a sustained way as a relevant player while it maintains and strengthens successful partnerships with national and international oil and gas companies in world-class projects.
In 2008, we pursued our strategy of sustained growth in core areas.
In Exploration & Production, we added new projects to our portfolio in Brazil and Venezuela, two high-potential regions which together with Angola make up the three core geographical areas where we intend to execute our strategy.
In Refi ning & Marketing, we should highlight the start up the execution of the project for the conversion of the Sines and Matosinhos refi neries, which aims to align the production profi le with the growing demand for diesel in the Iberian market and the acquisition of Agip's and ExxonMobil's Iberian marketing operations. These were two important milestones towards our strategic objective of speeding up integration between refi ning and marketing operations, thereby reducing the earnings volatility of this business segment.
In natural gas, we broke new records in 2008 in the size of sales and the customer base, which surpassed the 860 thousand mark. We also entered midstream projects for the fi rst time through two ventures in Angola and Venezuela that will take us closer to vertical integration in the value chain.
I am sure that in the future, like in the past and present, all those who work daily at Galp Energia, management team and employees alike, will evidence the great ambition, skills and determination they have shown in the past so as to earn the continued trust of the Company's shareholders. The results we have achieved in 2008 lead me to envision Galp Energia's future with optimism and to believe that we are on the right path to do more and better as we consolidate the international position of our Company.
Francisco Murteira Nabo Chairman of the board of directors Galp Energia
Everything we have planned to do is now under way. We have gone from concepts and planning to execution. All this has happened in a difficult environment that has forced us to be prudent and rigorous. Hence, we have had to adapt to a constantly changing reality.
Galp Energia's activity throughout 2008 was full of events that signalled the fulfilment of our growth strategy. We can certainly feel proud of what we achieved in 2008
We are all aware that 2008 will go down in economic history as a year when we broke with the past and felt the height of a crisis whose breadth and length are yet to be known. We have gone through a year of unprecedented events and will undoubtedly face an immediate future that will demand a lot from us and will create an environment that will require strict discipline in assigning priorities to the growth options we have developed.
In 2008, we achieved a turnover of €15,062 million. At replacement cost, EBITDA was €975 million, operating profit €693 million and net profit €478 million, or €0.58 per share, up 14% compared with a year earlier.
In terms of results we can feel pleased with the close of financial 2008. We cannot say the same about the performance of our stock, which was punished by the dramatic fall in equity markets and particularly by the falling value of companies with a relevant stake in long-term projects.
Before I go through Galp Energia's activities in 2008 and the outlook facing us, I will briefly mention a fact that I deem to be extremely relevant. During 2008 Galp Energia was awarded various prizes related to the quality of the information we provide to financial markets. Early in 2009 we were awarded the first European, the second place in the Oil & Gas industry and the third place worldwide for Best Financial Disclosure Practice on the Investor Relations Global Rankings 2009. These prizes were awarded in the event staged by MZ Consulting NY in association with KPMG, Bloomberg, the Bank of New York Mellon, NYSE Euronext, Arnold & Porter, Demarest & Almeida and Asia Corporate Network. I would like to express my appreciation to all employees who made these awards possible, as I am aware of the role played by quality in the information we disclose, particularly to small investors. We aim to build on this practice as it is part of our culture and also a way of creating sustainable value for all shareholders.
Galp Energia's activity throughout 2008 was full of events that marked the fulfilment of our growth strategy.
In Exploration & Production we announced the discovery of the Júpiter reservoir in block BM-S-24 in the deep water of Santos basin. It is a reservoir of light crude oil and natural gas with technically recoverable quantities that are similar to the Tupi reservoir. The discovery of Bem-te-vi reservoir in block BM-S-8 confirmed the high potential of the Santos basin's pre-salt layer. This potential was also evidenced by the discovery of the Iara reservoir in block BM-S-11 with recoverable resources of 3 to 4 billion barrels. Also in Brazil, in the tenth bidding round for the award of exploration rights, our Company acquired rights for an additional eight blocks, three of them in the Amazon Basin.
In Angola, development of the Tômbua-Lândana field progressed and the start of operations of new production facilities is expected in the last quarter of 2009. Our production in block 14 was close to 15 kbopd, a decline compared with a year earlier following operations setbacks in the BBLT field.
Net profit RCA (M€) 2008: 478
In Venezuela we signed the agreements that allowed us to participate in two LNG projects as the research required to prepare the final investment decision was initiated. We also participated in the evaluation of reserves in the Orinoco Belt's Boyacá 6 block.
In East Timor, Mozambique and Portugal's offshore, we conducted acquisition and interpretation of seismic data according to plan.
The success of the exploration activity, particularly the dimension of the discoveries of Júpiter and Iara, allows us to report the title of reserves and contingent resources of oil and gas for a total of 2,141 million boe, 2.8 times the reported amount in 2007. It is a truly exceptional result that will contribute to the Company's long-term success.
Concerning the activity of Refining & Marketing of Oil Products we had a truly exceptional year. We obtained the necessary approval to start the conversion project of the Sines and Matosinhos refineries. Orders of critical equipment for this project were placed, development of the detail engineering progressed and the on-site work started. Now we have ahead of us the challenge of executing the largest industrial project in our country. Project execution on schedule and on budget is currently our major priority.
During the year we completed all stages of the acquisition of Agip's and Esso's Iberian marketing operations. It was the largest transaction ever made by our Company with which we achieved an Iberian marketing coverage representing a market share of 16% and sales in Spain accounting for 45% of Galp Energia's total sales in the Iberian Peninsula.
The year 2008 was not an easy year for marketing fuel. The escalation in crude oil prices in the first half, which inevitably affected the prices of oil products, caused understandable market stress, particularly in the transport sector and in retail, which affected the industry's reputation and particularly the Galp brand. We did our utmost to show the rationale of our actions. Yet we are aware that our clients and particularly some media sectors were not always attuned to the demands of our pricing policy.
In biofuels, we continued to acquire from national producers the FAME required for our operations and, anchored in strategic partnerships, we started development of a project for producing vegetable oil in Mozambique and Brazil.
In the Gas & Power business segment, I would like to mention the signing of agreements with the Portuguese state providing for a 40 year concession regulating our activities for the distribution and marketing of natural gas. We started to market natural gas in Spain and, in June 2008, Portugal's energy regulator ERSE published for the first time the tariffs and prices of natural gas following the new legal framework for the industry. The distribution network operated by Galp Energia subsidiaries reached 10,462 km during the year, up 704 km from 2007, and connected an additional 60 thousand clients.
During the year we participated for the first time in the electricity market as we bid for virtual electricity production capacity in the auction organised by OMIP, the Iberian energy market. In addition, construction of the cogeneration plant at Sines was completed while the tender for a cogeneration plant at the Matosinhos refinery was completed, both with an approximate capacity of 80 MW.
What I have just described shows the intensity of the ongoing transformational process in our Company. We progressed along the path towards reaching a sustained production level of 150 kbopd. We want our refineries to be efficient, competitive and with conversion levels adapted to market demand. We want our marketing capacity, which is focused on the Iberian Peninsula, to reach the level of our refining capacity. We want our marketing operations in Africa to be efficient and competitive while providing long-term growth opportunities. We want to diversify and expand our sources of natural gas and increase the number of clients connected to our distribution network. We want an electricity
Prospective resources
production portfolio that will provide a competitive and dual offer of gas and electricity which is attractive to our clients.
Everything we have planned to do is now under way. We have gone from strategy, planning and procurement to execution. All this has happened in a diffi cult environment that has forced us to be prudent and rigorous. Hence, we have had to adapt to a constantly changing reality. We will be mindful of the dynamics of exogenous factors to make sure our growth is sustainable.
Two major challenges lie ahead of us: the ability to execute ongoing projects and the ability to fund cost-effectively our planned capital expenditure. A whole lot of the value we aim to create will depend on how well we can overcome these challenges. The strategy we have developed is clear and simple. Now, our success will depend on our ability to focus on fundamentals. We want a Company with a common purpose that is focused on its growth strategy, that is able to attract and retain the best talent and that offers its managers unrivalled professional development opportunities.
The growth potential inherent in our business plan gives our performance great visibility and attractiveness. It is our duty to exceed the expectations of all those who trust us. On behalf of everyone at Galp Energia, I would like to affi rm our commitment to the ambition in the strategy we are busy executing.
Nothing of what I have mentioned would have been possible without the support of the governing bodies of our Company or the hard work and dedication of every employee. Therefore, I would like to extend my thanks for everything you have done and for the support you have given me.
Galp Energia is executing an ambitious strategy which will develop its potential as an integrated multi-energy operator, thereby creating long- -term value for its shareholders
Galp Energia's strategy is to develop its potential as an integrated multi-energy operator, thereby creating long-term value for its shareholders, subject to environmental, economic and social constraints. To this end, Galp Energia aims to grow its businesses and, through increasing integration of its activities, capitalise on the vast opportunities afforded by its diversified portfolio of assets and projects.
This strategy translates into the following priorities for the Company's various business segments:
The quality of Galp Energia's business portfolio and the skills of its staff give Galp Energia an edge for competing effectively in the markets where it participates.
The review of Galp Energia's strategic plan in 2008 did not change its strategy. On the contrary, it reasserted the Company's commitment to its transformational projects.
In Exploration & Production activity actions were taken to reach a sustained production level of 150 kboepd – 10 times the production volume of 2008 – and cover half of its future refining capacity by its own production. In order to attain this goal, Galp Energia has recently expanded its diversified portfolio of exploration and production assets.
With a recognised history of successful partnerships with national oil companies in producing countries with a strong Portuguese heritage, Galp Energia is seen as Portugal's flag carrier and a bridge between national
and international oil and gas companies for the completion of major energy projects.
In these activities where projects have long execution times, the constant search for
PETROBRAS
new opportunities is a key prerequisite for long-term growth. The signifi cant increase in the Company's reserves and resources following the discovery of major reservoirs of oil and natural gas in the Santos basin, off the Brazilian coast, is a good example of this strategy's success. In the Tupi fi eld alone, which is located in the Santos basin, Galp Energia is bound to reach production of 100 thousand barrels per day. As evidence of the need to constantly add new projects, the participation in the 10th bidding round added eight new blocks to the Company's exploration and production portfolio in Brazil.
The 44 ongoing projects around different parts of the world support the exploration and development strategy that will enable production goals to be achieved. Brazil,
Angola and Venezuela will, following recent discoveries and agreements, be core countries for the execution of this strategy. The current base of hydrocarbon resources, which exceeds two billion barrels as identifi ed by intensive exploratory work, is a solid foundation on which Galp Energia's strategy for its production business rests.
Galp Energia also has various Liquifi ed Natural Gas (LNG) upstream and midstream opportunities under review, of which the most important are Delta Caribe LNG in Venezuela, to be decided by the end of 2010, and Angola LNG II, a joint venture with Sonagás. These projects are expected to contribute signifi cantly to boosting Galp Energia's sourcing capacity for natural gas, one of the Gas & Power business segment's goals.
The 44 ongoing projects around the world support the exploration and development strategy that will enable production goals – 150 kboepd – to be achieved
In Refi ning & Marketing, Galp Energia's ambition is focused on extracting additional value from its assets, namely from its two refi neries and its Iberian network for marketing oil products, which expanded signifi cantly in 2008 following the acquisition of Agip's and ExxonMobil's marketing platforms in the Iberian Peninsula.
from the ongoing expansion, which is expected to dampen the business segment's earnings volatility.
Galp Energia also markets oil products in the African market in three development hubs – West Africa, Southern-Indian Africa and Southern- -Atlantic Africa. Besides promoting good relations with Africa, based on centuries-long cultural ties, this presence in the continent capitalises on partnerships in biofuels and exploration and production projects.
As biofuels are a natural extension of its core activities, Galp Energia aims to produce and supply the European market with hydrogenated biodiesel as well as sign medium- and long-term contracts to source vegetable oil that will guarantee access to raw materials at stable and competitive prices, a key factor for competing successfully in this activity.
Note: Crude processed and production based on the average of the last three years. Refi ning coverage includes Agip and ExxonMobil acquisitions.
Galp Energia has currently a project under way for optimising the capacity of its two refi neries as well as raising their complexity. This will enable the Company to process higher volumes of heavier crudes, reducing the weight of fuel oil production, raising diesel production in line with market demand patterns and thus improving refi ning margins
Galp Energia's major goals in oil product marketing are to maximise returns on the Iberian network, its main marketing platform, by raising effi ciency and broadening the offer of premium and non-fuel products as well as to bring marketing capacity into line with the refi ning capacity that will result
ANNUAL REPORT AND ACCOUNTS 2008 GALP ENERGIA
In this business segment, the strategic priority is to integrate the gas and power businesses. Simultaneously, Galp Energia aims to double its capacity to source natural gas from 6 to 12 bcm a year by developing its ongoing projects in the Exploration & Production business segment.
Galp Energia's expansion in the Iberian market, namely in the Spanish industrial market, which is ten times as large as its Portuguese counterpart, will allow it to seize opportunities of boosting natural gas sales on the back of the experience and know-how it acquired in ten years of operation in the domestic market, which itself offers continued growth opportunities.
Upon completion in 2008 of the process leading to the regulated distribution and marketing of natural gas, Galp Energia guaranteed the value of this business, thereby securing a stable source of cash flow.
The venture into power generation as a way of extracting a gas-to-power margin from the natural gas supply contracts led to the composition of a project portfolio – CCGTs and cogenerations – that will contribute to increasing the Company's energy production capacity from 160 MW to
1,200 MW, raising its own use of natural gas and fostering the growth of the Portuguese market.
Galp Energia's strategic priority in power generation is also to develop its portfolio of wind farms as well as enter the hydro sector. The purpose here is to diversify the power generation portfolio and make it more competitive.
One of Galp Energia's current concerns is to manage its future exposure to CO2 risks. Beyond their economic rationale, the investments in power generation from renewable sources, both wind and water, and in biofuels will mitigate the exposure of the Company's activities to CO2 emission risks.
Galp Energia is currently building a solid base to support its ambitious and demanding strategy of transforming itself into an integrated energy operator with a relevant presence across the entire value chain.
Galp Energia is currently building a solid base to support its ambitious and demanding strategy of transforming itself into an integrated energy operator with a relevant presence across the entire value chain
| 2005 | 2006 | 2007 | 2008 | |
|---|---|---|---|---|
| Exploration & Production | ||||
| Proved and probable reserves (Mbbl) | – | 50 | 31 | 28 |
| Contigent resources (Mbbl) | – | 68 | 742 | 2,113 |
| Average working interest production (kbopd) | 5.0 | 9.5 | 17.0 | 15.1 |
| Average net entitlement production (kbopd) | 4.3 | 7.2 | 12.5 | 10.0 |
| Average sale price (Usd/bbl) | 49.8 | 56.3 | 70.0 | 96.9 |
| Refining & Marketing | ||||
| Raw materials processed (Mton) | 14.3 | 14.7 | 13.8 | 13.1 |
| Refined products sales (Mton) | 15.9 | 16.2 | 16.0 | 16.0 |
| Sales to direct clients (Mton) | 9.4 | 9.0 | 9.4 | 9.6 |
| Refining coverage (%) | 75% | 69% | 72% | 75% |
| Gas & Power | ||||
| Natural gas sales (Mm3 ) |
4,234 | 4,596 | 5,377 | 5,638 |
| Natural gas distribution network (Km) | 8,761 | 9,014 | 9,758 | 10,462 |
| Number of natural gas clients ('000) | 705 | 757 | 816 | 868 |
| Electrical and thermal power generation (GWh) | 1,359 | 1,561 | 1,610 | 1,548 |
Refining coverage 2008: 75%
Natural gas sales (Mm3 ) 2008: 5,638
Sales to direct clients (Mton) 2008: 9.6
| 2005 | 2006 | 2007 | 2008 |
|---|---|---|---|
| 11,134 | 12,090 | 12,557 | 15,062 |
| 1,192 | 1,260 | 1.213 | 449 |
| 877 | 977 | 891 | 975 |
| 863 | 968 | 936 | 167 |
| 580 | 686 | 620 | 693 |
| (75) | (28) | (43) | (61) |
| 701 | 755 | 720 | 117 |
| 425 | 468 | 418 | 478 |
| 311 | 305 | 153 | (1,129) |
| 315 | 349 | 466 | 1,560 |
| 2,386 | 2,037 | 2,370 | 2,219 |
| 1,192 | 887 | 734 | 1,864 |
| 50% | 44% | 31% | 84% |
| 10% | 10% | 9% | 8% |
| 14% | 17% | 13% | 17% |
| 0.56 | 0.54 | 0.53 | 0.57 |
| 48% | 56% | 60% | 56% |
| 0.27 | 0.30 | 0.32 | 0.32 |
| − | 5,755 | 15,250 | 5,954 |
EBITDA RCA (M€)
2008: 975
Capex (M€) 2008: 1,560
Operating profit RCA (M€) 2008: 693
RCA – Replacement cost adjusted. RC – Replacement cost.
ROACE RCA (%) 2008: 17
13% 17% 14%
Market capitalisation at 31 Dec (M€) 2008: 5,954
Payout ratio (%) 2008: 56%
NOTE: Results labelled in this report as replacement cost adjusted (RCA) and replacement cost (RC) exclude gains or losses from inventory effects and non-recurrent events and have not been audited.
02
Galp Energia's activity throughout 2008 was full of events that signalled the fulfi lment of our growth strategy. Everything we have planned to do is now under way. We have gone from concepts and planning to execution.
The extreme volatility in crude oil prices in international markets was the overriding event in the oil and gas industry in 2008.
Indeed, after climbing up by more than 50% in seven months, from 96 dollars a barrel at the start of the year to 147 dollars a barrel by the end of July, the Brent dated slid continually until December, when it stabilised prior to closing the year below 40 dollars a barrel, the lowest annual close since 2003.
Brent dated evolution in 2008 (Usd/bbl)
Another factor that had an important effect on the industry's performance was the steep fall in economic activity from the second half of 2008 onwards in the wake of the financial crisis that began to spread from the United States of America (US) in August 2007. This economic downturn had a decisive impact on the demand for refined products, particularly gasoline in the US market. In effect, the summer driving season in the US, which is usually a time of peak gasoline consumption, generated a much lower seasonal increase in demand than usual. This proved to be a harbinger of the shortfall to come in fuel demand, cushioned only by the fall in crude prices in the second half, which again made gasoline more affordable.
After expanding by 3.5% in 2007, the world economy did not better in 2008 than a growth rate of 1.8% as it was dragged down by a slumping United States economy where the housing sector, a key indicator of demand conditions, showed apathy following the subprime mortgage credit crisis. Even so, the US economy managed to grow 1.2%, which was better than the Japanese economy, which contracted by 0.2%, a reminder of the lost decade in the nineties.
Even high-growth economies such as China and India, which once again largely exceeded the growth rates of industrialised economies, did not expand beyond 9.2% and 6.2% respectively, in comparison with 13% and 9% a year earlier.
Growth in the euro zone did not exceed 0.8%, whereas emerging Europe – mainly Eastern European countries – experienced higher growth of 4.7%.
In the Iberian Peninsula, the Portuguese economy posted zero growth while the
In 2008 the summer driving season in the United States, generated a much lower seasonal increase in gasoline demand than usual which proved to be a harbinger of the shortfall to come in fuel demand during the year.
In the United States, the banking system's reference rate opened the year at 4.25% and reached the target range of 0% to 0.25% at the end of the year
Spanish economy, after several years of fast growth, began to contract rapidly in the second half and ended 2008 with a growth rate of 1.1%, far below the 3.8% in 2007.
The anaemic condition of the world economy, and particularly the developed economies of North America and Western Europe, prompted central banks to conduct an active monetary policy, which basically led to successive interest rate cuts. In the United States, the banking system's reference rate opened the year at 4.25% only to be gradually adjusted downwards as the economy weakened, until it reached the unprecedented target range of 0% to 0.25%. In the euro zone, the European Central Bank (ECB) was slower in cutting interest rates as a means to counter a decelerating economy. Thus, the ECB's key refi rate was cut by 1.5% in 2008, from 4% in the beginning of the year to 2.5% at the end of the year.
On foreign exchange markets, the US dollar evidenced pronounced volatility against other major currencies such as the euro, the pound and the yen. Against the euro, the US dollar reached its lowest price ever (1.599) in the third quarter of the year, from which it recovered significantly to 1.395 towards the end of the year – in spite of a steep fall in December – compared with 1.461 at the start of the year.
In 2008 the world economy presented a growth rate of 1.8% with the retrenchment of the US economy that
The volatility in crude oil prices in international markets was the overriding event in the oil and gas industry in 2008. Indeed, after climbing up by more than 50% in seven months, from 96 dollars a barrel at the start of the year to 147 dollars a barrel, the Brent dated closed the year below 40 dollars a barrel, the lowest annual close since 2003
The evolution of exchange rates in 2008 (%)
Oil supply and demand (Mboepd)
Brent dated versus Henry Hub in 2008 (%)
Oil price volatility in 2008 was unprecedented. Nonetheless, the main feature was – rather than the short-term gyrations throughout the year – the steady escalation in crude prices in the first seven months of the year, driven by falling US stockpiles and the increased weight given to commodities – particularly oil – in investment portfolios. Prices peaked in late July, when they started to drop quickly until the end of the year as OPEC countries boosted production and, most importantly, economic recession set in while US stockpiles rose abruptly. With prices headed downwards, reflecting the shortfall in demand, OPEC's production cuts in September, October and December were of little avail and solely confirmed fears of a collapse in demand. Between the start and the end of the year, oil prices fell more than 60%.
Global oil demand edged down 0.29% in comparison with 2007 to 85.8 million barrels a day as the 3.5% shortfall in OECD demand was offset by an equivalent increase from non-OECD countries. Global supply went up by 1.1% to 86.6 million barrels a day, of which 50.6 million barrels, or 59%, came from non-OPEC countries.
Both hydroskimming and cracking margins remained under pressure throughout the year, although the latter benefited from falling crude prices in the second half of the year and the reduced supply of refined products as several refineries shut down to avert rising inventories.
In Portugal as in Spain natural gas market posted sales volumes' records confi rming once again its growth potential
Natural gas prices largely tracked falling oil prices and the benchmark Henry Hub, reference price that works as a fl oor for natural gas prices, ended the year at 5.63 dollars per mmbtu, or 20% below the opening price in January.
In the Iberian Peninsula, the fuel market contracted further in the wake
Rotterdam benchmark cracking and
of high prices in the fi rst half of the year and, in the second half, the steep fall in purchasing power caused by a fi rst stagnating and then contracting economy.
The potential of natural gas was also confi rmed in the Iberian Peninsula, an expanding market with the ability to absorb the increase in supply.
Trading fl oor for crude oil and oil products
Iberian market for oil products (Mton)
Natural gas consumption (bcm)
Spain – Enagas
The Exploration & Production business segment explores and produces oil and natural gas. Galp Energia has started its activities in Angola in 1982, at Safueiro field and since then has added to its portfolio several other projects in that country, in particularly the block 14, currently in production. In 1999, Galp Energia began its participation in Brazilian projects, through the second bidding round for exploratory rights.
Galp Energia's exploration activities have grown fast, particularly in Brazil where the size of the Santos basin discoveries has placed Galp Energia in the inner circle of operators with highly successful exploration programmes. Oil production is concentrated off Angola's coast, in an area with high growth potential.
| 2005 | 2006 | 2007 | 2008 | |
|---|---|---|---|---|
| Average working interest production (mbopd) | 5.0 | 9.5 | 17.0 | 15.1 |
| Average net entitlement production (mbopd) | 4.3 | 7.2 | 12.5 | 10.0 |
| Average sale price (Usd/bbl) | 49.8 | 56.3 | 70.0 | 96.9 |
| Opex (Usd/bbl) | 7.6 | 5.6 | 5.9 | 9.0 |
| EBITDA RCA (M¤) | 40 | 100 | 206 | 208 |
| Operating profit RCA (M¤) | 18 | 66 | 150 | 141 |
| Capex (M¤) | 82 | 106 | 193 | 196 |
Note: Operating expenses per barrel are calculated on the basis of net entitlement production. The average sale price takes into account actual sales as well as loans and borrowings.
In order to attain its medium-term goal of sustained production of 150 kboepd and to secure the long-term supply of oil and natural gas for refi ning and marketing in the markets where it operates, Galp Energia aims to develop its portfolio of 44 projects, focusing on three geographical areas classed as core: Brazil, particularly the promising Santos basin, Angola on whose block 14 production has already started and Venezuela, whose projects, though at an early stage, hold the potential for an important contribution to the planned production level.
Given the size of the recent discoveries in the Santos basin – Tupi and Iara with between 8 and 12 billion barrels of recoverable volumes of oil and natural gas and Júpiter, Bem-te-vi and Caramba still to be quantifi ed – Galp Energia considers this region as the pillar of its long-term strategy.
Galp Energia also aims to explore new opportunities to diversify its project portfolio, namely in Portuguese- -speaking countries, where the Company has a competitive advantage due to cultural affi nity and ties.
With a view to diversifying its supply sources of natural gas, Galp Energia will particularly focus on gas exploration and production projects such as Angola LNG II, Venezuela's gas liquefaction projects and the development of natural gas discoveries in the Santos basin. In early 2009, Galp Energia signed a memorandum of understanding with Sonagás GE (Equatorial Guinea's national gas company), E.ON Ruhrgas and Unión Fenosa Gas, regarding a project for exploring natural gas off Equatorial Guinea's coast. The project is currently under study.
Our goal is to achieve production of 150 thousand barrels of oil a day, approximately half of Galp Energia's refi ning capacity
The foundation piles used in the Tômbua- -Lândana project are the longest installed to date
Producing platform at BBLT fi eld in block 14 in Angola. The fi rst discover on this fi eld occurred in 1997
Exploration of block 14 progressed in 2008 in delimited zones. The Pinda discovery started to be appraised by the Malange-1 well while the Malange-2 appraisal well was still under analysis.
Development work designed to sustain production proceeded at the BBLT fi eld. A programme was developed in 2008 towards preventing solid debris from depositing in the production conduits as in late 2007 and early 2008. After implementation, the programme boosted well productivity again. The development probing campaign, which progressed through execution of four production and three injection wells, suffered delays resulting in operations setbacks. The platform was improved in order to optimise throughput and maximise fl uid processing capacity.
The Lândana Norte development project proceeded in 2008 with the drilling and starts of operations of a couple of production/injection wells. The drilling of fi ve wells at Tômbua Sul also started in the year.
Production-sharing agreement
31.0%
Cost Oil: Fraction of prodution that is allocated to recovering the contractor's costs, between 50% - 65%. Profi t Oil: Shared between the contractor and the concessionaire at teh terms agreed in the contract. Varies from 10% to 70% depending on the rate of return.
At Kuito, maintenance was performed on two wells to optimise the injection of water and increase the recovery of oil, although expected results did not materialise. Engineering studies started in the year for the purpose of identifying the most adequate solution to extend the life of the Kuito fi eld beyond 2009, when the Floating Production Storage and Offl oading (FPSO) unit's lease expires.
At the Lucapa fi eld, which was declared commercial in August, three wells were drilled – exploration wells Lucapa-3 and Lucapa-4 and appraisal well Lucapa-5. Before the end of the year, a proposal for defi nition of the fi eld's development area was submitted to the Angolan authorities. At the end of the year, the consortium approved the conceptual development plan (CDP) to be submitted to the concession holder. Research is still ongoing to optimise the fi eld's development plan. A tie-back of block 14's Gabela fi eld is one of the options under review.
Technical feasibility studies proceeded at the Negage and Gabela fi elds. Given their features, a few diffi culties remain before a technical solution can be found to develop the fi elds on economically attractive terms. For Gabela, the tie-back to Lucapa may be a feasible opportunity for review in the future. For Negage, the review of an autonomous solution in 2008 was not conclusive, which led to the evaluation of possibilities for tie-back to adjoining fi elds or blocks.
9.0%
| ONSHORE | OFFSHORE | |
|---|---|---|
| Exploration wells drilled | 41 | 5 |
| Discoveries | 15 | 5 |
| Success rate | 37% | 100% |
| Appraisal wells drilled | 4 | 1 |
| Drilling program (2009) | 12 | 5 |
| Geological features of the reservoir and properties of the oil |
Features of the extended well test |
||
|---|---|---|---|
| Carbonated reservoirs in 5,000-metres depth; | First oil scheduled for the second quarter of 2009; | ||
| Water depth of approximately 2,200 metres; | Production facilities: FPSO BW Cidade de São Vicente; | ||
| Sequence of approximately 2,000-metres thick salt layers; |
Production wells: Tupi Sul and P1 interchangeably; | ||
| Area of the evaluation plan: 1,974 km2 ; |
Expected production: 14 kboepd; | ||
| Five to eight billion barrels of recoverable oil and natural gas; |
Associated gas fl aring in accordance with the approval by regulators ANP and IBAMA; |
||
| Oil density: 28-30o API; |
Expected three stages spread over a period of 15 months: |
||
| Oil viscosity: 1 cP; | Stage 1 – Production from Tupi Sul: six months; |
||
| Gas-to-oil ratio: 230 m3 /m3 ; |
Stage 2 – Production from P1: six months; |
||
| Initial pressure: 550-560 kgf/cm2 ; |
|||
| Low TAN (Total Acid Number); | Stage 3 – Production from Tupi Sul: three months. |
||
Operators of an onshore drilling rig at Potiguar basin, where Galp Energia has a stake of 50%
for discovery 1-Galp-2 RN. Following the results obtained in the exploration campaign, fi ve blocks were returned to the ANP after the end of the year.
Ten exploration wells, leading to four discoveries of heavy oil, and two appraisal wells were drilled in the Espírito Santo/Mucuri basin. By December 2008, two evaluation plans were submitted to the ANP while a third plan was about to be completed for submission in early 2009. Following the results obtained in the drilling campaign, four blocks were returned to the ANP in 2008. At the end of the year, the portfolio of stakes in this basin was composed of eight blocks, of which four were included in the two evaluation plans already approved by the ANP.
In 2008, the Petrobras-Galp Energia partnership kept an interest in four blocks in the Sergipe-Alagoas basin. Seismic reprocessing and surveys in 2008 covered a large extent of the blocks. The drilling of three exploration wells led to two oil discoveries whose evaluation plan was submitted to the
ANP. In January 2009, a block in this basin was returned to the ANP.
The Petrobras-Galp Energia partnership participated in December in the 10th bidding round for the award of exploration rights, whereby rights were obtained for fi ve blocks in the Potiguar basin for a total of 159 km2 . Galp Energia will operate three blocks and Petrobras the other two. In the consortium for this basin, the two companies have a 50% stake each.
In the Amazonas basin, rights were acquired for three blocks with a total area of 5,718 km2 , where Petrobras is the operator and the holder of a 60% stake. The probability is considered to be high of these blocks, which are located in the neighbourhood of Manaus' industrial cluster, containing accumulations of gas and condensates of commercial value.
The ANP contracts arising from this round, on which Galp Energia spent close to €4.5 million's worth of bonuses, are scheduled to be signed in April 2009.
The petroleum reserves and resources included in the Company's exploration and production portfolio have been independently reviewed by DeGolyer and MacNaughton (DeMac).
The high-profile development was the outcome of exploration activities in Brazil's Santos basin, which led to Galp Energia's resource base being multiplied by 18 in two years to 2,141 million barrels of oil and natural gas.
Reserves in 2008 were located in Angola, like a year earlier. The decline in reserves generally reflected the reduction resulting from the amount of oil produced in 2008 and the price effect arising from the terms of the PSA.
The amount of recovered contingent resources refers to the 3C classification (as defined by SPE/WPC/AAPG). By definition, stated amounts represent Galp Energia's working interest.
Results for Brazil stem primarily from the inclusion of new discoveries in the Brazilian offshore. Successful exploration in the Santos basin led to an increase in Brazil's contingent resources from 500 million barrels in 2007 to 1,907 million barrels at the end of 2008, or a growth rate of 281%, a very significant achievement for a company the size of Galp Energia.
Results for Angola include data obtained from the appraisal of previously announced discoveries. Additional data from 2008 showed the need for the potential of these discoveries to be revised downward.
According to the definitions approved by the SPE and the WPC, proved reserves are those quantities of petroleum which, by analysis of geological and engineering data, can with reasonable certainty be estimated, from a certain date onwards, to be commercially recoverable from known reservoirs and under current economic conditions, operational methods and government regulations. If probabilistic methods are used, there should be a minimum 90% probability that actual recovered quantities will equal or exceed the estimate. The definition of current economic conditions shall include historical oil prices and attendant costs. In general, reserves are considered to be proved if the reservoir's production capacity is supported by actual production or formation tests. Reserves may be classed as proved if facilities to process as well as transport those
reserves to market are in operation at the time of the estimate or if there is a reasonable expectation that such facilities will be built.
According to the definitions approved by the SPE and the WPC, probable reserves are a category of unproved reserves. Unproved reserves are based on geological or engineering data which are similar to those used in the calculation of proved reserves but in relation to which technical, contractual, economic or regulatory uncertainties preclude such reserves from being classed as proved.
Contingent resources refer to quantities of petroleum that have, on a certain date, been estimated as potentially recoverable from known reservoirs but are not commercially recoverable yet. This may be the case for several reasons such as, for instance, those related to the maturity of the project (the discovery needs further appraisal in order to provide support for the development plan), those of a technical nature (new technology needs to be developed and tested in order to commercially exploit the estimated quantities) or those related to the market (the sales contracts are not yet in place or the infrastructure needs to be built in order to take the product to the clients). The quantities classed in this category may not be considered as reserves.
Prospective resources refer to quantities of petroleum that have, on a certain date, been estimated as potentially recoverable from undiscovered accumulations by application of future development projects. The estimation of resources quantities for a prospect is subject to both technical and commercial uncertainties. The quantities classified as prospective resources cannot be classified as contingent resources or reserves.
The Refi ning & Marketing business segment processes raw materials in two refi neries, at Porto and Sines, distributes refi ned products predominantly in the Iberian Peninsula but also in Africa and markets to third parties and exports to several European and North American countries what it does not distribute directly. Improving the refi ning system's profi tability, increasing the share of refi ned products marketed by its own network, streamlining the marketing structure and raising its presence in the market for biofuels are strategic objectives for this business segment.
Share of the R&M business segment in Galp Energia's operating profi t RCA in 2008
| 2005 | 2006 | 2007 | 2008 | |
|---|---|---|---|---|
| Crude processed (kbopd) | 267 | 270 | 252 | 245 |
| Galp Energia refi ning margin (Usd/bbl) | 7.2 | 5.4 | 5.5 | 4.4 |
| Refi ned products sales (Mton) | 15.9 | 16.2 | 16.0 | 16.0 |
| Refi neries net operating costs (€/bbl) | 1.2 | 1.3 | 1.5 | 1.5 |
| Sales to direct clients (Mton) | 9.4 | 9.0 | 9.4 | 9.6 |
| Number of service stations | 1,060 | 1,045 | 1,038 | 1,509 |
| Throughput per site ('000 m3 ) |
3.1 | 3.0 | 2.9 | 2.8 |
| Number of convenience stores | 178 | 201 | 210 | 428 |
| EBITDA RCA (M€) | 552 | 557 | 435 | 540 |
| Operating profi t RCA (M€) | 338 | 356 | 261 | 373 |
| Capex (M€) | 142 | 131 | 168 | 1,245 |
The overriding goal for the Refining & Marketing business segment is to streamline operating conditions so as to achieve superior profitability and efficiency. The conversion of the Porto and Sines refineries towards a production profile that is better aligned with the relative increase in the demand for diesel, the expansion of the marketing network through the acquisition of Agip's and ExxonMobil's operations and the bid to raise the cover of refined products by own-brand marketing are ongoing initiatives that converge to turn this business segment into an operation that generates increasingly robust and stable results.
Refining, Supply and Logistics
Galp Energia has refining capacity of 310 thousand barrels a day, shared between its two refineries located in Porto and Sines, on the Portuguese western coast.
In 2008, Galp Energia processed 90 million barrels, the equivalent of a crude utilisation rate of 79%. The drop in the utilisation rate in the last two years was related to the stops for maintenance at the Porto and Sines refineries in 2007 and 2008. The utilisation rate is bound to rise to 95% after conclusion of the conversion projects, which will raise the complexity of the refining system and, consequently, its processing capacity.
In addition to crude oil, which accounted for 92% of the 13.1 million tonnes of
Origin of crude oil (Mton)
processed raw materials in 2008, Galp Energia also processed one million tonnes of other products, predominantly naphtha and heavy diesel.
In 2008, crude oil was mainly imported from West Africa, North Africa and the Middle East, which accounted for a combined 77% of the total. The main supplier country was Nigeria, with 20% of the total, followed by Libya and Algeria. In 2008, Galp Energia bought crude oil from 14 different countries, which was evidence of the diversification of its supply sources.
Types of crude processed in 2008
To increase profitability in the refining system by capturing higher refining margins and adapting production to market trends; to raise efficiency in the marketing structure by streamlining the network and increasing sales of non-oil products; to speed up integration of refining and marketing activities in order to lessen the business segment's earnings volatility
Production profile in 2008
The types of crude processed remained stable in the year in comparison with 2007, with a predominance of light crude. The increase in the refining system's complexity, which will imply a higher capacity to process heavy crude oil, will make it possible to take advantage of the difference between the prices of heavy and light crude oil.
Sweet crude oil continued to dominate in 2008 as optimised production was enabled by the use of a model calculating monthly the crude mix required to maximise the refining margin.
Diesel, gasoline and fuel oil – followed by jet fuel, aromatics and other products – kept their dominance of the production structure and accounted for 76% of the total.
The weight of consumption and losses remained stable and accounted for 8% of total processed raw materials. The start of the cogenerations next to Galp Energia's refineries will make the supply of electrical and thermal energy more reliable and it will raise energy efficiency, which will contribute to lowering consumption and losses to levels close to 7%.
On 10 September, the general shutdown of the Sines refinery began. The stoppage lasted until 27 October – and early December in the case of the fluid catalytic cracking (FCC) and alkylation units after the need for additional work was identified. Although shutdowns for maintenance necessarily imply production losses, they are important to safeguard asset integrity, restore process efficiency and raise the refining system's reliability. This shutdown had a cost of €11 million and required capital spending of €59 million, of which €57.5 million in 2008.
In addition to maintenance, important work was performed during the general shutdown in order for various units to be upgraded. In particular, a new reactor with more recent technology was installed in the FCC unit for the purpose of raising throughput and making the workload more flexible. The first stage of the plan for reducing fuel oil consumption was completed, which will curb emissions of CO2 to the air and raise the refinery's energy efficiency.
In order to optimise and maximise utilisation of its refining system, Galp Energia started in 2008 the conversion of its two refineries using the most recent technology. The conversion project aims to adjust the production profile to the needs of the Iberian market, where diesel is currently in short supply, by maximising the annual production of diesel from mid- -2011 onwards and by reducing the production of fuel oil, depending on the crude diet. The increased use of heavy crude oil, which is available on the market at lower prices, will reduce raw material costs.
The conversion of fuel oil to diesel is imperative as fuel oil demand is expected to shift lastingly from gasoline to diesel (as the market becomes increasingly diesel-driven) and diesel prices exceed fuel oil prices in international markets. In addition, the demand for fuel oil is bound to fall because it is less environmentally friendly.
The conversion project, which will entail capital expenditure of close to €1,300 million, will reduce imports of diesel, naphtha and propane and add more value to Galp Energia's production.
The process redesign will add to the two refi neries' operational fi t and create a completely integrated refi ning system, with product exchanges between the two plants. At the same time, the various units will gain increased fl exibility, which will enable changes in the production profi le for a faster response to changing patterns in the demand for refi ned products.
The project for conversion of the Porto refi nery, which will imply capital spending of €315 million, started its construction phase in December 2008. The project consists of the construction of a new vacuum distillation unit for obtaining vacuum gasoil (VGO) and a visco-reduction unit for the soft thermal cracking of the resulting vacuum residue. In addition, environmental protection will be enhanced by the construction of new units for water treatment and removing sulphur.
In parallel, construction of a cogeneration unit will cover the needs for optimising the refi ning system, particularly in terms of steam and electric power. The cogeneration plant at the Porto refi nery will come on stream in 2011 with a capacity of 80 MW.
The project for conversion of the Sines refi nery, which will incur capital expenditure of close to €1,000 million, started its construction phase in December 2008. The project
consists of the construction of a new hydrocracker, i.e. a unit for hydrocracking heavy gasoil, for the production of diesel and jet fuel. This unit will enable the production of diesel through deep conversion of the heavier fractions of crude oil. This technology will make the selection of crude oil to be processed more fl exible, which will allow the purchase of heavier crude oil for processing in the distillation column. The naphtha produced in the Sines refi nery will be sent to Porto as raw material for the aromatics plant, which will be a further step to integration of the two units.
Construction of a cogeneration unit in each refi nery will cover the needs for optimising the refi ning system, particularly in terms of steam and electric power
Sines refi nery with a capacity of 220 kbopd and a Nelson complexity index of 6.3
In addition to the main plant, a steam reformer for producing hydrogen and a unit for recovering sulphur from produced gases will be built, both of which will be necessary for operating the hydrocracker. These units will imply the construction of seven new tanks and the adjustment of the utilities systems (water, steam,
electric power and compressed air). The effluent system will also have to be adapted for the exchanges with wastewater treatment plants to occur in environmentally adequate conditions. The new premises will occupy an area of 28 ha of newly-acquired land in the Sines complex.
The price commanded by Galp Energia's crude basket tracked the Brent for most of the year, selling at a discount of 1.4 Usd/bbl to this lighter crude: the API gravity of Galp Energia's crude basket is 35.5o compared to 38.9o for the Brent.
Brent (LHS) Galp Energia's crude basket premium (RHS) Source: Brent-Platts. Crude- -Galp Energia
In 2008, the crack spreads of different oil products followed different paths. Whereas the spread of gasoline to Brent developed negatively, the trend for fuel oil was the opposite, with the gap between the price of this product and the Brent narrowing towards the end of the year following supply constraints and, particularly, the cuts of Russian gas leading to substitution by fuel oil.
Galp Energia's refining margin was above the Rotterdam benchmark for most of the year, averaging a premium of 2.6 Usd/bbl, exception made during the fourth quarter of the year as a result of the Sines refinery maintenance shutdown.
Source: Benchmark-Platts Galp Energia-Galp Energia In 2008, the cogeneration plant at the Sines refinery was connected to the electricity and natural gas grids and tests were run prior to its start of operations.
During the year, the main pieces of equipment for the new units at both refineries were ordered. These are complex structures that require long manufacturing times of up to 24 months.
One of Galp Energia's energy efficiency goals is to curb energy use by its refining system by 12.5% between 2009 and 2013. In order to reach this goal, action will be taken on several fronts: operations and process optimisation requiring low or no investment; average-sized spending on mechanisms for recovering steam and condensates and increasing the area for steam exchange for higher efficiency of the distillation column and other equipment; larger-sized expenditure on improvements such as the installation of cogeneration plants at the two refineries as well as the replacement of selected units in the refining system such as turbines and exchangers.
Galp Energia has an ongoing plan for optimising its logistic assets and its chain of sea and land transportation, which includes the renegotiation of contracts with transport companies, the renewal of its vessel fleet and the management and operation of terminals, namely the recent integration of the Port of Sines's liquid bulk terminal (TGL in the Portuguese terminology).
The TGL concession contract, signed with the Port of Sines for 30 years, was finally approved by the competition authorities and operation started on 1 August. With this concession, Galp Energia now operates the country's largest liquid bulk terminal, which received 877 ships and handled 17 million tonnes of cargo in 2007. The terminal is an essential piece of infrastructure for operating the Sines refinery.
The plan for optimising and restructuring the Company's logistic assets was developed taking into account the Iberian operations' supply needs after integration of the ExxonMobil and Agip businesses. In 2008, swap contracts were renegotiated with a view to streamlining the Iberian supply chain.
In 2008, 16 million tonnes of refined products were sold, up 1% from a year earlier. By client group, these sales went to direct clients (60%), exports (16%) and other operators (24%).
The most significant changes were in sales to other operators, which declined by 0.3 million tonnes as the Portuguese market for oil products retreated, and to direct clients, which rose 0.2 million tonnes following the inclusion in the last quarter of sales by Agip's Iberian subsidiaries, whose acquisition was finalised on 1 October 2008.
Exports remained stable in comparison with a year earlier, at around 2.5 million tonnes. Gasoline and fuel oil continued to dominate exports, with 31% and 34% respectively, although gasoline exports, particularly to the United States, fell compared to 2007. This fall was related to both the slump in demand that resulted from the economic downturn and the fact that 2007 saw abnormally high exports after the impact of the hurricanes, namely the Dean, on the US refining system.
Although its share dropped from 35% to 22%, the US continued to be the main destination of Galp Energia's exports. Sales to the country consisted primarily of gasoline, in spite of falling exports of this product in 2008.
Portugal set a goal of 10% for adding in biofuels from 2010 onwards, thereby bringing forward by 10 years the European Union goal for reducing the use of fossil fuels. By setting this goal, the government committed to starting the sustained production and marketing of hydrogenated biodiesel
Jatropha will be one of the plants used for vegetable oil production
The need to protect the environment and extend the energy sector's value chain led Galp Energia to enter the production of biofuels. The Company's strategy is to conquer a relevant position in renewable energy and thus become a benchmark operator in the European biofuel market by adding in up to 10% of this biological product by 2010 and using innovative processes, based on a consistent research and development programme.
Galp Energia positioned itself from the outset to become a preferred partner for the fulfi lment of this national goal in line with its commitment to sustainable development goals. As a result of Galp Energia's stake in biofuels, an ambitious project was launched for the production of biodiesel to be added to its fuels, where the Company aims to cover the whole chain, from raw material to marketing.
Through this broad involvement, it will be possible to ensure the environmental and social sustainability of agricultural projects as well as maximise the reduction of emissions throughout the product's lifecycle. This project will also contribute to raising the security of supply through diversifi cation of raw material sources.
Following up on its biofuel strategy, which is to produce and market hydrogenated biodiesel in Portugal and Europe from competitive and sustainable vegetable oil produced in Africa and Brazil, Galp Energia signed in 2008 a memorandum of cooperation for the development of an agro-business project in Mozambique designed to produce and market
biofuels, either for export to Portugal for processing at Galp Energia's biodiesel units or for production in Mozambique for the local market.
This innovative project consists of the production of jatropha and palm in Mozambique. These are two energy crops that do not compete with the food chain and can be grown on poorer soils with lower farming potential.
The Company which was set up for operating this business will also build an industrial unit for the production of vegetable oil that will be in the medium and long run partly exported to Portugal for processing at Galp Energia's refi neries and subsequent addition to road fuel such as hydrogenated biodiesel. The remainder will go to the production of biodiesel at a local industrial unit for local distribution.
The control of the supply chain made possible by the project right from raw material production lowers both operations and market risk besides giving Galp Energia an important competitive advantage.
In all, Galp Energia has agreements in place, both in Mozambique and Brazil, for the supply of 400 thousand tonnes of vegetable oil per year. Studies and the necessary projects are under way to develop at Sines a unit with a capacity of 250 thousand tonnes of biodiesel using Ecofi ning technology.
ANNUAL REPORT AND ACCOUNTS 2008 GALP ENERGIA
Galp Energia's main goal for the sale of oil products is to maximise returns from the network through effi ciency gains and operations synergies.
The cover of quantities refi ned by quantities marketed directly to end customers rose in 2008 to 75%. A major contributor to this was the signifi cant rise in sales in the Spanish market, which from the fourth quarter of the year included for the fi rst time Agip's Iberian network.
After Agip's and ExxonMobil's Iberian operations for marketing oil products have been fully integrated, the cover ratio is expected to reach 94%.
Sales of oil products to Iberian direct clients reached 9.6 million tonnes, up 2.5% from a year earlier. The strategy for growth in Spain was pursued in 2008 through the acquisition of Agip's and ExxonMobil's operations, although the latter were not included in 2008 sales. Whereas sales in Portugal fell 3.7%, in line with the market trend, sales in Spain went up by 16.1%, raising their weight in total sales from 31.5% in 2007 to 35.7% in 2008. Galp Energia's sales of refi ned products are expected to be evenly distributed between the two countries after the Agip's and ExxonMobil's businesses have been integrated, which will diversify the client base geographically.
By segment, wholesale activities continued to feature prominently in Galp Energia's Iberian sales.
The weight of diesel in the market for oil products continued to rise and accounted for 50%, which was similar to the share of Galp Energia's sales in the domestic market.
Supported by the acquisition of Agip's Portuguese and Spanish networks, retail sales rose 2.7% in comparison with a year earlier.
Car tanks for fuel transportation to our clients
M 02
Sales by segment in 2008
sales represent 28% of Galp Energia's sales to direct clients
Retail sales (Mton)
In Portugal, sales fell 4.7% following the economic downturn and higher fuel prices, which had a negative impact on demand.
In Spain, the retail business also suffered the impact of the crisis affecting the local economy, which led to falling demand for both gasoline and diesel.
The 29.8% rise in sales in the Spanish retail segment, following the acquisition of the Agip network, resulted in the increased weight of Spain in Galp Energia's Iberian retail sales from 21% in 2007 to 27% in 2008.
In 2008, the Iberian retail market contracted 3.6% to 36.8 million m3 , which raised the need for management action to be focused on the profitability and efficiency of the distribution network.
By generally complementing rather than overlapping the existing network, the acquired Agip and ExxonMobil networks enlarged the geographical cover of the Iberian Peninsula, in particular Spain.
The increase in the number of service stations in the Iberian network from 1,038 to 1,509 was mainly due to the addition of 497 stations from Agip and ExxonMobil. The steps taken to streamline and raise the efficiency of marketing operations resulted in the shutdown of 26 stations from the pre- -existing network.
Galp Energia's sales by station in
Portugal remained in 2008 above the market average. Although Galp Energia's sales fell from 2,907 m3 to 2,707 m3 , accompanying the overall market contraction, average market sales by station also fell from 2,400 m3 in 2007 to 2,100 m3 in 2008. In Spain, Galp Energia's sales by station were slightly below the market average, or 3,059 m3 in comparison with 3,400 m3 . This relationship is expected to change in 2009 after the addition of Agip's and ExxonMobil's networks as these have sales by station, which are higher than the market average.
By the end of 2008, the operation model structure of service stations differed significantly between Portugal and Spain. Whereas the DO model, i.e. stations operated by resellers, accounted for 87% of service stations in Portugal, this model accounted for 49% in Spain. Conversely, where Galp Energia was the operator (the CO model), the share in Spain was 51% and in Portugal 13%.
In order to mitigate the effects of the overall contraction of the retail market for oil products, a number of actions were developed. These included broadening the range of services on offer such as repair and quick wash, hotel, restaurants and a wider product range in convenience stores
Whereas in Portugal, the adverse market trend could be countered and non-fuel sales were stabilised at €70 million, in Spain the lower purchasing power contributed to Galp Energia's sales falling 8%, from €25.4 to €23.4 million.
Note: Excludes service stations associated with Agip and ExxonMobil acquisitions.
In Portugal, non-fuel sales by litre of fuel sold rose 12%.
Owing to the success of the Orange project, the number of stores rose from 210 in 2007 to 245 in 2008. This project aims to extend the spread of the Tangerina brand to both M24 stores and small reseller stores, which will increase the number of stores run under the same brand. These stores are operated by Galp Energia and represented a strong bet on a reshuffl ed range, with particular focus on ready-to-eat food articles. The acquisition of Agip's and ExxonMobil's Iberian subsidiaries added another 183 convenience stores to the Galp Energia network, which now has a total of 428 stores.
Among the factors that contributed to Galp Energia keeping its share of the domestic market, the following played an important role: the sale of premium products in 95% of the network, the positive perception by clients of the improvements to the convenience stores, the quality of the service extended to clients and, in a shrinking market, the stepped-up policy of discounted sales.
Turnover in the wholesale segment rose 5.8% as declining sales in Portugal were more than offset by rising sales in Spain. The increase in Spanish sales, which were up 20.2% from 2007, was due to the addition of Agip sales from 1 October 2008.
In the marine sub-segment, Galp Energia consolidated its market position as it accompanied the expanding trend of sea trade at Portuguese ports.
The aviation market grew 2.5% in 2008 although demand showed weakening signs in the fi rst quarter and contracted outright after September. This trend resulted from steps taken by airlines to address the crisis in air transportation such as lower fl ight frequency and fewer routes. Galp Energia's sales in this sub- -segment rose 6.1%, which led to the Company's market share increasing from 56.6% in 2007 to 58.5% in 2008.
In the lubricant business, Galp Energia's market share rose from 26% in 2007 to 27.4% in 2008 as the Company conquered a leadership position in hypermarkets, acquired new clients and renegotiated contracts with car manufacturers.
In Spain, the Company kept its leading position as a supplier of diesel for transportation, agriculture and heating, as well as of fuel oil to various manufacturing industries for use as fuel or in cogeneration. Nonetheless, the economic downturn in Spain impacted negatively on the demand for diesel, gasoline and fuel oil.
New Tangerina store at Oeiras' service station where our clients can fi nd everything they need
LPG segment sales (Mton)
By sub-segment, transportation and resellers had the largest share of sales, followed by Serviexpress, Galp Energia's own brand for marketing diesel to small manufacturing units, agriculture and residential customers.
Number of service stations
Galp Energia's share of the Portuguese market for LPG reached 41.9%. The launch of innovative kitchen, heating and lighting products in 2007, which led to the acquisition of new clients, could not, however, offset the decline of this market.
In the domestic market, sales of bottled LPG kept their dominant position, with 65% of the total.
Sales of the Pluma bottle grew in importance and amounted to 7% of sales of bottled butane gas. In piped gas, the number of clients climbed above 65 thousand – from 56 thousand in 2007 – which rewarded Galp Energia's bet on this segment as a way of raising profitability.
In Spain, sales activities centred on generating higher bulk LPG sales, which accounted for 49% of the total, and holding on to sales in piped and bottled LPG.
In 2008, the acquisition of Agip's
and ExxonMobil's operations in the Iberian market for oil products was completed. These transactions were part of Galp Energia's strategy for expanding its operations in the Iberian Peninsula, the Company's core market for distributing oil products.
These acquisitions were very important as they raised the Company's capacity to place the products from its refineries, thereby stabilising sales and lowering dependence on exports, which have more erratic demand patterns and prices.
On 1 October 2008, Eni's activities for marketing oil products in Portugal and Spain were acquired. These included the Agip-branded service station networks in both countries as well as the wholesale business excluding lubricants.
On 1 December, the ExxonMobil subsidiaries' Esso-branded fuel distribution business and part of their lubricant business in Portugal and Spain were acquired.
After these transactions, Galp Energia will market an additional three million tonnes of oil products in the Iberian Peninsula and reach a total of 12 million tonnes, of which 45% in Spain.
These acquisitions entailed a capex of €752 million and the positive impact in terms of EBITDA level is expected to reach €120 million per year from 2011 onwards. This amount includes economies of scale and synergies that will result in lower logistic and procurement unit costs.
The European Commission made its approval of the ExxonMobil acquisition conditional on the sale of LPG, aviation and lubricant assets in Portugal, including logistics assets. This transaction is scheduled for 2009.
After the takeover, priority was given to including Galp Energia managers in the acquired companies' executive bodies in order to ensure these companies were managed according to Galp Energia's policies.
Already in 2009, the first synergies were achieved in the procurement of end products, particularly the import of diesel, the migration of clients to Galp Frota – which raised the card's Iberian coverage – and the opportunity to make joint purchases.
| Country | Sales ('000 ton) | # of service stations | Tank farms |
|---|---|---|---|
| Mozambique | 69 | 28 | 1 |
| Angola | 210 | 9 | – |
| Guinea-Bissau | 22 | 8 | 3 |
| Cape Verde | 129 | 24 | 4 |
| Gambia | 32 | 9 | – |
| Swaziland | 68 | 18 | 1 |
| Total | 531 | 96 | 9 |
Main indicators
The Gas & Power business segment groups Galp Energia's procurement, distribution and marketing of natural gas as well as its electric and thermal power generation activities. The natural gas business consists of the purchase of gas – currently from Algeria and Nigeria – for marketing in the Iberian Peninsula, where the Spanish market recently gained a growing importance. The power business currently comprises the operation of cogeneration plants and has a developing portfolio of new cogeneration projects and gas-driven combined-cycle generation as well as renewable energy, namely wind power.
| 2005 | 2006 | 2007 | 2008 | |
|---|---|---|---|---|
| Natural gas sales (Mm3 ) |
4,234 | 4,596 | 5,377 | 5,638 |
| Number of natural gas clients ('000) | 705 | 757 | 816 | 868 |
| Natural gas fi xed assets (M€) | 1,416 | 725 | 727 | 755 |
| Installed capacity (MW) | 80 | 80 | 80 | 160 |
| Electrical and thermal power generation (GWh) | 1,359 | 1,561 | 1,610 | 1,548 |
| Electricity sold to the grid (GWh) | 500 | 566 | 578 | 478 |
| Special regime production sale price (€/MWh) | 80.7 | 91.4 | 89.9 | 105.2 |
| EBITDA RCA (M€) | 284 | 320 | 254 | 223 |
| Operating profi t RCA (M€) | 225 | 266 | 215 | 176 |
| Capex (M€) | 88 | 112 | 103 | 116 |
The overriding goal of the Gas & Power business segment is to develop an integrated portfolio of natural gas and electrical and thermal power generation projects. In natural gas marketing, Spain is, with an industrial segment ten times as large as its Portuguese counterpart, a priority in expanding Iberian activities. In order to exploit the potential of the Iberian market, Galp Energia aims to double its procurement capacity to 12 bcm a year by diversifying its supply sources, namely by entering the LNG midstream business in Angola and Venezuela. In power, the build-up of generation capacity from 160 MW to 1,200 MW will absorb an important share of natural gas purchases and optimise the margin of the business segment through a multi-energy offer. In renewable energy, the purpose is to raise the Company's profile in the wind and hydro sectors in order to balance the generation mix.
To develop an integrated portfolio of natural gas and electrical and thermal power generation projects, including the long-run increase of natural gas sales from 6 to 12 bcm a year and the build-up of electrical and thermal power generation capacity from 160 MW to 1,200 MW, maintaining a balanced mix
In 2008, the natural gas sector continued to expand and reached a new sales record. Galp Energia sold 5,638 million m3 of natural gas in the Iberian Peninsula, up 5% from a year earlier. From 2005 to 2008, natural gas sales grew at an average annual rate of 10%, thus evidencing the large potential of this market.
Natural gas purchases reached 5.7 bcm in 2008, up 6% from 2007. The sources of gas continued to be Algeria, which
supplied 2.6 bcm that was transported to Portugal by the EMPL, Al Andaluz and Extremadura pipelines, and Nigeria, where 3.1 bcm of LNG
Autonomous natural gas distribution unit in Beja which plays an important role on the supply of the local hospital
were purchased for transportation in 34 ships.
Although they are valid for 20 years, the long-term supply contracts provide for the possibility of renegotiation during the contract's validity according with the rules provided there in.
The start of marketing activities in Spain in the beginning of the year, which resulted in annual sales of 114 million m3 , led to the hiring of capacity in the Spanish transportation, distribution and underground storage networks.
In 2008, ERSE, the market regulator, approved the rules for the organisation of natural gas auctions in order to
diversify the supplier base of natural gas in Portugal.
The volume of natural gas to be auctioned, which comes from Galp Energia's imports and may only be used on domestic territory, shall be of 300 million m3 per gas year. Pre-qualifi ed marketing companies and clients buying more than 10,000 m3 a year are admitted to the auction and the sales price may not be lower than the price paid by Galp Energia in its natural gas purchases.
The regulation of natural gas distribution in Portugal became effective in 2008, which was made
| International pipelines |
Country | Capacity (bcm/year) |
Quantities submitted in 2008 (bcm) |
% Galp Energia |
Galp Energia's dividends in 2008 (M€) |
|---|---|---|---|---|---|
| EMPL | Algeria, Morocco | 12.0 | 11.3 | 27.4% | 32.4 |
| Al Andaluz | Spain | 11.7 | 9.2 | 33.0% | 3.2 |
| Extremadura | Spain | 6.1 | 4.6 | 49.0% | 3.9 |
| Contracts | Country | Contracted quantities (Mm3 /year) |
Period (years) |
Start-up | Next renegotiation |
|---|---|---|---|---|---|
| NLNG I (LNG) | Nigeria | 420 | 20 | 2000 | 3rd quarter 2011 |
| NLNG II (LNG) | Nigeria | 1,000 | 20 | 2003 | 3rd quarter 2011 |
| NLNG+ (LNG) | Nigeria | 2,000 | 20 | 2006 | 4th quarter 2012 |
| Sonatrach (natural gas) | Algeria | 2,300 | 23 | 1997 | 1st quarter 2011 |
Sources of natural gas supply
| Inflation rates: 2008 2009 |
2.7% 2.6% |
|---|---|
| Rate of return on the regulated asset: |
9% |
| Regulatory period: | 3 years |
| Regulatory asset base (RAB): | 1,191 M¤ |
| Total RAB: 1,155 M€ | % Galp | ||
|---|---|---|---|
| Energia | |||
| Beiragás | 55 | 60% | |
| Lisboagás | 570 | 100% | |
| Lusitaniagás | 272 | 85% | |
| Setgás | 146 | 45% | |
| Tagusgás | 58 | 41% | |
| Dianagás | 8 | 100% | |
| Duriensegás | 32 | 100% | |
| Medigás | 13 | 100% | |
| Paxgás | 2 | 100% | |
Galp Energia is one of the few commercial companies in the Iberian Peninsula that holds natural gas storage capacity which allows it to exploit trading opportunities. Currently Galp Energia storage capacity is around 40 million m3 , with 45 million m3 under construction and 110 million m3 of potential development
period, i.e. after the first 15 years, the rate of return set by ERSE does not consider the rates of return of other comparable assets, namely those allocated to the distribution of electricity or the high-pressure transportation of natural gas.
In 2008, Galp Energia's distributors transported close to 1.5 bcm of natural gas by their infrastructure.
The distribution network currently connecting 868 thousand clients was extended to 10,462 km in 2008 after an additional 704 km was built in the year at a cost of more than €87 million.
The underground storage of natural gas is a regulated activity whose operation has been awarded under concession to Galp Energia. The regulatory asset base is currently valued at €17 million and has a rate of return of 8%. The regulatory model which is applicable to this activity follows the same approach as the one applied to the regulation of natural gas distribution, except for the tariffflattening mechanism.
The storage cavern currently in use was operated under normal conditions throughout the year. Construction of a second cavern started in 2008 whereby 100,000 m3 were dug. According to the current evaluation of geological conditions, this cavern is likely to reach a final geometrical volume that will significantly exceed the originally planned 570,000 m3 , 45 million m3 of usable volume.
Galp Energia's sales of natural gas in the Iberian Peninsula in 2008 were
made to the liberalised market (57%) and the regulated market (43%). The liberalised market comprised sales of natural gas to electricity producers (68%), which are committed up to 2020, trading activities (28%) and the industrial market (4%). Regulated sales went to both wholesale clients (67%), consisting of industrial clients buying more than two million cubic metres a year, and retail clients (33%), consisting of residential, commercial and industrial clients buying less than two million cubic metres a year.
In 2008, Galp Energia sold 5,638 million m3 of natural gas in the Iberian Peninsula – 3,219 million m3 in the free market and 2,419 m3 in the regulated market.
Deregulation of the sector moved to a new phase in 2008 as natural gas began to be sold at unregulated prices to clients with annual buying volumes in excess of one million m3 , typically industrial clients. The sale of natural gas to electricity producers was deregulated in January 2007.
Preparing for the possibility of natural gas competitors entering the market after this new phase, Galp Energia centred its activity in 2008 on the corporate sector in order to migrate clients to the liberalized market, raise existing clients' satisfaction and loyalty levels and increase revenues per client.
In fact, the economic conditions, the rules and mechanisms applicable and, above all, the difference between the regulated and the free tariff lowered expectations for the migration of clients from the regulated to the liberalized market. The development of this market is constrained by the sales margin achieved.
Although no more than 1.4% of the clients entitled to migrating to the free market actually did it, Galp Energia still believes the market will open, the reason it is developing the mechanisms required to effectively respond to this challenge. By comparison, the Spanish industrial market, which is ten times as large as the Portuguese one, is entirely deregulated, with no regulated tariffs and with effective competition.
In this respect, Galp Energia developed more elaborate tariff grids, expanded research to know the needs of its clients better, broadened the range of products and services on offer, intensifi ed actions to raise energy effi ciency and generally improved its interaction with the client base.
Natural gas fi red electric generation increased in 2008 and the production of electricity at combined cycle plants accounted for 26% of total energy consumption in Portugal.
Sales of natural gas to the electricity segment rose 17% from 2007 to 2,189 million m3 , the highest level ever. This increase resulted primarily from low water levels in the year, which contributed to the use of 4 percentual points more natural gas in the production of electric energy in comparison with 2007.
In 2008, the fi rst year of deregulation of the Portuguese industrial sector for volumes above one million m3 a year, Galp Energia signed ten agreements for the supply of natural gas under the free regime representing annual sales of 165 million m3 and nine million m3 in 2008.
Executing one of the main strategic goals for its natural gas business, Galp Energia started to supply in 2008 the Spanish industrial segment, representing annual demand for 15 bcm. In its fi rst year, the Company achieved sales of 114 million m3 in Spain.
Galp Energia's aim is to capitalise on the experience gained from operating for ten years in the Portuguese natural gas market so as to acquire a relevant position in the Iberian industrial market.
The 21% decline in traded volumes in this segment in comparison with 2007 was primarily due to the fact that 2007 was an unusually dry year in Spain, which led to strong demand for natural gas for the production of electricity. In 2008, the demand for natural gas for the production of electricity rose in Portugal, which reduced considerably the amount of natural gas available for trading.
Regulation of marketing activities Regulated last-resort marketing of natural gas started on 1 January 2008, which effectively separated physical distribution from marketing as required by law.
In 2008 Galp Energia started to supply the industrial Spanish market in execution of one of its main strategic goals for its natural gas business, to double its sales in the longer run
One of natural gas uses is the residential utilization. If you are in Portugal the probability of using Galp Energia's gas is very high
| Interest rate for marketing margin calculations (Euribor 3M + 1.5%) |
6.227% |
|---|---|
| Unit cost of buying natural gas |
2.15 cent€/KWh(1) |
| Regulatory period | 3 years |
Note: (1) Updated quarterly for clients buying more than 10,000 m3 a year.
Residential Other distributors
Sales per segment in 2008
The concession agreements signed with the Portuguese state awarded each distributor a licence for last-resort retail marketing, or CURr in the Portuguese terminology, entitling the companies to market natural gas in the regulated market, in their concession territory, to clients buying less than two million cubic metres of natural gas a year.
According to the new legal framework, compensation for last-resort marketing activities follows ERSE's rules, which specify the revenues allowed for the calculation of tariffs.
Allowed revenues include – in addition to operating expenses, depreciation charges and the tariff defi cit – a marketing margin whose purpose is to cover the fi nancial risk incurred by last-resort marketing companies when managing working capital.
Under the new concession agreements between the Portuguese state and the natural gas distributors, last-resort retailing licensees were guaranteed for their sales to fi nal customers in the fi rst fi ve regulatory periods (until 30 June 2022) an amount equal to the product of €4 per client/year times the number of clients in the beginning of each regulatory period.
In 2008, Galp Energia achieved sales of 2,419 million m3 in the regulated market for natural gas, up 2.8% from a year earlier.
The industrial segment continued to predominate in 2008, with 78% of the total, while the remainder was split between the commercial/residential segment (12%) and other distributors (10%) where Galp Energia has no equity stake.
Sales of 1.9 bcm to the industrial segment were virtually in line with 2007, although sales to clients buying more than two million m3 reached an all-time high of 1,618 million m3 . One of the new clients was Sinecogeração, the new cogeneration plant at the Sines refi nery, which will over time become the largest client, with 250 million m3 a year, or around 15% of the Portuguese industrial segment. This will strengthen the integration between the natural gas and power businesses and help place a substantial part of the natural gas imported by Galp Energia.
The residential/commercial segment continued to expand in the year, namely after the conversion of 36,548 clients to natural gas. Sales reached 290 million m3 , up 26% from a year earlier.
At the end of the year, Galp Energia had, through its distributing subsidiaries, 868 thousand clients of natural gas, up 6% from 2007.
The main goal of the power business is to develop a competitive portfolio of power generation with a capacity exceeding 1,200 MW
The main goal of the power business is to develop a competitive portfolio of power generation with a capacity exceeding 1,200 MW and including, in addition to existing and developing cogenerations, natural gas fi red combined-cycle plants and wind power.
Although it is not in operation yet, Sinecogeração doubled in 2008, from 80 MW to 160 MW, the installed cogeneration capacity and joined the existing three cogenerations where Galp Energia has an equity stake.
The three cogeneration plants – Carriço, Powercer and Energin – that are partly owned by Galp Energia have a joint capacity of 80 MW. In 2008,
these plants generated 1,548 GWh of electrical and thermal power and used 161 million m3 of natural gas. Currently, they are Galp Energia's single source of electric power generation under special regime, i.e. with priority access to the grid and sale at a regulated tariff.
At the end of the year, Sinecogeração was connected to the electricity and natural grids and the fi rst tests were performed prior to its start of
Carriço cogeneration plant with an installed capacity of 30 MW
The new cogenerations will induce the use of over 500 million m3 of natural gas per year, around a quarter of the industrial Portuguese market
operations, which is scheduled to occur in the first quarter of 2009. Concurrently, the construction of Portcogeração, to be equipped with two gas turbines with a total power generation capacity of 80 MW, was awarded and the plant is expected to come into operation at the Porto refinery by 2011. In order to cover the refinery's steam needs, two new recovery boilers will be linked to the turbines.
The new cogenerations will induce the use of 520 million m3 of natural gas per year, thereby contributing to the integration of the natural gas and power businesses, which is one of the strategic goals of the Gas & Power business segment. In addition, the new cogenerations will contribute to improving the refineries' energy efficiency, lowering their cost of thermal energy, curbing emissions of sulphur and nitrogen oxides and reducing CO2 emissions at national level.
The cogeneration plants at the Sines and Porto refineries will be the country's largest, which will place Galp Energia in the top position as regards the use of cogeneration technology in Portugal.
In 2007, Galp Energia launched a project for the construction at Sines of a combined-cycle gas turbine (CCGT) plant with installed capacity of 800 MW. This was an important step towards the production of electricity
and power businesses Gas cost Spark spread Gas price Call option Gas margin
under the market regime. With this initiative, Galp Energia aims to enter a high-growth market and achieve synergies with its natural gas business, which follows from the fact that the plant is expected to use 870 million m3 of natural gas per year. Integration of the natural gas and power businesses will extract more value from Galp Energia's long-term supply contracts of natural gas as it will allow higher efficiency in the management of the Company's procurement capacity. In parallel, integration will give Galp Energia the opportunity to engage in arbitrage between natural gas trading and electricity production margin, in what can be described as a true call option. The electricity produced by the CCGT plant is primarily aimed at the Portuguese pool, where the average price is €5/MWh higher than in the Spanish pool, if the conditions prevailing in 2008 remain unchanged.
In 2008, a tender was launched for the plant's engineering, procurement and construction (EPC) as well as its operation and maintenance. Bids were received in September and are currently under review. The time expected to elapse between contract signing and operations start is between 24 and 36 months.
In 2008, opportunities to invest in hydropower plants were reviewed by Galp Energia, the purpose being to increase the Company's share of power generation from renewable sources and to diversify its generation portfolio.
In case it materialises, the entry into hydroelectric generation will also reduce average CO2 emissions from Galp Energia's power portfolio and give the Company access to cost-efficient technology with, particularly, a much lower marginal cost in comparison with thermal power plants.
By providing storage capacity, hydroelectric generation will also reduce Galp Energia's exposure to market risk by giving it the opportunity to exploit price differences between peak and off-peak hours.
This source of power generation is also a natural hedge of thermal power capacity relative to the hydro content of the Portuguese electrical system and will improve Galp Energia's
In 2008 Galp Energia participated for the fi rst time in the auction for virtual power production capacity
competitiveness in comparison with the incumbent's generation mix.
Besides hedging the power business, hydropower generation is also a way of mitigating the negative correlation between water levels and the use of natural gas for power generation.
As a provider of integrated energy solutions, Galp Energia created in 2008 a department for trading electricity and green house emission licences. The purpose was to promote development of the market for electricity with a view to safeguarding the natural gas client base in an unregulated market environment as well as manage the use of CO2 emission licences centrally.
In accordance with this strategy, Galp Energia participated for the fi rst time in January 2008 in the auction for virtual production capacity organised in Portugal by OMIP, the Iberian energy market operator. In this auction, the Company obtained virtual production capacity that it placed on the market in the second and third quarters of the year. The event marked Galp Energia's entry into organised electricity trading. In 2008, Galp Energia also participated in the auction for virtual electricity production in Spain, with delivery in the fourth quarter of 2008.
These auctions aim to trade options to buy electric power. This is a way to make available to market participants such as electricity suppliers, large-sized end customers and outside participants the use major operators' production capacity. In Portugal's case, these are the plants that were previously covered by power purchase agreements (PPAs).
During the year, applications were fi led for membership of Powernext, the French electricity exchange, and ICE/ECX, the CO2 emissions exchange, in order to prepare for trading activities to be phased in throughout 2009.
Ventinveste, S.A., a company 34% owned by Galp Energia, which was set up for the installation of power generation capacity of up to 480 MW in wind farms, worked in 2008 towards licensing of the farms, which are scheduled to come gradually on stream up to 2013. Necessary steps were also taken to connect the farms to the electricity grid, to specify equipment and to select the construction model.
Wind farm at Ericeira, Portugal, using the same technology of future Galp Energia's farms
In 2008, we achieved a turnover of €15,062 million. At replacement cost adjusted, EBITDA was €975 million, operating profit v693 million and net profit €478 million, or €0.58 per share, up 14% compared with a year earlier.
Galp Energia's replacement cost adjusted net profi t advanced 14.2% in 2008 to €478 million.
The good performance delivered by the Refi ning & Marketing business segment offset the shortfall in results from the Gas & Power business segment, where rising sales of natural gas were neutralised by the outcome of the renegotiation of long-term supply contracts.
Relevant facts for Galp Energia's fi nancial performance in 2008 were:
● Working interest production of crude oil at 15.1 kbopd, down 11.5% from 2007;
Galp Energia's replacement cost adjusted net profi t of €478 million was the highest in the last four years
Brent dated price, according to Bloomberg's chart, was down 60% from 2007
Net profit according to IFRS dropped 83.8% from 2007 to Ð117 million as the inventory effect swung dramatically to negative territory. Replacement cost adjusted net profit amounted to €478 million, 14.2% ahead of 2007 with the positive impact of Refining & Marketing business segment performance.
| 2007 | 2008 | Change | % Ch. | |
|---|---|---|---|---|
| Turnover | 12,560 | 15,086 | 2,526 | 20.1% |
| Operating expenses | (11,417) | (14,698) | 3,281 | 28.7% |
| Other operating revenues (expenses) | 70 | 61 | (9) | (12.5%) |
| EBITDA | 1,213 | 449 | (764) | (63.0%) |
| Depreciations and provisions | (278) | (282) | 4 | 1.4% |
| Operating profit | 936 | 167 | (768) | (82.1%) |
| Net profit from associated companies | 60 | 48 | (12) | (19.3%) |
| Net profit from investments | 21 | 0 | (21) | (99.7%) |
| Net interest expenses | (43) | (61) | (18) | (42.1%) |
| Profit before tax and minority interests | 974 | 155 | (819) | (84.1%) |
| Income tax | (249) | (33) | (216) | (86.8%) |
| Minority Interests | (5) | (5) | 0 | 6.0% |
| Net profit | 720 | 117 | (603) | (83.8%) |
| Inventory effect | (280) | 355 | (635) | n.m. |
| Net profit RC | 440 | 472 | 32 | 7.2% |
| Non recurrent items | (22) | 6 | 28 | n.m. |
| Net profit RCA | 418 | 478 | 59 | 14.2% |
Sales and services provided of €15,086 million were 20.1% higher than in 2007.
This rise, which was primarily driven by the Refining & Marketing and Gas & Power business segments, resulted from higher prices of crude, oil products and natural gas in international markets. In the Exploration & Production business segment, higher crude prices could not make up for lower net entitlement production, which ultimately led to weaker sales in this business segment.
| 2007 | 2008 | Change | % Ch. | |
|---|---|---|---|---|
| Exploration & Production | 233 | 200 | (32) | (13.9%) |
| Refining & Marketing | 11,115 | 13,224 | 2,108 | 19.0% |
| Gas & Power | 1,455 | 1,942 | 487 | 33.5% |
| Others | 104 | 127 | 23 | 22.4% |
| Consolidation adjustments | (347) | (408) | (61) | (17.5%) |
| TOTAL | 12,560 | 15,086 | 2,526 | 20.1% |
Operating costs increased 28.3% to €14,919 million, which was largely due to the 30.7% rise in the cost of goods sold following higher prices of crude oil and other raw materials. The cost of goods sold accounted for 92% of the overall operating costs. Using replacement cost accounting, the cost of goods sold was €13,209 million, which was 22% higher than 2007 and reflected higher prices of crude and oil products in international markets.
The cost of goods sold accounted for 92% of the overall operating costs reflecting higher prices of crude and oil products in international markets 92% Supply and services cost increased by 7.9% to €680 million. Excluding the €21 million cost incurred by Agip's integration, the increase amounted to 4.6% and was due to (i) higher production costs in the Exploration & Production business segment, namely rising maintenance costs at the BBLT and Kuito fields and broad cost increases in industry services and equipment, (ii) higher legal costs, (iii) higher storage and filling costs in Spain, (iv) higher transportation costs for both crude and oil products following the overall rise in freight rates and higher frequency of overstays and (v) the costs arising from the shutdown for maintenance at the Sines refinery.
Personnel costs rose 3.8% to €292 million in 2008. Excluding the Agip effect, the rise was 1.3% and resulted primarily from payroll costs and related charges.
Depreciation charges fell 6.7% to €240 million. The Refining & Marketing business segment depreciations had a 14.7% decrease, owing mainly to the
fact that some assets, namely at the Sines refinery, reached the end of their economic life.
The Exploration & Production business segment posted a 26% increase in depreciations, reflecting (i) the €8.6 million cost of six dry wells in the Potiguar and Sergipe-Alagoas basins in the Brazilian onshore, and (ii) the change in proved and probable reserves following the update of DeMac's report at 31 December 2008.
In the Gas & Power business segment, depreciation charges fell Ð6 million after the extended period for the gas distribution concession resulted in lower annual depreciation rates.
Provisions of €42 million, which were double the size of 2007, resulted from increases in all business segments. In the Exploration & Production business segment, increases came from added provisioning for abandonment of Angola's producing fields. In the Refining & Marketing business segment, the €11 million increase was primarily due to bad debts. Provisions in the Gas & Power business segment rose by €6 million owing to the impact in 2008 of the renegotiation of gas supply contracts, which was partly offset by the reversal of a provision on account of a debt arising from strategic reserve services provided by the Gas & Power business segment.
| 2007 | 2008 | Change | % Ch. | |
|---|---|---|---|---|
| Cash operating costs | ||||
| Cost of goods sold | 10,505 | 13,726 | 3,221 | 30.7% |
| Supply and services | 630 | 680 | 50 | 7.9% |
| Personnel costs | 281 | 292 | 11 | 3.8% |
| Other operating (revenues) expenses | (70) | (61) | (9) | (12.5%) |
| Non cash operating costs | ||||
| Depreciations | 257 | 240 | (17) | (6.7%) |
| Provisions | 21 | 42 | 21 | 101.1% |
| Total | 11,625 | 14,919 | 3,294 | 28.3% |
IFRS-based operating profi t in 2008 was €167 million, down 82.1% from 2007 following adverse inventory effects. In replacement cost adjusted terms, operating profi t rose by 11.8% to €693 million as the increase in replacement cost adjusted operating profi t from the Refi ning & Marketing business segment offset a profi t shortfall in the Gas & Power business segment.
Galp Energia's operating profi t RCA rose by 11.8% to €693 million from 2008
| 2007 | 2008 | Change | % Ch. | |
|---|---|---|---|---|
| Exploration & Production | 146 | 122 | (24) | (16.3%) |
| Refi ning & Marketing | 582 | (174) | (756) | n.m. |
| Gas & Power | 212 | 216 | 4 | 1.8% |
| Others | (5) | 3 | 8 | n.m. |
| Operating profi t | 936 | 167 | (768) | (82.1%) |
| Inventory effect | (318) | 517 | (835) | n.m. |
| Operating profi t RC | 618 | 684 | 66 | 10.7% |
| Non recurrent items | 2 | 9 | 7 | 283.3% |
| Operating profi t RCA | 620 | 693 | 73 | 11.8% |
| Exploration & Production | 150 | 141 | (9) | (6.0%) |
| Refi ning & Marketing | 261 | 373 | 112 | 43.2% |
| Gas & Power | 215 | 176 | (39) | (18.1%) |
| Others | (5) | 3 | 8 | n.m. |
25% 20%
Galp Energia's transformational projects will allow the increase of operating profi t in the future
G&P E&P R&M
55%
RCA operating profit from the Exploration & Production business segment accounted for 20.3% of Galp Energia's RCA operating profits
RCA operating profit from the Exploration & Production business segment fell by 6% to €141 million and accounted for 20.3% of Galp Energia's RCA operating profit. The 38.5% rise in the average sales price was cancelled out by the 20.1% fall in net entitlement production, the rise in production costs and the increase in depreciation charges.
Production costs climbed to €22.4 million, from Usd 5.9/bbl to Usd 9.0/bbl in unit terms, as net entitlement production declined – thereby narrowing the base for spreading fixed costs – and prices of services and equipment advanced broadly in international markets. Operational setbacks at the BBLT field, which induced increased maintenance, also contributed to rising production costs.
Depreciation charges excluding impairments increased to €59.7 million, or Usd 24.0/bbl in unit terms from Usd 15.8/bbl in 2007. This increase reflected the reserve update in DeMac's report at 31 December 2008.
In Brazil, evaluation of the potential and economic feasibility of oil production projects led to the return to ANP, the Brazilian energy regulator, of ten onshore blocks – eight of them operated by Galp Energia – on the Potiguar and Espírito Santo basins. The returned blocks were written down in the accounts, which resulted in the recognition of a net operating cost of €9 million. In addition, impairments of €8.6 million were recorded on account of the drilling of six wells which were found to be dry. Both these cost items were considered as non-recurrent events.
Refining & Marketing business segment operating profit RCA reach €373 million, up 43.2% from 2007 373M¤
IFRS-based operating loss of €174 million in 2008 for the Refining & Marketing business segment, as opposed to operating profit of €582 million a year earlier, was largely due to a negative inventory effect of €552 million.
On the other hand, RCA operating profit advanced to €112 million, or 43.2%, in comparison with 2007. This change was due to a time lag effect resulting from the one-week delayed adjustment to prices payable by domestic operators – including Galp Energia's own marketing of oil products – in response to changes in international market prices. In 2008, the Company had a positive accumulated time lag effect of €78 million – against a negative effect of €67.4 million in 2007 as the price of oil products in international markets went down by a larger measure in 2008 than they went up in 2007. This effect offset the fall in Galp Energia's refining margin, which followed the trend in international refining margins and suffered the effect of the scheduled shutdown for maintenance at the Sines refinery.
In unit terms, Galp Energia's refining margin fell by 19.2% to Usd 4.4/
bbl. In euros, the fall equalled 24.7%, to Eur 3.0/bbl, following the depreciation of the US dollar against the euro. The refining margin was also weakened by own consumption, which accounted for 8.2% of processed raw materials – in line with 2007 but representing a larger amount as crude prices went up by close to 33.7% in 2008.
The refineries' cash costs were virtually unchanged in 2008 in euro terms although in unit US dollar terms there was an increase from Usd 2.1/bbl to Usd 2.2/bbl.
The marketing of oil products benefited from the results contributed by Agip's Iberian subsidiaries, particularly in Spain, and the specialties business in the Iberian Peninsula. International marketing of oil products also increased its activity and raised its contribution to results.
In 2008, RCA operating profi t from the Gas & Power business segment fell by 18.1% to €176 million. Larger quantities sold and higher natural gas prices in international markets could not offset the adverse effect of the renegotiation of supply contracts. Indeed, in the fourth quarter of 2008, an arbitral decision was handed down with regard to gas supply contract NLNG+ (representing close to 2,000 million cubic metres a year), which prompted further negotiations with the supplier. The outcome was a change in the formula for calculating the purchase price of gas effective from May 2007, which led to a charge of €112 million to the fourth quarter of 2008. This charge was, however, partly offset by the reversal of a provision of €9 million, resulting in a net impact of €103 million.
The renegotiation effective from June 2007 of another supply contract – the NLNG II, representing close to 1,000 million m3 a year – is currently under way. For precautionary reasons, Galp Energia carries a provision of €30 million.
Operating profi t for the natural gas infrastructure activities, namely distribution and storage, rose by
8.3% to €88 million, which showed their earnings stability.
The power business posted in 2008 a unit margin of €11.8/MWh, down from €14.0/MWh in 2007, following the stop of the Energin cogeneration plant. Sales of 478 GWh of electricity to the grid were made at the price of €105.2/ MWh, up 17.1% from a year earlier as a result of the tariff update that followed the rise in the Brent.
Operating profi t for the natural gas infrastructure activities, namely distribution and storage, rose by 8.3% to €88 million, which showed their earnings stability
Results from associates in 2008 amounted to €48 million, of which €39.7 million – an increase of 6.2% compared to a year earlier – were generated by Galp Energia's equity holdings in international pipelines EMPL, Metragaz, Gasoducto Al Andaluz and Gasoducto Extremadura.
These results, however, were lower than in 2007, when a capital gain was made from a disposal of assets.
In 2008, there were virtually no results from investments – in 2007 a positive result of €21 million was recorded that basically originated from a non-recurrent event related to an adjustment to the price of the natural gas assets sold to REN in the third quarter of 2006.
Financial losses of €61 million in 2008 were €18 million larger than in 2007. The reasons for this change were the rise in the average interest rate of the
debt from 4.63% in 2007 to 5.10% in 2008 and the rise in average debt from €836 million to €1,134 million.
IFRS-based income tax was €216 million lower for the year as a result of the lower valuation of inventories and weaker trading conditions in 2008 that led to lower profit before tax in IFRS terms. Nonetheless, the change in inventory valuation criteria following from newly introduced legislation (Law n.º 64/2008) led to an increase of €33.8 million in tax payable.
| 2007 | 2008 | Change | % Var. | |
|---|---|---|---|---|
| Income tax IFRS | 249 | 33 | (216) | (86.8%) |
| Effective income tax rate | 26% | 21% | (4.3 p.p.) | n.m. |
| Inventory effect | (38) | 162 | (199) | n.m. |
| Income tax RC | 211 | 195 | (17) | (7.9%) |
| Non recurrent items | 1 | 3 | 2 | (216.8%) |
| Income tax RCA | 213 | 198 | (14) | (6.8%) |
| Effective income tax rate | 33% | 29% | (4.3 p.p.) | n.m. |
IRP payable in Angola was €11.6 million lower at €53 million following the reduction in net entitlement production in 2008.
The effective IFRS tax rate was 21.3% in 2008 against 25.6% in 2007.
In RCA terms, the effective tax rate was 29.1%, also down from 33.4% a year earlier. Excluding the IRP, the effective tax rate in 2008 would have been 23.1% against 25.9% in 2007.
IFRS-based net profit was €117 million in 2008, down 83.8% from a year earlier. This decrease was due to the opposite sign of the inventory effect compared to 2007. Whereas the inventory effect was negative in 2008, meaning a lower valuation of inventories, in 2007 the situation was the opposite one.
Replacement cost adjusted net profit was €478 million, up 14.2% from 2007 against an 11.8% increase in operating terms. Deteriorating financial results following higher interest rates and debt levels as well as lower results from associates were partly offset by lower taxes in adjusted terms.
Effective income tax rate (%)
Galp Energia's RCA net profit rose 14% in 2008 to €478 million, on the back of a good performance of the Refining & Marketing business segment, which positively contributed for the increase in operating profit and the reduction in income tax
Capital expenditure in 2008 reached €1,560 million, up €1,094 million from 2007.
Close to €196 million were channelled into the Exploration & Production business segment, namely (i) €110 million for block 14, particularly the development of the Tômbua-Lândana fi eld, the BBLT and appraisal of the Lucapa discovery, (ii) €13 million for the drilling and appraisal of exploration wells on block 32 in Angola, (iii) €27 million for exploration activities in the Brazilian offshore, including drilling of the Júpiter, Bem-te-vi and Iara fi elds and preparation of the long-term test at the Tupi fi eld from the second quarter of 2009, (iv) €10 million for the bonuses paid in Brazil's ninth bidding round, (v) €18 million for exploration activities in the Brazilian onshore in the Potiguar and Espírito Santo basins, with drilling of 21 exploration wells which resulted in nine discoveries and (vi) €14 million for exploration activities in Mozambique, East Timor and Portugal for 2D and 3D seismic acquisition and subsequent interpretation.
In the Refi ning & Marketing business segment, capital spending reached €1,245 million, up from €1,076 million in 2007, and accounted for 80% of total capital expenditure in 2008. Spending in this business segment was predominantly directed at the acquisition of Agip's and ExxonMobil's Iberian businesses for marketing oil products – for a total of €752 million – the refi nery conversion project where the purchase of major equipment items
| 2007 | 2008 | Change | % Ch. | |
|---|---|---|---|---|
| Exploration & Production | 193 | 196 | 3 | 1.7% |
| Refi ning & Marketing | 168 | 1,245 | 1,076 | 639.1% |
| Gas & Power | 103 | 116 | 13 | 12.5% |
| Outros | 1 | 2 | 1 | 174.2% |
| Total | 466 | 1,560 | 1,094 | 234.9% |
started (whereby some contracts have already been awarded, namely the reactors for the Sines hydrocracker), the scheduled stop for maintenance at the Sines refi nery – for an amount of €57.5 million – and the acquisition of the concession for the liquid bulk terminal at the Port of Sines.
In the Gas & Power business segment, capex totalled €116 million and was partly channelled into extending the secondary network for the distribution of natural gas by 704 km for the connection of an additional 52 thousand natural gas clients, both new and converted. In the power business, fi nal expenditure was made on the Sines cogeneration, which is scheduled to start operations in the fi rst quarter of 2009. Capital spending was also directed at the Porto cogeneration, whose EPC contract was signed in December.
Construction site at Porto refi nery, for the conversion project that will increase the production of diesel
Fixed assets increased in 2008 by €1,297 million to €3,881 million, reflecting the level of capital expenditure in the year, particularly the acquisition of Agip's and ExxonMobil's Iberian subsidiaries for €752 million.
| December 31, 2007 |
December 31, 2008 |
Change | |
|---|---|---|---|
| Fixed assets | 2,584 | 3,881 | 1,297 |
| Strategic stock | 582 | 480 | (103) |
| Other assets (liabilities) | (151) | (29) | 122 |
| Working capital | 89 | (249) | (338) |
| 3,104 | 4,082 | 978 | |
| Short term debt | 336 | 687 | 351 |
| Long term debt | 505 | 1,304 | 799 |
| Total debt | 841 | 1,991 | 1,149 |
| Cash | 107 | 127 | 20 |
| Total net debt | 734 | 1,864 | 1,129 |
| Total shareholder's equity | 2,370 | 2,219 | (151) |
| Capital employed | 3,104 | 4,082 | 978 |
| Net debt to equity | 31% | 84% | 53.0 p.p. |
The value of strategic inventories dropped €103 million in comparison with 31 December 2007 to €480 million at 31 December 2008 as the prices of oil products in international markets fell in the year. This drop had a direct impact on the unit valuation of strategic obligations, with the largest changes occurring in middle distillates and gasoline.
Other assets and liabilities went up by €122 million compared to the end of 2007 reflecting (i) lower deferred tax liabilities of close to €114 million following the change to weighted- -average cost inventory valuation and (ii) higher deferred tax assets relating to tax losses to be deducted from future profits.
At year end, the Company had negative working capital of €249 million, down €338 million from the end of 2007. This change was primarily due to lower receivables and operating inventories in line with falling prices of crude and oil products in international markets. Another important factor was the increase in accounts payable arising from expenditure on the Sines cogeneration and the conversion of both refineries.
Net debt increased to €1,864 million from €734 million at the end of 2007. This increase was related to growing capital expenditure, in particular the acquisition in 2008 of Agip's and ExxonMobil's Iberian subsidiaries.
Between 2003 and 2007 Galp Energia's net debt was down considerably. However, in 2008, with the intensification of the Company's capex plan, namely Agip's and ExxonMobil's Iberian subsidiaries acquisitions for a total consideration of €752 million, net debt posted an increase to €1,864 million, close to 2003 levels.
ANNUAL REPORT AND ACCOUNTS 2008 GALP ENERGIA
The net debt-to-equity ratio increased in the year by 53 percentage points to 84%.
The average maturity of the debt shortened from 2.75 years at the end of 2007 to 2.68 years at the end of 2008 – or lengthened to 3.7 years if long- -term debt only is considered following borrowings of €450 million at the end of 2008 maturing in 2011.
After the new borrowings, the share of long-term debt rose to 66% of total debt compared to 60% at the end of 2007. At the same time, the share of fl oating-rate debt in total long-term debt fell to 68% from 74% at the end of 2007 as €350 million were borrowed at fi xed rate.
The average cost of debt rose by 47 basis points from 4.63% in 2007 to 5.10% in 2008, which refl ected the rise in reference rates.
At the end of December 2008, Galp Energia had no US dollar denominated debt.
Net debt attributable to minority interests at 31 December 2008 amounted to €35.3 million.
Our strategic plan is under way, in a difficult environment that has forced us to be prudent and rigorous. Hence, we have had to adapt the evolution and context of our projects to a constantly changing reality.
Galp Energia's operations and earnings are subject to risks from changes in competitive, economic, political, legal, regulatory, social, industry, business and financial conditions. Investors should carefully consider these risks as they may have a material adverse effect, separately or in combination, on Galp Energia's results from operations and its financial condition. Actions being taken by management to mitigate some of these risks are identified where appropriate. In addition, Galp Energia may be adversely affected by other risks besides those listed below.
Galp Energia's operations and earnings are subject to several risks. Not all the risks mentioned in this chapter are under Galp Energia control and may exist others not listed here under
Galp Energia operations are subject to several types of risks, namely oil, natural gas and refined products price fluctuations, fluctuations in exchange rates and competition from other companies operating in the energy sector.
Prices of oil, natural gas and oil products are affected by supply and demand. Factors that influence these include operational issues, natural disasters, weather, political instability or conflicts, economic conditions or actions by major oil-exporting countries.
A material decline in the price of crude oil or natural gas may have a material adverse effect on Galp Energia results of operations or financial condition, in particular on its Exploration & Production business segment, by reducing the economic recoverability of discovered reserves and the prices realised from production. Furthermore, lower crude oil prices may also reduce the amount of oil that the Company can produce economically or reduce the economic viability of projects for the production of oil that are planned or in development. Galp Energia also maintains inventories of crude oil, other feedstock, refined petroleum products and natural gas whose value is negatively affected by declines in market prices.
A rise in crude oil and natural gas prices may also adversely affect the Company's results of operations and financial condition, as it would increase the significant portion of expenses relating to the purchase of crude oil and natural gas. Although the prices that Galp Energia charges to its customers generally reflect the market prices of oil and natural gas, prices may not be adjusted to immediately or fully account for increased market prices in markets experiencing volatility, in particular the prices applied in the regulated natural gas market. Significant pricing level changes during the period between the purchase of crude oil and other feedstock and the sale of refined petroleum products could therefore have a material negative effect on Galp Energia business, financial condition and results of operations.
Although an increase or decrease in the price of crude oil generally results in a corresponding increase or decrease in the price of the majority of the Company's refined products, changes in the prices of refined products generally lag behind upward and downward changes in crude oil prices. As a result,
a rapid and significant increase in the market price for crude oil could have an adverse impact on refining margins. Furthermore, movements in the price of crude oil and refining margins may not correlate at any given time.
Galp Energia manages and mitigates commodity price risk by monitoring its net global commodity position and balancing its purchase and supply obligations. In particular, Galp Energia manages the pricing period in order to achieve, at the end of each month, the average Brent dated crude price of such month, regardless of the actual days of pricing. The Company seeks to achieve this objective through daily purchases and/or sales of futures in crude oil based on the difference between the actual price and the average Brent dated of each month. Therefore, Galp Energia purchases are effectively spread throughout the month based on market prices without any change to
the pattern of physical purchases. Galp Energia facilitates these pricing hedges through the Intercontinental Exchange (ICE) in London.
Galp Energia's oil production in Angola is hedged using the same method to smooth the pricing period of the sale of the crude oil that is produced through over-the-counter (OTC) markets. This scheme results in the smoothing of the price for a period of up to one year. To protect itself from the price changes between the exported products and crude price, Galp Energia hedges its margin for part of the exports on a monthly basis. These hedges are made through swaps and future contracts.
Galp Energia's activities are exposed to fluctuations in currency exchange rates, in particular the US dollar against the euro, its home currency. Trading prices of crude oil, natural gas and
Galp Energia manages and mitigates the price risk of raw materials and of its crude production in Angola
The energy sector is highly competitive across the globe. Galp Energia is under competitive pressure in many signifi cant parts of its business, including in the access to raw materials such as oil and gas reserves most refi ned petroleum products, and thereby a signifi cant portion of Galp Energia costs and revenues, are generally denominated in or tied to the US dollar, while the Company fi nancial statements are prepared in euros. Accordingly, a depreciation of the US dollar against the euro can have an adverse effect on Galp Energia's reported earnings, as it decreases the value of the profi ts generated in US dollars or tied to the US dollar. Furthermore, fl uctuations of the euro against the US dollar can have a negative impact on certain balance sheet items, such as inventories and loans.
Since this is a denomination risk that is a function of other variables, such as oil and natural gas prices, Galp Energia has always been very cautious about hedging this risk, as there are natural hedges embedded either in its balance sheet or its cash fl ows. The degree of exposure of cash fl ows and especially of balance sheet items is a function of the prices of oil and natural gas. Galp Energia looks at its overall net foreign exchange exposure rather than each single individual transaction where it is exposed to foreign exchange risk. The objective of Galp Energia's foreign exchange risk management is to limit the uncertainty created by changes in foreign exchange rates over this net foreign exchange exposure. Hedging receivables and payables based on market speculation is not allowed. Any remaining currency exposure is monitored on a case-by-case basis. In Galp Energia's natural gas business,
foreign exchange risk is managed by conforming the Usd/Eur exchange rate of invoices payable to suppliers to the Usd/Eur exchange rate applied to invoices receivable from customers. Galp Energia has used this strategy on a consistent basis since 2000.
The energy sector is highly competitive across the globe. The Company is under competitive pressure in many signifi cant parts of its business, including in the access to raw materials such as oil and gas reserves and refi nery feedstock, in the sale of products to customers, in the development of innovative products and solutions, including the development of new technologies, and in the search for employees with the skills and experience Galp Energia needs. When seeking access to reserves, its Exploration & Production business segment faces competition from both national and international oil companies, which control a substantial part of world reserves. Galp Energia's business of marketing petroleum products in Iberia on a retail and wholesale basis is also highly competitive, knowing that well-established competitors hold large shares of that market. Galp Energia's competitors include multinational or state-owned oil, gas and power companies with signifi cantly greater fi nancial resources and international operating experience. Failure to adequately analyse, understand or respond to the competitive environment could have an impact on Galp Energia's fi nancial position.
In 2008 the US dollar reached its lowest price against the euro
Galp Energia's execution of its strategic plan is to a signifi cant extent dependent upon the successful completion of projects within budget, costs and specifi cations
Project delivery, reserves development and depending on third parties are some of the operational risks Galp Energia's activities are subject.
Galp Energia's execution of its strategic plan is to a signifi cant extent dependent upon the successful completion of projects within budget, costs and specifi cations. The delivery of these projects is subject to health, safety and environment (HSE), technical, commercial, legal, contractor and economic risks. Projects may be delayed or prove unsuccessful for many reasons, including: cost and time overruns in the construction stage; failure to comply with legal and regulatory requirements; equipment shortages; availability, competence and capability of human resources and contractors; unscheduled outages; mechanical and technical diffi culties. Projects may also require the use of new and advanced technologies, which can be expensive to develop, purchase and implement and may not function as expected. Such potential obstacles may impair the delivery of these projects and, in turn, negatively affect Galp Energia's operational performance and fi nancial position (including the fi nancial impact from the failure to fulfi l contractual commitments related to project delivery).
Galp Energia's future oil and gas production is dependent on its successes in fi nding, acquiring and developing new reserves. Usually the rate of production from natural gas and oil reservoirs declines as reserves are depleted. Galp Energia needs to replace these depleted reserves with new proved reserves on a consistent and cost effective basis. This replacement process could be affected by a number of factors including: barriers to gaining new exploration acreage; inaccurate interpretation of geological and engineering data; unexpected drilling conditions or equipment failure; inadequate resources including drilling rigs, skilled personnel, contractors, materials and supplies; and disruptions to the successful implementation of the drilling programme. There can be no assurance that Galp Energia will be successful in its exploration and development activities or in purchasing proved reserves or that, if successful, the resulting discoveries or purchases will be suffi cient to replenish the current reserves or cover the costs of exploration. If unsuccessful, Galp Energia will not meet its production
cogeneration plant that will start operation in 2009
In reserves development failure to select the most suitable development concept can expose projects to additional risk and cost
targets and total proved reserves will decline, which will have a negative effect on future results of operations and fi nancial condition.
There are numerous uncertainties inherent in estimating oil and gas reserves. Reserves are estimated using available geological, technical and economic information. The process involves informed judgements and therefore estimates of reserves are not exact measurements and can be subject to revision. Published reserves estimates may also be subject to correction in the application of published rules and guidance.
Following the identifi cation of exploration or new venture opportunities, certain activities are performed before an investment decision or "sanction" is made by management. These activities include commercialisation, feasibility studies, concept selection and defi nition. There are a number of risks during the pre-sanction phases, including subsurface, engineering, commercial and regulatory risks. The principal risk prior to sanction is failure to assess accurately the project schedule and cost. Failure to select the most suitable development concept based on full 'life cycle' understanding of the project can expose projects to additional risk and cost.
If Galp Energia is not successful in securing appropriate long-term commercial agreements, in particular related to gas and LNG sales and transportation, it may be unable to commercialise its reserves, thus adversely impacting the Company's cash fl ow and income. If the Company fails to adopt an appropriate procurement and project management strategy, it may experience delays to project schedule and cost.
Principal regulatory risks during the pre-sanction phase are failure to negotiate appropriate agreements, where required, with host governments, lack of appreciation of the regulatory framework in the host country and failure to gain applicable permits, licences or approvals from the relevant local authorities to carry out or operate certain works.
Galp Energia is dependent, for a substantial portion of its operations, on continued access to oil, natural gas and other raw materials and supplies at appropriate prices. In particular, Galp Energia is to a large extent dependent on sourcing from Sonatrach in Algeria for natural gas and from Nigeria LNG in Nigeria for liquefi ed natural gas. Access to the Company's existing sources of crude oil, natural gas and other feedstock might be interrupted as a result of, among other things, political events with structural effects on the industry, limited pipeline capacity or other problems in transporting suffi cient quantities of oil or natural gas from its current sources (including pipeline ruptures, damages to tankers, explosions, fi res, adverse weather conditions, sabotage, government restrictions, regional hostilities and other hazards and force majeure events). Problems or delays in accessing natural gas and other feedstock could affect sourcing costs, especially if Galp Energia is forced to source LNG through spot purchases, which may be diffi cult given the tight supply of natural gas on the market and which is likely to be more costly than contracted prices for natural gas or LNG. Although Galp Energia has not experienced any signifi cant feedstock sourcing shortages, there can be no assurance that it will not experience future interruptions and
Sines is the main part in the Ibero-atlantic front that it would be able to compensate any deviations or short delivery that might occur. Problems or delays in accessing feedstock necessary for the Company's business may have a material negative effect on its business, fi nancial condition and results of operations.
The integrity of Galp Energia's assets can be affected by a number of factors, including unplanned shutdowns and equipment failure. Failure to have common, robust systems and processes in place across the Company may adversely impact plant availability, production volumes and, ultimately, cash fl ow. Failure to have good asset integrity and process safety practices could result in a safety or environmental incident. Business activities conducted by the Company are often conducted with joint venture partners and some assets are under the day-today management of these partners and may therefore be subject to risks that are outside Galp Energia's control. The location of some of the Company's operations may expose them to natural hazards such as hurricanes, fl ooding and earthquakes, each of which could materially impact the Company's ability to deliver its products or services. Individual segments of the Company's activities are subject to specifi c operational and production risks. In the E&P segment, failure to adopt the correct reservoir and well management strategy could adversely affect the ultimate reserves recovery from the fi eld and, consequently, reduce long-term profi tability and cash fl ow.
Given the range and complexity of Galp Energia's operations, potential HSE risks are widespread. These risks include major process safety incidents, failure to comply with approved policies; effects of natural disasters and pandemics, social unrest, civil war and terrorism, exposure to general operational hazards, personal health and safety and crime. A major HSSE incident could result in injury or loss of life, damage to the environment or destruction of facilities, each of which could have a material impact on Galp
Energia. Depending on their cause and severity, they can affect Galp Energia's reputation, operational performance and fi nancial position.
Emissions of greenhouse gases and associated climate change are real risks to the Company and society in general. In the future if Galp Energia is unable to fi nd CO2 solutions for new and existing projects, future government regulation or challenges from society could lead to project delays, additional costs as well as compliance and operational risks. These risks if realised could affect Galp Energia's operational performance and fi nancial position.
Supplying customers with on- -specifi cation products is critical to maintaining Galp Energia's licence to operate and its reputation in the marketplace. Failure to meet product quality standards throughout the value chain could lead to harm to people and the environment and loss of customers.
Galp Energia's successful delivery of its business strategy depends on the skills and efforts of its employees and Given the range and complexity of Galp Energia's operations, potential HSE risks are widespread
Security signs inside the refi neries are very frequently
Future success will depend to a large extent on the Company's continued ability to attract, retain, and motivate its personnel
management teams. Future success will depend to a large extent on the Company's continued ability to attract, retain, motivate and organise its highly skilled and qualifi ed personnel. This in turn will be impacted by competition
for human resources. If Galp Energia loses the services of key people or is unable to attract and retain employees with the right capabilities and experience, it could jeopardize performance delivery.
This area includes risks of changes in taxes and tariffs applied to Galp Energia, risks of changes of regulations and policies in the countries where Galp Energia operates and risks related with corporate responsability.
Galp Energia operates in various countries around the world and any of these countries could modify its tax laws in ways that would adversely affect the Company. Galp Energia is subject, among others, to corporate taxes, energy taxes, petroleum revenue taxes, customs surtaxes and excise duties, each of which may affect revenues and earnings. In addition, Galp Energia is exposed to changes in tax regimes relating to royalties and taxes imposed on crude oil and gas production. Signifi cant changes in the tax regimes of countries in which the Company operates or in the level of production royalties payable could have a material adverse effect on Galp Energia's results of operations and fi nancial condition. In addition, when setting or amending the tariffs applicable to Galp Energia business
activities, in particular the tariffs for the distribution or the supply of natural gas under the last resort supply licences to its customers, regulators might not take into account the full effect of the variations in the purchase price of natural gas and other factors affecting profi tability. Adverse changes to these tariffs, including changes to the costs permitted to claim as operating costs under the tariffs applicable to the sale of products, such as capital expenditures, raw material costs, cost reduction incentives and effi ciency factors, could have an adverse effect on Galp Energia's business, fi nancial condition or results of operations.
Galp Energia's exploration and production activities are located in countries outside of Europe with
developing economies or political or regulatory environments that have at times in the past been unstable. Galp Energia also sources natural gas from Algeria and Nigeria for its natural gas business and sells its petroleum products in Portuguese- -speaking countries in Africa. As a result, a portion of the Company revenue is and will increasingly be derived from, or dependent on, countries with economic and political risks, including expropriation and nationalisation of property, increases in taxes and royalties, the establishment of limits on production and export or import volumes, the compulsory renegotiation of contracts, payment delays, currency exchange restrictions, civil strife and acts of war or terrorism. In particular, regulatory changes in matters such as the award of exploration and production interests, the imposition of specifi c drilling and exploration obligations, restrictions on production and exports, price controls, environmental measures, control over the development and abandonment of fi elds and installations and risks relating to changes in local government regimes and policies could further adversely affect Galp Energia's exploration and production business. While Galp Energia has not experienced signifi cant disruptions as a result of economic or political instability in the past, future disruptions could adversely affect its business, fi nancial condition and results of operations.
The business environment in some countries in which Galp Energia operates is quite unregulated, and the related business culture does not refl ect in all respects the norms that prevail in Western Europe. Galp Energia believes that it adheres to international norms in all countries in which it operates. However, any irregularities that may be discovered or alleged could have a material adverse effect on Galp Energia's ability to conduct business or value of its shares.
A number of stakeholders (including employees, investors, media, governments, civil society groups, nongovernmental organisations and those living in local communities affected by Galp Energia's operations) have legitimate interests in the Company's business. The Company's reputation and/or share price could suffer due to inappropriate or inadequate
engagement with stakeholders, including, for example: failure to develop proactive stakeholder engagement strategies, delivery of inconsistent messaging to key stakeholders on business objectives and strategy; failure to provide adequate explanations if performance targets are not met or if performance is perceived as poor against competitors'; and inadequate responses to any crisis (including fi nancial market challenges, such as a hostile bid) or a major HSSE incident.
Galp Energia's failure to implement its business principles and/or any ongoing or damaging investigations of Galp Energia could impact the Company's reputation and/or share price. Each of the following risks could affect the Company's ability to deliver projects on time and within budget and damage Galp Energia's reputation: failure to consider and manage environmental impacts, social consequences and human rights in investment decisions and pricing policies, project planning and operational management; failure to identify stakeholder expectations; and weak governance and internal controls, including the ineffective implementation of anti-corruption policies.
Galp Energia develops its activities according to international best practices in several countries spread all over the world
Galp Energia's natural gas employees helped rebuild social facilities
Galp Energia's interest rate risk management policy aims to reduce exposure to variable rates by fixing part of the debt using simple derivative instruments
Financial risk include, among others, change in interests rates, liquidity shortfall, credit risk, insurance risk and pension plans risk.
Galp Energia's financing costs may be significantly affected by interest rate volatility. The Company is also exposed to liquidity risks, including risks associated with refinancing borrowings as they mature, the risk that borrowing facilities are not available to meet cash requirements, and the risk that financial assets cannot readily be converted to cash without loss of value. Failure to manage financing risks could have a material impact on Galp Energia's cash flow, balance sheet and financial position.
Galp Energia's total interest rate position, including financial investments and debt, is monitored by its central management responsible for all business segments. Interest rate exposure is mainly related to interest bearing debt in the balance sheet and interest rate derivatives. The objective of interest rate risk management is to reduce the volatility of interest expense in the income statement. Galp Energia's interest rate risk management policy aims to reduce exposure to variable rates by fixing part of the debt (including the portion of long-term debt classified as short term), using simple derivative instruments like swaps.
Galp Energia manages liquidity risk by maintaining adequate committed borrowing facilities.
Galp Energia's credit risk arises from the potential failure of a counterparty meeting its contractual payment obligations and, thus, the amount of risk depends on the creditworthiness of the counterparty. In addition, counterparty risk arises in conjunction with cash investments and hedging
Interest rate and instruments. The amount of risk is quantified at the expected loss to the Company in the event of a default by the counterparty. Credit risk limits are set at the corporate level and delegated to the various business segments. Limits for credit risk positions are defined and documented and credit limits for specific counterparties are based on the credit rating of the counterparty, duration of the exposure and monetary amount of the credit risk exposure.
Galp Energia maintains several defined benefit pension plans for part its active workforce, complying with the applicable rules under Portuguese law. Under the pension plans, benefit payments are calculated as a complement of social security pension, based on years of service and final salary. The most critical risks relating to pensions accounting often relate to the returns on pension plan assets and the discount rate used to assess the present value of future payments. Pension liabilities can place significant pressure on cash flows. In particular, if pension funds are underfunded, Galp Energia may be required to make additional contributions to the funds, which could adversely affect its business, financial condition and results of operations. See the notes to Galp Energia's consolidated financial statements presented in the appendix for further disclosure on postretirement benefits.
Galp Energia maintains insurance in line with industry best practice in such amounts and with such coverage and deductibles as management believes is appropriate for the risks inherent to its business. The risks
insured include, among other things, damage to property and equipment, industry liability, maritime transport liability of crude oil and other goods, pollution and contamination, directors' and offi cers' civil liability and work accidents. Nevertheless, some of the major risks involved in Galp Energia's
activities cannot, or may not, be reasonably and economically insured. The programme is subject to certain limits, deductibles, and terms and conditions. In addition, insurance premium costs are subject to changes based on the overall loss experience of the insurance markets accessed.
Galp Energia is exposed to various types of market risks inherent to the oil and gas industry, including commodity pricing, refi ning margin, inventory, foreign exchange, interest rate, and counterparty risk. The Company has defi ned policies and procedures to measure, manage and monitor its risk exposures. The purpose of the Company's risk management policy is to support business segments in achieving their goals while monitoring the potential impact of risks on their results. Galp Energia's risk management policy aims to optimise the natural hedges embedded within each of its business segments and between different business segments. At a second stage, Galp Energia identifi es residual market risks, if any, affecting expected cash fl ows and balance sheet items and analyses them on an integrated basis by considering correlations between any external variables beyond the control of the Company that may impact the results of the Company's operations.
Galp Energia corporate risk management policy is established by the board of directors. This policy establishes objectives and procedures and allocates responsibilities for risk management within the Company. The risk management committee includes two members from the executive committee and several other representatives from the corporate fi nance department, refi ning & marketing business segment and from Natural Gas Supply area. The risk management committee establishes the mechanics for implementing and achieving the corporate risk management policy and submits it to the executive committee for approval. The results are evaluated monthly by
the corporate unit that is responsible for all the business segments. The risk management committee may amend the corporate risk management policy within the guidelines set by the board of directors or propose a new strategy at any time, if appropriate. The implementation of the commodities risk management is executed at the business segment level. Interest rate exposure, currency risks and other fi nancial risks are managed by the Company's central corporate fi nance and corporate treasury departments. Furthermore, Galp Energia has separate policies relating to treasury, insurance, health, safety and environmental and IT risk management.
Galp Energia corporate risk management policy is established by the board of directors and its main purpose is to identify the risk the Company is facing in order to fi nd effi cient solutions to manage and mitigate those risks
Galp Energia's insurance program covers, among others, assets liabilities and third-party liabilities
During 2008 Galp Energia was awarded various prizes related to the quality of the information we provide to financial markets. We are aware of the role played by quality in the information we disclose, particularly to small investors.
Transparency is something you can see through
CORPORATE GOVERNANCE 05
At Galp Energia, corporate governance is synonymous with a responsible and transparent relationship between shareholders, governing bodies and stakeholders in general
In 2008, Galp Energia's shareholder structure changed towards a larger representation of international institutional investors, namely from Britain. This development came about after UK investors acquired a substantial share of the equity stake representing approximately 4% of Galp Energia's share capital that the Spanish energy company Iberdrola sold in January. The dispersion of Banco BPI's major holding of 5% as well as other sales by Portuguese institutional investors in 2008 also contributed to reducing the weight of domestic institutions, thereby enhancing the geographic diversity of the Company's investor base.
Amorim Energia, Caixa Geral de Depósitos and Eni are parties to a shareholder agreement, whose provisions are summarily described in this chapter.
Amorim Energia has its head offi ce in the Netherlands and its shareholders are Power, Oil & Gas Investments BV (30%), Amorim Investimentos Energéticos SGPS SA (20%), Oil Investments BV (5%) and Esperaza Holding BV (45%). Whereas the last
company is controlled by Angola's state-owned oil company, the three others are controlled directly and indirectly by Portuguese investor Américo Amorim.
Eni is an international energy company with head offi ce in Italy and its shares listed in Milan and New York stock exchange. Eni operates in over 70 countries in Exploration & Production, Refi ning & Marketing, Gas & Power, Petrochemicals, Engineering Services,
Shareholder structure at 31 December 2008
Construction and Drilling. Eni had a market capitalisation of €67 billion at 31 December 2008.
Caixa Geral de Depósitos (CGD) is Portugal's largest credit institution and is wholly-owned by the Portuguese state.
Parpública manages the Portuguese state's equity holdings in several major companies.
Galp Energia's freely traded shares accounted for approximately 25% of the total at the end of 2008. Institutional investors had 80% of the free fl oat or 20% of the total outstanding – against 11% in 2007. Private investors owned 5% of the total, down one percentage point from 2007. The weight of institutional investor increase nine percentual points in 2008 due to the sale of Iberdrola, placed among this category of investors and also the sale of BPI share at the beginning of the year.
Among institutional investors, the United Kingdom raised its share to 43% and became the largest country in this investor category, while the United States (10%), Germany (9%), and Portugal (9%) also had a signifi cant presence in the Company's share capital at the end of the year.
Efforts in 2008 towards diversifi cation of the shareholder base resulted in the addition of fi ve new countries to the share register, which had at year end investors from 26 countries. Galp Energia's international visibility became apparent by the dispersion of more than 85% of the institutional base outside the Iberian Peninsula. In particular, the share of non-Portuguese institutional investors climbed in the year from 69% to 91%.
Among institutional investors, the United Kingdom has the largest share of this investor category, with 43%.
Institutional investors outside Portugal
91%
In 2008 the shareholding base outside Portugal reached 91% of total institutional investors
ANNUAL REPORT AND ACCOUNTS 2008 GALP ENERGIA
Galp Energia's governance model aims for transparency and effectiveness by clearly separating powers between the board of directors, who formulate strategy and monitor its execution, and the executive committee, whose operating role is delegated by the board of directors and comprises the day-to-day management of business units and corporate services while playing an important role in the formulation and review of the Company's strategy.
Galp Energia's governing bodies were elected for the 2008-2010 three-year period by the general meeting of May 6 2008
At the end of 2008, Galp Energia's board of directors was composed of 17 directors, six executive and 11 non-executive. Two of the non-executive directors, including the chairman, were independent.
It is part of the chairman's remit to conduct the meetings of the board of directors as well as oversee the relationship between the Company and its shareholders.
According to the shareholder agreement, seven directors are appointed by Amorim Energia, seven by Eni and one, the chairman of the board of directors, by Caixa Geral de Depósitos. The chief executive officer is jointly appointed
by Amorim Energia and Eni and the 17th director is appointed by consensus among the three shareholders. The directors' abridged CVs can be found in the Company's separately published corporate governance report.
The board of directors' remit includes the formulation of the Company's strategy, the set-up of its organisational structure, the development of its business portfolio and the approval and monitoring of high-risk, high- -cost capital budgeting decisions.
Note: (1) Refining, Supply and Logistics.
Board resolutions are generally agreed by simple majority except for certain matters set out in the shareholder agreement and dealt with in detail in the corporate governance report, which require a two-thirds majority.
In 2008, the non-executive directors played an active role in developing Galp Energia's strategy and monitored the executive committee's performance in achieving set goals. They also sought to ensure that robust risk management and control systems were in place. The work developed by the non-directors was appreciated by the executive committee, who considered it to be encouraging and conducive to ever higher performance levels.
The board of directors convened 10 times in 2008.
In 2008, non-executive directors received from the Company total compensation of €1.3 million
| Name | Position |
|---|---|
| Francisco Luís Murteira Nabo | President non-executive director |
| Manuel Ferreira De Oliveira | Vice-president, chief executive offi cer |
| Manuel Domingos Vicente | Non-executive director |
| Fernando Manuel dos Santos Gomes | Executive director |
| José António Marques Gonçalves | Non-executive director |
| André Freire de Almeida Palmeiro Ribeiro | Executive director |
| Carlos Nuno Gomes da Silva | Executive director |
| Rui Paulo da Costa Cunha e Silva Gonçalves | Non-executive director |
| João Pedro Leitão Pinheiro de Figueiredo Brito | Non-executive director |
| Alberto Chiarini | Non-executive director |
| Claudio De Marco | Executive director (CFO) |
| Paolo Grossi | Non-executive director |
| Camillo Gloria | Non-executive director |
| Fabrizio Dassogno | Executive director |
| Giuseppe Ricci | Non-executive director |
| Luigi Piro | Non-executive director |
| Joaquim José Borges Gouveia | Non-executive director |
The executive committee is composed of six directors appointed by the board of directors for three years. The appointment of executive committee members is subject to the shareholder agreement's provisions.
The executive committee is charged with Galp Energia's day-to-day management in accordance with the strategy formulated by the board of directors. To perform its role, which is detailed in the corporate
governance report, the executive committee manages the business units, allocates resources, promotes synergies and monitors execution of the policies developed for different areas.
The powers delegated by the board of directors to the executive committee require the latter to meet regularly. In 2008, the executive committee met 49 times.
In 2008, executive committee members received total compensation of €4.1
million, of which €2.9 million fi xed and €1.2 million variable.
Both the board's and the committee's proceedings obey regulations that have been created to formalise the workings of these governing bodies.
Supervision is exercised by a supervisory board and a fi rm of statutory auditors (SROC in the Portuguese terminology).
Claudio De Marco Executive director (CFO)
Board member of Galp Energia since May 2008; Financial experience through positions as CFO at Italgas S.p.A. and Snam Rete Gas S.p.A..
Fernando Manuel dos Santos Gomes Responsible for the Exploration & Production, International Oil and Biofuels business segments
Board member of Galp Energia since May 2005; Former home secretary.
Manuel Ferreira De Oliveira Chief executive offi cer (CEO)
CEO since January 2007 and board member of Galp Energia since April 2006;
Over 20 years' international experience, particularly in the oil industry.
The supervisory board is composed of three standing members and a deputy, all independent and elected by the general meeting in accordance with the rules set out in the shareholder agreement.
The supervisory board is charged with supervising the preparation and disclosure of Galp Energia's fi nancial information, appointing – and, if needed, dismissing – the independent external auditor, overseeing the audit of fi nancial
statements and proposing to the general meeting the appointment of a fi rm of statutory auditors, whose independence, namely when providing additional services, it is bound to scrutinise.
In 2008, the audit board met 13 times and the conclusions of its supervisory action were timely reported to the board of directors and the general meeting. A summary of these conclusions can be found in the supervisory board's opinion which is appended to this report.
In 2008, the members of the audit board received total compensation of €92.4 thousand.
Galp Energia's remuneration policy refl ects the goal of creating long-term shareholder value.
Compensation of governing body members is set by a remuneration committee composed of three shareholders – Caixa Geral de Depósitos, the chairperson, Amorim Energia and Eni – elected by the general meeting for three years. The members of the remuneration committee may not be directors or members of the supervisory board.
Executive directors receive a fi xed monthly remuneration and an annual variable remuneration depending on their individual and collective performance. Their remuneration is reviewed annually to make sure offered terms are competitive with those offered on the market for equivalent positions in terms of complexity and responsibility. Total compensation is predominantly monetary but includes also a complementary retirement plan consisting of a retirement savings plan (PPR in the Portuguese terminology) which, according to what has been determined by the remuneration committee, equates to 25% of annual compensation. Executive directors are also entitled to a rent/travel subsidy if their permanent address is not in the same area of Galp Energia's head quarters.
According to the Company's articles of association, the directors' remuneration may include a maximum of 0.5% of net profi t for the fi nancial year.
The executive directors' performance is appraised annually according to a number of parameters selected by the remuneration committee. These parameters are primarily related to three different variables: (i) value generated by the Company, or Galp Value Added, (ii) budgeted EBITDA and (iii) performance of the Galp Energia stock in comparison with a peer group. The variable compensation will be awarded according to the degree of attainment of the goals set for each variable.
Responsible for the Refi ning, Supply and Logistics business segment
Board member of Galp Energia since May 2005; International investment baking experience.
Responsible for the Gas & Power business segment
Board member of Galp Energia since May 2008; Professional experience in Eni's Gas & Power division.
Carlos Gomes da Silva
Responsible for the Oil Marketing business segment
Board member of Galp Energia since April 2007; Several management positions since 2002.
In 2008, Galp Energia's general meeting welcomed 81 shareholders representing 78.3% of the Company's share capital. This was a substantial increase in relation to the 50 shareholders who attended the general meeting in 2007. This increase reflected Galp Energia's efforts to promote the exercise of voting rights. Once again, small shareholders had the opportunity to engage the Company's management, explain their doubts and share their views
Galp Energia communication policy with capital market aims at securing a consistent and simple message, resulting in a coherent and complete perception of Galp Energia by institutional investors, analysts and regulators.
Galp Energia's share capital is composed of 829,250,635 shares. At 31 December 2008, Galp Energia had no treasury shares.
Amorim Energia, Caixa Geral de Depósitos and Eni are parties to a shareholder agreement – dealt with in more detail in the corporate governance report – which regulates a number of aspects covering the terms on which shares in Galp Energia may be sold, namely the parties' obligation to keep their holdings during a lockup period up to 31 December 2010, barring special cases such as change of control, stalemate situations or breach of contract.
During the lock-up period, if Amorim Energia is the selling party, Caixa Geral de Depósitos shall be given priority over other parties to acquire Amorim Energia's holding or otherwise appoint a third-party buyer, subject to certain conditions.
From 1 January 2011 onwards, i.e. after the lock-up period has expired, any party may sell its holding in full. In this case, the other parties shall have pre-emptive acquisition rights or,
Galp Energia followed in 2008 the dividend policy approved in 2007. This policy calls for a payout ratio of 50% of net profit calculated according to the replacement cost method and payment of the annual dividend on a biannual basis, i.e. in two instalments. Therefore, the interim dividend equates to 50% of the annual dividend in respect of the previous year, provided it complies with articles 32, 33 and 297 of the Companies Code.
At the general meeting to be held on 27 April 2009, the board of directors will propose a dividend for 2008 of €0.32 per share, representing a dividend yield of 4.5% on the basis of the Company's share price at 31 December 2008.
Note: Replacement cost earnings per share except for 2006 when net profit adjusted for the effect of the sale of regulated natural gas assets to REN was considered.
alternatively, tag-along rights giving them the same terms as those offered in a sale to a third party. If Amorim Energia is the seller, Caixa Geral de Depósitos shall have the preferential right to acquire all or part of the shares owned by Amorim Energia or otherwise appoint a third party for that purpose.
In all other selling situations, or in case Caixa Geral de Depósitos does not exercise its preference right if Amorim Energia is the seller, the shares offered by the selling party shall be equally allotted to the parties exercising their preference right, irrespective of the size of their holding in Galp Energia. Except for the case in which Eni is the seller, the exercise by Caixa Geral de Depósitos of its preference rights may not result in the Portuguese state or any government entity owning more than 33.34% of Galp Energia.
In case of change of control of any of the parties, the other parties shall have the right to acquire that party's holding in equal parts, barring Caixa Geral de Depósitos' preference rights.
Other provisions of the shareholder agreement deal with the appointment and dismissal of directors and members of the audit board as well as the need for a super majority, larger than two-thirds, for certain resolutions such as those relating to the approval of business plans and budgets, strategic investments and attendant funding, the appointment of senior managers and the issuance of securities, namely debt securities.
The shareholder agreement also provides for the parties to propose to the general meeting the payout of at least 50% of net profi t, provided the Net debt/EBITDA ratio does not exceed 3.5.
Galp Energia's policy for communicating with investors aims to provide to its shareholders and the market at large relevant, accurate and timely information allowing the formulation of well-founded judgements about the course of the Company's business affairs.
| ISIN | |
|---|---|
| Symbol: GALP (type B) Portuguese state shares |
PTGAL0AM0009 |
| (type A) Portuguese state shares |
PTGALSAM0003 |
| (type B) | PTGALXAM0006 |
| SEDOL | B1FW751 |
| WKN | AOLB24 |
More than 65 meeting were held with US institutional investors in 2008
Information is released in both Portuguese and English, most of the cases before the opening or after the closing of the market (Euronext Lisbon), with publication on the Portuguese Securities Market Regulator's (CMVM in the Portuguese terminology) disclosure system and the investors section of the Company's website as well as by email to registered investors. Since 2008, Galp Energia has used an external platform for the release of price-sensitive information to major information centres across Europe. This platform allows EU-based investors quick access to information, with no costs incurred,
on a non-discriminatory basis.
| Event | Date |
|---|---|
| New discovery in the Santos basin's pre-salt layer: block BM-S 24 (Júpiter) |
21 January |
| Sale of Iberdrola's major holding | 30 January |
| Earnings release for the fourth quarter of 2007 |
5 March |
| The board of directors approves the annual report and accounts of 2007 |
1 April |
| Annual general meeting of shareholders |
6 May |
| Earnings release for the fi rst quarter of 2008 |
20 May |
| New discovery in the Santos basin's pre-salt layer: block BM-S-8 (Bem-te-vi) |
21 May |
| Ex-dividend date for payment of the second dividend for fi nancial 2007 |
26 May |
| Earnings release for the fi rst half of 2008 |
6 August |
| Relevant discovery in the Santos basin's pre-salt layer: block BM-S-11 (Iara) |
10 September |
| Close of the Agip acquisition | 1 October |
| Ex-dividend date for payment of the fi rst dividend for fi nancial 2008 |
17 October |
| Earnings release for the third quarter of 2008 |
12 November |
| Close of the ExxonMobil acquisition | 1 December |
2008 was a year impacted by the high instability of the capital markets
Despite the loss in 2008, the share traded always above the IPO price. At the end of the year, the gain compared with the IPO price in October 2006 was 23.58%. The performance of the share in this period in comparison with a peer group is illustrated by the following diagram:
Based on euro quotations Source: Bloomberg
Galp Energia promotes actively the exercise of voting rights either directly or by proxy. The participation of shareholders in the AGM is encouraged by the possibility to vote by mail and the disclosure over email and the internet of the items to be discussed.
In the corporate governance report more detailed information can be found about the various possibilities for shareholders to participate in the Company's proceedings.
Except for the holdings covered by the shareholder agreement between Amorim Energia, Caixa Geral de Depósitos and Eni, shares in Galp Energia can be traded freely.
Out of the 829,250,635 shares in Galp Energia's share capital, 771,171,121 are listed for trading on Euronext Lisbon. The shares that are indirectly held by the Portuguese state through Parpública (40,000,000 A shares and 18,079,514 B shares) are not listed for trading but only registered at Eurolist by Euronext Lisbon.
The Galp Energia share is part of the following indices: PSI-20, Dow Jones STOXX 600, Dow Jones Europe STOXX Oil & Gas (SXEP), Euronext 100, FTSE World Oil & Gas e MSCI Euro
| Entity | Analyst | Price target | Date | Recomendation |
|---|---|---|---|---|
| Goldman Sachs | Henry Morris | € 9.20 | 12 December | Neutral |
| JP Morgan | Kim Fustier | € 12.00 | 3 December | Overweight |
| Collins Stewart | Gordon Gray | € 10.00 | 1 December | Hold |
| Fidentiis Equities | Alberto Sánchez | € 10.25 | 28 November | Hold |
| Banif | Julieta Vital | € 13.50 | 27 November | Buy |
| Merrill Lynch | Alastair Syme | € 12.00 | 26 November | Buy |
| Caixa BI | Carlos Jesus | € 14.40 | 24 November | Buy |
| ING | Jason Kenney | € 13.60 | 14 November | Buy |
| Espírito Santo Research | Pedro Morais | € 12.60 | 5 November | Buy |
| Credit Suisse | Will Forbes | € 12.00 | 3 November | Outperform |
| BPI | Bruno Almeida da Silva | € 9.60 | 30 October | Buy |
| UBS | Anish Kapadia | € 16.00 | 30 October | Buy |
| Macquaire | Iain Reid | € 13.00 | 23 October | Outperform |
| Lisbon Brokers | Sara Amaral | € 15.00 | 17 October | Strong Buy |
| Cazenove | Nitin Sharma | € 16.20 | 30 September | Outperform |
| Equita SIM | Gianmarco Bonacina | € 13.00 | 16 September | Neutral |
| Banesto | José Brito Correia | € 17.60 | 1 April | Sobreponderar |
| Santander | Pedro Balcão Reis | € 21.50 | 10 March | Buy |
| Morgan Stanley | Theepan Jothilingam | € 21.00 | 22 January | Overweight |
Index. Inclusion in this last index on 26 November 2008 coincided with the year's busiest trading day in the Company's share.
In the beginning of 2008, shares identifi ed as ISIN PTGAL0AM0015 were aggregated into the single trading code ISIN PTGAL0AM0009. The GALPK symbol was thus withdrawn from the market and the only shares being traded are those coded ISIN PTGAL0AM0009.
Reuters' ticker is GALP.LS and Bloomberg's is GALP PL.
At 31 December 2008, Galp Energia had a market capitalisation of €5,954 million, down from €15.2 billion a year earlier following sizeable losses in international equity markets in the second half of 2008. The share lost 60.96% in the year and followed the trend of the European index for the oil and gas sector and the Portuguese benchmark index PSI-20.
In 2008, 644 million shares were traded, which represented 78% of the Company's share capital or, more importantly, three times its free fl oat. These levels evidenced the high liquidity of the share on Euronext Lisbon and rising investor interest. The average daily traded volume rose to 2.5 million shares, up from 1.4 million in 2007. In comparison with 2007, the total number of traded shares increased by 83%. In 2008,
approximately 739 thousand trades were made, i.e. a daily average of 2,890 trades.
Note: Price targets and recommendations at 31 December 2008.
In 2008, the share peaked at €18.95 on 2 January and reached its lowest price – €5.95 – on 27 October.
The number of analysts covering the Galp Energia stock almost doubled in 2008. By the end of the year, 19 analysts covered the share against 11 at the end of 2007. This increase is further evidence of the rising visibility of the share in the market.
At 31 December 2008, the average price target for the 19 analysts was €13.81 and 84% of the analysts gave Buy recommendations while the other 16% recommended investors to keep the share.
| Trading Update 4th quarter 2008 13 February Report 4th quarter 4 March and full year 2008 Annual report 2008 (Audited) 25 March Proposal for appropriation of profi ts for 2008 General meeting 27 April Trading update 1st quarter 2009 29 April Report 1st quarter 2009 13 May Trading update 2nd quarter 2009 22 July Report 2nd quarter 2009 5 August Trading update 3rd quarter 2009 28 October Report 3rd quarter 2009 11 November |
Event | Date |
|---|---|---|
grey: already happened; oranje: to happen
Note: All dates are subject to change. Publication of trading updates and quarterly reports will take place after the close of Euronext Lisbon
On the day following the earnings announcement, a conference call will be held with investors and analysts. ANNUAL REPORT AND ACCOUNTS 2008 GALP ENERGIA
The results achieved in 2008 would have been possible without the support, professionalism and expertise of everyone that work at Galp Energia. We attract the best talents and offer unrivalled professional development opportunities.
Galp Energia's corporate responsability activities include all its staff
100
The project labelled GPS – Gestão de Pessoas para o Sucesso (Managing People for Success), which is oriented towards the development of people and growth of the business, was also in 2008 the key pillar of Galp Energia's human resources policy. To spread knowledge about the project, there were presentation and information sessions for around 500 senior managers and a human resources policy manual was distributed to every employee.
Lowering the average age of the staff is one of the main objectives and the annual trainee programme is part of it. In this programme for the best university students, around 30 recently graduated students participate in a professional internship. In 2008 a second programme started which was oriented to the several
development stages of the project for conversion of the refinery complex. This programme was specifically directed at recent engineering graduates, who may become over time the technical managers of the refining business.
In addition to the start of the construction of new units in the refinery
3,899
Off-site staff
Average age and seniority (years)
complex, a human resources plan was developed for hiring, integrating and giving specific training of the new workers. This plan implies the adoption of a new organisational model common to both refineries, which aims to increase and ensure process synergies and thus upgrade the human resources structure of the refining business.
In 2008 the cooperation with Portuguese universities was also intensified. New graduate training partnerships were established, primarily for chemical engineering. For graduates with this degree, a new learning regime with theoretical training in the university and a practical component in the Sines refinery came into effect.
With the new recruitments, Galp Energia started using an e-learning platform to support a welcome course, which gives a broad view of the Company, its values and organisation.
On 31 December 2008, Galp Energia employed 2,019 more staff than at the beginning of the year, which was primarily due to the acquisition of Agip's and ExxonMobil's Iberian subsidiaries.
The change in the Others category was primarily due to the office for e-studies and projects having become an autonomous unit from previously being part of the Refinery & Marketing business segment. This remit of this office will now cut across group companies.
In 2008, 3,176 new employees were hired. This large number was due to ongoing projects and the high employee turnover at service stations.
The number of trainees including those of the programme 2008/2009 was 110 at 31 December 2008.
The average age and seniority of staff at Galp Energia was virtually unchanged between 2007 and 2008.
In the wake of the recent acquisitions in marketing of oil products and the scope of Exploration & Production activities, 39% of Galp Energia's staff is based outside Portugal. This growth in international activities contributed decisively to the increase of around 35% of the number of employees, from 5,798 to 7,817 in 2008.
The growing international business required the consolidation of international recruitment procedures, namely for the Exploration & Production business segment. In this specific activity, the demand for experienced professionals increased and procedures for handling expatriate issues in countries such as Gambia, Swaziland, Brazil, England, Mozambique and Spain were strengthened. The international expansion also made necessary the overhaul of processes for integrating the new subsidiaries by adjusting the Company's policies to local legal, labour and cultural specificities.
Encouraging mobility, either functional or geographical, in order to strengthen managerial skills is one of the goals for human resources management. To this end, 222 employees changed department or role in 2008.
In terms of gender distribution, 41% of Galp Energia's staff were women at the end of the year.
Galp Energia focuses on the upgrade, development and update of employee skills. In 2008 there were 113,110 training hours. The training was oriented to the strengthening of the technical and behaviour competencies required for improved performance in several areas. There were 29 theme sessions, that is, weekly conferences on different subjects of general interest that involved 2,437 staff.
On 31 December 2008, Galp Energia employed 2,019 more staff than at the beginning of the year, which was primarily due to the acquisition of Agip's and ExxonMobil's Iberian subsidiaries
Excluding in itinere
Accidents at work - Galp Energia and service providers in 2008
Note: The frequency index represents the number of accidents per one million worked hours excluding Spain and in itinere.
Refi nery workers promote the facilities security
Galp Energia considers health, safety and environmental issues to be essential for the well-being of employees, clients and the community at large. Being committed to a sustainable development, Galp Energia is aware of its duty to manage the effects of its activities, products and services on the communities where it operates.
In 2008 Galp Energia was especially committed to the following issues:
Galp Energia's goal is to achieve zero accidents affecting people, property and the environment.
At Galp Energia, risk prevention is everyone's responsibility. Therefore, the year 2008 marked a signifi cant advance of the Company's safety culture with the defi nition and approval of a new set of procedures.
Regarding work accidents, the falling trend in the number of accidents with absence extended into 2008.
However, there was a fatality in 2008. During the stop for maintenance in the Sines refi nery, an employee of a service provider was the victim of a fatal accident. An investigation was immediately launched in order to identify the accident's causes. This investigation identifi ed a set of corrective measures that are now under implementation.
In 2008, Galp Energia included for the fi rst time service providers' work accidents in its routines for monitoring performance.
After enforcement of the REACH - Registration, Evaluation, Authorisation and Restriction of Chemical Products regulation (1907/2006), Galp Energia completed in 2008 the pre-registration of the substances produced and imported. Overall, 155 pre-registration fi les were submitted. In 2008 several training and internal promotion sessions
about the future consequences of REACH were made. Most technicians from the directly affected business areas participated in these sessions, which involved 140 people.
After government decree DL 254/2007 about serious accidents involving dangerous substances, audits were conducted in 2008 at the twelve establishments exposed to this kind of accident. In these audits no major non-conformities were identifi ed. The 23 minor non- -conformities that were accepted motivated corrective actions that are part of an action plan which is currently under execution.
In 2008, evaluation of the environmental impact of the refi nery conversion projects was completed. The evaluation concluded that these projects do not entail signifi cant added risk in comparison with the present situation.
In 2008, the second period began (2008-2012) of the European Union Emissions Trading Scheme (EU ETS), which has repercussions on the second national plan for the allocation of emission licences. In the fi rst year of the second period, Galp Energia's refi neries and cogenerations posted a surplus of emission licences compared with actual emissions despite the overall reduction in allocated emission licences.
The projects in Galp Energia's portfolio comply with several principles. One of these is the use of best available techniques (BAT) as a way of limiting potentially negative effects. This strategy has important consequences not only in CO2 terms but also in terms of energy effi ciency as regards the use of cleaner fuels such as natural gas, which will be used in the refi neries' cogenerations.
Energy integration actions following from conversion of the refi neries are expected to cut CO2 emissions by over 40,000 tonnes a year.
As the converted refi neries come into operation, energy use will increase, which will lead to higher emissions as the production process moves into higher gear on the back of increased processing capacity. Although the retooling will lead to higher CO2
emissions, the carbon content of fuel will fall. This will in turn lead to lower CO2 emissions downstream from Galp Energia's operations chain, in the transport sector.
The number of accidents had a reduction of 7% from 2007
In 2008, existing certifi cations were retained and a new one was obtained: NP EN ISSO 9001 by Galpgest, the Company operating the service stations under Galp Energia's direct management.
Evaluating the performance of its management systems for environment, quality and safety is one of the requirements of Galp Energia's standards. The schedule of environmental, quality and safety audits was approved at the Company's highest level in 2008 whereby 49 audits were conducted involving 76 internal auditors with 110 participations in all.
| NP EN ISO 9001 | NP EN ISO 9001/ OSHAS 18001 |
NP EN ISO 9001/ OSHAS 18001/ NP EN ISO 14001 |
NP EN ISO/ IEC 17025 |
|---|---|---|---|
| Lubricants business, aviations fuels, base oils, Galp chemicals, Galp gas, Sines refi nery inspections, Bitumen business, Probigalp, Galpgeste |
SAAGA | Setgás, CLC, Beiragás, Lisgoagás, Lusitaniagás, Tagusgás, Tank farms at Aveiro and Porto Brandão |
Porto refi nery laboratory, Sines refi nery laboratory, Lubricants laboratory |
Is part of Galp energia culture a close envolvement with the comunities where it develops its activities. The awarness of the impacts of Galp Energia activities in society has led the company to lead several social, enviromental, educational, cultural and sports projects, in Portugal and abroad
Living up to its social responsibility, Galp Energia develops a variety of social projects alongside its business activity.
In 2008, Galp Energia kept its partnership with the Portuguese Ministry of Health for a programme against obesity aimed at curbing the incidence of pre-obesity and obesity in Portugal.
In Portugal, 51% of adults and 32% of children aged 7-9 years are overweight. In addition to various undesirable consequences of being overweight, obesity has social costs, namely those explicitly related to public health expenditure, where obesity has a weight of 3.5%.
The best way to reverse this trend is prevention: healthier lifestyles carrying a more balanced diet and more physical activity tend to curb obesity.
In order to promote patterns of healthy behaviour, Galp Energia implemented in 2008 a multidisciplinary communication plan named Movimento Energia Positiva (movement for positive energy). The goal of this plan is to spread knowledge among the population and encourage positive attitudes towards health and personal well-being.
Movimento Energia Positiva reached out to 115,000 people. Two and a half tonnes of fruit and 100,000 leaflets with advice on nutrition and physical activity were handed out and 25,000 books were donated to children. Movimento Energia Positiva and the platform against obesity generated close to 700 articles in newspapers, radio and television, which helped spread prevention messages.
In a survey conducted in schools covered by Movimento Energia
Positiva, 46% confirmed that changes occurred after the initiative in the knowledge, attitudes and eating habits of both teachers and students; 46% urged continuity of these actions in schools and 67% rated the initiative "a success".
Galp Energia's and its employees' solidarity went once more to the population of Guinea-Bissau. In April, books, school supplies, toys and computers were handed out to Guinea-Bissau's Aldeias SOS (Children's Villages).
Aldeias SOS are part of an international organisation that operates in several countries and develops various solidarity projects directed at needy children.
In 2008, Galp Energia promoted campaigns to collect schoolbooks in Portuguese and school material for Timor Lorosae and the Isle of Príncipe in São Tomé e Príncipe. The donation of Portuguese-language books contributed to the teaching of Portuguese in countries with which Portugal keeps cultural and friendship ties.
Galp Energia joined Fórum ECO in 2007 and became one of the fi rst companies to contribute to the protection of the Portuguese forest against fi res, a curse that ravages the country every year and brings about serious social, environmental and economic consequences.
Galp Energia made available throughout 2008 a vast array of means to fi ght forest fi res: stalls for the distribution of leafl ets, air time on Galp TV to promote the initiative and space on Galp Energia's web portal and on the windows and doors of M24 shops for spreading information about the campaign.
In its involvement with the local
communities, Galp Energia promoted in 2008 the refurbishment of a leisure colony at Vimeiro, in the Lisbon region. Organised in teams, 200 employees from the Gas & Power business unit volunteered to change and improve several pieces of equipment and structure such as windows, gates, walls, rooms, toilettes and the garden.
The refurbishment also included the building of a sport zone, a fun park, a leisure space and a small library, which was fi lled with children's books handed out to the institution by the employees participating in the event.
Galp Energia also promoted the renewal of the coastline road close to the Porto refi nery. Galp Energia contributed with ¤7 million to fund the improvements and repair the stretch between the beaches of Leça and Cabo do Mundo.
In order to promote patterns of healthy behaviour, Galp Energia implemented in 2008 a multidisciplinary communication plan named Movimento Energia Positiva. The goal of this plan is to spread knowledge among the population and encourage positive attitudes towards health and personal well-being
Coastline road close to the Porto refi nery built with the support of Galp Energia
Galp Energia believes in the positive relationship between the talent of its human resources and the creation of innovative processes.
The vortex separation system project allowed for an increase at the Sines refi nery's FCC capacity from 35 kbopd to 45 kbopd
Among the projects that evidenced an innovative spirit in 2008 and translated into real benefi ts for the effi ciency of Galp Energia's technical and business processes, the following are highlighted below.
Through a joint effort with UOP, Galp Energia made an engineering study for the development of several improvements in FCC unit of Sines refi nery. The goal of this study is to increase the processing capacity of this unit, from 35 kbopd to 45 kbopd, with an increase of the residue percentage incorporated in the workload. After this study, the major changes in FCC unit will be in the reactor and the catalyst. The reactor became Vortex Separation System (VSS), which replaced Vented Riser (VR). Every internal element of this equipment was changed. In the catalyst the cyclone system and the combustion air distributor were redesigned with the purpose of installing a cat cooler in the future.
Galp Energia is committed to projects which contribute to energetic and environmental sustainability by investing in the development of
renewable energy solutions with business potential and to mitigate environmental changes. Biomass and biofuel production based on microalgae fulfi ls the growing need of diversifying energy sources. In a joint effort with INETI, Portugal's research and development body, and Algafuel, two experienced entities in research and development, Galp Energia signed a partnership in 2008 to develop and implement a biomass and biofuel production project by cultivating microalgae and capturing its CO2 . To explore the synergy potential inherent to the project, the production unit will be installed in Sines refi nery.
In 2008 started the energetic effi ciency applied to Galp Energia's network. Photovoltaic panels were installed in 12 service stations with the goal of producing electricity from renewable sources. The installation of photovoltaic solar panels guaranteed the production of electric energy and the reduction of energy use. All together, the 12 service stations should produce 66 MWh of energy. The goal is to make these 12 service areas energetically effi cient in terms of lighting, cold equipment, air conditioning and water heating generated from renewable sources. These improvements will effectively reduce energy use without affecting the stations' comfort and functionality. The project, which will encompass the entire network of fi lling stations directly managed by Galp Energia, will be followed by an energy management system that will monitor use and production as they occur. Until now the quantitative results were 6% in the reduction of electricity use and 180 tonnes of CO2 were avoided per year.
The Wind@Sea project's main objective is to evaluate the wind energy potential of the Portuguese west coast with a view to identify, select and characte-
rise positions to install offshore wind parks. This action was developed by the consortium composed of Galp Energia, the main promoter, INETI, Instituto Hidrográfi co (Portugal's oceanographic laboratory) and Instituto Nacional de Engenharia e Gestão Industrial (Portugal's research and development body in mechanical engineering and industrial management).
To this end, systematic meteorological measurements will be made that are relevant to the wind characteristics on the coast and off the coast using innovative measurement techniques installed on moored buoys. A maximum of four measurement points directly or indirectly involved during two years is planned.
Thus, an evaluation of the potential along the coast will be made by combination of sporadic measurements which will be introduced in the simulation models of mesoscale atmospheric drainage, along with satellite data and other global scale models. The particularities of the Portuguese west coast will also be taken into account. Information of wave and ocean current's characteristics will be gathered and processed with a view to be subsequently used in the R&D activities that the co-promoters develop in Portugal.
In 2008 19 research and development projects were kicked off or implemented at Galp Energia
Photovoltaic panels at Telheiras' service station in Lisbon. These panels were installed in 12 service stations
The present composition of the governing bodies of Galp Energia, SGPS, S.A., for 2008-2010 is the following:
Chairman: Francisco Luís Murteira Nabo
Vice-chairman: Manuel Ferreira De Oliveira
Manuel Domingos Vicente Fernando Manuel dos Santos Gomes José António Marques Gonçalves André Freire de Almeida Palmeiro Ribeiro Carlos Nuno Gomes da Silva Rui Paulo da Costa Cunha e Silva Gonçalves João Pedro Leitão Pinheiro de Figueiredo Brito Alberto Chiarini Claudio De Marco Paolo Grossi Camillo Gloria Fabrizio Dassogno Giuseppe Ricci Luigi Piro Joaquim José Borges Gouveia
Chairman: Manuel Ferreira De Oliveira
Claudio De Marco Fernando Manuel dos Santos Gomes André Freire de Almeida Palmeiro Ribeiro Carlos Nuno Gomes da Silva Fabrizio Dassogno
Chairman: Daniel Bessa Fernandes Coelho
Other members: José Gomes Honorato Ferreira José Maria Rego Ribeiro da Cunha
Deputy: Amável Alberto Freixo Calhau
Standing: Pedro João Reis de Matos Silva, ROC n.º 491, in representation of P. Matos Silva, Garcia Jr., P. Caiado & Associados, SROC; SROC n.º 44
Deputy: Carlos Luís Oliveira de Melo Loureiro, ROC n.º 572
Chairman: Daniel Proença de Carvalho
Vice-chairman: Victor Manuel Pereira Dias
Secretary: Pedro António do Vadre Castelino e Alvim (1)
Standing: Rui Maria Diniz Mayer
Deputy: Maria Helena Claro Goldschmidt
Chairman: Caixa Geral de Depósitos represented by António Maldonado Gonelha
Other members: Amorim Energia, B.V. Represented by Américo Amorim Eni S.p.A Represented by Maurizio Cicia
Galp Energia, SGPS, S.A. holds the shares in Galp Energia group companies.
Galp Energia, SGPS, S.A. closed financial 2008 with a net profit of €472,973 thousand. This result is shown in the individual accounts of Galp Energia, SGPS, S.A., presented in accordance with Portuguese General Accepted Accounting Principles (PGAAP).
The board of directors proposes that this result be allocated as follows:
| Total | 472,973 |
|---|---|
| Retained earnings | 188,729 |
| Dividend distribution (€ 0.32 /share) | 265,360 |
| Legal reserve | 18,884 |
Following a resolution by the board of directors of 24 September 2008, the Company paid on 22 October 2008 a gross interim dividend in respect of financial 2008 of €0.14965 per share.
Francisco Luís Murteira Nabo
Manuel Ferreira De Oliveira
Manuel Domingos Vicente Fernando Manuel dos Santos Gomes José António Marques Gonçalves André Freire de Almeida Palmeiro Ribeiro Carlos Nuno Gomes da Silva Rui Paulo da Costa Cunha e Silva Gonçalves João Pedro Leitão Pinheiro de Figueiredo Brito Alberto Chiarini Claudio De Marco Paolo Grossi Camillo Gloria Fabrizio Dassogno Giuseppe Ricci Luigi Piro Joaquim José Borges Gouveia
According to article 448, paragraph 4 of the Companies Code and article 20 of the Securities Code.
| Shareholders | N.º Shares | % Capital | % Vote |
|---|---|---|---|
| Amorim Energia, B.V. | 276,472,161 | 33.34% | 33.34% |
| Caixa Geral de Depósitos, S.A. | 8,292,510 | 1.00% | 1.00% |
| Eni, S.p.A. | 276,472,160 | 33.34% | 33.34% |
| Parpública - Participações Públicas, (SGPS), S.A. | 58,079,514 | 7.00% | 7.00% |
| Other shareholders | 209,934,290 | 25.32% | 25.32% |
| Total | 829,250,635 | 100.00% | - |
In financial 2008 two shareholders no longer own a major holding in Galp Energia's share capital. Iberdrola, S.A. sold its entire holding in Galp Energia, of 3.83%, at 30 January 2008. Banco BPI, S.A. gave notice to Galp Energia that at 25 June 2008 its holding had become lower than 2%. Fidelity International Limited, which in 2008 had a holding over 2% of Galp Energia's share capital, had at 23 October a holding lower than 2%.
In 2008 Galp Energia did not buy or sell its own shares.
At 31 December 2008, Galp Energia had no treasury shares.
| Acquisition | Disposal | |||||||
|---|---|---|---|---|---|---|---|---|
| Members of the board of directors |
Total number of shares at 31.12.2007 |
Date | Number of shares |
Price (¤/share) |
Date | Number of shares |
Price (¤/share) |
Total number of shares at 31.12.2008 |
| Francisco Luís Murteira Nabo | - | - | - | - | - | - | - | - |
| Manuel Ferreira De Oliveira | 40,475 | 08.01.2008 | 560 | 17,80 | - | - | - | 85,640 |
| 04.02.2008 | 861 | 16,77 | ||||||
| 06.02.2008 | 7,498 | 16,10 | ||||||
| 06.02.2008 | 5,864 | 16,00 | ||||||
| 07.02.2008 | 28,382 | 16,59 | ||||||
| 27.10.2008 | 2,000 | 6,00 | ||||||
| Manuel Domingos Vicente | - | - | - | - | - | - | - | |
| Fernando Manuel dos Santos Gomes | 1,900 | 06.10.2008 | 2,000 | 9,64 | - | - | - | 3,900 |
| José António Marques Gonçalves | 3,900 | 17.03.2008 | 2,500 | 14,50 | - | - | - | 42,700 |
| 11.07.2008 | 500 | 13,00 | ||||||
| 10.09.2008 | 800 | 11,50 | ||||||
| 03.10.2008 | 17,500 | 10,85 | ||||||
| 16.10.2008 | 7,500 | 7,50 | ||||||
| 17.10.2008 | 2,500 | 7,62 | ||||||
| 06.11.2008 | 3,000 | 7,68 | ||||||
| 06.11.2008 | 2,000 | 7,50 | ||||||
| 20.11.2008 | 2,500 | 7,61 | ||||||
| André Freire de Almeida Palmeiro Ribeiro | 950 | - | - | - | - | - | - | 950 |
| Carlos Nuno Gomes da Silva | 2,410 | 07.10.2008 | 8,700 | 8,63 | - | - | - | 11,110 |
| Rui Paulo da Costa Cunha e Silva Gonçalves | - | - | - | - | - | - | - | - |
| João Pedro Leitão Pinheiro de Figueiredo Brito | - | - | - | - | - | - | - | - |
| Alberto Chiarini | - | - | - | - | - | - | - | - |
| Claudio De Marco | - | - | - | - | - | - | - | - |
| Paolo Grossi | - | - | - | - | - | - | - | - |
| Camillo Gloria | - | - | - | - | - | - | - | - |
| Fabrizio Dassogno | - | - | - | - | - | - | - | - |
| Giuseppe Ricci | - | - | - | - | - | - | - | - |
| Luigi Piro | - | - | - | - | - | - | - | - |
| Joaquim José Borges Gouveia | - | - | - | - | - | - | - | - |
| Members of the supervisory board | ||||||||
| Daniel Bessa Fernandes Coelho | - | - | - | - | - | - | - | - |
| José Gomes Honorato Ferreira | - | - | - | - | - | - | - | - |
| José Maria Rego Ribeiro da Cunha | - | - | - | - | - | - | - | - |
| Amável Alberto Freixo Calhau | - | - | - | - | - | - | - | - |
| Staturory auditor firm | - | - | - | - | - | - | - | - |
| P. Matos Silva, Garcia Jr., P. Caiado & Associados, SROC | - | - | - | - | - | - | - | - |
| Acquisition | Disposal | |||||||
|---|---|---|---|---|---|---|---|---|
| Management team | Total number of shares at 31.12.2007 |
Date | Number of shares |
Price (¤/share) |
Date | Number of shares |
Price (¤/share) |
Total number of shares at 31.12.2008 |
| Alberto Fernandes | 6,410 | - | - | - | - | - | - | 6,410 |
| António Gonçalves Nunes | 1,500 | - | - | - | - | - | - | 1,500 |
| Carlos Alves | 2,520 | 03.01.2008 | 150 | 17.82 | - | - | - | 3,850 |
| 03.03.2008 | 150 | 16.34 | ||||||
| 11.04.2008 | 150 | 15.29 | ||||||
| 02.06.2008 | 150 | 16.06 | ||||||
| 16.07.2008 | 150 | 12.02 | ||||||
| 02.09.2008 | 150 | 13.20 | ||||||
| 07.10.2008 | 430 | 8.80 | ||||||
| Francisco Viana | 1,934 | 09.10.2008 | 1,120 | 9.10 | - | - | - | 3,054 |
| Joao Nuno Mendes | - | 30.05.2008 | 250 | 16.25 | - | - | - | 1,750 |
| 06.06.2008 | 1,053 | 16.14 | ||||||
| 06.06.2008 | 447 | 16.13 | ||||||
| Jorge Borrego | 5,680 | - | - | - | - | - | - | 5,680 |
| Jorge Carvalho | - | 07.10.2008 | 1,700 | 9.07 | - | - | 12 | 1,700 |
| Manuel Ramalhete | 830 | 18.07.2008 | 270 | 12.00 | 07.08.2008 | 500 | 12 | 1,600 |
| 29.07.2008 | 500 | 11.95 | ||||||
| 10.09.2008 | 500 | 11.51 | ||||||
| Mauro Rinaudo | - | 29.07.2008 | 800 | 10.85 | 01.08.2008 | 800 | 12 | 800 |
| 12.11.2008 | 800 | 8.15 | ||||||
| António Mendes Pinheiro | 200 | 25.04.2008 | 100 | 16.39 | - | - | - | 300 |
| Nuno Moreira da Cruz | 1,100 | - | - | - | - | - | - | 1,100 |
| Pedro Ricardo | 5,230 | - | - | - | - | - | - | 5,230 |
| Rufino Ribeiro | 980 | - | - | - | - | - | - | 980 |
| José Eduardo Nunes | 930 | - | - | - | - | - | - | 930 |
| Tiago Villas-Boas | 8,320 | 27.06.2008 | 350 | 13.930 | - | - | - | 9,670 |
| 03.10.2008 | 500 | 10.735 | ||||||
| 07.10.2008 | 500 | 8.600 | ||||||
| Vasco Ferreira | 1,590 | - | - | - | - | - | - | 1,590 |
In 2008 no consent was given to any transactions between the company and its directors.
Except for João Pedro Leitão Pinheiro de Figueiredo Brito until his election as director on 24 May 2005, renewed at 6 May 2008, no other director was in 2008 a party to an employment agreement – temporary or permanent, dependent or independent – with any affiliate of the company.
By a resolution taken at the general meeting held on 6 May 2008, directors were allowed to pursue a business activity in competition with Galp Energia's activity, according to the article 398, third paragraph of the Companies Code, and the definition of those directors' access regime to Galp Energia's sensitive information was approved, in accordance with the paragraph 4 of the article 398 of the Companies Code.
See note 16 – services provided to affiliates, in the Notes to the Individual Financial Statements.
(Amounts stated in thousands of Euros - tEuros)
(Translation of consolidated income statements by nature originally issued in Portuguese - Note 37)
| Notes | December 2008 | December 2007 restated | |
|---|---|---|---|
| Operating income: | |||
| Sales | 6 | 14,860,459 | 12,433,024 |
| Services rendered | 6 | 225,324 | 127,089 |
| Other operating income | 6 | 102,109 | 101,071 |
| Total operating income: | 15,187,892 | 12,661,184 | |
| Operating costs: | |||
| Cost of sales | 7 | 13,725,987 | 10,513,474 (a) |
| External supplies and services | 7 | 680,073 | 621,921 (a) |
| Employee costs | 7 | 291,895 | 281,206 |
| Amortisation, depreciation and impairment loss on fixed assets | 7 | 239,670 | 256,850 |
| Provision and impairment loss on receivables | 7 | 41,842 | 20,805 |
| Other operating costs | 7 | 41,100 | 31,337 |
| Total operating costs: | 15,020,567 | 11,725,593 (a) |
|
| Operating profit: | 167,325 | 935,591 (a) |
|
| Financial income | 9 | 12,612 | 16,646 |
| Financial costs | 9 | (63,585) | (50,314) |
| Exchange gain (loss) | (8,425) | (8,866) | |
| Share of results of investments in associates | 4 | 48,391 | 81,170 |
| Income (cost) on financial instruments | 28 | (328) | 645 |
| Other gains and losses | (1,279) | (932) | |
| Profit before tax: | 154,711 | 973,940 (a) |
|
| Income tax expense | 10 | (32,899) | (249,100) (a) |
| Profit before minority interest: | 121,812 | 724,840 (a) |
|
| Profit attributable to minority interest | (4,841) | (4,568) | |
| Profit attributable to equity holders of the parent | 11 | 116,971 | 720,272 (a) |
| Earnings per share (in Euros) | 11 | 0,14 | 0,87 (a) |
(a) Amounts restated in relation to the approved financial statements for 2007 (see Note 2.24).
The accompanying notes form an integral part of the consolidated income statement for the year ended 31 December 2008.
Carlos Alberto Nunes Barata Francisco Luís Murteira Nabo Alberto Maria Chiarini Manuel Ferreira De Oliveira Claudio De Marco Manuel Domingos Vicente Paolo Grossi Fernando Manuel dos Santos Gomes Camillo Gloria José António Marques Gonçalves Fabrizio Dassogno André Freire de Almeida Palmeiro Ribeiro Giuseppe Ricci Carlos Nuno Gomes da Silva Luigi Piro Rui Paulo da Costa Cunha e Silva Gonçalves Joaquim José Borges Gouveia
The accountant The board of directors João Pedro Leitão Pinheiro de Figueiredo Brito
(IFRS/IAS)
(Amounts stated in thousands of Euros - tEuros)
(Translation of balance sheets originally issued in Portuguese - Note 37)
| Assets | Notes | December 2008 | December 2007 restated | |
|---|---|---|---|---|
| Non-current assets: | ||||
| Tangible fixed assets | 13 | 2,760,142 | 2,107,736 | |
| Goodwill | 12 | 171,506 | 17,222 | |
| Other intangible fixed assets | 13 | 409,403 | 309,502 | |
| Investments in associates | 4 | 297,468 | 148,755 | |
| Investments in other companies | 5 | 1,173 | 1,047 | |
| Other receivables | 15 | 83,741 | 89,149 | |
| Deferred tax assets | 10 | 200,034 | 131,891 | |
| Other investments | 18 | 4,789 | 1,475 | |
| Total non-current assets | 3,928,256 | 2,806,777 | ||
| Current assets: | ||||
| Inventories | 17 | 1,076,494 | 1,346,816 | (a) |
| Trade receivables | 16 | 987,704 | 1,077,059 | |
| Other receivables | 15 | 500,475 | 330,049 | |
| Other investments | 18 | 2,903 | 6,156 | |
| Current income tax recoverable | - | 382 | ||
| Cash and cash equivalents | 19 | 127,168 | 107,176 | |
| Total current assets: | 2,694,744 | 2,867,638 | (a) | |
| Total assets: | 6,623,000 | 5,674,415 | (a) | |
| Equity and liabilities | ||||
| Equity: | ||||
| Share capital | 20 | 829,251 | 829,251 | |
| Share premium | 82,006 | 82,006 | ||
| Translation reserve | (27,449) | (22,818) | ||
| Other reserves | 21 | 174,480 | 146,438 | |
| Hedging reserves | (1,752) | 1,307 | ||
| Retained earnings | 1,144,432 | 717,562 | ||
| Interim dividend | 30 | (124,095) | (126,046) | |
| Consolidated net profit attributable to equity holders of the parent | 116,971 | 720,272 | (a) | |
| Equity attributable to equity holders of the parent | 2,193,844 | 2,347,972 | (a) | |
| Minority interest | 22 | 24,975 | 21,988 | |
| Total equity | 2,218,819 | 2,369,960 | (a) | |
| Liabilities: | ||||
| Non-current liabilities: | ||||
| Bank loans | 23 | 1,304,078 | 279,712 | |
| Bonds | 23 | - | 225,772 | |
| Other payables | 25 | 56,156 | 61,757 | |
| Retirement and other benefit obligations | 24 | 255,896 | 253,552 | |
| Deferred tax liabilities | 10 | 18,245 | 128,700 | (a) |
| Other financial instruments | 28 | 3,014 | 5 | |
| Provisions | 26 | 99,468 | 82,571 | |
| Total non-current liabilities | 1,736,857 | 1,032,069 | (a) | |
| Current liabilities: | ||||
| Bank loans and overdrafts | 23 | 684,949 | 335,767 | |
| Bonds | 23 | 1,711 | - | |
| Trade payables | 27 | 993,266 | 955,553 | |
| Other payables | 25 | 982,021 | 981,066 | |
| Other financial instruments | 28 | 1,503 | - | |
| Income tax | 10 | 3,874 | - | |
| Total current liabilities | 2,667,324 | 2,272,386 | ||
| Total liabilities | 4,404,181 | 3,304,455 | (a) | |
| Total equity and liabilities | 6,623,000 | 5,674,415 | (a) |
(a) Amounts restated in relation to the approved financial statements for 2007 (see Note 2.24).
The accompanying notes form an integral part of the consolidated balance sheet as of 31 December 2008.
Carlos Alberto Nunes Barata Francisco Luís Murteira Nabo Alberto Maria Chiarini Manuel Ferreira De Oliveira Claudio De Marco Manuel Domingos Vicente Paolo Grossi Fernando Manuel dos Santos Gomes Camillo Gloria José António Marques Gonçalves Fabrizio Dassogno André Freire de Almeida Palmeiro Ribeiro Giuseppe Ricci Carlos Nuno Gomes da Silva Luigi Piro Rui Paulo da Costa Cunha e Silva Gonçalves Joaquim José Borges Gouveia
The accountant The board of directors João Pedro Leitão Pinheiro de Figueiredo Brito
(IFRS/IAS)
((Amounts stated in thousands of Euros -tEuros)
(Translation of consolidated cash flow statements originally issued in Portuguese - Note 37)
| Notes | 2008 | 2007 | |
|---|---|---|---|
| Operating activities: | |||
| Cash receipts from customers | 15,240,251 | 11,970,796 | |
| Cash paid to suppliers | (11,531,403) | (7,766,243) | |
| Cash paid to employees | (198,238) | (177,493) | |
| Cash paid/received relating to tax on petroleum products | (2,388,699) | (2,560,429) | |
| Cash (paid)/received relating to income tax | (186,029) | (280,074) | |
| Contributions to the pension fund | 24 | (3,960) | (8,771) |
| Cash paid to early retired and pre-retired personnel | 24 | (13,845) | (14,710) |
| Cash paid relating to insurance costs of retired personnel | 24 | (10,807) | (10,453) |
| Other (payments)/receipts relating to operating activities | (439,209) | (300,688) | |
| Net cash from operating activities (1) | 468,061 | 851,935 | |
| Investing activities: | |||
| Cash receipts relating to: | |||
| Investments | 7,777 | 14,118 | |
| Tangible fixed assets | 8,131 | 1,140 | |
| Intangible fixed assets | - | 1,213 | |
| Investment subsidies | 14 | 7,090 | 62,988 |
| Interest and similar income | 2,650 | 5,118 | |
| Dividends | 4 | 46,816 | 55,756 |
| Sale of regulated natural gas assets - Unbundling | - | 24,026 | |
| Loans granted | 20,826 | 195 | |
| 93,290 | 164,554 | ||
| Cash payments relating to: | |||
| Investments | (543,754) | (10,815) | |
| Tangible fixed assets | (598,701) | (386,227) | |
| Intangible fixed assets | (54,434) | (39,459) | |
| Loans granted | (29,427) | (34) | |
| (1,226,316) | (436,535) | ||
| Net cash used in investing activities (2) | (1,133,026) | (271,981) | |
| Financing activities: | |||
| Cash receipts relating to: | |||
| Loans obtained | 1,435,789 | 2,287,680 | |
| Capital increases, supplementary capital contributions and share premium | 342 | - | |
| Interest and similar income | 2,860 | 2,794 | |
| Discounted notes | 10,610 | 7,532 | |
| 1,449,601 | 2,298,006 | ||
| Cash payments relating to: | |||
| Loans obtained | (690,930) | (2,451,749) | |
| Repayment of loans from EIB under the Unbundling operation | - | - | |
| Interest on loans obtained | (41,062) | (14,739) | |
| Interest and similar costs | (17,122) | (32,639) | |
| Dividends | 30 | (264,003) | (379,028) |
| Repayment of discounted notes | (10,818) | (7,956) | |
| Payment of interest on finance lease contracts | (106) | (103) | |
| Interest on finance lease contracts | (6) | (4) | |
| Interest on bonds | (626) | (1,110) | |
| (1,024,673) | (2,887,328) | ||
| Net cash used in financing activities (3) | 424,928 | (589,322) | |
| Net decrease in cash and cash equivalents (4) = (1) + (2) + (3) | (240,037) | (9,368) | |
| Effect of foreign exchange rate changes | (9,257) | (8,364) | |
| Cash and cash equivalents at the beginning of the year | 19 | (16,910) | 822 |
| Change in consolidation perimeter | 3 | 27,369 | - |
| Cash and cash equivalents at the end of the year | 19 | (238,835) | (16,910) |
The accompanying notes form an integral part of of the consolidated cash flow statement for the year ended 31 December 2008.
Carlos Alberto Nunes Barata Francisco Luís Murteira Nabo Alberto Maria Chiarini Manuel Ferreira De Oliveira Claudio De Marco Manuel Domingos Vicente Paolo Grossi Fernando Manuel dos Santos Gomes Camillo Gloria José António Marques Gonçalves Fabrizio Dassogno André Freire de Almeida Palmeiro Ribeiro Giuseppe Ricci Carlos Nuno Gomes da Silva Luigi Piro Rui Paulo da Costa Cunha e Silva Gonçalves Joaquim José Borges Gouveia
The accountant The board of directors João Pedro Leitão Pinheiro de Figueiredo Brito
(Amounts stated in thousands of Euros - tEuros)
(Translation of consolidated statements of changes in equity originally issued in Portuguese - Note 37)
| Share capital | |||
|---|---|---|---|
| Changes in the period | Notes | (Note 20) | Share premium |
| Balance at 1 January 2007 | 829,251 | 82,006 | |
| Appropriation of profit to reserves | - | - | |
| Dividends distributed | - | - | |
| Other increases / decreases in hedging reserves | 28 | - | - |
| Other changes | - | - | |
| Adjustments relating to the recognition of deferred taxes on financial derivatives | 10 | - | - |
| Differences arising on translation of foreign currency financial statements (Group companies) | - | - | |
| Differences arising on translation of foreign currency financial statements (Associated companies) | - | - | |
| Changes in minority interest | - | - | |
| Total increases / decreases directly in equity | - | - | |
| Net consolidated profit attributable to the shareholders and minority interest (a) | - | - | |
| Balance at 31 December 2007 - Restated (a) | 829,251 | 82,006 | |
| Appropriation of profit to reserves | 21 | - | - |
| Dividends distributed | 30 | - | - |
| Other increases / decreases in hedging reserves | 28 | - | - |
| Other changes | 10 and 21 | - | - |
| Adjustments relating to the recognition of deferred taxes on financial derivatives | 10 | - | - |
| Differences arising on translation of foreign currency financial statements (Group companies) | - | - | |
| Differences arising on translation of foreign currency financial statements (Associated companies) | 4 | - | - |
| Changes in minority interest | - | - | |
| Total increases / decreases directly in equity | - | - | |
| Net consolidated profit attributable to the shareholders and minority interest | - | - | |
| Balance at 31 December 2008 | 829,251 | 82,006 | |
(a) Amounts restated in relation to the approved financial statements for 2007 (see note 2.24)
The accompanying notes form an integral part of the consolidated statement of changes in equity for the year ended 31 December 2008.
The accountant The board of directors João Pedro Leitão Pinheiro de Figueiredo Brito Carlos Alberto Nunes Barata Francisco Luís Murteira Nabo Alberto Maria Chiarini Manuel Ferreira De Oliveira Claudio De Marco Manuel Domingos Vicente Paolo Grossi Fernando Manuel dos Santos Gomes Camillo Gloria José António Marques Gonçalves Fabrizio Dassogno André Freire de Almeida Palmeiro Ribeiro Giuseppe Ricci Carlos Nuno Gomes da Silva Luigi Piro Rui Paulo da Costa Cunha e Silva Gonçalves Joaquim José Borges Gouveia
| Minority | ||||||||
|---|---|---|---|---|---|---|---|---|
| Translation reserve |
Other reserves (Note 21) |
Hedging reserves |
Retained earnings |
Interim dividends |
Net profit for the year |
Sub-Total | interest (Note 22) |
Total |
| (10,385) | 107,024 | 710 | 254,757 | - | 754,774 | 2,018,137 | 18,537 | 2,036,674 |
| - | 39,877 | - | 714,897 | - | (754,774) | - | - | |
| - | - | - | (252,092) | (126,046) | - | (378,138) | - | (378,138) |
| - | - | 781 | - | - | - | 781 | - | 781 |
| - | (463) | - | - | - | - | (463) | - | (463) |
| - | - | (184) | - | - | - | (184) | - | (184) |
| (7,399) | - | - | - | - | - | (7,399) | - | (7,399) |
| (5,034) | - | - | - | - | - | (5,034) | - | (5,034) |
| - | - | - | - | - | - | - | (1,117) | (1,117) |
| (12,433) | 39,414 | 597 | 462,805 | (126,046) | (754,774) | (390,437) | (1,117) | (391,554) |
| - | - | - | - | - | 720,272 | 720,272 | 4,568 | 724,840 |
| (22,818) | 146,438 | 1,307 | 717,562 | (126,046) | 720,272 | 2,347,972 | 21,988 | 2,369,960 |
| - | 28,042 | - | 566,184 | 126,046 | (720,272) | - | - | |
| - | - | - | (139,314) | (124,095) | - | (263,409) | - | (263,409) |
| - | - | (4,014) | - | - | - | (4,014) | - | (4,014) |
| - | - | - | - | - | - | - | - | |
| - | - | 955 | - | - | - | 955 | - | |
| (9,352) | - | - | - | - | - | (9,352) | - | (9,352) |
| 4,721 | - | - | - | - | - | 4,721 | - | 4,721 |
| - | - | - | - | - | - | - | (1,854) | (1,854) |
| (4,631) | 28,042 | (3,059) | 426,870 | 1,951 | (720,272) | (271,099) | (1,854) | (272,953) |
| - | - | - | - | - | 116,971 | 116,971 | 4,841 | 121,812 |
| (27,449) | 174,480 | (1,752) | 1,144,432 | (124,095) | 116,971 | 2,193,844 | 24,975 | 2,218,819 |
| 1. INTRODUCTION 121 | |
|---|---|
| a) Parent company 121 | |
| b) The Group 121 | |
| c) Operations 121 | |
| 2. SIGNIFICANT ACCOUNTING POLICIES 122 | |
| 2.1. Basis of presentation 122 | |
| 2.2. Basis of consolidation 122 | |
| 2.3. Tangible fixed assets 124 | |
| 2.4. Intangible fixed assets 125 | |
| 2.5. Impairment of non-current assets except goodwill 125 | |
| 2.6. Leasing 126 | |
| 2.7. Inventories 126 | |
| 2.8. Government grants and other grants 127 | |
| 2.9. Provisions 127 | |
| 2.10. Pension liability 127 | |
| 2.11. Other retirement benefits – healthcare, life insurance and defined contribution minimum benefit plan 127 | |
| 2.12. Foreign currency balances and transactions 128 | |
| 2.13. Income and accruales basis 128 | |
| 2.14. Financial costs on loans obtained 128 | |
| 2.15. Income tax 128 | |
| 2.16. Non-current assets available for sale 129 | |
| 2.17. Financial instruments 129 | |
| 2.18. CO2 emmission licence 130 |
|
| 2.19. Balance sheet classification 130 | |
| 2.20. Subsequent events 130 | |
| 2.21. Segment reporting 130 | |
| 2.22. Estimates and judgements 130 | |
| 2.23. Risk management and hedging 131 | |
| 2.24. Changes in accounting policies 131 | |
| 3. COMPANIES INCLUDED IN THE CONSOLIDATION 132 | |
| 4. INVESTMENTS IN ASSOCIATES 138 | |
| 5. INVESTMENTS IN OTHER COMPANIES 139 | |
| 6. OPERATING INCOME 139 | |
| 7. OPERATING COSTS 143 | |
| 8. SEGMENT INFORMATION 144 | |
| 9. FINANCIAL INCOME AND COSTS 148 | |
| 10. INCOME TAX 148 | |
| 11. EARNINGS PER SHARE 151 | |
| 12. GOODWILL 151 | |
| 13. TANGIBLE AND INTANGIBLE FIXED ASSETS 152 | |
| 14. GOVERNMENT GRANTS 154 | |
| 15. OTHER RECEIVABLES 155 | |
| 16. TRADE RECEIVABLES 156 | |
| 17. INVENTORIES 157 | |
| 18. OTHER INVESTMENTS 158 | |
| 19. CASH AND CASH EQUIVALENTS 158 | |
| 20. SHARE CAPITAL 159 | |
| 21. OTHER RESERVES 159 | |
| 22. MINORITY INTEREST 160 | |
| 23. LOANS 160 | |
| 24. RETIREMENT AND OTHER BENEFIT OBLIGATIONS 162 | |
| Other retirement benefits – Healthcare, life insurance and defined contribution minimum benefit plan (disability and survivor) 165 | |
| 25. OTHER PAYABLES 167 | |
| 26. PROVISIONS 168 | |
| 27. TRADE PAYABLES 169 | |
| 28. OTHER FINANCIAL INSTRUMENTS 169 | |
| 29. BALANCES WITH RELATED PARTIES 171 | |
| 30. DIVIDENDS 175 | |
| 31. PETROLEUM RESERVES 175 | |
| 32. FINANCIAL RISK MANAGEMENT 175 | |
| 33. CONTINGENT ASSETS AND CONTINGENT LIABILITIES 177 | |
| 34. INFORMATION REGARDING ENVIRONMENTAL MATTERS 179 | |
| 35. SUBSEQUENT EVENTS 179 | |
| 36. APPROVAL OF THE FINANCIAL STATEMENTS 180 | |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2008 (IAS/IFRS) (Amounts stated in thousands of Euros - tEuros) (Translation of notes originally issued in Portuguese – Note 37)
Galp Energia, SGPS, S.A. (hereinafter referred to as Galp or the Company), was founded as a State–owned company on 22 April 1999, under Decree-Law 137-A/99, with the name "Galp – Petróleos e Gás de Portugal, SGPS, S.A.", having on 13 September 2000 adopted its present name of Galp Energia, SGPS, S. A..
The Company's head Office is in Lisbon and its corporate object is to manage equity participations in other companies, having, as of the date of its foundation, grouped the State's directly owned participations in the following companies: Petróleos de Portugal – Petrogal, S.A.; GDP – Gás de Portugal, SGPS, S.A. and Transgás – Sociedade Portuguesa de Gás Natural, S.A. ("Transgás, S.A." which in present changed it's designation to Galp Gás Natural, S.A.).
Over the years the Company shareholder structure has undergone several changes, its position as of 31 December 2008 is stated in Note 20.
Part of the Company's shares, representing 25.32% of its capital, are listed on the Euronext Lisbon stock exchange.
At 31 December 2008 the Galp Group ("the Group") was made up of Galp and its subsidiaries, which include: (i) Petróleos de Portugal – Petrogal, S.A. ("Petrogal") and its subsidiaries, which operate upstream and downstream in the crude oil and related derivatives sector; (ii) GDP – Gás de Portugal, SGPS, S.A. and its subsidiaries, which operates in the natural gas sector; (iii) Galp Power, SGPS, S.A. and its subsidiaries, which operate in the electricity and renewable energy sector; and (iv) Galp Energia, S.A. which provides all the corporate support services.
Petrogal is the only company operating in the petroleum refining sector in Portugal and has majority control over the distribution of refined petroleum products through the Galp brand, which it owns. Petrogal and its subsidiaries operate in the oil exploration area (upstream), and in the refining and distribution of petroleum and derivative products area (downstream).
The natural gas subsidiaries of the GDP – Gás de Portugal, SGPS, S.A. group which operate in: (i) the acquisition, sale to ordinary regime electricity producers and to wholesale in commercialisation of last resort namely through Galp Gás Natural, S.A.; (ii) storage through Transgás Armazenagem, S.A. and (iii) distribution and commercialisation of natural gas through Lisboagás GDL – Sociedade Distribuidora de Gás Natural de Lisboa, S.A., Lusitaniagás – Companhia de Gás do Centro, S.A. and Beiragás – Companhia de Gás das Beiras, S.A., which operate based on concession contracts entered into with the Portuguese State, which where initially set for a period ending in 2028 (2034 for Beiragás). The initial contracts, except for Galp Gás Natural, S.A., were in force up to 2007, inclusive. On 11 April 2008 with effective date on 1 January 2008 the mentioned companies signed new concession contracts, which end in 2045 for storage and 2047 for distribution and commercialisation of natural gas under the new legislation for this sector. At the end of these periods the assets relating to the concessions will be transferred to the Portuguese State and the companies will receive an indemnity corresponding to the book value of these assets at that date, net of depreciation, financial co-participation and grants.
Resolution of the Council of Ministers 169/2005 of 24th of October, which approved the national energy strategy, established as one of the guidelines, the liberalisation and promotion of competition in the energy markets, through change in the respective structures.
Decree-Law 30/2006 of 15th of February, while including the strategic guideline of the Resolution of the Council of Ministers 169/2005 of 24th of October within the national plan, defined a legal framework for the natural gas sector which is coherent and in line with community legislation and the main strategic objectives approved by that Resolution. This framework establishes the organisation and operating principles of the National Natural Gas System, as well as the general rules applicable to the reception, storage and re-gasification of LNG, underground storage, transport, distribution and commercialisation, thus transposing the principles of European Parliament and the Council Directive 2003/55/CE of 26th of June, with the objective of establishing a more competitive and free market. Organisation of the National Natural Gas System is mainly based on the exploration of the public natural gas network, made up of the National Transport Network, Storage and Terminal Installations and by the National Natural Gas Distribution Network. These infrastructures are explored through public service concessions or, in the case of local autonomous distribution networks, through public service licences. In addition, the conditions to be established in complementary legislation will allow private distribution of natural gas through licences granted for that purpose.
The natural gas commercialisation activity is free, being however, subject to the granting of licences by the competent administrative entity, which defines clearly the rights and duties within the perspective of operating transparency. In carrying out their activities, traders can purchase and sell natural gas freely, having the right of access to LNG storage and terminal installations and transport and distribution networks through the payment of a regulated tariff. The free commercialisation of natural gas is subject to a transitory regime establishing a gradual opening up of the market, considering the emerging market statute and the associated derogation.
Under the terms of the above mentioned Decree-Law, the activities relating to the public natural gas network, commercialisation of last resort of natural gas and logistic operation of change in supplier are subject to regulation. Without prejudice to other administrative entities, Entidade Reguladora dos Serviços Energéticos – ERSE (Energy Services Regulating Entity) is responsible for regulating the sector.
In order to implement the separation of the natural gas distribution and commercialisation activities, contracts relating to the transfer of regulated assets were signed between the regional distributors and Galp Gás Natural, S.A.. In addition, commercialisation companies were founded (Note 3) in the regions where the number of clients exceeds 100 thousand, in order to separate the commercialisation activity from the distribution activity.
On 12 July 2008 Order 13/2008 was published, under which the energy services regulator ("ERSE") fixed the rates to be applied by the entities that carry out regulated activities for the gas year 2008-2009, so that the income permitted for that period can be recovered, as established in article 149 of the Tariff Regulations.
The gas year corresponds to the period from 1 July of one year up to 30 June of the following year.
The tariffs to be charged to clients include the energy tariff, the tariff for using the transport network, the tariff for using the overall natural gas system, the tariff for using the distribution system and commercialisation tariff, which remunerate the regulated activities.
The Group Companies carry out the storage, distribution and natural gas commercialisation of last resort activities under that regulation.
The operations of the Galp Power group subsidiaries consist of generating and commercialising electric and thermic power.
The Galp Energia group's operations consist of the following:
The accompanying financial statements are presented in the functional currency Euros, as this is the currency used preferentially in the financial environment in which the Company operates.
The significant accounting policies used by the Group to prepare the consolidated financial statements are explained below. In 2008 there were changes in the accounting policies in relation to those used to prepare the financial information for the preceding year, which are presented in Note 2.24. In addition, no significant prior year material errors were recognised.
Galp Energia's consolidated financial statements were prepared on a going concern basis, at historical cost except for financial derivative instruments which are stated at fair value (Note 2.17), from the accounting records of the companies included in the consolidation (Notes 3 and 4), maintained in accordance with generally accepted accounting principles in the countries of each subsidiary, adjusted in the consolidation process so as to conform to International Financial Reporting Standards as adopted by the European Union, effective for the years beginning 1 January 2008. These standards include International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board ("IASB") and International Accounting Standards ("IAS") issued by the International Accounting Standards Committee ("IASC") and respective interpretations – SIC and IFRIC, issued by the International Financial Reporting Interpretation Committee ("IFRIC") and Standing Interpretation Committee ("SIC"), adopted by the European Union. These standards and interpretations are hereinafter referred to as IAS/IFRS.
On 31 December 2008 ammendments were approved to standards IAS 39 and IFRS 7 – "Reclassification of Financial Instruments" already issued and published in the Official Journal of the European Union ("OJEU") being applicable to the years beginning on or as from 1 July 2008. In addition at 31 December 2008 ammendments to standard IAS 23 – "Borrowing costs" (applicable to the years starting as from 1 January 2009), standard IFRS 2 "Share based payments" (applicable to the years starting as from 1 January 2009), IAS 1 – "Presentation of financial statements" (applicable to the years starting as from 1 January 2009), interpretation IFRIC 13 – "Client loyalty programs" (applicable to the years starting as from 1 July 2008) and interpretation IFRIC 14 – "IAS 19 – Limits over a defined benefits asset, minimum financial requirements and related interaction" (applicable to the years starting as from 1 July 2008), standard IFRS 8 –"Operating segments" (applicable to the years starting as from 1 January 2009), had already been issued and published in OJEU. In 2008 the Galp Energia group decided not to adopt the standards issued by the European Union which are not mandatorily applicable for the current year. Application of these standards is not expected to have a significant impact on the Group financial statements.
Estimates that affect the amounts of assets and liabilities and income and costs were used in preparing the accompanying consolidated financial statements. The estimates and assumptions used by the Board of Directors were based on the best information available regarding events and transactions in process at the time of approval of the financial statements.
The following consolidation methods were used by the Group:
Investments in companies in which the Group holds, directly or indirectly, more than 50% in their voting rights in Shareholders' General Meetings and/or has the power to control their financial and operating policies (the definition of control adopted by the Group) were consolidated in these financial statements in accordance with the full consolidation method. The companies consolidated in accordance with the full consolidation method are shown in Note 3.
Equity and net profit for the year corresponding to third party participation in subsidiaries are reflected separately in the consolidated balance sheet and income statement in the caption minority interest. Where losses applicable to minority shareholders exceed the minority interest in equity of the subsidiary, the Group absorbs such loss and any additional losses, except where the minority shareholders must and are able to cover such losses. If a subsidiary subsequently reports profits, the Group appropriates all the profits until the amount of the minority shareholders' losses absorbed by the Group have been recovered.
The assets and liabilities of each Group company are recognised at fair value as of the date of acquisition or, as established in IFRS 3, during a period of 12 months after that date. Any excess of cost over the fair value of the net assets and liabilities acquired is recognised as goodwill (Note 2.2.d)). If the difference between cost and fair value of the assets and liabilities acquired is negative, it is recognised as income for the year.
Minority interest includes the third party proportion of the fair value of the identifiable assets and liabilities as of the date of acquisition of the subsidiaries.
The results of subsidiaries acquired or sold during the year are included in the income statement from the date of acquisition to the date of the sale.
Whenever necessary, adjustments are made to the financial statements of subsidiaries for them to conform to the Group's accounting policies. Transactions (including unrealised gains and losses on sales between Group companies), balances and dividends distributed between Group companies are eliminated in the consolidation process.
Where the Group has, in substance, control over other special purpose entities, even if it does not have direct participation in their capital, they are consolidated in accordance with the full consolidation method. Where such entities exist, they are included in Note 3.
Investments in Group companies are always consolidated.
Participations in jointly controlled companies are included in the accompanying consolidated financial statements in accordance with the proportional consolidation method as from the date joint control is acquired. In accordance with this method, assets, liabilities, income and costs of such companies are included in the accompanying consolidated financial statements, caption by caption, in proportion to the control attributable to the Group. The companies consolidated in accordance with the proportional method are listed in Note 3.
The excess of cost in relation to the fair value of the identifiable assets and liabilities of each jointly controlled entity at the date of acquisition is recognised as goodwill (Note 2.2.d)). If the difference between cost and fair value of the assets and liabilities acquired is negative, it is recognised as income for the year.
Transactions, balances and dividends distributed between companies are eliminated in the consolidation process, in proportion to the control attributable to the Group.
The classification of investments in jointly controlled companies is determined based on inter-participant agreements that regulate the joint control.
The companies consolidated in accordance with the proportional consolidation method are shown in Note 3.
Investments in associates (companies in which the Group has significant influence but does not have control or joint control through participation in the company's financial and operating decisions, normally where it holds a participation between 20% and 50% in the company's capital) are recorded in accordance with the equity method.
In accordance with the equity method investments are recorded at cost, adjusted by the amount corresponding to the Group's participation in changes in equity (including net result) of the associated company by corresponding entry to the income statement caption "Share of results of associates", as well as by dividends received.
The excess of cost in relation to the fair value of the identifiable assets and liabilities of the associated company at the date of acquisition is recognised as goodwill (Note 2.2.d)) and included in the book value of the investment. If the difference between cost and fair value of the assets and liabilities acquired is negative, it is recognised in the income statement caption "Share of results of investments in associates", after confirmation of the fair value attributed.
Valuations are made of investments in associates when there are facts that might sugest the participation to be impaired, as well as annual valuations of goodwill. If any impairment losses are determined they are recognised in the income statement. When impairment losses recognised in preceding years no longer exist, they are reversed. However impairment of goodwill is not reversed.
When the Group's share of the accumulated loss of an associated company exceeds the book value of the participation, the participation is recorded at zero, except where the Group has assumed commitments to the associated company, in which case the Group recognises the loss by the amount of the joint liability with the associated company.
Unrealised gains and losses on transactions with associated companies are eliminated in proportion to the Group's interest in the associated company, by corresponding entry to the investment in the associate. Unrealised losses are also eliminated, only if the loss doesn't result from the transferred asset being impaired.
The participations in associated companies are shown in Note 4.
Positive differences between the cost of investments in Group companies, jointly controlled companies and associated companies and the fair value of the identifiable assets and liabilities of these companies at the date of acquisition, or during a period of 12 months after that date, are recognised as goodwill (in the case it results from goodwill in group companies or jointly controlled companies) (Note 12) or as investments in associates (in the case it results from associated companies).
Differences between the cost of investments in foreign entities and the fair value of the identifiable assets and liabilities at the date of acquisition, or during a period of 12 months after that date, are recognised in their functional currencies and translated to the Group's functional currency (Euros) at the rate of exchange on the balance sheet date. Exchange rate differences resulting from the translation are recorded in equity in the caption "Translation Reserve".
Goodwill on acquisitions prior to the date of transition to IFRS (1 January 2004) was maintained at the amounts recorded in accordance with generally accepted accounting principles in Portugal (deemed cost) as of that date and is subject to impairment tests in accordance with IFRS1.
Goodwill on acquisitions after 1 January 2004 (date of transition to IFRS) as well as net goodwill on earlier acquisitions is not amortised, but is subject to impairment tests at least annually to determine if there are impairment losses. Impairment losses are recorded immediately on the balance sheet as deductions from the amount of the assets by corresponding charge to the income statement caption "Other gains and losses" and are not subsequently reversed.
If the initial recording of a business combination can only be made provisionally at the end of the period in which the concentration was made because the fair values to be attributed to the identifiable assets, liabilities and contingent liabilities of the acquired entity can only be determined provisionally, the Galp group records the concentration using the provisional amounts. The amounts determined provisionally are adjusted when the fair values of the assets and liabilities are objectively determined, up to a period of 12 months after the acquisition date. Goodwill or any other gain recognised will be adjusted as from the date of the acquisition by an amount equal to the adjustment of fair value of the identifiable assets, liabilities and contingent liabilities at the date of acquisition, to be recognised or adjusted and the comparative information presented for periods prior to conclusion of the initial recording of the concentration will be presented as if the initial recording had been concluded as of the date of the acquisition. This includes any depreciation, amortisation or other additional profit or loss effect recognised as a result of concluding the initial recording.
Entities operating abroad that have organisational and financial autonomy are recorded as foreign entities.
Assets and liabilities in the financial statements of foreign entities are translated to Euros at the rates of exchange in force on the balance sheet date and income and costs and cash flows in these financial statements are translated to Euros at the average rates of exchange for the year. The resulting exchange differences arising after 1 January 2004 (date of transition to IFRS) are recognised in the equity caption "Translation reserve". Exchange rate differences arising up to 1 January 2004 (date of transition to IFRS) were reversed by corresponding entry to "Retained earnings".
Goodwill and the fair value adjustments resulting from the acquisition of foreign entities are treated as assets and liabilities of these entities and translated to Euros at the exchange rates in force on the balance sheet date.
When a foreign entity is sold the accumulated exchange difference is transferred from the equity caption "Translation reserve" to the income statement caption "Other gains and losses".
Shareholders' loans in a different functional currency from the parent company, that do not have defined repayment terms are considered as net investments in the foreign entities. The exchange differences arising but not reversed in the consolidation process, in transposing the balances of shareholders' loans to the company's reporting functional currency, are reclassified to the shareholders' equity caption "Translation reserve".
The financial statements of foreign entities included in the accompanying consolidated financial statements were translated to Euros at the following exchange rates:
| At the end of the year | Average for the year | |||
|---|---|---|---|---|
| Currency | 2008 | 2007 | 2008 | 2007 |
| Gambian Dalasi (a) | 38,23 | n.a. | 33,20 | n.a. |
| Moroccan Dirhams | 11,27 | 11,35 | 11,35 | 11,22 |
| US Dollars | 1,39 | 1,47 | 1,47 | 1,37 |
| Cape Verde Escudos | 110,27 | 110,27 | 110,27 | 110,27 |
| CFA Francs | 655,96 | 655,96 | 655,96 | 655,96 |
| Swaziland Lilangeni (a) | 13,54 | n.a. | 11,98 | n.a. |
| Mozambique Meticais | 35,98 | 36,28 | 35,64 | 35,67 |
| Brazilian Reais | 3,24 | 2,60 | 2,67 | 2,66 |
(a) not applicable in 2007 as the companies were acquired in 2008.
Tangible fixed assets acquired up to 1 January 2004 (date of transition to IFRS) are stated, as allowed under an option included in IFRS 1, at deemed cost, which corresponds to cost, revalued, where applicable, in accordance with the legislation in force up to that date, less accumulated depreciation, impairment loss and government grants.
Tangible fixed assets acquired after that date are recorded at cost less accumulated depreciation, impairment losses and government grants. Cost includes the invoice price, transport and assembly costs and financial costs incurred during the construction phase.
Tangible fixed assets in progress include fixed assets in the construction phase and are recorded at cost less government grants and any impairment losses. Tangible fixed assets in progress are depreciated as from the time the capital expenditure projects are completed or the assets are ready for use.
Depreciation of the deemed cost (for acquisitions up to 1 January 2004) or acquisition cost are calculated on a straight-line basis, as from the year the assets start operating, at the rates considered most appropriate to depreciate the assets during their estimated economic useful life, limited, when applicable, to the concession period.
The average annual depreciation rates used are as follows:
| Rates | ||
|---|---|---|
| Land and natural resources – public right of free passage | 2.20% | 3.13% |
| Buildings and other constructions | 2.00% | 10.00% |
| Machinery and equipment | 2.20% | 12.50% |
| Transport equipment | 16.67% | 25.00% |
| Tools and utensils | 12.50% | 25.00% |
| Administrative equipment | 5.00% | 33.33% |
| Reusable containers | 7.14% | 33.33% |
| Other tangible fixed assets | 10.00% | 33.33% |
The natural gas infrastructures, namely the gas distribution networks, are depreciated over a period of 45 years as this is considered to be the period of economic useful life of these assets.
Recurring multi-annual repair and maintenance costs are expensed in the year when they are incurred. Major overhauls involving the replacement of parts of equipment or of other fixed assets are recorded as tangible fixed assets if the replaced parts are identified and written off, and depreciated over the remaining period of economic useful life of the corresponding fixed assets.
Tangible fixed assets relating to oil exploration and production are recorded at cost, which includes essentially:
(i) costs incurred with the exploration and development of the oil fields, plus overheads and financial costs incurred up to the date production starts, are capitalised in fixed assets in progress. When the oil field starts producing, these costs are transferred from fixed assets in progress to the definitive fixed assets captions and depreciated.
The proved developed reserves and total proved reserves used by the Group to determine the depreciation rate in accordance with the Unit of Production ("UOP") method were determined by a specialised entity.
Development expenses are depreciated in accordance with a coefficient calculated based on the proportion of the volume produced in each depreciation period in relation to the proved developed reserves at the end of the period plus production for the period (UOP Method).
Exploration expenses are depreciated based on a coefficient calculated by the proportion of the volume of production in each depreciation period in relation to the total proved reserves at the end of the period plus production for the period.
Exploration expenses relating to fields which are still in the exploration and development phase are classified as fixed assets in progress;
(ii) costs of acquiring oil exploration and production licences (signature bonus), are depreciated on a straight-line basis, as from the date production starts, over the remaining period of the licence;
All costs incurred in the exploration phase of unsuccessful oil fields are recognised as costs in the income statement for the year in which discontinuance of the exploration and/or development work is acknowledged.
Gains and losses on the sale of fixed assets results from the difference between the sales price and the net book value at the date of sale or write- -off. Net book value includes accumulated impairment losses. The gains and losses determined are recognised in the income statement captions "Other operating income" or "Other operating costs".
Intangible fixed assets are stated at cost less accumulated amortisation, government grants and impairment losses. Intangible assets are only recognised if it is probable that they will result in future economic benefits to the Group, they are controllable and can be reliably measured.
Exploration costs not related to upstream activities are recognised as costs for the year.
Development costs are only recognised as intangible assets if the Group has the technical and financial ability to develop the asset, decides to complete the development and starts commercialising or using it, and it is probable that the asset created will generate future economic benefits. If the development costs do not fulfil these requirements, they are recorded as costs for the year in which they are incurred.
Intangible assets with finite useful life are amortised on a straight-line basis as from the date they start being used, except for assets relating to exploration and production, which are amortised in accordance with the UOP method as described above, as from the beginning of their utilisation.
The amortisation rates are set in accordance with the period of the existing contracts or expected use of the intangible assets.
The Group capitalises costs relating to the conversion of consumption to natural gas, which involves adapting the installations. The Group believes that it can control the future economic benefits resulting from this conversion, through the continued sale of gas to its clients and inclusion of such costs in the prices approved by the General Directorate of Geology and Energy (Dec-law 140/2006 of 26th of July). These costs are amortised on a straight-line annual basis up to the end of the period of the concession of the gas distribution companies. As a result of the change in the concession contract (Introductory Note b2) and corresponding change in the concession period, the amortisation rates of such assets were changed so that the net book value of the assets at 1 January 2008 is amortised up to the end of the new concession period.
Intangible assets include, in addition to the cost of conversion of consumption to natural gas, costs incurred on software development, exclusivity bonuses paid to retailers of Galp products and rights on land utilization costs, which are amortised over the period of the respective contracts (which ranges from ten to twenty years).
Impairment tests are made as of the balance sheet date and whenever it is identified that an asset has lost value. Whenever the book value of an asset exceeds its recoverable amount, an impairment loss is recognised by charge to the income statement caption "Amortisation, depreciation and impairment loss on fixed assets".
The recoverable amount is the greater of the net selling price and the value in use. Net selling price is the amount that would be obtained from selling the asset in a transaction between independent knowledgeable parties, less the costs directly attributable to the sale. Value in use corresponds to the present value of the future cash flows generated by the asset during its estimated economic useful life. The recoverable amount is estimated for the asset or cash generating unit to which it belongs. The rate used to discount cash flows reflects the weighted average cost of capital (WACC) used by the Group for the business segment and country to which the asset belongs. The cash generating unit subject to impairment analysis depends on the business segment: in the refining and distribution segment the cash generating unit is the service station network in the country; in the exploration segment the cash generating unit is the development area; and in the gas & power segment the cash generating unit is the set of assets generating the economic benefits.
Impairment losses recognised in earlier periods are reversed when it is concluded that they no longer exist or have decreased. Such tests are made when there are indications that an impairment recognised in an earlier period has reverted. Reversal of impairment is recognised as a decrease in the income statement caption "Amortisation, depreciation and impairment loss of fixed assets". However, impairment losses are only reversed up to the amount at which the asset would be recorded (net of amortisation or depreciation) if the impairment loss had not been recorded in an earlier period.
Impairment losses on oil exploration and production assets are determined when:
Lease contracts are classified as:
(i) Finance leases if substantially all the risks and benefits of ownership are transferred; and (ii) Operating leases where this does not occur.
Finance and operating leases are classified based on the substance rather than the form of the legal contract.
Fixed assets acquired under finance lease contracts and the corresponding liabilities are recognised in accordance with the financial method. In accordance with this method the cost of the assets (the lower of the fair value or the discounted amount of the lease instalments) is recognised in tangible fixed assets, the corresponding liability is recorded and interest included in the lease instalments and depreciation of the fixed assets, calculated as explained in Note 2.3, are recorded as financial cost and amortisation and depreciation cost in the income statement of the year to which they relate, respectively. In the case of operating leases, the lease instalments are recorded as costs for the year, on a straight-line basis over the period of the contract, in the income statement caption "External supplies and services".
Inventories are stated as follows:
Inventories (merchandise, raw and subsidiary material, finished and semi-finished products, and work in process) are stated at the lower of cost of acquisition (in the case of merchandise and raw and subsidiary material) or production (in the case of finished and semi-finished products and work in process) or net realisable value.
Net realisable value corresponds to the normal selling price less costs to complete production and costs to sell.
Where cost exceeds net realisable value, the difference is recorded in the operating cost caption "Cost of sales".
As explained in Note 2.24, in 2008 the Group changed the method for determining cost of sales from FIFO ("First in First Out") to weighted average cost.
Consequently, the cost of inventories used/sold is determined as follows:
Crude oil – The cost includes the invoice price and transport and insurance costs. The cost of sales is determined on a weighted average cost basis, applicable to a single family of products, which includes all the crude grades.
Other raw materials (excluding general materials) – The cost includes the invoice price and transport and insurance costs. The cost of sales is determined on a weighted average cost basis, by family of products, determined considering the characteristics of the different materials.
General materials – The cost includes the invoice price and transport and insurance costs. The cost of sales is determined on an average cost basis.
Production cost includes the cost of materials, external supplies and services and overheads.
Crude oil – corresponds to crude oil produced in the oil exploration and production activity and is held in inventory at 31 December of each year, corresponding to the Company's share of the total inventory of each development area. Such inventories value corresponds to their production cost, which includes direct production costs plus depreciation for the year and provision for abandonment costs.
Oil products – Produced finished and semi-finished products value corresponds to their received production cost, which includes the cost of raw and other materials consumption, direct labour costs and production overheads. If acquired to third parties their value corresponds to their cost, which includes the invoice price and transport and insurance costs. The cost of sales is determined on a weighted average basis applied to families of products made up considering the characteristics of the products.
The Petrogal group includes, in the caption finished and semi-finished products, the Tax on Oil Products ("Imposto sobre Produtos Petrolíferos – ISP") relating to the introduction to consumption of finished goods dispatched subject to that tax, which is stated at cost. The cost of sales is determined on a weighted average cost basis.
Other finished and semi-finished products – Production costs include raw materials and variable and fixed production costs. The cost of sales is determined on a weighted average cost basis.
Cost includes the invoice price and transport and insurance costs. The cost of sales is determined on a weighted average cost basis.
The cost of imported natural gas also includes the costs incurred up to the Portuguese border, relating to transport and rights of passage through Moroccan territory.
As above mentioned, the Petrogal group also includes, in the caption inventories, Tax on Oil Products relating to merchandise already dispatched subject to that tax.
As raw and subsidiary materials and merchandise in transit are not available for consumption or sale, they are segregated from the other inventories and recorded at specific cost.
In the case of oil exploration and production activity, where the Company has underlifted oil in relation to its production quota and the amount underlifted has been lend to other joint venture partners, it is recorded at market price as of the date the loans were granted in the caption "Other receivables" (Note 15). Whenever the market price at the end of the year is lower than the price considered for valuing the quantities lend it is recognised as cost an impairment loss.
When the Company has overlifted oil in relation to its production quota, the amount overlifted is valued at the market price on the date the loan is entered in the caption "Other payables" (Note 25).
The Company considers that in substance over form the production shared under the Production Sharing Agreement is not subject to price risk since the operation is for use of the contractors and the settlement of the under and overlifting is made through is physical product delivery.
Government grants are recognised at fair value when it is certain that they will be received and that the Group companies will comply with the conditions required for them to be granted.
Government grants for operating costs are recognised in the income statement in proportion of the costs incurred.
Non repayable government grants for tangible and intangible fixed assets (conversions) are recorded as decreases in the amount of the assets and recognised in the income statement as a decrease in the amount of amortisation and depreciation for the year, in proportion of the amortisation and depreciation of the granted assets.
Provisions are recorded when, and only when, the Group has an obligation (legal or implicit) resulting from a past event in which there probably will be an outflow of resources to resolve it and the amount can be reasonably estimated. Provisions are reviewed and adjusted on each balance sheet date so as to reflect the best estimate at that date. Provisions for restructuring costs are recognised by the Group whenever there is a formal detailed restructuring plan.
Petrogal, Sacor Marítima and some companies of the GDP group (GDP Gás de Portugal, SGPS, S.A. and Lisboagás – Sociedade Distribuidora de Gás Natural de Lisboa, S.A. (GDL)) have assumed the commitment to pay their employees' pension supplements for retirement due to age, disability and pensions to survivors, as well as early retirement and pre-retirement pensions. With the exception of early retirement and pre-retirement pensions, these payments are calculated on an incremental basis in accordance with the number of years of the employee. Early retirement and pre-retirement pensions correspond essencialy to the employee's wage. When applicable, these commitments also include the payment of Social Security of pre-retired personnel, voluntary social insurance of early retirees and retirement bonuses payable upon normal retirement.
Petrogal, Sacor Marítima and the GDP group companies have created autonomous pension funds managed by outside entities ("Fundo de Pensões Petrogal", "Fundo de Pensões Sacor Marítima" and "Fundo de Pensões GDP") to cover their liabilities relating to pension supplements for retirement due to age, incapacity and survivor pensions to current employees and retired personnel and, in the case of Petrogal, also to pre-retired and early retired personnel. However, the Petrogal Pension Fund does not cover the liability for early retirement and pre-retirement pensions, Social Security of pre-retired personnel and the payment of voluntary social insurance and retirement bonuses. These liabilities are covered by specific provisions included in the balance sheet caption "Retirement and other benefit obligations" (Note 24).
In addition, the GDP pension plan does not cover the liability assumed by GDL to reimburse the retirement pension supplements payable by EDP to its retired personnel and pensioners relating to GDL, as well as retirement and survivor supplements payable to retired personnel at the time of creating the Fund. These liabilities are covered by specific provisions included in the balance sheet caption "Retirement and other benefit obligations" (Note 24).
At the end of each accounting period the companies obtain actuarial valuations calculated by a specialised entity in accordance with the Projected Unit Credit Method and compare the amount of their liabilities with the market value of the funds and with the balance of the provisions, in order to determine the additional provisions to be recorded.
The actuarial gains and losses determined in a year for each of the benefits granted, resulting from adjustments to the actuarial assumptions, experience adjustments or adjustments to the scheme of benefits are only recorded if the net accumulated amount of these actuarial gains and losses not recognised (Total Deviation) at the end of the period exceeds in absolute amount the greater of: 10% of the total liability or 10% of the market value of the fund, being recognised in the income statement as from the year following that which it is determined, on a straight-line basis in accordance with the expected average number of working years of the employees participating in the benefit plan.
The benefit plans identified by the Petrogal sub-group for determination of these liabilities are:
The benefit plans identified by the GDP sub-group for determination of these liabilities are:
On 31 December 2002 the Portuguese Insurance Institute authorised the creation of the Galp Energia defined contribution Pension Fund. In 2003 Galp Energia, SGPS, S.A. created a defined contribution Pension Fund for its employees and allowed employees of other group companies to join this fund. Petróleos de Portugal – Petrogal, S.A., GDP – Gás de Portugal, SGPS, S.A., Lisboagás GDL – Sociedade Distribuidora de Gás Natural de Lisboa, S.A. and Galp eNova S.A. (on 17 December 2003 Galp eNova S.A. was merged into Galp Energia, S.A.) as associates of the Fund, to allowes their employees choose between this new defined contribution pension plan and the previous defined benefits plan. In the case of options for the new plan the group companies contribute with an annually defined amount to the fund, corresponding to a percentage of the salary of each employee, which is recognised as a cost for that year.
The Group's costs with respect to healthcare, life insurance and defined contribution minimum benefit plan are recognised over the period in which the employees entitled to these benefits are in service in the respective companies, the liability being reflected in the balance sheet caption "Retirement and other benefit obligations" (Note 24). Payments to the beneficiaries each year are recorded as reductions in the provisions.
At the end of each accounting period the Group obtains actuarial valuations of the amount of its liability, calculated in accordance with the Projected Unit Credit method, and compares this with the provisions recorded in order to determine the additional amount to be recorded.
Actuarial gains and losses for the year are recorded as explained in Note 2.10 above.
Transactions are recorded in the individual financial statements of subsidiaries in their functional currencies, at the rates of exchange in force on the dates of the transactions.
All foreign currency monetary assets and liabilities in the individual financial statements of subsidiaries are translated to the functional currency of each subsidiary using the rates of exchange in force at the balance sheet date of each period. Foreign currency non monetary assets and liabilities recorded at fair value are translated to the functional currency of each subsidiary at the rate of exchange in force on the date that fair value is determined.
Gains and losses resulting from differences between the exchange rates in force on the dates of the transactions and those prevailing at the date of collection, payment or the balance sheet date are recorded as income and expenses, respectively, in the consolidated income statement caption "Exchange gain (loss)", except for those relating to non-monetary items, in which case the change in fair value is recorded directly in equity.
When the Group intends to reduce its exposure to exchange rate risk it contracts hedging derivative instruments (Note 2.17.f)).
Sales income is recognised in the income statement when the risks and benefits of ownership of the assets are transferred to the buyer and the amount of the income can be reasonably measured. Sales are recognised at the fair value of the amount received or receivable, net of taxes, discounts and other costs incurred to realise them.
The sales price of natural gas to electricity producers companies is established in accordance with agreements entered into. The sales price of natural gas to entities subject to regulation is determined by the Government through the General Directorate of Geology and Energy. The selling price of natural gas is fixed quarterly in accordance with a formula established in the concession contract. Meter reading, invoicing and collections relating to the distribution and commercialisation of natural gas are made by the companies themselves or, in the case of meter reading and collections, through external partners.
As mentioned in the Introductory Note, the regulated tariffs used for invoicing natural gas in the national natural gas system are established by ERSE, so that they allow the recovery of the estimated permitted revenue for the 2008-2009 gas year calculated for each regulated activity. Permitted revenue includes, in addition to operating costs for each activity, the following remuneration: (i) commercialisation activity, remuneration for the purchase and sale of natural gas, which corresponds to the effective cost of natural gas and remuneration of the operating commercialisation costs plus a commercialisation margin; (ii) activities of reception, transport and storage of natural gas, remuneration of 8% of the fixed assets net of depreciation and grants relating to these activities, (iii) activity of distribution of natural gas, remuneration of 9% of the fixed assets net of depreciation and grants relating to these activities. The permitted revenue of the pass-through activities/functions assumes recovery of the costs incurred. Consequently, each activity is compensated for the costs incurred whenever they exist plus its own remuneration.
As a result of the above mentioned and since each Group commercialisation regulated company hold the credit risk of the tariffs invoiced to the final clients, the Group's regulated companies income include the remuneration/recovery of all the previous activities.
Since the real permitted revenue of the Group's storage, distribution and retail commercialisation of last resort activities that result in the application of the above mentioned remuneration mechanism, is greater by an insignificant amount than the estimated permitted revenue defined by ERSE for the 2008-2009 gas year and assuming on a conservative perspective, despite it being established that this difference will be reflected in the permitted revenue to be defined for the 2010-2011 gas year, the effect of this difference was not recognised. The companies only reflected in its financial statements, in accruals and deferrals captions, the effect of the difference between revenue resulting from application of the regulated tariffs in the invoicing to its clients and the estimated permitted revenue defined by ERSE for the 2008-2009 gas year (Notes 15 and 25).
In addition, as the real permitted revenue from the wholesale commercialisation of last resort activity was significantly less than the income that would result from application of the remuneration mechanism of the tariff regulation for that activity, essentially due to the effective cost of natural gas being greater than that forecast at the time of defining the tariff to recover that cost, regardless of the estimated permitted revenue defined by ERSE for the 2008-2009 gas year being based on new tariffs, the Group recognised in accruals and deferrals captions the difference between the effective cost of natural gas acquired and the sales price used as a result of the defined tariff, referred to as Tariff Deviation (Note 15).
As the natural gas regulation system is intended to result in a uniform tariff (applicable to all the country's regions) and considering the various levels of efficiency of the companies in the regulated market, ERSE published the compensation mechanism to be practiced between the companies in the sector, so as to allow approximation of income recovered by application of the regulated tariffs to permitted revenue of these companies. Therefore ERSE in chapter V of the Regulation on Commercial Relations, identifies the amount of compensation to be transferred (debited) between companies of the national gas system.
Sales of gas not invoiced are recorded monthly in the caption "Other receivables" based on the estimated amount to be invoiced, and corrected in the income statement in the period in which they are invoiced (Note 15).
Costs and income are recorded in the period to which they relate, independently of when they are paid or received. Where the actual amounts of costs and income are not known they are estimated.
Costs and income attributable to the current period where the payments and receipts will only occur in future periods and payments and receipts which have already occurred but relate to future periods and will be allocated to the income statement in each of these periods by the amounts that correspond to them, are recorded in the captions "Other current assets" and "Other current liabilities".
Financial costs on loans obtained are recorded as financial costs on an accruals basis.
Financial costs on loans to finance investments in fixed assets are capitalised in fixed assets in progress in proportion to the total costs incurred on the investments, net of government grants received (Note 2.8), up to the time they start operating (Notes 2.3 and 2.4), the remaining financial costs being recorded in the income statement caption "Financial costs" (Note 9). Any interest income on loans obtained directly to finance fixed assets in construction is deducted from the capitalisable financial costs.
Financial costs included in tangible fixed assets are depreciated over the period of useful life of the assets.
Income tax is calculated based on the taxable results of the companies included in the consolidation in accordance with the applicable tax rules in force in the area in which each Galp Energia group head office is located.
Deferred taxes are calculated based on the liability method and reflect the temporary differences between the amounts of assets and liabilities for accounting purposes and the amounts for tax purposes.
Deferred tax assets and liabilities are calculated and reviewed annually using the tax rates expected to be in force when the temporary differences revert.
Deferred tax assets are recorded only when there is reasonable expectation of sufficient future taxable income to use them or whenever there are taxable temporary differences that offset the deductible temporary differences in the period they revert. Temporary differences underlying deferred tax assets are reviewed at each balance sheet date in order to recognise deferred tax assets not recorded previously due to not fulfilling the conditions needed for them to be recorded and/or to reduce the amounts of deferred tax assets recorded based on the current expectation of their future recovery (Note 10).
Deferred taxes are recorded in the income statement for the year, unless they result from items recorded directly in equity, in which case the deferred tax is also recorded in equity.
Non-current assets (and groups of assets and liabilities related to them) are classified as available for sale if their book value is expected to be realised through sale and not through their continued use. This condition is considered to exist when the sale is very probable and the asset (and the group of assets and liabilities related to it) is available for immediate sale in its present condition. In addition, actions that allow to conclude that the sale is expected to be realised within a period of 12 months from the date the assets are classified in this caption must be in progress.
Non-current assets (and the groups of assets and liabilities to be sold related to them) classified as available for sale are recorded at the lower of their book value or fair value less costs to sell. These assets are not depreciated.
Financial assets and liabilities are recognised on the balance sheet when the Group becomes a contractual party to the financial instrument.
Investments are classified as follows:
Held-to-maturity investments are classified as non-current investments, unless they mature in less than 12 months from the balance sheet date. These investments have a defined maturity date which the Group intends and has the ability to retain up to their maturity.
Investments at fair value through profit or loss are classified as current investments.
Available-for-sale investments are classified as non-current assets.
All purchases and sales of these investments are recorded on the date of signing the respective purchase and sale contracts, independently of the financial settlement date.
Investments are initially recorded at cost, which is the fair value of the price paid, including transaction costs.
After initial recognition, investments at fair value through profit or loss and available-for-sale investments are revalued to fair value by reference to their market value at the balance sheet date, with no deduction for transaction costs which could be incurred upon sale. Equity instruments not listed on a regulated market, where it is not possible to reliably estimate their fair value, are maintained at cost less any non-revertible impairment losses.
Gains and losses resulting from changes in the fair value of available-for-sale investments are recognised in the equity caption "Fair value reserve" until the investment is sold, redeemed or in some way disposed of or until the fair value of the investment falls below cost over a long period, at which time the accumulated gain or loss is recognised in the income statement.
Gains and losses resulting from changes in the fair value of investments at fair value through profit or loss are recognised in the income statement.
Held-to-maturity investments are recorded at amortised cost using the effective interest rate, net of repayments of principal and interest received.
Receivables are recognised at their nominal value less impairment losses recognised in the caption "Provision for impairment of receivables", so that they are reflected at their net realisable value.
Receivables usually do not bear interest.
Financial liabilities and equity instruments are classified in accordance with their contractual substance, independently of their legal form.
Loans are recorded as liabilities at the nominal amount received, net of costs to issue the loans.
Financial costs are calculated at the effective interest rate and recognised in the income statement on an accruals basis.
Financial costs include interest and any origination fees incurred relating to project finance.
Payables do not usually bear interest and are recognised at their nominal value.
The Group uses derivative instruments in managing its financial risks as a way to hedge such risks. Derivative instruments to hedge financial risks are not used for trading purposes.
Derivative instruments used by the Group to hedge cash flows correspond fundamentally to interest rate hedging instruments on loans obtained. The coefficients, calculation conventions, interest rate re-fixing dates and interest rate hedging instrument repayment schedules are in all ways identical to the conditions established in the underlying contracted loans, and so they correspond to perfect hedges.
The following criteria are used by the Group to classify derivative instruments as cash flow hedging instruments:
Interest rate hedging instruments are initially recorded at cost, if any, and subsequently revalued to fair value, calculated by independent external entities using generally accepted valuation methods (such as "Discounted Cash flows", Black-Scholes model, Binomial and Trinomial models and Monte-Carlo simulations, among others, depending on the type and nature of the derivative financial derivative). Changes in fair value of these instruments are recognised in the equity caption "Hedging reserves", being transferred to the income statement when the hedged instrument affects results.
Hedge accounting is discontinued when the derivative instruments mature or are sold. Where the derivative instrument stops qualifying as a hedging instrument, the accumulated fair value differences deferred in the equity caption "Hedging reserves" are transferred to the income statement or added to the book value of the asset which gave rise to the hedging transaction, and subsequent revaluations are recognised directly in the income statement.
A review was made of the Galp Energia group's existing contracts so as to detect embedded derivatives, namely contractual clauses that could be considered as financial derivatives. No financial derivatives that should be recognised at fair value having been identified.
When embedded derivatives exist in other financial instruments or other contracts, they are recognised as separate derivatives in situations in which the risks and characteristics are not intimately related to the contracts and in situations in which the contracts are not reflected at fair value with unrealised gains and losses reflected in the income statement.
In addition, in specific situations the Group also contracts interest rate derivatives to hedge fair value. In such situations the derivatives are recognised at fair value through the income statement. In cases in which the hedged instrument is not measured at fair value (namely loans measured at amortised cost), the effective portion of the hedge is adjusted to the book value of the hedged instrument through the income statement.
The Group uses derivative financial instruments, essentially crude oil and finished product swaps and options and crude oil options, to hedge refining margin fluctuation risk. Although these instruments are contracted to hedge financial risk in accordance with the Group's risk management policies, they do not comply with the requirements of IAS 39 for hedge accounting, and so changes in their fair value are recognised in the income statement for the period in which they occur. At 31 December 2008 these investments were recorded at fair value.
The Group trades financial derivative instruments over electric energy, namely swaps known as VPP's (Virtual power production capacity rights). Such financial instruments, if held, are not stated at fair value as fair value cannot be reliably measured. If the options are exercised at maturity, the Company records the physical purchase of electricity in the caption "Cost of sales" and the physical sale of electricity to clients in the caption "Sales". The position of these financial instruments at 31st December 2008 was immaterial.
The amounts included in the caption "Cash and cash equivalents" correspond to cash, bank deposits, term deposits and other treasury applications that mature in less than three months, and that can be realised immediately with insignificant risk of change in their value.
For cash flow statement purposes the caption "Cash and cash equivalents" also includes bank overdrafts included in the balance sheet caption "Bank loans and overdrafts".
CO2 emitted by the Group's industrial plants and the "CO2 emission licences" attributed to it under the National CO2 Licence Allotment Plan do not give rise to any financial statement recognition provided that: (i) it is not estimated that there will probably be a need for costs to be incurred by the Group to acquire emission licences in the market, which would be recognised by the recording of a provision or (ii) such licences are not sold in the event that they are excessive, in which case income would be recognised.
Assets realisable and liabilities payable in more than one year from the balance sheet date are classified as non-current assets and non-current liabilities, respectively.
Events that occur after the balance sheet date that provide additional information on conditions that existed at the balance sheet date are recognised in the consolidated financial statements. Events that occur after the balance sheet date that provide information on conditions that exist after the balance sheet date, if material, are disclosed in the notes to the financial statements.
All the business and geographic segments applicable to the Group are identified in each period.
Financial information regarding income by business segment identified is provided in Note 8.
The preparation of financial statements in accordance with generally accepted accounting principles requires estimates to be made that affect the recorded amount of assets and liabilities, the disclosure of contingent assets and liabilities at the end of each year and income and costs recognised each year. The actual results could be different depending on the estimates made.
Certain estimates are considered critical if: (i) the nature of the estimates is considered to be significant due to the level of subjectivity and judgement required to record situations in which there is great uncertainty or are very susceptible to changes in the situation and; (ii) the impact of the estimates on the financial situation or operating performance is significant.
The accounting principles and areas that require the greatest number of judgements and estimates in the preparation of financial statements are: (i) proven crude oil reserves relating to petroleum exploration activity; (ii) goodwill impairment tests; (iii) provision for contingencies and environmental liabilities; and (iv) actuarial and financial assumptions used to calculate retirement benefits.
The estimation of crude oil reserves is an integral part of the decision-making process relating to exploration activity assets and the development of crude oil, in addition to supporting the development or implementation of secondary recovery techniques. The volume of proved crude oil reserves is used to calculate depreciation of the petroleum exploration and production assets in accordance with the "Unit of Production" method, as well as to value impairment of investment in assets relating to that activity. Estimated proved crude oil reserves are also used to recognise annual abandonment costs.
Estimated proved reserves are subject to future revision, based on new information available, such as information relating to the development activities, drilling or production, exchange rates, prices, contract termination dates and development plans. The volume of crude oil produced and cost of the assets are known, while the proved reserves are very likely to be recovered and are based on estimates subject to adjustment. The impact on depreciation and provision for abandonment costs, of changes in the estimated proved reserves is treated on a prospective basis, the remaining net book value of the assets being depreciated and the provision for abandonment costs being increased, respectively, based on the expected future production. In 2008 and 2007, the Group recorded depreciation of tEuros 60,237 and tEuros 53,352, respectively, of fixed assets relating to the exploration and production of crude oil. If the proved reserves are revalued downwards, future net profit could be affected negatively by increased depreciation cost and provisions for abandonment costs.
The quantity and type petroleum reserves used for accounting purposes are discussed in Note 31.
The Group performs annual impairment tests of goodwill as explained in Note 2.2.d). The recoverable amounts of the cash generating units were determined based on their value in use. In calculating value in use, the Group estimated the expected future cash flows from the cash generating units, as well as an appropriate discount rate to calculate the present value of the cash flows. Goodwill at 31 December 2008 amounted to tEuros 171,506 (Note 12).
The final cost of legal processes, settlements and other litigation can vary due to estimates based on different interpretations of the rules, opinions and final assessment of the losses. Consequently, any change in circumstances relating to these types of contingency can have a significant effect on the recorded amount of the provision for contingencies.
Galp makes judgements and estimates to calculate provisions for environmental matters (relating essentially to the known requirements of soil decontamination), based on current information relating to expected intervention costs and plans. Such costs can vary due to changes in the legislation and regulations, change in conditions of a specific location, as well as in decontamination technologies. Consequently, any change in the circumstances relating to such provisions, as well as in the legislation and regulations can significantly affect the provisions for such matters. The provision for environmental matters is reviewed annually. At 31 December 2008 and 2007 the provision for environmental liabilities amounted to tEuros 8,839 (Note 26) and tEuros 9,008, respectively.
See Note 2.10.
The Group's operations lead to the exposure to risks of: (i) market, as a result of the volatility of prices of oil, natural gas and its derivatives, exchange rates and interest rates; (ii) credit, as a result of its commercial activity; (iii) liquidity, as the Group could have difficulty in having the financial resources necessary to cover its commitments.
The Group has an organisation and systems that enable it to identify, measure and control the different risks to which it is exposed and uses several financial instruments to hedge them in accordance with the corporate directives common to the whole Group. The contracting of these instruments is centralised.
The accounting policies explained in this section contain more details of these hedges.
In the year ended 31 December 2008 the Galp Energia group decided to change its accounting policies relating with the method to determine the cost of consumption and sales of inventories and the classification in the income statement of certain costs and income detailed below, having restated the information for the year ended 31 December 2007 presented for comparative purposes:
In accordance with the Group, the changes in accounting policies improve the interpretation of the financial statements by its users.
The impact of these changes on the consolidated balance sheet and income statement is as follows:
| Amounts in tEur | |||
|---|---|---|---|
| Caption | 2007 restated | Effect of change to weighted average cost |
2007 |
| Current assets: | |||
| Inventories (Note 17) | 1,346,816 | 75,248 | 1,422,064 |
| Non-current liabilities: | |||
| Deferred tax liabilities (Note 10) | 128,700 | (18,893) | 147,593 |
Income statement:
| Caption | 2007 restated | Effect of change to weighted average cost |
Main activity |
2007 | |
|---|---|---|---|---|---|
| Cost of sales (Note 7) | 10,513,474 | 75,248 | 8,276 | 10,429,950 | |
| External supplies and services (Note 7) | 621,921 | - | (8,276) | 630,197 | |
| Income tax (Note 10) | 249,100 | (18,893) | - | 267,993 |
Amounts in tEur
The companies included in the consolidation their head offices, percentage of interest held and their principal activities at 31 December 2008 and 2007 are as follows:
| Head office | Percentage interest held |
Main | ||||
|---|---|---|---|---|---|---|
| Company | City | Country | 2008 | 2007 | activity | |
| A) Companies of the Group | ||||||
| Parent company | ||||||
| Galp Energia, SGPS, S.A. | (b) | Lisbon | Portugal | – | – Management of equity participations in other companies as an indirect form of realising business activities. |
|
| Subsidiaries: | ||||||
| Galp Energia, S.A. | Lisbon | Portugal | 100% | 100% Business management and consultancy services. | ||
| Galp Energia E&P B.V. | (d) | Amsterdam | Netherlands | 100% | – Exploration and production of petroleum and natural gas, as well as trading in petroleum, natural gas and petroleum products; management of investments in other companies and financing of businesses and other companies. |
|
| Driftal – Plastificantes de Portugal, S.A. |
(c) | Lisbon | Portugal | – | 100% Commercialisation of phtalic Plastifiers. | |
| Petrogal sub-group: | ||||||
| Petróleos de Portugal – Petrogal, S.A. |
Lisbon | Portugal | 100% | 100% Refining of crude oil and derivatives; Transport, distribution and commercialisation of crude oil and derivatives and natural gas; Research and exploration of crude oil and natural gas; and any other industrial, commercial and investigation activities and rendering of services relating to these areas. |
||
| Petróleos de Portugal – Petrogal, S.A. Sucursal en España |
(d) | Madrid | Spain | – | – Management of participations in other refined products distributor companies in the Iberian peninsula. |
|
| Subsidiaries: | ||||||
| Galp Comercializacion Oil España, S.L. and subsidiaries: |
(a) | Madrid | Spain | 100% | – Storage, transport, import, export and sale of all petroleum products, chemical products, gas and its derivatives. |
|
| Roc - Retail Operating Company, S.L. |
(a) | Madrid | Spain | 100% | – Exploration or direct or indirect management of service stations and related or complementary activities, such as workshops, the sale of lubricants, parts and accessories for motor vehicles, restaurants and hotels. |
|
| Galp Energia España, S.A. and subsidiaries: |
Madrid | Spain | 100% | 100% Obtaining, representation and commercialisation of petroleum products, chemical products and all related matters. |
||
| Galpgest – Petrogal Estaciones de Servicio, S.L.U. |
Madrid | Spain | 100% | 100% Management and operation of service stations. | ||
| CLG – Compañia Logística del Gas, S.A. |
Madrid | Spain | 100% | 100% Storage and distribution of petroleum products. | ||
| Petróleos de Valência, S.A. Sociedad Unipersonal |
Valencia | Spain | 100% | 100% Deposit, storage and distribution of petroleum products and chemical products and their derivatives and subproducts. |
||
| Galp Serviexpress, S.L.U. | Madrid | Spain | 100% | 100% Deposit, storage and distribution of petroleum products and chemical products and their derivatives and subproducts. |
||
| Galp Distribuición Oil España, S.A.U. and subsidiaries: |
(a) | Madrid | Spain | 100% | – Storage, transport, import, export and sale of all petroleum products, chemical products, gas and its derivatives. |
|
| Galp Distribuição Portugal, S.A. |
(a) | Lisbon | Portugal | 100% | – All activity directly or indirectly related to the operation and management of service stations, including the exploration of stores and washing facilities in the service stations, as well as import, storage and distribution of petroleum products and derivatives. |
|
| Sacor Marítima, S.A. and subsidiaries: |
Lisbon | Portugal | 100% | 100% Marine transport in own and chartered vessels. | ||
| Gasmar - Transportes Marítimos, Lda. |
Funchal | Portugal | 100% | 100% Marine transport in own and chartered vessels. | ||
| Tripul – Soc. de Gestão de Navios, Lda. |
Lisbon | Portugal | 100% | 100% Technical management of ships, crews and supply. | ||
| S.M. Internacional – Transp. Marítimos, Lda. |
Funchal | Portugal | 100% | 100% Marine transport in own and chartered vessels. |
| Head office | Percentage interest held |
|||||
|---|---|---|---|---|---|---|
| Company | City | Country | 2008 | 2007 | Main activity |
|
| Probigalp – Ligantes Betuminosos , S.A. |
Amarante | Portugal | 60% | 60% Purchase, sale, manufacture, transformation, import and export of bituminous products of additives that transform or modify such products. |
||
| Soturis – Sociedade Imobiliária e Turística, S.A. |
Lisbon | Portugal | 100% | 100% Real estate activities, namely the management, purchase, sale and resale of real estate. |
||
| Sopor – Sociedade Distribuidora de Combustíveis, S.A. |
Lisbon | Portugal | 51% | 51% Distribution, sale and storage of liquid and gas fuel, lubricants and other petroleum derivatives; service stations and repair workshops, including related businesses, namely restaurants and hotels. |
||
| Eival – Sociedade de Empreendimentos, Investimentos e Armazenagem de Gases, S.A. |
Lisbon | Portugal | 100% | 100% Wholesale commerce of gas products, lubrificants, thermo domestic products and burning and gas installation material. |
||
| Galp Exploração e Produção Petrolifera, Lda. and subsidiaries: |
Funchal | Portugal | 100% | 100% Petroleum commerce and industry, including prospecting, research and exploration of hydrocarbons. |
||
| Galp Exploração Serviços Brasil, Lda. |
Recife | Brazil | 100% | 100% Business management and consultancy services. | ||
| Gite – Galp International Trading Establishment |
Vaduz | Liechtenstein | 24% | 24% Petroleum commerce and industry, including prospecting, research and exploration of hydrocarbons. |
||
| Galpbúzi – Agro-Energia, S.A. | (d) | Cidade da Beira |
Mozambique | 66.67% | – Development of projects and promotion of own or third party agricultural cultivation projects, of oil seeds, their transport and processing in own or third party facilities, for the production of vegetable oils transformable into biodiesel or other fuel that techniques permit, import and export of these vegetable oils thus produced or products extracted from them and the rendering of technical assistance and services within these activities. |
|
| Moçamgalp Agroenergias de Moçambique, S.A. |
(d) | Maputo | Mozambique | 50% | – The exercise of agriculture and related activities, including the transformation of oil seeds into vegetable oil that are raw or semi-finished materials for use in other industries, namely for the manufacture of biodiesel and sale of them nationally or internationally, consequently including their transport, as well as the rendering of any other services and technical assistance in that activity. |
|
| Galp Serviexpress – Serv. de Distrib. e Comercialização de Produtos Petrolíferos, S.A. |
Lisbon | Portugal | 100% | 100% Rendering of transport, storage and commercialisation services for liquid and gas fuels, base oils and other petroleum derivatives to individuals, small companies and farmers in the domestic and foreign markets. Direct and indirect operation of fuel distribution centres and supporting activities, namely service stations, workshops, the sale of motor vehicle parts and accessories, restaurants and hotels, as well as any other industrial or commercial activity and the rendering of related services. |
||
| Galpgeste – Gestão de Áreas de Serviço, Lda. and subsidiaries: |
Lisbon | Portugal | 100% | 100% Direct and indirect operation of service stations, fuel stations and related or complementary activities, such as service stations, workshops, the sale of lubricants motor vehicle parts and accessories, restaurants and hotels. |
||
| C.L.T. – Companhia Logística de Term. Marítimos, Lda. |
Matosinhos | Portugal | 100% | 100% Operation of marine terminals and related activities. | ||
| Petrogal Brasil, Lda. | Recife | Brazil | 100% | 100% Refining of crude oil and its derivatives, their transport, distribution and commercialisation and research and exploration of petroleum and natural gas. |
||
| Petrogal Trading Limited | Dublin | Ireland | 100% | 100% Crude oil and petroleum product trading. | ||
| Petrogal Moçambique, Lda. | Maputo | Mozambique | 100% | 100% Distribution, storage and commercialisation of liquid and gas fuel, base oils and lubricants and the operation of fuel stations and service stations and vehicle assistance. |
||
| Petrogal Angola, Lda. | Luanda | Angola | 100% | 100% Distribution, storage and commercialisation of liquid and gas fuel, base oils and lubricants and the operation of fuel stations and service stations. |
||
| Galp Gambia, Limited | (a) | Banjul | Gambia | 100% | – Distribution, transport, storage, commercialisation of liquid and gas fuel, oil and operation of service stations. |
|
| Galp Moçambique, Lda. | (a) | Maputo | Mozambique | 100% | – Storage, commercialisation and distribution, import, export and transport of petroleum and its derivatives, as well as all types of oil, whether vegetable, animal or mineral. |
|
| Shell Oil Swaziland (PTY) Limited |
(a) | Matsapha | Suaziland | 100% | – Distribution, transport, storage, commercialisation of liquid and gas fuel, oil and operation of service stations. |
|
| Galp Energia Portugal Holdings B.V. and subsidiaries: |
(a) (f) |
Breda | Netherlands | 100% | – Management of participations in other companies of the energy sector as na indirect form of economic activity. |
|
| Galp Comercialização Portugal, Lda. and subsidiaries: |
(a) (f) |
Lisbon | Portugal | 100% | – Exercise of all activities relating to petroleum, its derivatives and its substitutes in all its forms. |
|
| COMG – Comercialização de Gás, Lda |
(a) (f) |
Lisbon | Portugal | 100% | – Commercialisation of petroleum gas and any free exercise activities which the company decides to dedicate itself to through prior authorisation of the Shareholder's General Meeting. |
| Head office | Percentage interest held |
|||||
|---|---|---|---|---|---|---|
| Company | City | Country | 2008 | 2007 | Main activity |
|
| PPQCGT – Petróleos, Produtos Químicos, Comércio Geral e Turismo, Lda. |
(a) (f) |
Lisbon | Portugal | 100% | – The exercise of all and any activities related to petroleum, its detrivatives and substitutes, exercise of commerce and industry of chemical products and their derivatives, the exercise of commerce of representations and consignments, the exercise of any activities relating to tourism. |
|
| CORS – Companhia de Exploração de Estações de Serviço e Retalho de Serviços Automóvel, Lda. |
(a) (f) |
Lisbon | Portugal | 100% | – Operation of and/or management of service stations and other activities exercised within them, including the management of personnel of the service stations. |
|
| Petrogal Guiné-Bissau, Lda. and subsidiaries: |
Bissau | Guinea Bissau |
100% | 100% Distribution, transport, storage and commercialisation of liquid and gas fuel, base oils, lubricants and other petroleum derivatives and the operation of fuel stations and vehicle assistance stations. |
||
| Petromar – Sociedade de Abastecimentos de Combustíveis, Lda. |
Bissau | Guinea Bissau |
80% | 80% Commerce of marine banks. | ||
| Petrogás – Importação, Armazenagem e Distribuição de Gás, Lda. |
Bissau | Guinea Bissau |
65% | 65% Importation, storage and distribution of LPG. | ||
| Galp Açores – Distrib. e Comercia lização de Combustíveis e Lubrifi cantes, S.A. and subsidiary: |
Ponta Delgada | Portugal | 100% | 100% Distribution, storage, transport and commercialisation of liquid and gas fuel, lubricants and other petroleum derivatives. |
||
| Saaga – Sociedade Açoreana de Armazenagem de Gás, S.A. |
Ponta Delgada | Portugal | 67.65% | 67.65% Construction and operation of filling stations and related storage facilities of LPG and other fuel in the Autonomous Region of the Azores. |
||
| Galp Madeira – Distrib. e Comer cializ. de Combustíveis e Lubrifi cantes, Lda. and subsidiaries: |
Funchal | Portugal | 100% | 100% Distribution, storage, transport and commercialisation of liquid and gas fuel, lubricants and other petroleum derivatives. |
||
| CLCM – Companhia Logistica de Combustíveis da Madeira, S.A. |
Funchal | Portugal | 75% | 75% Installation and operation of liquid and gas fuel storage facilities, as well as the respective transport, reception, movement, filling and shipping structures and other industrial, commercial and investigation activities and the rendering of services relating to these activities. |
||
| Gasinsular – Combustíveis do Atlântico, S.A. |
Funchal | Portugal | 100% | 100% Distribution, storage, transport and commercialisation of liquid and gas fuel, base oils, lubricants and other petroleum derivatives and the direct and indirect operation fuel stations and service stations and complementary activities, namely service stations, vehicle repair and maintenance workshops, the sale of motor vehicle parts and accessories, restaurants and hotels, as well as any other industrial commercial and investigating activities and the rendering of services relating to the activities mentioned in its objects. |
||
| Tanquisado – Terminais Marítimos, S.A. |
Setúbal | Portugal | 100% | 100% Development and operation of Marine Terminals. | ||
| Sempre a Postos – Produtos Alimentares e Utilidades, Lda. |
Lisbon | Portugal | 75% | 75% Retail sale of food products, domestic utensils, presents and other articles, including newspapers, magazines, records, videos, toys, drinks, tobacco, cosmetics and hygiene, travel and vehicle accessory items. |
||
| Combustiveis Líquidos, Lda. | Lisbon | Portugal | 99.8% | 99.8% Sale of fuel, lubricants and vehicle accessories and any other business to which the partners agree and that does not require special authorisation. |
||
| Blue Flag Navigation – Transportes Marítimos, Lda. |
Funchal | Portugal | 100% | 100% Marine transport and commercial operation of ships in its own name, as owner or chartered, or in the name of third parties. |
||
| Fast Access – Operações e Serviços de Informação e Comércio Electrónico, S.A. |
Lisbon | Portugal | 100% | 100% Realisation of operations and rendering of information services and electronic commerce for mobile users as well as the rendering of on-line commerce management and operating services. |
||
| Tagus Re, S.A. | Luxembourg | Luxembourg | 100% | 100% Reinsurance of all products, excluding direct insurance. | ||
| Petrogal Cabo Verde, Lda. | St. Vincent | Cape Verde | 100% | 100% Distribution and sale of liquid and gas fuel, base oils and lubri cants as well as the operation of fuel stations and service stations. |
||
| Galp Exploração e Produção (Timor Leste), S.A. |
Lisbon | Portugal | 100% | 100% Commerce and industry of petroleum, including prospecting, research and exploration of hydrocarbons in East Timor. |
||
| Galp Investment – Fundo | (e) | Lisbon | Portugal | – | – Securitisation of credits. | |
| Galp Investment Fund, PLC | (e) | Dublin | Ireland | – | – Securitisation of credits. | |
| GDP sub-group: | ||||||
| GDP – Gás de Portugal, SGPS, S.A.: | (b) | Lisbon | Portugal | 100% | 100% Management of equity investments. | |
| Subsidiaries: | ||||||
| GDP Serviços, S.A. | Lisbon | Portugal | 100% | 100% Business management services. | ||
| Beiragás – Companhia de Gás das Beiras, S.A. |
Viseu | Portugal | 59.51% | 59.51% Operation, construction and maintenance of regional natural gas distribution networks. |
||
| Dianagás – Soc. Distrib. de Gás Natural de Évora, S.A. |
Bucelas | Portugal | 100% | 100% Operation, construction and maintenance of regional natural and other gas distribution networks. |
||
| Paxgás – Soc. Distrib. de Gás Natural de Beja, S.A. |
Bucelas | Portugal | 100% | 100% Operation, construction and maintenance of regional natural and other gas distribution networks. |
| Head office | Percentage interest held |
|||||
|---|---|---|---|---|---|---|
| Company | City | Country | 2008 | 2007 | Main activity |
|
| Medigás – Soc. Distrib. de Gás Natural do Algarve, S.A. |
Bucelas | Portugal | 100% | 100% Operation, construction and maintenance of regional natural and other gas distribution networks. |
||
| Duriensegás – Soc. Distrib. de Gás Natural do Douro, S.A. |
Bucelas | Portugal | 100% | 100% Operation, construction and maintenance of regional natural and other gas distribution networks. |
||
| Lusitaniagás – Companhia de Gás do Centro, S.A. |
(a) | Aveiro | Portugal | 85.25% | 85.19% Operation, construction and maintenance of regional natural and other gas distribution networks. |
|
| Lusitaniagás Comercialização, S.A. |
Aveiro | Portugal | 100% | 100% Commercialisation of retail last resort natural gas. | ||
| Lisboagás GDL – Sociedade Distribuidora de Gás Natural de Lisboa, S.A. |
Lisbon | Portugal | 100% | 100% Obtain, store and distribute piped combustible gas. | ||
| Lisboagás Comercialização, S.A. |
Lisbon | Portugal | 100% | 100% Commercialisation of retail last resort natural gas. | ||
| Galp Gás Natural, S.A. and subsidies: |
Lisbon | Portugal | 100% | 100% Importation of natural gas, storage, distribution through high pressure networks, construction and maintenance of networks. |
||
| Transgás Armazenagem – Soc. Portuguesa de Armazenagem de Gás Natural, S.A. |
Lisbon | Portugal | 100% | 100% Storage of natural gas on a public service sub-concession basis, including the construction, maintenance, repair and operation of all the related infrastructure and equipment. |
||
| Transgás, S.A. | Lisbon | Portugal | 100% | 100% Supply of energy to companies and purchase and sale of natural gas. |
||
| Galp Power sub-group: | ||||||
| Galp Power, SGPS, S.A. and subsidiaries: |
Lisbon | Portugal | 100% | 100% Management of equity investments as an indirect way of exercising business activities. |
||
| Carriço Cogeração Sociedade de Geração de Electricidade e Calor, S.A. |
Lisbon | Portugal | 65% | 65% Production, in the form of co-generation, and sale of electric and thermic energy. |
||
| Powercer – Sociedade de Cogeração da Vialonga, S.A. |
Lisbon | Portugal | 70% | 70% Production, in the form of co-generation, and sale of electric and thermic energy, including the conception, construction, financing and operation of co-generating installations and all the related activities and services. |
||
| Sinecogeração – Cogeração da Refinaria de Sines, S.A. |
Lisbon | Portugal | 100% | 100% Production, transport and distribution of electric and thermal energy produced by co-generating and renewal energy systems, including the conception, construction and operation of systems or installations. |
||
| Galp Power, S.A. | Lisbon | Portugal | 100% | 100% Purchase and sale of energy, as well as the rendering services and realisation of activities directly or indirectly related with energy. |
||
| Portcogeração, S.A. | Lisbon | Portugal | 100% | 100% Production, transport and distribution of electric and thermal energy from co-generating systems and renewal energy. |
||
| Galp Central de Ciclo Combinado de Sines, S.A. |
(d) | Lisbon | Portugal | 100% | – Production and commercialisation of electric energy, including the conception, construction and operation o a cobined cycle thermal electric plant, as well as the exercise of any other related activities . |
In the year ended 31 December 2008 the consolidation perimeter was changed as follows in relation to the preceding year:
• The Group acquired an additional 0.05469% of the capital of Lusitaniagás - Companhia de Gás do Centro, S.A., for tEuros 90, resulting in goodwill of tEuros 38 (Note 12), therefore becoming holder of 85.25% of the capital of that company.
• The Galp Energia group acquired petroleum product distribution business in Mozambique and the fuel distribution business in Swaziland and Gambia from Royal Dutch Shell. This acquisition was carried out as follows:
On 16 September the subsidiaries Petrogal, S.A. and Petrogal Moçambique, Lda., acquired 99.99% and 0.01%, respectively, of the capital from Shell Moçambique, Limitada, for tEuros 5.943, resulting in goodwill of tEuros 2,491 (Note 12). After the acquisition Shell Moçambique, Limitada changed its name to Galp Moçambique, Lda;
On 31 October the subsidiary Petrogal, S.A. and Galp Energia, SGPS, S.A., acquired 99.98% and 0.02% respectively of the capital of Shell Marketing Gambia Limited, for tEuros 6,447, resulting in goodwill of tEuros 2,175 (Note 12). After the acquisition Shell Marketing Gambia Limited changed its name to Galp Gambia, Limited;
On 21 November the subsidiaries Petrogal, S.A. and Galp Energia, SGPS, S.A., acquired 99.99% and 0.01% respectively of the capital of Shell Oil Swaziland (PTY) Limited, for tEuros 18,117, resulting in goodwill of tEuros 14,913 (Note 12).
• The Galp Energia group acquired the Agip fuel distribution network in the Iberian Peninsula from Eni. S.p.A. This acquisition was carried out on 1 October 2008 as follows:
The subsidiary Petrogal, S.A. through its branch in Spain acquired 100% of the capital of Agip España, S.A.U. (the respective subsidiary Agip Portugal – Combustíveis, S.A.), for tEuros 176,512, resulting in goodwill of tEuros 71,983 (Note 12). After the acquisition Agip España, S.A.U. changed its name to Galp Distribuición Oil España, S.A.U. and Agip Portugal – Combustíveis, S.A. changed its name to Galp Distribuição Portugal, S.A.
• The Galp Energia group acquired the fuel distribution business from ExxonMobil and part of the lubricants business of the subsidiaries of ExxonMobil in Portugal and Spain. The acquisition was carried out on 1 December 2008 as follows:
The subsidiary Petróleos de Portugal – Petrogal, S.A. - Sucursal en España acquired all the capital of Esso Española, S.L. (the respective subsidiary Roc-Retail Operating Company, S.L.), for tEuros 174,900 resulting in goodwill of tEuros 46,684 (Note 12). After the acquisition Esso Española, S.L. changed its name to Galp Comercializacion Oil España, S.L.;
The subsidiary Petróleos de Portugal - Petrogal, S.A. acquired all the capital of ExxonMobil Portugal Holdings B.V. (and respective subsidiaries Esso Portuguesa, Lda.; Esso Gás, Limitada; Exxon Portuguesa Lda.; and CORS – Companhia de Exploração de Estações de Serviço e Retalho de Serviços Automóvel, Lda.), for tEuros 146,000 resulting in goodwill of tEuros 16,000 (Note 12). After the acquisition the companies:
The acquisitions in 2008 had the following impact on the financial statements of Galp Energia:
| Total | Galp Distribuición Oil España, S.A.U. and subsidiaries |
Shell Oil Swaziland (PTY) Limited |
Galp Gambia, Limited |
Galp Moçambique, Lda. |
Galp Comercializacion Oil Espanã, S.L. e subsidiárias |
Galp Energia Portugal Holdings B.V. (ex - ExxonMobil Portugal Holding B.V.) |
|
|---|---|---|---|---|---|---|---|
| (f) | |||||||
| Non-current assets | |||||||
| Tangible and intangible assets (Note 13) | 297,409 | 179,280 | 2,200 | 2,390 | 1,835 | 111,704 | - |
| Investments in associates | 2,264 | - | - | - | 4 | 2,260 | - |
| Deferred tax assets (Note 10) | 19,460 | 4,207 | - | - | - | 15,253 | - |
| Other receivables | 5,019 | 4,531 | - | - | - | 488 | - |
| Current assets | |||||||
| Inventories | 265,339 | 196,437 | 844 | 18,227 | 1,255 | 48,576 | - |
| Clients | 204,828 | 182,527 | 3,921 | 10,977 | 898 | 6,505 | - |
| Recoverable current income tax | 2,793 | 313 | - | - | 114 | 2,366 | - |
| Other receivables | 11,466 | 3,037 | 265 | 2,228 | 543 | 5,393 | - |
| Non-current liabilities | |||||||
| Provisions (Note 26) | (2,215) | (2,215) | - | - | - | - | - |
| Deferred tax liabilities (Note 10) | (15,565) | (15,565) | - | - | - | - | - |
| Loans | (30,137) | (30,137) | - | - | - | - | - |
| Other payables | (706) | (91) | (615) | - | - | - | - |
| Current liabilities | |||||||
| Loans | (164,355) | (157,344) | - | - | - | (7,011) | - |
| Current income tax payable | (2,226) | (1,290) | (870) | - | (66) | - | - |
| Other payables | (377,070) | (246,628) | (5,033) | (30,193) | (4,790) | (90,425) | - |
| Total acquired / integrated | 216,304 | 117,062 | 712 | 3,629 | (208) | 95,109 | - |
| Positive acquisition difference (Note 12) | 154,246 | 71,983 | 14,913 | 2,175 | 2,491 | 46,684 | 16,000 |
| Fair value of equity acquired (Notes 4 and 12) | 130,000 | - | - | - | - | - | 130,000 |
| Net cost of acquisition | 500,550 | 189,045 | 15,625 | 5,804 | 2,283 | 141,793 | 146,000 |
| Cash and cash equivalent | 27,369 | (12,533) | 2,492 | 643 | 3,660 | 33,107 | - |
| Net equity acquired / integrated | 527,919 | 176,512 | 18,117 | 6,447 | 5,943 | 174,900 | 146,000 |
• The subsidiary GDP – Gás de Portugal, SGPS, S.A. was merged into Galp Energia, SGPS, S.A., effective as of 1 January 2008. Consequently the former subsidiaries (GDP Distribuição, SGPS, S.A. and related subsidiaries) are presented as owned by Galp Energia, SGPS, S.A.. In addition, in 2008 GDP Distribuição, SGPS, S.A. changed its name to GDP – Gás de Portugal, SGPS, S.A.
• In the first half of 2008 Driftal – Plastificantes de Portugal, S.A. (a subsidiary of GDP – Gás de Portugal, SGPS, S.A. merged into Galp Energia), was dissolved. Its results generated up to the date of its liquidation were included in the consolidated income statement.
• In 2003 Petrogal entered into a securitisation operation of accounts receivable with Galp Investment Fund, PLC ("Fund") for a maximum amount of tEuros 210,000 (Note 23), which had a maturity of 5 years and a legal maturity of 7 years. The transactions were made through another vehicle with head office in Portugal - Galp Investment – Fundo – which acquired the receivables and place them with Galp Investment Fund PLC. As these funds were vehicles founded solely for this operation and considering the accounting requirements of the IAS/IFRS regarding this type of operation the assets and liabilities of the Funds, which consist essentially accounts receivable from clients of Petrogal and bonds issued by the Fund, respectively, were consolidated in the
ANNUAL REPORT AND ACCOUNTS 2008 GALP ENERGIA
Group's financial statements in prior years. This operation was liquidated on 14 July 2008 as established in the management regulations of the Fund. Therefore at 31 December 2008 no credit securitisation operation balances are reflected in the consolidated balance sheet.
• Although Galp Energia Portugal Holdings B.V. and related subsidiaries are included in the above schedule, they were not consolidated by the Group as the participation acquired on 1 December 2008 was subject to restrictions imposed by the European Union, and so part of its assets and operations must be sold in the short term. As the operations that must be sold are still under review, the Group opted not to consolidate the assets, liabilities and operations that will be maintained by the Group. Therefore the fair value of the financial participation acquired for tEuros 130,000 is reflected in the caption "Investments in associates." (Note 12).
The jointly controlled companies at 31 December 2008 and 2007 are as follows:
| Head office | Percentage interest held |
Main | |||
|---|---|---|---|---|---|
| Company | City | Country | 2008 | 2007 | activity |
| B) Jointly controlled companies | |||||
| Galp Power sub-group: | |||||
| Ventinveste, S.A. and subsidiaries: | Lisbon | Portugal | 34% | 34% Construction and operation of industrial units for the construction and assembly of wind turbine components and construction and operation of wind farms. |
|
| Ventinveste Eólica, SGPS, S.A. | Lisbon | Portugal | 34% | 34% Management of equity investments in other comapnies as an indirect form of carrying out economic activities and the construction and operation of wind farms. |
|
| Parque Eólico da Serra do Oeste, S.A. |
Lisbon | Portugal | 34% | 34% Construction and operation of wind farms. | |
| Parque Eólico de Torrinheiras, S.A. | Lisbon | Portugal | 34% | 34% Construction and operation of wind farms | |
| Parque Eólico de Vale do Chão, S.A. |
Lisbon | Portugal | 34% | 34% Construction and operation of wind farms. | |
| Parque Eólico do Cabeço Norte, S.A. |
Lisbon | Portugal | 34% | 34% Construction and operation of wind farms. | |
| Parque Eólico de Vale Grande, S.A. | Lisbon | Portugal | 34% | 34% Construction and operation of wind farms. | |
| Parque Eólico do Douro Sul, S.A. | Lisbon | Portugal | 34% | 34% Construction and operation of wind farms. | |
| Parque Eólico do Pinhal Oeste, S.A. |
Lisbon | Portugal | 34% | 34% Construction and operation of wind farms. | |
| Parque Eólico do Planalto, S.A. | Lisbon | Portugal | 34% | 34% Construction and operation of wind farms. | |
| Petrogal sub-group: | |||||
| C.L.C. – Companhia Logística de Combustíveis, S.A. |
Aveiras de Cima |
Portugal | 65% | 65% Installation and operation of liquid and gas storage facilities, as well as the related transport structures,other industrial, commercial and investigation activities and of services related to those activities. |
|
| Caiageste – Gestão de Áreas de Serviço, Lda. |
Elvas | Portugal | 50% | 50% Management, and operation of service areas in the Caia area, including any activities and services related with such establishments and installations, namely: the supply of fuel and lubricants, the commercialisation of products and articles to convenience stores and supermarkets, the management and operation of restaurants and hotel or similar units, service stations and gift and utility selling points. |
|
| Sigás – Armazenagem de Gás, A.C.E. | Sines | Portugal | 60% | 60% The conception and construction of underground LPG storage facilities the complementary surfece installations needed to move the products. Management and operation of the underground storage facilities and installations and GPL tanks and spheres. |
|
| Asa – Abastecimento e Serviços de Aviação, Lda. |
Lisbon | Portugal | 50% | 50% Aircraft fuel services. |
Except for C.L.C. – Companhia Logística de Combustíveis, S.A., Sigás – Armazenagem de Gás, A.C.E., Caiageste – Gestão de Áreas de Serviço, Lda., Asa – Abastecimento e Serviços de Aviação, Lda., and Ventinveste, S.A., which were included in the consolidation in accordance with the proportional method as explained in Note 2.2 line b) all the other companies referred to above (except for Galp Energia Portugal Holdings B.V. and subsidiaries) were included in the consolidation in accordance with the full consolidation method.
The companies included in the consolidation in accordance with the proportional consolidation method at 31 December 2008 had the following impact (corresponding to the amounts appropriated) on the consolidated financial statements:
| Impact of proportional consolidation (a) | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Subsidiaries | Assets | Liabilities | Income | Costs | Result for the year | ||||
| C.L.C. – Companhia Logística de Combustíveis, S.A. | 121,120 | (68,611) | 28,368 | (17,489) | 10,879 | ||||
| Caiageste – Gestão de Áreas de Serviço, Lda. | 150 | (121) | 584 | (622) | (38) | ||||
| Sigás – Armazenagem de Gás, A.C.E. | 14,721 | (14,721) | 4,285 | (4,285) | - | ||||
| Asa – Abastecimento e Serviços de Aviação, Lda. | 113 | (107) | 431 | (430) | 1 | ||||
| Ventinveste, S.A. (b) | 6,013 | (5,772) | 323 | (531) | (208) | ||||
| 142,117 | (89,332) | 33,991 | (23,357) | 10,634 |
(a) Before consolidation eliminations
(b) The amounts represent the consolidated accounts of the Ventinveste group, including only the wind generated electricity subsidiaries
Investments in associated companies, their head offices and the percentage or interest held in them at 31 December 2008 and 2007 are as follows:
| Head office | Percentage or interest held |
Book value | Financial information on the associate | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Result for | |||||||||||
| Company Galp Energia Portugal Holding B.V. (n) |
City Amsterdam |
Country Netherlands |
2008 100% |
2007 – |
2008 130,000 |
2007 – |
Assets – |
Liabilities – |
Income – |
the year | Main activity – All direct or indirect ac tivities relating to the operation and mana gement of service sta tions, including stores and washing facilities included, as well as importation, storage and distribution petro leum products and its derivatives. |
| Compañia Logística de Hidrocarburos CLH, SA (f) (j) |
Madrid | Spain | 5.00% | 5.00% | 59,826 | 60,425 | 1,826,694 | 1,581,062 | 599,206 | 162,487 Installation and opera tion of liquid and gas storage facilities and related transport struc tures. |
|
| EMPL – Europe Magreb Pipeline, Ltd. (a) |
Madrid | Spain | 27.40% | 27.40% | 39,729 | 30,259 | 383,589 | 238,593 | 194,218 | 118,113 Construction and ope ration of the natural gas pipeline between Morocco and Spain. |
|
| Gasoduto Al Andaluz, S.A. (a) |
Madrid | Spain | 33.04% | 33.04% | 17,649 | 16,793 | 96,125 | 42,708 | 28,813 | 9,603 Construction and ope ration of Tarifa–Cór doba gas pipeline. |
|
| Gasoduto Extremadura, S.A. (a) |
Madrid | Spain | 49.00% | 49.00% | 15,070 | 14,303 | 43,918 | 13,163 | 20,330 | 7,881 Construction and ope ration aof Córdoba Campo Maior gas pipe line. |
|
| Empresa Nacional de Combustíveis – Enacol, S.A.R.L (g) (l) |
Mindelo | Cape Verde | 40.43% | 33.21% | 13,072 | 7,918 | 59,628 | 33,632 | 91,612 | 3,471 Commercialisation of hydrocarbonates and related activities. |
|
| Setgás – Sociedade de Produção e Distribuição de Gás, S.A. (h) |
Setúbal | Portugal | 45.00% | 45.00% | 12,608 | 10,242 | 120,815 | 92,815 | 23,820 | 4,595 Production and distri bution of natural and its substitute gases. |
|
| Tagusgás – Empresa de Gás do Vale do Tejo, S.A. (b) |
Santarém | Portugal | 41.33% | 41.31% | 3,721 | 3,745 | 59,830 | 50,828 | 14,509 | 226 Production and distri bution of natural gas and other piped com bustible gases. |
|
| MDA – Mobil Disa Aviacioms S.A. (i) |
Santa Cruz de Tenerife |
Spain | 50.00% | – | 2,260 | – | – | – | – | – Rendering of aeronau tical petroleum refuel ling services directly or through companies in that sector. |
|
| Metragaz, S.A. (a) | Tânger | Morocco | 26.99% | 26.99% | 1,444 | 1,413 | 11,090 | 5,741 | 15,179 | 1,041 Construction, mainte nance and operation of the Maghreb-Europe gas pipeline. |
|
| Terparque – Armazenagem de Combustíveis, Lda. (d) |
Angra do Heroísmo |
Portugal | 23.50% | 23.50% | 1,190 | 1,238 | 25,701 | 20,634 | – | (616) Construction and/or operation of storage facilities for combus tibles. |
|
| Brisa Access, S.A. (g) |
Cascais | Portugal | 7.50% | 7.50% | 755 | 570 | 13,386 | 3,325 | 16,943 | 2,524 Rendering of any as sistance services to motorists. |
|
| Gásfomento – Sistemas e Instalações de Gás, S.A. (b) |
Lisbon | Portugal | 20.00% | 20.00% | 144 | 68 | 3,608 | 2,885 | 7,309 | 366 Activities relating to construction and civil engineering in general, project and construc tion and maintenance of installations. |
|
| C.L.C. Guiné Bissau – Companhia Logística de Combustíveis da Guiné Bissau, Lda. |
Bissau | Guinea- -Bissau |
– | 45.00% | – | – | – | – | – | – Management and ope ration of the liquid fuel storage facilities and of the Bandim Petroleum Terminal. |
| Head office | Percentage or interest held |
Book value | Financial information on the associate | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Company | City | Country | 2008 | 2007 | 2008 | 2007 | Assets | Liabilities | Income | Result for the year |
Main activity |
| Ecogen – Serviços de Energia Descentralizada, S.A. (c) |
Bucelas | Portugal | - | 35.00% | - | 112 | - | - | - | - Rendering of import and export services, commercialisation and supply of electric ener gy producing equip ment. |
|
| Energin – Sociedade de Produção de Electricidade e Calor, S.A. (c) (m) |
Lisbon | Portugal | 35.00% | 35.00% | - | 1,669 | 36,119 | 36,715 | 40,308 | (1,639) Co-generation and sale of electric and thermic power. |
|
| Sonangalp – Sociedade Distribuição e Comercialização de Combustíveis, Lda. (e) (l) (m) |
Luanda | Angola | 49.00% | 49.00% | - | - | 32,759 | 35,228 | 4,165 | 2,568 Distribution and Com mercialisation of liquid fuel, lubricants and other petroleum de rivatives, operation of service stations and automobile assistance and related services. |
|
| 297,468 | 148,755 | ||||||||||
| Less: provision for joint responsibilities (Note 26) | (1,285) | (2,006) |
|---|---|---|
| 296,183 | 146,749 |
(a) Participation held by Galp Gás Natural, S.A..
(b) Participation held by GDP – Gás de Portugal, SGPS, S.A..
(c) Company dissolved on 30 June 2008.
(d) Participation held by Saaga – Sociedade Açoreana de Armazenagem de Gás, S.A..
(e) Participation held by Petrogal Angola, Lda..
(f) Participation held by Galp Energia España, S.A..
(g) Participation held by Petróleos de Portugal – Petrogal , S.A..
(h) Participation held by GDP – Gás de Portugal, SGPS, S.A. and Petróleos de Portugal – Petrogal , S.A.. (i) Participation held by Galp Comercializacion Oil España, S.L. acquired in 2008..
(j) Although the Group's participation is only of 5%, it has significant influence and so the participation is stated as explained in Note 2.2 c).
(l) In 2008 the Group acquired 7.22% of the capital of this subsidiary for tEuro 4,399 resulting in goodwill of tEuro 2,562.
(m) At 31 December 2008 the provision for equity participations in associates, representing the Group's joint commitment to the associated companies that had negative equity are listed as follows (Note 26).
(n) Participation held by Petróleos de Portugal – Petrogal, S.A. acquired in 2008. This company was not consolidated as explained in Note 3f).
| 1,285 | 2,006 | |
|---|---|---|
| Sonangalp – Sociedade Distribuição e Comercialização de Combustíveis, Lda. | 1,039 | 2,006 |
| Energin – Sociedade de Produção de Electricidade e Calor, S.A. | 246 | - |
| 2008 | 2007 |
The changes in the caption "Investments in associates" in the year ended 31 December 2008 were as follows:
| Beginning | Increase in participation |
Gain / | Exchange translation |
Hedging reserves |
Result of previous |
Transfers / | Ending | ||
|---|---|---|---|---|---|---|---|---|---|
| Company | balance | (a) | loss | adjustment | adjustment | years | Dividends | adjustments | balance |
| Investments | |||||||||
| Galp Energia Portugal Holding B.V. (b) |
- | 130,000 | - | - | - | - | - | - | 130,000 |
| Compañia Logística de Hidrocarburos CLH, S.A. |
60,425 | 6,675 | 8,124 | - | - | (1,395) | (14,003) | - | 59,826 |
| EMPL – Europe Magreb Pipeline, Ltd. |
30,259 | - | 32,363 | 4,776 | - | - | (27,669) | - | 39,729 |
| Gasoduto Al-Andaluz, S.A. | 16,793 | - | 3,173 | - | - | - | (2,317) | - | 17,649 |
| Gasoduto Extremadura, S.A. | 14,303 | - | 3,862 | - | - | - | (3,095) | - | 15,070 |
| Empresa Nacional de Combustíveis - Enacol, S.A.R.L . |
7,918 | 4,399 | 1,192 | - | - | 336 | (773) | - | 13,072 |
| Setgás – Sociedade de Produção e Distribuição de Gás, S.A. |
10,242 | - | 2,073 | - | - | 293 | - | - | 12,608 |
| Tagusgás – Empresa de Gás do Vale do Tejo, S.A. |
3,745 | 2 | 93 | - | 4 | (123) | - | - | 3,721 |
| MDA – Mobil Disa Aviacioms S.A. (d) |
- | 2,260 | - | - | - | - | - | - | 2,260 |
| Metragaz, S.A. | 1,413 | - | 281 | 9 | - | - | (259) | - | 1,444 |
| Terparque – Armazenagem de Combustíveis, Lda. |
1,238 | 81 | (145) | - | - | 16 | - | - | 1,190 |
| Brisa Access, S.A. | 570 | - | 189 | - | - | (4) | - | - | 755 |
| Gásfomento – Sistemas e Instalações de Gás, S.A. |
68 | - | 73 | - | - | 3 | - | - | 144 |
| Ecogen – Serviços de Energia Descentralizada, S.A. (c) |
112 | - | (1) | - | - | (1) | - | (110) | - |
| Energin – Sociedade de Produção de Electricidade e Calor, S.A. |
1,669 | - | (579) | - | - | (12) | (1,324) | 246 | - |
| 148,755 | 143,417 | 50,698 | 4,785 | 4 | (887) | (49,440) | 136 | 297,468 | |
| Provision for investment in associates | |||||||||
| Energin – Sociedade de Produção de Electricidade e Calor, S.A. |
- | - | - | - | - | - | - | (246) | (246) |
| Sonangalp – Sociedade Distribuição e Comercialização de Combustíveis, Lda. |
(2,006) | - | 1,268 | (64) | - | (237) | - | - | (1,039) |
| (2,006) | - | 1,268 | (64) | - | (237) | - | (246) | (1,285) | |
| 146,749 | 143,417 | 51,966 | 4,721 | 4 | (1,124) | (49,440) | (110) | 296,183 |
(a) Includes increase in investments, purchase price adjustments and supplementary capital contributions.
(b) See Note 3.
(c) Company liquidated during the year.
In accordance with the contract for the purchase of the investment in CLH – Compañia Logistica de Hidrocarboros, S.A., the cost of the investment is revised annually for a period up to 10 years as from the date of the contract, based on the amount of sales. The additional amount paid in 2008 amounted to tEuros 6,675.
The consolidated income statement caption "Share of results of associates" for the year ended 31 December 2008 is made up as follows:
Effect of applying the equity method:
| Associated companies | 51,966 |
|---|---|
| Prior year adjustments in associated companies | (1,124) |
| Prior year adjustments in group companies | (2,362) |
| Others | (89) |
| 48,391 |
Dividends received in 2008 amounted to tEuros 49,440. However, tEuros 46,816, corresponding to the amount approved by the respective Shareholders' General Meetings, has been reflected in the caption "Investments in associates". The difference of tEuros 2,624 corresponds to exchange gain at the time of payment, which has been reflected in the income statement caption "Exchange gain (loss)".
As explained in Note 2.2 d), goodwill in associated companies is included in the caption "Investments in associates", the amount at 31 December 2008 being made up as follows:
| Compañia Logística de Hidrocarburos CLH, S.A. | 50,199 |
|---|---|
| Empresa Nacional de Combustíveis - Enacol, S.A.R.L. | 2,562 |
| Setgás – Sociedade de Produção e Distribuição de Gás, S.A. | 172 |
| 52,933 |
The Group's investments in other companies, the head office of the companies and the percentage or interest held at 31 December 2008 and 2007 are as follows::
| Head office | Percentage of capital held | Book value | ||||
|---|---|---|---|---|---|---|
| Company | Town | Country | 2008 | 2007 | 2008 | 2007 |
| Agência de Energia do Porto | Porto | Portugal | - | - | 13 | 13 |
| Agene – Agência para a Energia, S.A. | Amadora | Portugal | 10.98% | 10.98% | 114 | 114 |
| Ambélis – Agência para a Modernização Económica de Lisboa, S.A. | Lisbon | Portugal | 2.00% | 2.00% | 20 | 20 |
| CCCP – Cooperativa de Consumo de Pessoal da Petrogal, CRL | Lisbon | Portugal | 0.07% | 0.07% | (b) | (b) |
| Central-E, S.A. | Lisbon | Portugal | 0.70% | 0.70% | 2 | 2 |
| Clube Financeiro de Vigo | Vigo | Spain | - | - | 19 | 19 |
| Cooperativa de Habitação da Petrogal, CRL | Lisbon | Portugal | 0.07% | 0.07% | 7 | 7 |
| EDEL – Empresa Editorial Electrónica, Lda. | Lisbon | Portugal | 2.22% | 2.22% | (b) | (b) |
| FINA – Petróleos de Angola, S.A. | Luanda | Angola | 0.44% | - | 144 | - |
| Imopetro – Importadora Moçambicana de Petróleos, Lda. | Maputo | Mozambique | 15.38% | 15.38% | 7 | 7 |
| OEINERGE – Agência Municipal Energia e Ambiente de Oeiras | Oeiras | Portugal | 1.45% | 1.45% | 1 | 1 |
| Omegás – Soc. D'Étude du Gazoduc Magreb Europe | Tânger | Morrocos | 5.00% | 5.00% | 35 | 35 |
| P.I.M. – Parque Industrial da Matola, S.A.R.L. | Maputo | Mozambique | 1.50% | 1.50% | 18 | 18 |
| PME Capital – Sociedade Portuguesa de Capital de Risco, S.A. | Porto | Portugal | 1.82% | 1.82% | 499 | 499 |
| PME Investimentos – Sociedade de Investimento, S.A. | Lisbon | Portugal | 1.82% | 1.82% | 499 | 499 |
| Ventinveste Industrial, SGPS, S.A. (a) | Oliveira de Frades |
Portugal | 34.00% | 34.00% | 17 | 17 |
| 1,395 | 1,251 | |||||
| Impairment of associates | ||||||
| Ambélis – Agência para a modernização Económica de Lisboa, S.A. | (7) | (7) | ||||
| PME Capital – Sociedade Portuguesa de Capital de Risco, S.A. | (52) | (52) | ||||
| PME Investimentos – Sociedade de Investimento, S.A. | (145) | (145) | ||||
| P.I.M. – Parque Industrial da Matola, S.A.R.L. | (18) | - | ||||
| (222) | (204) | |||||
| 1,173 | 1,047 |
a) Participation valued at cost, because the Group doesn't held control or significant effluence in the Entity b) Investments less than tEuros 1.
Other investments are recorded at cost as explained in Note 2.2 paragraph c).The net book value of these investments amounts to tEuros 1,173.
The Group's operating income for the years ended 31 December 2008 and 2007 is made up as follows:
| Captions | 2008 | 2007 |
|---|---|---|
| Sales: | ||
| Merchandise | 5,709,436 | 4,326,473 |
| Products | 9,151,023 | 8,106,551 |
| 14,860,459 | 12,433,024 | |
| Services rendered | 225,324 | 127,089 |
| Other operating income | ||
| Supplementary income | 57,970 | 60,236 |
| Gain on fixed assets | 5,615 | 11,680 |
| Operating grants | 6,230 | 5,169 |
| Internally generated assets | 18,111 | 10,483 |
| Prior year adjustments | 5,347 | 5,028 |
| Others | 8,836 | 8,475 |
| 102,109 | 101,071 | |
| 15,187,892 | 12,661,184 |
Sales of fuel include the Tax on Petroleum Products.
Sales by geographic area are shown in Note 8.
The caption "Sales" includes tEuros (581) relating to the adjustment between estimated permitted revenue for the first half of the 2008-2009 gas year and the amount of revenue relating to the following activities:
| Accrued income (Note 15) |
Accrued costs (Note 25) |
|
|---|---|---|
| Commercialisers of last resort | 5,866 | (1,883) |
| Distribution of natural gas | 1,020 | (5,483) |
| Storage of natural gas | - | (101) |
| Total | 6,886 | (7,467) |
The increase in the caption services rendered results essentially from the changes in the regulations introduced in the natural gas sector.
In accordance with ERSE and as a result of the separation of the distribution and commercialization of natural gas activities remuneration relating to the distribution activity started being classified in the caption "Services rendered". In addition, as explained in Note 2.13, as the Company has the credit risk relating to collections from the final natural gas clients of the tariffs for using the transport network and global use of the system debited to the Group by REN Gasodutos, which amounted to tEuros 13,237. This caption also includes that amount.
The Group recognised the amounts debited in the cost of sales caption "Merchandise" (Note 7) and related income invoiced to its clients, as well as the difference between the amounts invoiced and the amount incurred as cost in the caption "Services rendered".
The caption "Sales" includes tEuros 32,325 relating to the difference between the cost of acquiring natural gas from the Group's suppliers and the sales prices defined by ERSE for the 2008-2009 gas year, which are updated quarterly, resulting from the matter explained in Note 2.13.
The caption "Supplementary income" includes essentially, income relating to operating rates, publicity space rates and automatic washing rates among other rates charged to retailers for using the GALP brand.
Operating costs for the years ended 31 December 2008 and 2007 are made up as follows
| Captions | 2008 | 2007 |
|---|---|---|
| Cost of sales | ||
| Merchandise | 3,892,818 | 2,519,738 (a) |
| Raw and subsidiary materials | 7,086,378 | 5,565,560 (a) |
| Tax on Oil Products | 2,483,747 | 2,505,526 |
| Variation in production | (130,831) | (81,212) (a) |
| Decrease in inventories (Note 17) | 384,365 | 1,441 (a) |
| Financial derivatives Maintenance and repairs Transport of goods Insurance Commission Storage and filling Port services and fees Other specialised services Other external supplies and services Other costs Employee costs: Remuneration of the statutory boards (Note 29) Remuneration of personnel Social charges |
9,510 | 2,421 |
| 13,725,987 | 10,513,474 (a) |
|
| External supplies and services: | ||
| Subcontracts | 8,109 | 7,226 (a) |
| Rental costs | 56,852 | 45,179 |
| 59,506 | 55,213 | |
| Publicity | 21,315 | 23,994 |
| 103,191 | 95,939 | |
| 20,945 | 22,052 | |
| 14,281 | 11,918 | |
| 60,558 | 50,655 | |
| 9,470 | 21,547 | |
| 205,956 | 197,427 | |
| 66,987 | 47,246 | |
| 52,903 | 43,525 | |
| 680,073 | 621,921 (a) |
|
| 5,827 | 5,526 | |
| 199,497 | 185,765 | |
| 42,064 | 38,530 | |
| Retirement benefits - pensions and insurances (Note 24) | 30,550 | 39,948 |
| Other insurance | 7,361 | 8,666 |
| Other costs | 6,596 | 2,771 |
| 291,895 | 281,206 | |
| Amortisation, depreciation and impairment: | ||
| Depreciation and impairment of tangible fixed assets (Note 13) | 219,539 | 225,588 |
| Amortisation and impairment of intangible fixed assets (Note 13) | 20,131 | 31,262 |
| 239,670 | 256,850 | |
| Provision and impairment of receivables: | ||
| Provisions and reversals (Note 26) | 25,073 | 11,057 |
| Provision for pensions | (31) | - |
| Impairment loss on trade receivables (Note 16) | 11,431 | 9,143 |
| Impairment loss on other receivables (Note 15) | 5,369 | 605 |
| 41,842 | 20,805 | |
| Other operating costs: | ||
| Other taxes | 9,228 | 8,646 |
| Loss on fixed assets | 13,017 | 7,283 |
| Other operating costs | 18,855 | 15,408 |
| 41,100 | 31,337 | |
| 15,020,567 | 11,725,593 (a) |
(a) These amounts were restated considering the changes in accounting classification mentioned in Note 2.24.
The caption "Cost of merchandise sold" includes tEuros 13,237 relating to costs debited by REN Gasodutos as explained in Note 6. In addition, REN Gasodutos debits Galp Gás Natural for using the national natural gas transport network, which amounted to tEuros 70,071 for the year ended 31 December 2008.
The increase in the caption "Decrease in inventories" was due to the decrease in the market price of petroleum products and derivatives, inventories at the end of the year having to be adjusted to these prices, in accordance with the accounting policy adopted by the Group (Note 2.7).
The amount of tEuros 30,550 recorded in the caption "Retirement benefits" includes tEuros 2,228, of which tEuros 1,020 relates to contributions for the year of the companies associated with the Galp Energia defined contribution Pension Fund in benefit of its employees, and tEuros 1,184 relating to pre-retirements and early retirements contracted in 2008, which will only become effective in 2009.
The amount of tEuros 25,073 relating to Provisions and Reversals includes essentially an increase in the provision to cover the difference between the price of natural gas between Galp Gás Natural, S.A. and Nigeria Liquefied Natural Gas Limited, relating to the NLNG 2 natural gas purchase contract in the amount of tEuros 16,000 (Note 26). In May and June 2007 NLNG revised the natural gas price formula for two contracts entered into with the Group, NLNG 2 and NLNG Plus. Galp Energia's disagreement relating to the process and the conditions proposed resulted in the process being sent to the Arbitration Court. NLNG requested revision of the price of natural gas based on its interpretation of the contract, which Galp considered to be incorrectly founded. At 31 December 2007 Galp recorded a provision of tEuros 14,000 to cover a possible unfavourable decision by the Arbitration Court.
At the end of 2008 the Arbitration Court pronounced itself in favour of the NLNG Plus contract, having decided to revise the price formula.
This decision resulted in an increase in the price of natural gas for the period from May 2007 to December 2008, with an impact on the regulated and unregulated natural gas market.
The impact on the Company's accounts for 2008 was of tUSD 156,975, equivalent to tEuros 112,793, of which tEuros 110,276 in cost of sales and tEuros 2,517 in inventories.
This decision has also an impact on the price of natural gas that NLNG will invoice Galp in the future, which will be reflected on the market.
In the case of the NLNG 2 contract, Galp intends to follow a negotiation route with NLNG (Note 26).
For strategic reasons the Group is currently organised in the following four business segments:
Following is information on the previously identified segments at 31 December 2008 and 2007, the Gas and Power segment being divided, for greater detail, between the natural gas and power areas:
| Natural Gas | Refining and distribution of petroleum products |
Exploration and production | |||||
|---|---|---|---|---|---|---|---|
| 2008 | 2007 Restated (a) |
2008 | 2007 Restated (a) |
2008 | 2007 | ||
| Income | |||||||
| Sales and services rendered | 1,906,408 | 1,424,897 | 13,223,870 | 11,115,421 | 200,179 | 232,539 | |
| Inter-segments | 91,753 | 42,623 | 1,687 | 3,374 | 203,634 | 200,354 | |
| External | 1,814,655 | 1,382,274 | 13,222,183 | 11,112,047 | (3,455) | 32,185 | |
| EBITDA (1) | 252,357 | 251,699 | (12,491) | 757,673 | 199,199 | 204,929 | |
| Non cash costs | |||||||
| Amortisation, depreciation and adjustments | (23,924) | (30,086) | (142,983) | (167,666) | (69,179) | (54,912) | |
| Provisions (net) | (15,357) | (9,294) | (18,758) | (7,757) | (7,829) | (3,976) | |
| Segment results | 213,074 | 212,318 | (174,231) | 582,250 | 122,190 | 146,041 | |
| Net financial items | 23,949 | 62,626 | (47,140) | (26,786) | (2,812) | 7,663 | |
| Income tax | (63,607) | (55,940) | 83,607 | (129,175) | (48,952) | (66,580) | |
| Minority interest | (2,842) | (3,036) | (688) | (661) | - | - | |
| Net income IFRS/IAS | 170,574 | 215,967 | (138,452) | 425,628 | 70,427 | 87,124 |
| Total consolidated liabilities | 938,545 | 608,462 | 3,600,319 | 2,656,299 | 239,458 | 185,947 |
|---|---|---|---|---|---|---|
| Total consolidated assets | 1,517,374 | 1,392,232 | 4,619,019 | 3,981,882 | 693,494 | 569,675 |
| Other assets | 1,430,501 | 1,318,316 | 4,407,718 | 3,907,924 | 693,494 | 569,675 |
| Investment (3) | 86,873 | 73,916 | 211,301 | 73,958 | - | - |
| Assets by segment (2) | ||||||
| Other information |
(1) EBITDA - Operating results plus amortisation, depreciation, adjustments and provisions.
(2) Net amount.
(3) In accordance with the equity method.
(a) These amounts were restated considering the changes in accounting classification mentioned in Note 2.24.
Income from sales and services rendered and total assets for the years ended 31 December 2008 and 2007 relate essentially to operations in Portugal. Exploration and production activities are carried out essentially in Angola. In addition, there are some operations relating to the distribution and sale of fuel in Spain. Its respective income from sales and services rendered and total assets for the years ended 31 December 2008 and 2007 are as follows:
| Income from sales and services rendered | Total assets | ||||
|---|---|---|---|---|---|
| Geographical area | 2008 | 2007 | 2008 | 2007 | |
| Spain | 3,270,199 | 2,263,334 | 1,455,667 | 800,498 |
| Power | Others | Elimination | Consolidated | ||||
|---|---|---|---|---|---|---|---|
| 2007 | |||||||
| 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | 2008 | Restated (a) |
| 35,896 | 30,259 | 127,082 | 103,846 | (407,653) | (346,849) | 15,085,783 | 12,560,113 |
| 121 | 2 | 110,457 | 100,496 | (407,653) | (346,849) | - | |
| 35,775 | 30,257 | 16,625 | 3,350 | - | - | 15,085,783 | 12,560,113 |
| 5,771 | 2,652 | 4,030 | (4,236) | (29) | 529 | 448,837 | 1,213,247 |
| (3,042) | (2,999) | (542) | (1,187) | - | - | (239,670) | (256,850) |
| 123 | 222 | (21) | 1 | - | - | (41,842) | (20,805) |
| 2,852 | (125) | 3,469 | (5,423) | (29) | 529 | 167,325 | 935,590 |
| (2,653) | (1,104) | 16,013 | (3,521) | 29 | (529) | (12,614) | 38,349 |
| (374) | 757 | (3,573) | 1,839 | - | - | (32,899) | (249,100) |
| (1,311) | (871) | - | - | - | - | (4,841) | (4,568) |
| (1,486) | (1,343) | 15,907 | (7,105) | 0 | 0 | 116,971 | 720,272 |
| - | 17 | 1,798 | 450 | 130 | - | - | 298,641 | 149,802 |
|---|---|---|---|---|---|---|---|---|
| 569,675 | 141,823 | 93,004 | 1,551,120 | 451,944 | (1,900,297) | (816,250) | 6,324,359 | 5,524,613 |
| 569,675 | 141,840 | 94,802 | 1,551,570 | 452,074 | (1,900,297) | (816,250) | 6,623,000 | 5,674,415 |
| 185,947 | 139,552 | 91,634 | 1,386,604 | 578,363 | (1,900,297) | (816,250) | 4,404,181 | 3,304,455 |
Financial income and financial costs for the years ended 31 December 2008 and 2007 are made up as follows
| 2008 | 2007 | |
|---|---|---|
| Financial income: | ||
| Interest on bank deposits | 5,215 | 8,201 |
| Other financial income | 4,113 | 4,625 |
| Interest and other income - related companies (Note 29) | 3,284 | 3,820 |
| Financial costs: | 12,612 | 16,646 |
| Interest on bank loans and overdrafts | (45,423) | (27,125) |
| Interest capitalised in fixed assets | 2,099 | 976 |
| Securitisation of accounts receivable - Financial costs (Note 23) | (4,045) | (10,614) |
| Other financial costs | (15,983) | (13,341) |
| Interest - related companies (Note 29) | (233) | (210) |
| (63,585) | (50,314) |
As explained in Note 2.14, the Group has the policy of capitalising in tangible and intangible fixed assets in progress, the interest cost on loans obtained for the purpose of financing those assets. The percentage of interest capitalised is proportional to the amount of capital expenditure incurred in accordance with the provisions of IAS 23 – Borrowing Costs.
In the year ended 31 December 2008 the Group capitalised in fixed assets in progress, the amount of tEuros 2,099 relating to financial costs incurred on loans to finance capital expenditure incurred on fixed assets during their construction, which includes essentially the amount of tEuros 1,937 relating to the Sines Refinery Central Cogeneration project.
Since 31 December 2001 the companies with head offices in continental Portugal in which the Group has a participation greater than 90% have been taxed in accordance with the special regime for the taxation of groups of companies, taxable income being determined in Galp Energia, SGPS, S.A..
However, estimated income tax of the Company and its subsidiaries is recorded based on their tax results which, for the year ended 31 December 2008, amounted to income tax recoverable of tEuros 3,874.
The following matters could affect income tax payable in the future:
(vi) As a result of the oil research and production operations in Angola, the Group is also subject to the payment of Tax on Petroleum Income (Imposto sobre o Rendimento do Petróleo - IRP), determined based on the Angolan tax regime, applied to production sharing agreements in which the Group participates. At 31 December 2008 additional assessments of USD 3,650,434, USD 4,500,922, USD 5,373,961 and USD 7,949,024 for the years 2003, 2004, 2005 and 2006 respectively, were subject to payment. At 31 December 2008 the Group had a provision for this matters in the total amount of tEuros 6,425 resulting from an internal study made based on the conclusions of the final report for 2002 IRP assessment of the Commission for the Review of Unofficial Assessments (Comissão de Revisão de Liquidações Oficiosas), the commission being made up of members of the Ministry of Finance, Ministry of Petroleum, members of the National Directorate of Taxes of Angola and of the companies that are partners in Block 14. In addition, and since part of the correction to the amounts of the additional IRP assessment corresponds to costs not accepted for recovery of cost-oil, and as such, costs that the Company cannot recover in future years, the total amount of the provision includes a provision for part of the profit-oil to be ceded to the concessionaire under the production sharing agreement for the years 2003 to 2006 in the amount of tEuros 3,498.
(vii) In accordance with current legislation tax losses in Portugal can be carried forward during a period of 6 years after they are incurred for deduction from taxable income arising during that period. At 31 December 2008 the tax losses carried forward amounted to approximately tEuros 134,027 and corresponded essentially to companies with head offices in Spain and Brazil in the amounts of tEuros 122,003 and tEuros 11,682, respectively. The tax losses of the companies with head offices in Spain can be carried forward during a period of 15 years. There is no time limit for the period in which tax losses can be carried forward in Brazil. The Group has recognised deferred tax assets relating to the tax losses carried forward only for the subsidiaries in which there is a strong probability of their recovery.
Income tax for the years ended 31 December 2008 and 2007 are made up as follows:
| 2008 | 2007 (a) | ||
|---|---|---|---|
| Current income tax | 191,464 | 202,379 | |
| Excess/insuficiency of income tax for the preceding year | 2,120 | (1,591) | |
| Deferred tax | (160,685) | 48,312 (a) |
|
| 32,899 | 249,100 (a) |
(a) These amounts were restated considering the change in accounting policy referred to in Note 2.24).
Following is a reconciliation of the income tax for the years ended in 31 December 2008 and 2007 and details of deferred taxes:
| 2008 | 2007 (a) | |
|---|---|---|
| Profit before Income Tax in accordance with IFRS/IAS: | 154,711 | 973,940 |
| Adjustment to Portuguese Accounting Standards | 453,911 | (203,490) |
| Restated profit before Income Tax in accordance with Portuguese Accounting Standards | 608,622 | 770,450 |
| Adjustment for tax effect (accumulated effect) (b) | (30,486) | 55,010 |
| Taxable profit before Income Tax | 578,136 | 825,460 |
| Increase in taxable income | 177,758 | 245,927 |
| Non tax deductible provisions | 72,583 | 111,912 |
| Non tax deductible social costs | 1,485 | 7,283 |
| Other increases | 101,842 | 126,520 |
| Application of the equity method | 1,848 | 212 |
| Decrease in taxable income | (168,419) | (350,168) |
| Decrease/utilisation of provisions taxed in previous years | (50,416) | (100,589) |
| Excess estimated income tax | (3,233) | (2,596) |
| Other deductions | (60,863) | (180,717) |
| Application of the equity method | (52,690) | (55,221) |
| Negative amounts for tax purposes | (1,217) | (16,068) |
| Loss of companies outside the tax consolidation perimeter | - | 5,023 |
| Taxable income | 587,475 | 721,219 |
| Income tax | 183,234 | 194,901 |
| Municipal surcharge | 6,852 | 6,833 |
| Autonomous taxation | 1,378 | 645 |
| Estimated current income tax for the year | 191,464 | 202,379 |
| Deferred tax and excess estimate for the year | (158,565) | 46,721 |
| Income tax | 32,899 | 249,100 |
| Effective tax rate | 21.26% | 25.58% |
(a) These amounts were restated considering the change in accounting policy referred to in Note 2.24).
(b) This amount corresponds to the sum of the results before income tax for the year in accordance with the Portuguese accounting standards (POC), of all the companies included in the consolidation perimeter in the years ended 31 December 2008 and 2007 and is affected by inclusion of the results obtained by the consolidation of income and costs between the Group companies.
In accordance with article 15.º of Decree-Law 35/2005 of 17 February, entities that prepare accounts in accordance with International Accounting Standards must, for tax purposes, maintain organised accounts in accordance with Portuguese Accounting Standards and the legal requirements for their respective business sectors.
In the year ended 31 December 2008 the Tax on Petroleum Income paid by its subsidiary Galp Exploração e Produção Petrolífera, S.A. in Angola, amountes of tEuros 53,030, and includes essentially tEuros 58,089 relating to Tax on Petroleum Income on sales and crude oil lend, determined based on the Angolan tax regime applied to Production Sharing Agreements in which the Group participates and tEuros 1,265 relating to the difference between the estimated excess cost-oil for Block 14, recognised in taxes at 31 December 2007, and the amount liquidated in 2008 resulting from updating of the final tax reference price for the 4th quarter of 2007, published by The Ministry of Petroleum of Angola.
As regards the amount of IRP on the sale of crude oil, the subsidiary Galp Exploração e Produção Petrolífera, S.A. recognised in its financial statements the amount of tEuros 6,410 relating to tax resulting from sales made out of overliftings (Note 2.7 e)). For the effects of calculating the respective tax effects it is used the tax reference price of the date of the sale, which corresponds to that used to determine and pay IRP to the Ministry of Finance of Angola.
The balance of deferred tax assets and liabilities at 31 December 2008 and 2007 are made up as follows
| Deferred tax 2008 | Deferred tax 2007 (a) | |||
|---|---|---|---|---|
| Assets | Liabilities | Assets | Liabilities | |
| Accounting revaluations | - | (4,947) | - | (5,197) |
| Non tax deductible provisions | 25,664 | - | 23,212 | - |
| Tax losses carried forward | 47,965 | - | 5,510 | - |
| Pension benefits | 65,896 | (5,300) | 64,647 | (5,300) |
| Adjustments to accruals and deferrals | 16,471 | (274) | 5,945 | (2,673) |
| Overlifting adjustments | 6,410 | - | - | - |
| Reinvested capital gain | - | (300) | - | (1,442) |
| Adjustments to inventories | 580 | (4) | 4 | (113,176) |
| Financial instruments | 966 | (30) | 3 | (378) |
| Adjustments to tangible and intangible assets | 17,235 | - | 18,248 | - |
| Double economical taxation | 13,413 | - | 12,843 | - |
| Dividends | - | (3,879) | - | - |
| Others | 5,434 | (3,511) | 1,479 | (534) |
| 200,034 | (18,245) | 131,891 | (128,700) |
(a) These amounts were restated considering the change in accounting policy referred to in Note 2.24).
The significant increase in deferred taxes relating to tax losses carried forward is due essentially to changes in the consolidation perimeter as explained in Note 3, namely Galp Distribuición Oil España and Galp Comercializacion Oil España in the amounts of tEuros 19,282 and tEuros 12,304 respectively.
The decrease in deferred taxes relating to adjustments to inventories is due to the fact of the change in the criteria for valuing cost of sales to the weighted average cost for purposes of generally accepted accounting principles in Portugal and for IAS/IFRS purposes (Note 2.24).
The changes in deferred taxes for the years ended 31 December 2008 and 2007 were as follows:
| Deferred tax 2008 | Deferred tax 2007 (a) | |||
|---|---|---|---|---|
| Assets | Liabilities | Assets | Liabilities | |
| Beginning balance | 131,891 | (128,700) | 145,497 | (92,927) |
| Effect on results: | ||||
| Accounting revaluations | - | 250 | - | (396) |
| Non tax deductible provisions | 2,452 | - | (15,497) | - |
| Tax losses carried forward | 26,135 | 15,458 | (6,313) | - |
| Pension benefits | 1,249 | - | 3,792 | - |
| Adjustments to accruals and deferrals | (2,839) | 2,399 | (1,692) | 822 |
| Overlifting adjustments | 6,410 | - | - | - |
| Reinvested capital gain | - | 1,142 | - | 183 |
| Adjustments to inventories | 576 | 113,172 | (157) | (36,973) |
| Financial instruments | (86) | 348 | (693) | 1,274 |
| Adjustments to tangible and intangible assets | (1,013) | - | 1,520 | - |
| Double Economical Taxation | 570 | - | 5,238 | - |
| Dividends | - | (3,879) | - | - |
| Others | 815 | (2,474) | 691 | (111) |
| 34,269 | 126,416 | (13,111) | (35,201) | |
| Effect on equity: | ||||
| Financial derivatives | 1,049 | - | (75) | (109) |
| CTA | 13,365 | - | - | - |
| Other reserves (Note 21) | - | - | - | (463) |
| Changes in the consolidation perimeter: | 19,460 | (15,565) | - | - |
| Other adjustments: | - | (396) | (420) | - |
| Ending balance | 200,034 | (18,245) | 131,891 | (128,700) |
(a) These amounts were restated considering the change in accounting policy referred to in Note 2.24.
The change in deferred taxes reflected in the equity caption "Hedging reserves" in the amount of tEuros 955 refers to change in deferred taxes of financial derivatives of consolidated companies in the amount of tEuros 1,049 less deferred taxes relating to minority interest in the amount of tEuros 94.
Earnings per share for the years ended 31 December 2008 and 2007 are as follows:
| 2008 | 2007 | ||
|---|---|---|---|
| Net income | |||
| Net income for purposes of calculating earnings per share (net profit for the year) | 116,971 | 720,272 | (a) |
| Number of shares | |||
| Weighted average number of shares for earnings per shares calculation (Note 20) | 829,250,635 | 829,250,635 | |
| Basic earnings per share (amounts in Euros) | 0.14 | 0.87 | (a) |
(a) These amounts were restated considering the change in accounting policy referred to in Note 2.24.
As there are no situations that give rise to dilution, the diluted earnings per share are the same as the basic earnings per share.
The difference between the amounts paid for the acquisition of participations in Group companies and the fair value of the equity acquired at 31 December 2008 is made up as follows::
| Year of | Proportion of equity acquired | as of the acquisition date | Goodwill | |||
|---|---|---|---|---|---|---|
| Subsidiaries | acquisition | Cost | % | Amount | 2008 | 2007 |
| Galp Distribuición Oil España, S.A.U. | 2008 | 176,512 | 100.00% | 104,529 | 71,983 | - |
| Galp Comercializacion Oil España, S.L. | 2008 | 174,900 | 100.00% | 128,216 | 46,684 | - |
| Galp Energia Portugal Holdings B.V. | 2008 | 146,000 | 100.00% | 130,000 | 16,000 | - |
| Galp Swaziland (PTY) Limited | 2008 | 18,117 | 100.00% | 3,204 | 14,913 | - |
| Petroleos de Valencia, S.A. | 2005 | 13,937 | 100.00% | 6,099 | 7,838 | 7,838 |
| Galpgest – Petrogal Estaciones de Servicio, S.A. | 2003 | 16,290 | 100.00% | 9,494 | 6,265 | 6,265 |
| Galp Moçambique, Lda. | 2008 | 5,943 | 100.00% | 3,452 | 2,491 | - |
| Galp Gambia, Lda. | 2008 | 6,447 | 100.00% | 4,272 | 2,175 | - |
| Duriensegás – Soc. Distrib. de Gás Natural do Douro, S.A. | 2006 | 3,094 | 25.00% | 1,454 | 1,640 | 1,640 |
| Probigalp – Ligantes Betuminosos, S.A. | 2007 | 720 | 10.00% | 190 | 530 | 530 |
| Gasinsular – Combustíveis do Atlântico, S.A. | 2005 | 50 | 100.00% | (353) | 403 | 403 |
| Saaga – Sociedade Açoreana de Armazenagem de Gás, S.A. | 2005 | 858 | 67.65% | 580 | 278 | 278 |
| Lusitaniagás – Companhia de Gás do Centro, S.A. | 2002/3 and 2007/8 |
685 | 1.083% | 366 | 255 | 217 |
| Beiragás – Companhia de Gás das Beiras, S.A. | 2003/6 and 2007 |
152 | 0.94% | 107 | 51 | 51 |
| 171,506 | 17,222 |
Goodwill on acquisitions prior to the date of transition to IFRS is recorded as explained in Note 2.2.d).
The changes in goodwill in 2008 and 2007 are as follows:
| Balance at 1 January 2007 | 17,032 |
|---|---|
| Increase due to the acquisition of investments (Note 3): | |
| Probigalp – Ligantes Betuminosos, S.A. (acquisition of 10%) | 530 |
| Lusitaniagás – Companhia de Gás do Centro, S.A. (acquisition of 0,16%) | 118 |
| 648 | |
| Allocation of impairment losses to the net value of the service stations: | |
| Adjustmentd of cost of Galpgest – Petrogal Estaciones de Servicio, S.A. | (458) |
| Balance at 31 December 2007 | 17,222 |
| Increase due to the acquisition of investments (Notes 3 and 4): | |
| Lusitaniagás – Companhia de Gás do Centro, S.A. (acquisition of 0,05469%) | 38 |
| Galp Distribuición Oil España, S.A.U. (acquisition of 100%) | 71,983 |
| Galp Swaziland (PTY) Limited (acquisition of 100%) | 14,913 |
| Galp Gambia, Lda. (acquisition of 100%) | 2,175 |
| Galp Moçambique, Lda. (acquisition of 100%) | 2,491 |
| Galp Comercializacion Oil España, S.L. (acquisition of 100%) | 46,684 |
| Galp Energia Portugal Holdings B.V. (acquisition of 100%) | 16,000 |
| 154,284 | |
| Balance at 31 December 2008 | 171,506 |
As result of the acquisition of investments in the year ended 31 December 2008, the Group recognised goodwill of tEuros 154,284. In the year ended 31 December 2009 the Group will allocate the fair value to the assets, liabilities and contingent liabilities as of the date of acquisition as required by IFRS 3. Consequently these amounts are subject to change during the twelve months following acquisition of the entities acquired, under the provisions of IFRS 3 – Business combinations.
| Tangible Fixed Assets | ||||
|---|---|---|---|---|
| 2008 | ||||
| Land and natural resources |
Buildings and other constructions |
Machinery and equipment |
Transport equipment | |
| Cost: | ||||
| Balance at 1 January: | 200,335 | 708,084 | 4,214,978 | 23,025 |
| Additions | 210 | 2,792 | 64,347 | 1,112 |
| Write-offs/sales | (2,543) | (8,452) | (69,395) | (1,878) |
| Adjustments (Note 3) | 994 | 1,095 | 8,218 | (176) |
| Transfers | 3,769 | 20,979 | 175,380 | 1,224 |
| Changes in the consolidation perimeter | 73,624 | 150,882 | 85,664 | 1,284 |
| Cost at 31 December | 276,389 | 875,380 | 4,479,192 | 24,591 |
| Accumulated impairments at 1 January | (4,296) | (16,316) | (22,935) | (70) |
| Increase in impairment | (158) | – | – | – |
| Reversal of impairment | 1,018 | 4,291 | 3,691 | 4 |
| Utilisation of impairment | – | – | 29 | – |
| Balance of impairments at 31 December | (3,436) | (12,025) | (19,215) | (66) |
| Balance of investment subsidies at 1 January | (122) | (5,731) | (282,799) | – |
| Increase in investment subsidies | (1,106) | (525) | (1,907) | – |
| Decrease in investment subsidies | 76 | – | 1,221 | – |
| Write-offs/sales | – | – | 246 | – |
| Adjustments | (994) | (520) | (9,080) | – |
| Balance of investment subsidies at 31 December | (2,146) | (6,776) | (292,319) | – |
| Balance at 31 December | 270,807 | 856,579 | 4,167,658 | 24,525 |
| Accumulated depreciation and impairment losses: | ||||
| Balance at 1 January: | (3,215) | (419,592) | (2,948,420) | (20,798) |
| Depreciation for the year | (175) | (30,471) | (176,551) | (1,172) |
| Write-offs/sales | 63 | 5,131 | 59,182 | 1,827 |
| Adjustments | (7) | 311 | 1,510 | 59 |
| Transfers | (1) | 72 | 386 | (341) |
| Changes in the consolidation perimeter (Note 3) | – | (60,261) | (54,764) | (600) |
| Balance at 31 December | (3,335) | (504,810) | (3,118,657) | (21,025) |
| Balance of recognised subsidies at 1 January | 2 | 2,662 | 102,042 | – |
| Increase in investment subsidies | – | 286 | 8,131 | – |
| Decrease in investment subsidies | – | (261) | (28) | – |
| Write-offs/sales | (2) | – | (521) | – |
| Adjustments | 248 | 386 | 1,447 | – |
| Balance of recognised subsidies at 31 December | 248 | 3,073 | 111,071 | – |
| Accumulated balance | (3,087) | (501,737) | (3,007,586) | (21,025) |
| Net amount: | ||||
| at 31 December | 267,720 | 354,842 | 1,160,072 | 3,500 |
Tangible fixed assets are recorded in accordance with the accounting policies explained in Note 2.3. The depreciation rates used are indicated in the same note.
The non repayable government grants attributed to the Group to finance tangible and intangible fixed assets (conversions) are reflected as deductions from the corresponding assets and recognised in the consolidated income statement as a deduction from depreciation and amortisation for the year, in proportion to depreciation of the subsidised assets, as explained in Note 2.8.
The change in the consolidation perimeter is due to the entry of fixed assets of the companies referred to in Note 3 as of the date of their acquisition.
| 2007 Total tangible fixed assets |
Total tangible fixed assets |
Advances on account of tangible assets |
Tangible assets in progress |
Other tangible assets |
Reusable containers |
Administrative equipment |
Tools and utensils |
|---|---|---|---|---|---|---|---|
| 5,804,081 | 6,053,907 | 6,197 | 503,311 | 108,433 | 154,231 | 130,926 | 4,387 |
| 431,902 | 695,406 | 42 | 621,284 | 2,727 | 577 | 2,112 | 203 |
| (179,615) | (99,205) | – | (7,685) | (664) | (2,705) | (5,748) | (135) |
| (3,812) | (5,554) | 1,941 | (17,365) | (38) | 19 | (241) | (1) |
| 1,351 | (21,410) | – | (237,824) | 1,881 | 5,195 | 7,410 | 576 |
| – | 388,435 | – | 4,340 | 47,233 | – | 25,408 | – |
| 6,053,907 | 7,011,579 | 8,180 | 866,061 | 159,572 | 157,317 | 159,867 | 5,030 |
| (81,676) | (53,621) | – | (2,833) | (2,557) | (1) | (4,540) | (73) |
| (21,344) | (9,155) | – | (8,997) | – | – | – | – |
| 14,311 | 9,051 | – | – | 36 | – | 1 | 10 |
| 35,088 | 1,765 | – | 1,736 | – | – | – | – |
| (53,621) | (51,960) | – | (10,094) | (2,521) | (1) | (4,539) | (63) |
| (305,254) | (291,985) | – | (2,556) | – | – | (769) | (8) |
| (9,457) | (4,256) | – | (407) | (311) | – | – | – |
| 2,568 | 1,297 | – | – | – | – | – | – |
| 20,158 | 328 | – | 82 | – | – | – | – |
| – | (10,594) | – | – | – | – | – | – |
| (291,985) | (305,210) | – | (2,881) | (311) | – | (769) | (8) |
| 5,708,301 | 6,654,409 | 8,180 | 853,086 | 156,740 | 157,316 | 154,559 | 4,959 |
| (3,591,416) | (3,706,033) | – | – | (62,179) | (136,162) | (111,941) | (3,726) |
| (224,537) | (227,867) | – | – | (6,665) | (5,217) | (7,294) | (322) |
| 113,267 | 74,997 | – | – | 490 | 2,652 | 5,520 | 132 |
| (3,299) | 2,096 | – | – | (125) | (3) | 350 | 1 |
| (48) | 145 | – | – | (1) | – | – | 30 |
| – | (153,080) | – | – | (23,613) | – | (13,842) | – |
| (3,706,033) | (4,009,742) | – | – | (92,093) | (138,730) | (127,207) | (3,885) |
| 101,513 | 105,468 | – | – | – | – | 755 | 7 |
| 5,982 | 8,432 | – | – | – | – | 15 | – |
| – | (289) | – | – | – | – | – | – |
| ( 2,027) | (523) | – | – | – | – | – | – |
| – | 2,387 | – | – | 306 | – | – | – |
| 105,468 | 115,475 | – | – | 306 | – | 770 | 7 |
| (3,600,565) | (3,894,267) | – | – | (91,787) | (138,730) | (126,437) | (3,878) |
| 2,107,736 | 2,760,142 | 8,180 | 853,086 | 64,953 | 18,586 | 28,122 | 1,081 |
| Intangible Fixed Assets | |||
|---|---|---|---|
| 2008 | |||
| Installation costs |
Research and development costs |
Industrial property and other rights |
|
| Cost: | |||
| Balance at 1 January: | 3,027 | 10,549 | 233,646 |
| Additions | 53 | 105 | 14,220 |
| Write-offs/sales | (8) | (33) | (5,866) |
| Adjustments | (96) | (7,749) | (2,122) |
| Transfers | – | – | 28,215 |
| Changes in the consolidation perimeter (Note 3) | 1,520 | 4,088 | 57,648 |
| Gross cost at 31 December | 4,496 | 6,960 | 325,741 |
| Accumulated impairments at 1 January | – | (5) | (7,291) |
| Increase in impairment | – | – | – |
| Reversal of impairment | – | – | 1,740 |
| Balance of impairments at 31 December | – | (5) | (5,551) |
| Balance of investment subsidies at 1 January | – | (8,044) | (570) |
| Increase in investment subsidies | – | – | – |
| Decrease in investment subsidies | – | – | – |
| Write-offs/sales | – | – | – |
| Adjustments | (1) | 7,806 | – |
| Balance of investment subsidies at 31 December | (1) | (238) | (570) |
| Balance at 31 December | 4,495 | 6,717 | 319,620 |
| Accumulated amortisation and | |||
| impairment losses: | (2,959) | (8,387) | (121,793) |
| Balance at 1 January: | (18) | (110) | (16,138) |
| Amortisation for the year | 8 | 33 | 2,260 |
| Write-offs/sales | 91 | 5,785 | (46) |
| Adjustments | – | – | 1,380 |
| Transfers | (1,102) | (4,017) | (14,108) |
| Changes in the consolidation perimeter (Note 3) | (3,980) | (6,696) | (148,445) |
| Balance at 31 December | 1 | 6,587 | 412 |
| Balance of recognised subsidies at 1 January | – | 354 | 220 |
| Increase in investment subsidies | – | – | – |
| Decrease in investment subsidies | – | – | (158) |
| Write-offs/sales | – | (6,157) | – |
| Adjustments | 1 | 784 | 474 |
| Accumulated balance | (3,979) | (5,912) | (147,971) |
| Net: | |||
| At 31 December | 516 | 805 | 171,649 |
Tangible fixed assets are recorded in accordance with the accounting policies explained in Note 2.4. The amortisation rates used are indicated in the same note.
Amortisation and depreciation of fixed assets for 2008 are made up as follows
| Tangible fixed assets | Intangible fixed assets | |
|---|---|---|
| Amortisation and depreciation for the year | (227,867) | (25,020) |
| Increase in investment subsidies | 8,432 | 3,149 |
| Increase in impairment | (9,155) | - |
| Decrease in impairment | 9,051 | 1,740 |
| Amortisation and depreciation (Note 7) | (219,539) | (20,131) |
The increase in the tangible and intangible fixed assets captions in the amount of tEuros 740,498 includes essentially:
In 2008 intangible and tangible fixed assets, comprising mostly fully amortised and depreciated items, were sold as a result of updating the fixed assets register during the year and include:
In 2008 intangible and tangible assets which were mostly fully amortised and depreciated were written off as a result of updating the fixed assets register during the year and substitution of equipment in the Sines refinery as a result of the shut-down in 2008 in the amount of tEuros 37,678.
At 31 December 2008 the following impairment losses, totalling tEuros 57,752, relating to adjustments to the amount of fixed assets, had been recognised:
Tangible and intangible fixed assets in progress (including advances on account of tangible and intangible assets, less grants and impairment losses ) at 31 December 2008 are made up as follows:
| Gross assets (net of impairment) |
Investment subsidies |
Net assets | |
|---|---|---|---|
| Research and exploration of petroleum in Angola and Congo | 308,832 | – | 308,832 |
| Industrial investment relating to the refineries | 135,538 | – | 135,538 |
| Conversion projects of the Sines and Porto refineries | 94,791 | – | 94,791 |
| Oil research and development in Brazil | 92,089 | – | 92,089 |
| Co-generation plants in Sines and Porto | 80,781 | – | 80,781 |
| Renewal and expansion of the network | 58,024 | (722) | 57,302 |
| Oil research on the Portuguese coast, Mozambique and Timor | 17,898 | – | 17,898 |
| Substitution of cargo arms of the terminal and tubes at Porto Leixões | 17,287 | – | 17,287 |
| Combined cycle co-generation plant - Sines | 10,239 | – | 10,239 |
| Underground storage of natural gas | 8,391 | (1,938) | 6,453 |
| Construction of a ship | 5,792 | – | 5,792 |
| Research of gas in Angola | 5,166 | – | 5,166 |
| Other projects | 45,739 | (221) | 45,518 |
| 880,567 | (2,881) | 877,686 |
Government grants received and receivable at 31 December 2008 and 2007 are as follows:
| Amount received | Amount receivable | |||||
|---|---|---|---|---|---|---|
| Program | 2008 | 2007 | 2008 | 2007 | ||
| Energy Program | 114,242 | 115,753 | 465 | – | ||
| Interreg II | 19,176 | 19,176 | – | – | ||
| Protede | 19,708 | 19,708 | – | – | ||
| Economy Operating Program | 213,678 | 204,296 | 2,293 | 227 | ||
| Dessulphurisation of Sines | 39,513 | 39,513 | – | – | ||
| Dessulphurisation of Porto | 35,307 | 35,307 | – | – | ||
| Others | 11,608 | 12,342 | – | – | ||
| Total | 453,232 | 446,095 | 2,758 | 227 |
These grants for investment are recognised in the income statement in accordance with the estimated period of useful life of the respective tangible and intangible fixed assets, as explained in Note 2.8. In the year ended 31 December 2008, the amount of tEuros 11,581(Note 13) was recognised, of which tEuros 8,432 relates to tangible fixed assets and tEuros 3,149 relates to intangible fixed assets.
In addition, in 2008 grants of tEuros 7,090 were received relating to the incentive programs for expansion of the natural gas network.
The amount of tEuros 2,758 reflected in the caption "Other receivables" corresponds to incentive programs for expansion of the natural gas network (Note 15).
The non-current and current captions "Other receivables" at 31 December 2008 and 2007 are made up as follows:
| 2008 | 2007 | |||
|---|---|---|---|---|
| Captions | Current | Non-current | Current | Non-current |
| State and Other Public Entities: | ||||
| Corporate Income Tax | 21 | – | 133 | – |
| Value Added Tax - Reimbursement requested | 19,413 | – | 9,730 | – |
| Others | 1,512 | – | 924 | 53 |
| ISP - Tax on petroleum products | 25,595 | – | 17,699 | – |
| Recovery of VAT of clients | 20,617 | – | – | – |
| Advances to suppliers of fixed assets | 20,317 | – | 12,665 | – |
| Other receivables - associated, related and participated companies (Note 29) | 19,433 | 764 | 5,073 | 722 |
| Loans to associated, related and participated companies (Note 29) | 10,543 | 43,260 | – | 48,457 |
| Receivable from the Block 14 consortium in Angola (excess profit-oil receivable) | 9,058 | – | – | – |
| Advances to suppliers | 8,082 | – | 2,848 | – |
| Contract ceding the rights to use telecommunications infrastructures | 6,951 | – | 13,089 | 539 |
| Advances to the operator Petrobras | 5,186 | – | 3,149 | – |
| Subsidies receivable (Note 14) | 2,758 | – | 227 | – |
| Spanish Bitumen process (Note 26) | 2,568 | – | – | – |
| Pension fund payment recovery | 2,117 | – | 1,887 | – |
| Personnel | 2,069 | – | 1,862 | – |
| Means of payment | 1,767 | – | 9,763 | – |
| Loans to clients | 547 | 2,239 | 614 | 2,447 |
| Captive bank accounts EIB loan | – | 96 | – | 3,615 |
| Others | 85,938 | 5,238 | 46,645 | 1,024 |
| 244,492 | 51,597 | 126,308 | 56,857 | |
| Accrued income: | ||||
| Sales and services rendered not yet invoiced | 121,142 | – | 131,120 | – |
| Crude oil swap Block 14 | 12,028 | – | 8,685 | – |
| Accrued interest | 3,237 | – | 5,531 | – |
| Sale of finished goods to be invoiced by the service stations | 2,188 | – | 4,532 | – |
| Commercial discount on purchases | 1,708 | – | 1,084 | – |
| Income permitted - ERSE regulation (Note 6) | 6,886 | – | – | – |
| Tariff deviation (Note 6) | 32,325 | – | – | – |
| Other | 21,054 | – | 7,305 | – |
| 200,568 | – | 158,257 | – | |
| Deferred costs: | ||||
| Costs relating to service station concession contracts | 43,349 | – | 35,137 | – |
| Retirement benefits (Note 24) | – | 31,959 | – | 32,110 |
| Catalyser costs | 6,527 | – | 3,198 | – |
| Prepaid rent | 2,099 | – | 207 | – |
| Interest and other financial costs | 727 | 37 | 1,095 | 41 |
| Prepaid insurance | 349 | – | 411 | – |
| Other | 12,986 | 148 | 9,929 | 141 |
| 66,037 | 32,144 | 49,977 | 32,292 | |
| 511,097 | 83,741 | 334,542 | 89,149 | |
| Impairment of other receivables | (10,622) | – | (4,493) | – |
| 500,475 | 83,741 | 330,049 | 89,149 |
The changes in the caption "Impairment of other receivables" in the year ended 31 December 2008 were as follows:
| Caption | Beginning balance |
Increase | Decrease | Utilisation | Adjustments | Change in perimeter |
Ending balance |
|---|---|---|---|---|---|---|---|
| Other receivables | 4,493 | 5,818 | (449) | (84) | 316 | 528 | 10,622 |
The increases and decreases in impairment losses on other receivables in the net amount of tEuros 5,369 were recognised in the caption "Provision for impairment of receivables" (Note 7).
The amount of tEuros 25,292 in the caption "Other debtors – ISP" corresponds to the amount receivable from the Customs House relating to the exemption of biofuels from ISP, which is under a tax suspense regime in accordance with Circular 79/2005 of 6 December.
The amount of tEuros 6,951 under current assets results from Contracts Ceding the Rights to Use Telecommunications Infrastructures, of which the most significant is the ceding contract entered into between Galp Gás Natural, S.A. and Onitelecom on 1 July 1999 for a 20 year period, and is being received in successive equal annual instalments of tEuros 5,860 up to 31 July 2009, each instalment being increased by interest at market rates. Income resulting from the contract is deferred in the liability caption "Other payables" and recognised in the income statement on a straight-line basis over the period of the contract, which ends on 1 June 2019.
The caption "Means of payment" in the amount of tEuros 1,767 corresponds to amounts receivable for sales by visa/multibanco cards, which at 31 December 2008 were pending collection.
The receivable of tEuros 20,197 in the asset caption "Other receivables - associated, related and participated companies" refers to companies that were not consolidated by the full consolidation method.
The caption "Recovery of VAT of clients" includes tEuros 14,286 relating to AP - Amoníacos de Portugal, S.A. and tEuros 6,331 relating to EDP - Gestão e Produção de Energia, S.A. regarding to recovery of VAT, the amount of tEuros 14,286 having already been received in 2009.
The caption "Other debtors – Pension fund payment recovery", in the amount of tEuros 2,117, corresponds to amounts receivable from BPI Pensões relating to pensions processed in December and not yet reimbursed.
The accrued income caption "Sales and services rendered not yet invoiced" refers essentially to natural gas consumed, for which the corresponding invoices are issued in the following month by Galp Gás Natural, S.A., and Transgás, S.A. in the amounts of tEuros 49,907 and tEuros 46,538, respectively.
The amount of tEuros 12,028 in the accrued income caption "Crude oil swap Block 14" relates to hedging transactions carried out in December 2008, for which the financial flows will be realised in January 2009. These operations were realised to smooth the price of Brent on sales transactions from Block 14 in 2008 and, as they are swaps indexed to the monthly price of Brent, they generate real transactions monthly, the cost/income having to be recognised in the month to which the hedge relates.
The amount of tEuros 3,237 reflected in the accrued income caption "Accrued interest", includes tEuros 2,710 relating to interest to be invoiced to E3G – Telecomunicações, S.A. for ceding the right to use infrastructures.
The amount of tEuros 2,188 in the caption "Sale of finished goods by the service stations to be invoiced" relates to amounts purchased in 2008 through Galp Frota cards, only invoiced in 2009.
Deferred costs relating to service station concession contracts are amortised over the period of the concessions, which varies from 20 to 25 years.
Following is an aging schedule of other receivables as of 31 December 2008 and 2007:
| Aging of other receivables | Not yet due | Overdue up to 90 days |
Overdue up to 180 days |
Overdue up to 365 days |
Overdue up to 545 days |
Overdue up to 730 days |
Overdue more than 730 days |
Total | |
|---|---|---|---|---|---|---|---|---|---|
| 2008 | Gross | 511,193 | 27,656 | 18,270 | 27,198 | 1,297 | 1,868 | 7,356 | 594,838 |
| Adjustments | (316) | (13) | (2) | (5,877) | (169) | (350) | (3,895) | (10,622) | |
| 510,877 | 27,643 | 18,268 | 21,321 | 1,128 | 1,518 | 3,461 | 584,216 | ||
| 2007 | Gross | 400,703 | 12,754 | 277 | 2,161 | 1,399 | 664 | 5,733 | 423,691 |
| Adjustments | - | - | (13) | (140) | (150) | (286) | (3,904) | (4,493) | |
| 400,703 | 12,754 | 264 | 2,021 | 1,249 | 378 | 1,829 | 419,198 |
The amount of tEuros 18,260 overdue up to 180 days includes tEuros 10,658 relating to a request for recovery of VAT of the subsidiary C.L.T. – Companhia Logística de Terminal Marítimos, Lda.
The amount of tEuros 27,198 overdue up to 365 days refers essentially to recovery of VAT of clients in the amount of tEuros 14,286 of AP – Amoníacos de Portugal, S.A. and tEuros 6,331 of EDP – Gestão e Produção de Energia, S.A., the amount of tEuros 14,286 having already been received in 2009.
The Group considers as amounts not yet due, the balance of other receivables which are not yet overdue. Overdue balances which have not been subject to adjustments correspond to receivables for which there are payment agreements or which are expected to be collected.
The caption "Trade receivables" at 31 December 2008 and 2007 is made up as follows
| Captions | 2008 | 2007 |
|---|---|---|
| Clients, current accounts | 955,952 | 1,061,513 |
| Clients – doubtful accounts | 100,984 | 78,226 |
| Clients – notes receivable | 14,813 | 4,568 |
| 1,071,749 | 1,144,307 | |
| Impairment of trade receivables | (84,045) | (67,248) |
| 987,704 | 1,077,059 |
The changes in the caption "Impairment of trade receivables" in 2008 were as follows:
| Captions | Beginning balance |
Increases | Decreases | Utilisation | Adjustments | Changes in perimeter |
Changes in perimeter |
|---|---|---|---|---|---|---|---|
| Impairment of trade receivables | 67,248 | 33,855 | (22,424) | (4,948) | 666 | 9,648 | 84,045 |
The increase and decrease in the caption "Impairment of trade receivables" in the net amount of tEuros 11,431 was recorded in the caption "Provision and impairment loss of receivables" (Note 7).
Following is an aging schedule of trade receivables as of 31 December 2008 and 2007:
| Aging of other receivables | Not yet due | Overdue up to 90 days |
Overdue up to 180 days |
Overdue up to 365 days |
Overdue up to 545 days |
Overdue up to 730 days |
Overdue more than 730 days |
Total | |
|---|---|---|---|---|---|---|---|---|---|
| 2008 | Gross | 678,164 | 192,507 | 79,208 | 24,870 | 16,261 | 6,858 | 73,881 | 1,071,749 |
| Adjustments | (104) | (949) | (1,687) | (12,914) | (9,501) | (4,365) | (54,525) | (84,045) | |
| 678,060 | 191,558 | 77,521 | 11,956 | 6,760 | 2,493 | 19,356 | 987,704 | ||
| 2007 | Gross | 848,788 | 193,847 | 19,173 | 15,536 | 6,853 | 13,806 | 46,304 | 1,144,307 |
| Adjustments | - | - | (4) | (6,665) | (3,850) | (10,898) | (45,831) | (67,248) | |
| 848,788 | 193,847 | 19,169 | 8,871 | 3,003 | 2,908 | 473 | 1,077,059 |
The amount of tEuros 73,881 overdue more than 730 days includes tEuros 10,592 relating to the contract entered into between Galp Gás Natural, S.A. and Onitelecom. This amount has not been adjusted as the Group considers that there is no collection risk.
The Group considers as amounts not yet due, the balance of other receivables which are not overdue. Overdue balances which have not been subject to adjustments correspond to receivables for which there are payment agreements or which are expected to be collected.
Inventories at 31 December 2008 and 2007 are made up as follows
| Captions | 2008 | 2007 | |
|---|---|---|---|
| Raw, subsidiary and consumable materials: | |||
| Crude oil | 211,866 | 250,482 | (a) |
| Other raw materials | 37,732 | 44,529 | |
| Raw material in transit | 64,960 | 180,673 | |
| 314,558 | 475,684 | ||
| Adjustments to raw, subsidiary and consumable materials | (114,370) | (6,217) | (a) |
| 200,188 | 469,467 | ||
| Finished and semi-finished products: | |||
| Finished products | 421,473 | 352,998 | (a) |
| Semi-finished products | 277,135 | 237,624 | (a) |
| Finished products in transit | 758 | 15,423 | |
| 699,366 | 606,045 | ||
| Adjustments to finished and semi-finished products | (210,737) | (107) | (a) |
| 488,629 | 605,938 | ||
| Work in progress | 223 | 365 | |
| Merchandis | 522,545 | 272,256 | (a) |
| Merchandise in transit | 383 | 48 | |
| 522,928 | 272,304 | ||
| Adjustments to merchandise | (135,520) | (1,307) | (a) |
| 387,408 | 270,997 | ||
| Advances on account of purchases | 46 | 49 | |
| 1,076,494 | 1,346,816 |
Merchandise at 31 December 2008, in the amount of tEuros 522,545 corresponds essentially to natural gas in the gas pipelines in the amount of tEuros 54,743, inventories of crude oil derivative products of the subsidiary Galp Distribuición Oil España, Galp Distribuição Portugal, S.A. and the group Galp Comercializacion Oil España, S.L. in the amounts of tEuros 149,249, tEuros 216,542, tEuros 6,172 and tEuros 49,796 respectively.
At 31 December 2008 the Group's responsibility to competitors for strategic reserves, which can only be satisfied by delivery of the products, amounted to tEuros 190,611 and is reflected in the caption "Advances on account of sales" (Note 25).
In November 2004, under Decree-law 339-D/2001 of 28 December, Petrogal together with Petrogal Trading Limited entered into a contract to purchase, sell and exchange crude for finished products for the constitution of strategic reserves with "Entidade Gestora de Reservas Estratégicas de Produtos Petroliferos, EPE" ("EGREP"). Under the contract entered into in 2004 the crude acquired by EGREP, which is not reflected in the financial statements, is stored in a non-segregated form in Petrogal's installations, where it must remain so that EGREP can audit it in terms of quantity and quality, whenever it so wishes. In accordance with the contract, Petrogal must, when so required by EGREP, exchange the crude sold for finished products, receiving in exchange an amount representing the refining margin as of the date of exchange.
The changes in the caption "Impairment of inventories" in the year ended 31 December 2008 were as follows:
| Captions | Beginning balance (a) |
Increases | Decreases | Utilisation | Adjustments | Change in perimeter |
Ending balance |
|---|---|---|---|---|---|---|---|
| Impairment of raw, subsidiary and consumable material | 6,217 | 104,728 | (2,727) | (109) | 6,261 | – | 114,370 |
| Impairment of finished and semi-finished products | 107 | 209,910 | – | – | 720 | – | 210,737 |
| Impairment of merchandise | 1,307 | 72,660 | (206) | (4) | (480) | 62,243 | 135,520 |
| 7,631 | 387,298 | (2,933) | (113) | 6,501 | 62,243 | 460,627 |
The net increase in impairment, in the amount of tEuros 384,365 was recorded by corresponding entry to the operating cost caption "Inventories consumed and sold" in the income statement (Note 7).
(a) These amounts were restated considering the changes in the Company's accounting policies as explained in Note 2.24.
Other investments at 31 December 2008 and 2007 are made up as follows:
| Captions | 2008 | 2007 |
|---|---|---|
| Derivatives over interest rates | – | 1,216 |
| Financial instruments (Note 28) | – | 1,216 |
| Other securities and investments | 4,789 | 259 |
| Other current investments | 4,789 | 259 |
| 4,789 | 1,475 |
Financial instruments at 31 December 2008 and 2007 are recorded at fair value as of those dates (Note 28).
Other current investments at 31 December 2008 and 2007 are made up as follows:
| Captions | 2008 | 2007 |
|---|---|---|
| Derivatives over commodities (Note 28) | 114 | 99 |
| Derivatives over interest rates (Note 28) | – | 591 |
| Financial instruments | 114 | 690 |
| Shares in participated companies | 7 | 11 |
| Other negotiable securities | – | 2,628 |
| Term deposits | 1,884 | 2,260 |
| Demand deposits | 898 | 567 |
| Other current investments (Note 19) | 2,789 | 5,466 |
| 2,903 | 6,156 |
The decrease in 2008 is due essentially to the closure of financial derivatives over commodities and interest rate due to their natural maturity in 2008. The Group's financial derivatives at 31 December 2008 are described in Note 28.
The caption "Cash and cash equivalents" at 31 December 2008 and 2007 is made up as follows:
| Captions | 2008 | 2007 |
|---|---|---|
| Cash | 14,971 | 3,301 |
| Demand deposits | 93,037 | 78,651 |
| Term deposits | 9,441 | 2,713 |
| Other negotiable securities | 2,414 | 4,063 |
| Other treasury applications | 7,305 | 18,448 |
| Cash and cash equivalents in the balance sheet | 127,168 | 107,176 |
| Other current investments (Note 18) | 2,789 | 5,466 |
| Bank overdrafts (Note 23) | (368,792) | (129,552) |
| Cash and cash equivalents in the cash flow statement | (238,835) | (16,910) |
The caption "Other treasury applications" includes applications of cash surplus of the following Group companies:
| Petrogal Brasil, Lda. | 1,167 |
|---|---|
| Galp Exploração Serviços Brasil, Lda. | 2,238 |
| Carriço Cogeração Sociedade de Geração de Electricidade e Calor, S.A. | 2,200 |
| Powercer – Sociedade de Cogeração da Vialonga, S.A. | 1,700 |
| 7,305 |
The capital structure at 31 December 2008 was unchanged in relation to the preceding year. The Company's fully subscribed and paid up share capital consists of 829,250,635 shares (Note 11) of 1 Euro each, divided into the following categories:
| Type of shares | December 2008 | December 2007 |
|---|---|---|
| A shares | 40,000,000 | 40,000,000 |
| B shares | 789,250,635 | 789,250,635 |
| Total number of shares | 829,250,635 | 829,250,635 |
In accordance with article 4 of Galp Energia, SGPS, S.A.'s by laws, the A shares have the following special rights:
(i) Election of the President of the Board of Directors can only be approved by a majority of A share votes;
(ii) Any decision aimed at authorising the signing of parity group or subordination contracts, and any decisions which in any way can endanger the safety of the supply of petroleum, gas, electricity or related products, cannot be approved in a first or second calling against a majority of class A votes.
The shareholder structure was changed as follows in 2008 in relation to 31 December 2007, given that during the year ended 31 December 2008 Banco BPI and Iberdrola, S.A. sold Galp Energia SGPS, S.A. shares in different transactions in the Euronext Lisbon regulated market. After the sales the qualified participations of Banco BPI and Iberdrola, calculated in terms of voting rights in accordance with article 20 of the Portuguese Securities Market Code, became less than 2%.
As a result of the above, the Company's fully subscribed and paid up share capital at 31 December 2008 was held as follows:
| N.º of Shares | % of Capital | |
|---|---|---|
| Amorim Energia, B.V. | 276,472,161 | 33.34% |
| Caixa Geral de Depósitos, S.A. | 8,292,510 | 1.00% |
| Eni S.p.A. | 276,472,160 | 33.34% |
| Parpública – Participações Públicas, SGPS, S.A. | 58,079,514 | 7.00% |
| Other shareholders | 209,934,290 | 25.32% |
| 829,250,635 | 100.00% |
Galp Energia SGPS, S.A. complies with the requirements of Portuguese legislation contained in the Commercial Company Code.
In accordance with the Commercial Company Code (Código das Sociedades Comerciais) the Company must transfer a minimum of 5% of its annual net profit to a legal reserve until the reserve reaches 20% of share capital. The legal reserve cannot be distributed to the shareholders but may in certain circumstances be used to increase capital or to absorb losses after all the other reserves have been utilized.
At 31 December 2008 and 2007 this captions were made up as follow:
| 2008 | 2007 | |
|---|---|---|
| Legal reserve | 146,966 | 118,924 |
| Free reserves | 27,977 | 27,977 |
| Special reserve | (463) | (463) |
| 174,480 | 146,438 |
In 2008 the caption legal reserve was increased by tEuros 28,042 as a result of appropriating profit for the year ended 31 December 2007. This amount is less than 5% of the result for 2007 determined in accordance with IAS/IFRS. This results from the fact that this is a Portuguese legal requirement and, consequently, the legal reserve must be determined based on statutory profit for 2007 in accordance with Portuguese generally accepted accounting principles (the Official Chart of Accounts), which amounted to tEuros 560,842 for that year.
The amount of tEuros 463 in the caption "Special reserve" corresponds to a correction of deferred tax – revaluations, in the equity of the subsidiary Lisboagás GDL – Sociedade Distribuidora de Gás Natural de Lisboa, S.A. (Note 10).
The equity caption "Minority interest" at 31 December 2008 and 2007 refers to the following subsidiaries:
| Balance at 1 January |
Capital and reserves |
Dividends granted |
Prior year results |
Exchange translation reserves |
Hedging reserves |
Net result for the year |
Balance at 31 December 2008 |
||
|---|---|---|---|---|---|---|---|---|---|
| Lusitaniagás – Companhia de Gás do Centro, S.A. |
(a) | 11,285 | (11) | – | (372) | – | (54) | 2,019 | 12,867 |
| Beiragás – Companhia de Gás das Beiras, S.A. |
5,608 | – | – | (120) | – | (145) | 823 | 6,166 | |
| Sopor – Sociedade Distribuidora de Combustíveis, S.A. |
3,090 | – | (39) | – | – | – | (15) | 3,036 | |
| Saaga – Sociedade Açoreana de Armazenagem. de Gás, S.A. |
1,823 | – | – | (143) | – | – | 154 | 1,834 | |
| Carriço Cogeração Sociedade de Geração de Electricidade e Calor, S.A. |
1,224 | – | (350) | – | – | (33) | 922 | 1,763 | |
| Sempre a Postos – Produtos Alimentares e Utilidades, Lda. |
944 | – | – | (78) | – | – | 276 | 1,142 | |
| Probigalp – Ligantes Betuminosos, S.A. | 667 | – | (106) | – | – | – | 111 | 672 | |
| Petromar – Sociedade de Abastecimentos de Combustíveis, Lda. |
351 | – | – | (70) | – | – | 235 | 516 | |
| Powercer – Sociedade de Cogeração da Vialonga, S.A. |
203 | – | (187) | – | – | (22) | 389 | 383 | |
| Gite – Galp International Trading Establishment |
35 | – | – | – | 2 | – | – | 37 | |
| Galpbúzi – Agro–Energia, S.A. | (b) | – | 10 | – | – | – | – | (5) | 5 |
| Combustiveis Líquidos, Lda. | 2 | – | – | – | – | – | – | 2 | |
| Petrogás – Importação, Armazenagem e Distribuição de Gás, Lda. |
(301) | – | – | – | – | – | 14 | (287) | |
| CLCM – Companhia Logistica de Combustíveis da Madeira, S.A. |
(c) | (2,943) | – | – | – | – | (136) | (82) | (3,161) |
| 21,988 | (1) | (682) | (783) | 2 | (390) | 4,841 | 24,975 |
(a) Acquisition by the Group of an additional 0.05469 % of the capital of Lusitaniagás – Companhia de Gás do Centro, S.A., the Group's participation being increased to 85.25%.
(b) The Group subscribed for 66.67% of the capital of Galpbúzi – Agro–Energia, S.A., which was founded on 23 April 2008.
(c) At 31 December 2008 this subsidiary had negative shareholders' equity. Consequently, the Group only recognised accumulated losses in proportion to its participation in that subsidiary as the other shareholders have the capacity and intention to cover the losses, and so the minority interest balance is a debit.
Loans obtained at 31 December 2008 and 2007 are made up as follows:
| December 2008 | December 2007 | |||
|---|---|---|---|---|
| Current | Non-current | Current | Non-current | |
| Bank loans | ||||
| Domestic loans | 284,602 | 1,089,140 | 171,418 | 93,311 |
| Foreign loans | 30,187 | 215,549 | 27,915 | 186,866 |
| Bank overdrafts (Note 19) | 368,792 | – | 129,552 | – |
| Discounted Notes | 1,084 | – | 1,294 | – |
| Renewable credit lines | – | – | 4,000 | – |
| 684,665 | 1,304,689 | 334,179 | 280,177 | |
| Other loans obtained: | ||||
| IAPMEI | 284 | 255 | 1,588 | 536 |
| 684,949 | 1,304,944 | 335,767 | 280,713 | |
| Project Finance Fees | – | (866) | – | (1,001) |
| 684,949 | 1,304,078 | 335,767 | 279,712 | |
| Bonds: | ||||
| Lisboagás, S.A. 1998 issue | 1,711 | – | – | 15,772 |
| Galp Investment Fund, 2003 issue | – | – | – | 210,000 |
| 1,711 | – | – | 225,772 | |
| 686,660 | 1,304,078 | 335,767 | 505,484 |
The non-current loans, excluding project finance fees, at 31 December 2008 are repayable as follows:
| 1.304.944 | |
|---|---|
| 2014 and subsequent years | 202,561 |
| 2013 | 19,957 |
| 2012 | 571,539 |
| 2011 | 411,175 |
| 2010 | 99,712 |
Domestic and foreign loans at 31 December 2008 and 2007 are made up of the following currencies:
| December 2008 | December 2007 | ||||
|---|---|---|---|---|---|
| Currency | Total amount | Amount due (mEuros) |
Total amount | Amount due (mEuros) |
|
| United States dollars | USD | 3,176 | 1,279 | 3,020 | 1,469 |
| Meticais | MZM | 57,893 | 1,609 | - | - |
| Cape Verde francs | CFA | 229,585 | 184 | 229,585 | 269 |
| Euros | EUR | 1,678,026 | 1,566,524 | 647,459 | 477,772 |
| 1,569,596 | 479,510 |
The average interest rates on the loans and bank overdrafts in 2008 and 2007 were 5.10% and 4.63%, respectively.
At 31 December 2008 the Group subscribed for underwritten commercial paper programs totalling tEuros 1,165,000, of which tEuros 600,000 was medium and long term and tEuros 565,000 was short term. Of these amounts the Group had used up tEuros 550,000 of medium and long term loans as it is the Group's intention to maintain them up to 2012, and their renewal depends only on the Group, and short term loans of tEuros 200,000.
In addition, the Group has recognised medium and long term loans of tEuros 524,992 relating essentially to project finance realised by the companies Petróleos de Portugal – Petrogal, S.A. Sucursal en España, CLCM – Companhia Logística de Combustíveis da Madeira, S.A. and Beiragás – Companhia de Gás das Beiras, S.A..
The loans bear interest at the Euribor rate, for the period of the issues, in force on the second business day prior to the subscription date, plus variable spreads defined in the contractual conditions of the commercial paper programs subscribed for by the Company. The interest rates are applied to the amount of each issue and remain unchanged during the period of the issue.
The Group contracted a medium and long term loan of tEuros 58,000 from the European Investment Bank for the exclusive purpose of implementing a project relating to the construction and operation of a co-generating installation in the Sines refinery. The loan bears interest at the Euribor six month rate plus a variable spread.
In 2008 the Group contracted an additional medium and long term loan of tEuros 50,000 from the European Investment Bank for the exclusive purpose of constructing and operating a co-generating plant in the Porto refinery. The loan bears interest at a fixed rate adjusted periodically.
The loans from the European Investment Bank in the amount of tEuros 127,705 are granted by Banking Syndicates.
Petrogal has issued comfort letters in favour of Group and associated companies, relating to short term credit lines, in the amount of tEuros 662,791.
On 12 August 1998 Lisboagás, GDL – Sociedade Distribuidora de Gás Natural de Lisboa, S.A. issued bonds totalling tEuros 49,880 at par, for private subscription, which were fully subscribed for and paid up.
If the Portuguese State ceases to be direct or indirect majority shareholder of GDP – Gás de Portugal, SGPS, S.A. or if GDP – Gás de Portugal, SGPS, S.A. ceases to have a direct majority participation in Lisboagás GDL – Sociedade Distribuidora de Gás Natural de Lisboa, S.A., the bondholders can demand early redemption of their bonds.
As the Portuguese State stopped being the major shareholder of Galp Energia SGPS, S.A., the Company published the corresponding announcement on 22 September 2006 and received requests for early redemption of the bonds in the amount of tEuros 34,107 and so the amount of the bonds is now tEuros 15,772.
On 12 August 2008, in exercising a put option, the Company received requests for early repayment of bonds totalling tEuros 14,062 and so the total amount of the bonds outstanding is tEuros 1,711.
The bonds are redeemable at par in five equal annual instalments on the due dates of the 22nd, 24th, 26th, 28th, and 30th coupons.
However, the bonds can be redeemed early, in part or in full, at par, at the issuer's option (call option), as from the due date of the 10th coupon, inclusive and on the respective interest payment dates.
The bondholders can also demand early redemption of the bonds or of the remaining outstanding principal of the bonds, at par, on the due dates of the 20th, 22nd, 24th, 26th and 28th coupons.
Interest is payable half yearly in arrears at a rate corresponding to the Euribor 6 month rate in force on the second to last working day preceding the beginning of each interest period plus 8 basis points.
In 2003 Petrogal, S.A. entered into an accounts receivable securitisation operation with Galp investment Fund, PLC ("the Fund"), in the amount of tEuros 210,000, with a maturity of 5 years. In order to cover this amount, the Fund issued tEuros 199,500 of "A Notes" and tEuros 10,500 of "B Notes", which bear interest at the Euribor rate plus 50 basis points and 95 basis points, respectively. In 2008 the total amount of tEuros 210,000 was paid by Galp Investment Fund, PLC to the subscribers of the credit securitisation units in accordance with their maturity terms. With this operation Petrogal incurred financial expenses of tEuros 4,045 for the year (Note 9).
As explained in Notes 2.10 and 2.11 some Group companies assumed liabilities relating to retirement benefits. As the Group recognises its post employment benefits in accordance with IAS 19, which establishes that the rate to be used for discounting post employment benefits must be determined based on market interest rates for high quality company bonds, in 2008 the rate of discount was changed from 5.45% to 6.10%. This change in actuarial assumptions resulted in an actuarial gain through decrease in the past service liability of the Petrogal Pension Plan and GDP Pension Plan.
In 2008 Petrogal and the GDP Group companies contributed with tEuros 2,358 and tEuros 1,602, respectively, to their Pension Funds to partially cover their liabilities.
The minimum liability of Petrogal and the GDP group at 31 December 2008, calculated in accordance with the method and assumptions required by the Institute of Insurance of Portugal, amounted to tEuros 324,759 and tEuros 29,064, respectively.
At 31 December 2008 and 2007 the Petrogal Pension Fund, Sacor Marítima Pension Fund, Saaga Pension Fund and GDP Pension Fund assets were as follows in accordance with a report of the fund management entity:
| 2008 | 2007 | |
|---|---|---|
| Bonds: | ||
| Fixed rate Euro Bonds | 188,500 | 194,442 |
| Variable rate Euro Bonds | 19,128 | 24,499 |
| Other non Euro Bonds | 5,507 | 9,241 |
| Shares: | ||
| European | 41,305 | 58,522 |
| Other shares | 10,892 | 21,732 |
| Hedge Funds | 1,676 | 14,835 |
| Derivatives | – | 2 |
| Indirect real estate | 12,254 | 4,976 |
| Galp Building (part) | 35,692 | 32,300 |
| Cash | 17,912 | 4,799 |
| Others | – | 101 |
| Total | 332,866 | 365,449 |
Evolution of the pension fund assets in 2008 and 2007 were as follows:
| 2008 | 2007 | |
|---|---|---|
| Beginning balance | 365,023 | 369,719 |
| Contributions to the fund | 3,960 | 8,771 |
| Estimated return on the assets | 18,790 | 18,504 |
| Actuarial gain/(loss) | (30,909) | (8,052) |
| Pensions paid in the year | (24,723) | (23,919) |
| Saaga initial liabilites | 725 | – |
| Ending balance | 332,866 | 365,023 |
The composition of the Group's Pension Fund assets in 2007 was different from the final balance of the evolution of the Pension Fund assets due to the fact that at 31 December 2007 the company Gasfomento – Sistemas e Instalações de Gás, S.A. belonged to the GDP Group Pension Fund and it was not included in the consolidation perimeter at that date.
At 31 December 2008 and 2007 the Group had the following provisions to cover the liability for pensions and other benefits:
| Group | |||
|---|---|---|---|
| 2008 | 2007 | ||
| Retirement benefits | |||
| Current personnel | 764 | 639 | |
| Early retirement | 28,043 | 24,303 | |
| Pre-retirement | 25,964 | 30,139 | |
| Retired personnel | 4,684 | 5,034 | |
| Retirement bonus | 6,183 | 5,943 | |
| Flexible retirement age | 9,906 | 9,906 | |
| Relating to the Pension Fund | 5,353 | 5,518 | |
| 80,897 | 81,482 | ||
| Other benefits: | |||
| Healthcare | 169,825 | 167,557 | |
| Life assurance | 2,586 | 2,384 | |
| Defined contribution plan minimum benefit | 2,588 | 2,129 | |
| 174,999 | 172,070 | ||
| 255,896 | 253,552 |
The caption pre-retirement in the amount of tEuros 25,964 includes tEuros 153 relating to the cost of pre-retirements granted to the employees of Sacor Marítima, that will be used up to 2011 and 2013.
The company Petrogal recorded provisions of tEuros 1,184 in the caption retirement benefits to cover its future liability for early retirements and pre-retirements.
The assumptions used to calculate the retirement benefits are those considered by the Group and the entity specialised in the actuarial studies as those that best meet the obligations established in the pension plan, and are as follows:
| Group | |||
|---|---|---|---|
| 2008 | 2007 | ||
| Asset remuneration rate | 5.00% - 5.60% | 5.20% - 5.60% | |
| Technical interest rate | 6.10% | 5.45% | |
| Salary increase rate | 3.00% | 3.00% | |
| Pension increase rate | 1.50% | 1.50% | |
| Current personnel and pre-retirees mortality table | TV 88/90 | TV 88/90 | |
| Retired personnel mortality table | TV 88/90 | TV 88/90 | |
| Disability table | EVK80-50% | EVK80-50% | |
| Normal retirement age | 65 | 65 | |
| Method | Projected credit unit | Projected credit unit | |
| Liability and corresponding coverage: | |||
| i) Liability relating to the pension fund: | |||
| Current personnel | 64,437 | 65,750 | |
| Pre-retired personnel | 10,365 | 12,563 | |
| Early retired personnel | 16,207 | 17,727 | |
| Retired personnel and pensioners | 258,097 | 269,520 | |
| 349,106 | 365,560 | ||
| Coverage relating to the pension fund: | |||
| By the pension fund assets | 332,866 | 365,023 | |
| Provision for retirement benefit liability | 5,353 | 5,518 | |
| By accruals and deferrals (Note 15) | (31,684) | (31,855) | |
| Unrecognised (gain) and loss (Note 2.10) | 42,571 | 26,874 | |
| 349,106 | 365,560 | ||
| ii) Liability not relating to the pension fund: | |||
| Current personnel | 534 | 592 | |
| Pre-retired personnel | 28,761 | 33,713 | |
| Early retired personnel | 22,436 | 20,602 | |
| Retirement bonus | 6,149 | 6,165 | |
| Retired personnel | 5,520 | 6,151 | |
| Voluntary social insurance | 365 | 396 | |
| Flexible retirement age (DL 9/99) | 11,075 | 11,075 | |
| Total | 74,841 | 78,694 | |
| Covered by provisions: | |||
| Current personnel | 726 | 639 | |
| Pre-retired personnel | 25,504 | 30,058 | |
| Early retired personnel | 27,167 | 24,303 | |
| Retirement bonus | 6,183 | 5,943 | |
| Retired personnel | 4,684 | 5,034 | |
| Voluntary social insurance (Note 15) | (275) | (255) | |
| Flexible retirement age (DL 9/99) | 9,906 | 9,906 | |
| Sub-Total | 73,895 | 75,628 | |
| (Gain) and loss not recognised: | |||
| Current personnel | (192) | (47) | |
| Pre-retired personnel | 3,257 | 3,655 | |
| Early retired personnel | (4,731) | (3,701) | |
| Retirement bonus | (34) | 222 | |
| Retired personnel | 836 | 1,117 | |
| Voluntary social insurance | 640 | 651 | |
| Flexible retirement age (DL 9/99) | 1,169 | 1,169 | |
| Sub-Total | 945 | 3,066 | |
| Total | 74,841 | 78,694 |
The Group has distinct asset return rates between 5.00% and 5.60% for the Petrogal group and 5.30% for the GDP group. These differences are due to the application profile of the Funds' assets, which depend on the position of their portfolios, which have resulted in different return rates.
| Group | |||
|---|---|---|---|
| Relating to the pension fund |
Not relating to the pension fund |
Total | |
| Total liability at 31 December 2007 | 365,560 | 78,694 | 444,254 |
| Current service cost | 2,993 | 272 | 3,265 |
| Interest cost | 19,295 | 3,340 | 22,635 |
| Benefits paid in the year | (24,723) | (13,845) | (38,568) |
| Pre-retired and early retired personnel starting during the year | – | 8,565 | 8,565 |
| Actuarial (gain) / loss for the year | (15,039) | (2,185) | (17,224) |
| Initial liability of Saaga | 1,020 | – | 1,020 |
| Total liability at 31 December 2008 | 349,106 | 74,841 | 423,947 |
| Costs for 2008 | |||
| Interest and current service cost | 22,288 | 3,612 | 25,900 |
| Pre-retrirements and early retirements in the year | – | 7,635 | 7,635 |
| Expected return on assets | (18,790) | – | (18,790) |
| Amortisation of the "corridor" excess | (3) | (69) | (72) |
| 3,495 | 11,178 | 14,673 |
The current service cost and interest cost, net of the expected return on fund assets, totalling tEuros 7,110, was recorded in the caption "Employee costs" (Note 7).
The increase of tEuros 7,915 in the Group's liability for pre-retirements and early retirements in the year ended 31 December 2008 was recorded by corresponding entry to: (i) the amount of tEuros 280 relating to pre-retirements and early retirements negotiated in 2007 (Note 26); and (ii) employee costs for the year in the amount of tEuros 7,635.
The actuarial (Gain)/Loss for the year amounted to tEuros 17,224 and is made up as follows:
As a result of the corridor excess at 31 December 2007, the amount of tEuros 72, corresponding to amortisation for the year 2008, was recognised in the caption "Employee costs" (Note 7).
As explained in Note 2.10 on 31 December 2002 the Portuguese Insurance Institute authorised Galp Energia to create a defined contribution Pension Fund, giving the employees the possibility of choosing between the new defined contribution pension plan and the existing defined benefits plan. In 2008 the amount of tEuros 1,021 was recognised in the caption "Employee costs", relating to contributions for the year of the companies associated with the Galp Energia defined contribution Pension Fund, in benefit of their employees, by transfer of that amount to the fund managing entity.
As explained in Note 2.10, actuarial gains and losses are recognised in the financial statements, only to the extent that they exceed the 10% limit defined for the corridor, and are amortised as from the year following that in which they were determined, as explained below.
The following table summarises, by benefit plan, the liability included in the "corridor" mechanism and its maximum interval (10%).
| Unrecognised | "Corridor" | Excess of the | Amount to be | |
|---|---|---|---|---|
| Benefits Petrogal group |
(gain) and loss | interval (10%) | "corridor" interval | recognised in 2009 |
| Retirement supplement (Fund) | 40,617 | 31,851 | 9,015 | 2,592 |
| Pre-retirements | 3,206 | 2,694 | 512 | 146 |
| Early retirements | (4,731) | 2,244 | (2,487) | (707) |
| Retirement bonus | (34) | 615 | - | - |
| Voluntary social insurance | 640 | 37 | 603 | 172 |
| Flexible retirement age (DL 9/99) | 1,156 | 1,078 | 78 | - |
| 40,854 | 38,519 | 7,721 | 2,203 | |
| GDP group | ||||
| Retirement supplement (Fund) | 1,954 | 3,059 | - | - |
| Retirement supplement (not covered by the Fund) | 762 | 579 | 236 | 59 |
| Pre-retirements | 51 | 182 | - | - |
| Flexible retirement age (DL 9/99) | 13 | 30 | - | - |
| 2,780 | 3,850 | 236 | 59 | |
| Other Groups | ||||
| Retirement supplement (Fund) | (118) | 27 | (92) | (6) |
The accumulated gains and losses not recognised of the Petrogal group, relating to the liability for pre-retirements, early retirements, voluntary social insurance and flexible retirement age (DL 9/99) exceed the 10% "corridor" limit by the net amount of tEuros 7,721. This amount will be recognised as cost and/or income in future years based on the expected average future period of service of the employees covered by the plans which, at 31 December 2008, was of 3.52 years for Petrogal, 4.91 years for Sacor Marítima and 21.81 years for Saaga. Consequently, costs, net of income, in the amount of tEuros 2,203 resulting from amortisation of the excess of the "corridor", will be recognised in 2009.
The accumulated gains and losses not recognised of the GDP group, relating to the liability for retirement supplements (not covered by the Fund) exceeds the limits of the 10% "corridor" by the net amount of tEuros 236. This amount will be recognised as cost and/or income in future years based on the expected average future period of service of the employees covered by the plans, which at 31 December 2008, was 4.33 years for Lisboagás GDL – Sociedade Distribuidora de Gás Natural de Lisboa, S.A., and 7.65 years for GDP. Consequently, costs, net of income, in the amount of tEuros 59, resulting from amortisation of the excess of the "corridor", will be recognised in 2009.
The accumulated gains and losses not recognised of the remaining companies relating to retirement pension supplements (covered by the Fund) exceeds the limits of the 10% "corridor" by tEuros 92. This amount will be recognised as cost and/or income in future years based on the expected average future period of service of the employees covered by the plans, which at 31 December 2008, was of 14.21 years for Galp Energia, S.A.. Consequently, net income of tEuros 6, resulting from amortisation of the excess of the "corridor", will be recognised in 2009
As explained in Note 2.11, at 31 December 2008 the Group had a provision to cover its liability for healthcare, past service life insurance of current personnel and the full amount of the liability for the remaining personnel and for the defined contribution plan minimum benefit. The present value of past service liability and actuarial assumptions used in the calculation are as follows:
| Healthcare | Life insurance | Defined contribution plan minimum benefit |
||||
|---|---|---|---|---|---|---|
| 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | |
| Technical interest rate | 6.10% | 5.45% | 6.10% | 5.45% | 6.10% | 5.45% |
| Cost increase rate | 4.00% | 4.00% | 3.00% | 3.00% | 3.00% | 3.00% |
| Current and pre-retired employee mortality table | TV 88/90 | TV 88/90 | TV 88/90 | TV 88/90 | TV 88/90 | TV 88/90 |
| Retired personnel mortality table | TV 88/90 | TV 88/90 | TV 88/90 | TV 88/90 | TV 88/90 | TV 88/90 |
| Disability table | EVK80-50% | EVK80-50% | EVK80-50% | EVK80-50% | EVK80-50% | EVK80-50% |
| Normal retirement age | 65 | 65 | 65 | 65 | 65 | 65 |
| 2008 | 2007 | |
|---|---|---|
| Method | Projected credit unit | Projected credit unit |
| Liability and corresponding coverage: | ||
| i) Healthcare | ||
| Total liability: | 170,910 | 188,014 |
| Coverage: | ||
| Liability for retirement benefits and other benefits | 169,825 | 167,557 |
| (Gain) and loss not recognised (Note 2.11) | 1,085 | 20,457 |
| 170,910 | 188,014 | |
| ii) Life insurance | ||
| Total liability: | 2,828 | 2,951 |
| Coverage: | ||
| Liability for retirement benefits and other benefits | 2,586 | 2,384 |
| (Gain) and loss not recognised (Note 2.11) | 242 | 567 |
| 2,828 | 2,951 | |
| iii) Defined contribution plan minimum benefit | ||
| Total liability: | 2,288 | 2,060 |
| Coverage: | ||
| Liability for retirement benefits and other benefits | 2,588 | 2,129 |
| (Gain) and loss not recognised (Note 2.11) | (300) | (69) |
| 2,288 | 2,060 |
Evolution of the liability and the related costs of Petrogal, the GDP group companies and other Group companies for healthcare, life insurance and defined contribution plan minimum benefit in 2008 was as follows:
| Healthcare | Life insurance | Defined contribution minimum benefit plan |
Total | |
|---|---|---|---|---|
| Total liability at 31 December 2007 | 188,014 | 2,951 | 2,060 | 193,025 |
| Current service cost | 2,269 | 103 | 350 | 2,722 |
| Interest cost | 9,972 | 157 | 112 | 10,241 |
| Benefits paid in the year | (10,635) | (172) | – | (10,807) |
| Actuarial (Gain) / Loss for the year | (18,769) | (234) | (234) | (19,236) |
| Initial Liability of Saaga | 59 | 23 | – | 82 |
| Total liability at 31 December 2008 | 170,910 | 2,828 | 2,288 | 176,027 |
| Costs for 2008 | ||||
| Interest cost and current service cost | 12,241 | 260 | 462 | 12,963 |
| Amortisation of the "corridor" excess | 600 | 88 | (2) | 686 |
| 12,841 | 348 | 460 | 13,649 |
Current service and interest cost totalling tEuros 12,963 was recorded by the above companies in the consolidated income statement caption "Employee costs".
As a result of the excess of the "corridor" at 31 December 2007, tEuros 686 relating to amortisation of the excess for the year, based on the estimated average future period of service of each company, was recorded in 2008 in "Employee costs".
The actuarial (Gain)/Loss for the year relating to healthcare amounted to tEuros 18,770 and is made up as follows:
As explained in Note 2.11, actuarial gains and losses are recognised in the financial statements, only to the extent that they exceed the 10% limits defined for the "corridor", and are amortised as from the year following that in which they were determined, as explained below.
The following table summarizes, by benefit plan, the liability included in the "corridor" mechanism, and the limits thereof:
| Benefits | Unrecognised (gain) and loss |
"Corridor" interval (10%) |
Excess of the "corridor" interval |
Amount to be recognised in 2009 |
|---|---|---|---|---|
| Petrogal group | ||||
| Healthcare | 1,834 | 16,117 | - | - |
| Life insurance | 224 | 239 | - | - |
| Defined contribution plan minimum benefit | (195) | 114 | (82) | (4) |
| 1,863 | 16,470 | (82) | (4) | |
| GDP group | ||||
| Healthcare | (670) | 935 | (1,354) | (229) |
| Life insurance | 61 | 32 | 37 | 9 |
| Defined contribution plan minimum benefit | (67) | 19 | (48) | (3) |
| (676) | 986 | (1,365) | (223) | |
| Other Groups | ||||
| Healthcare | (79) | 39 | (40) | (2) |
| Life insurance | (43) | 12 | (33) | (1) |
| Defined contribution plan minimum benefit | (38) | 96 | 58 | - |
| (160) | 147 | (15) | (3) | |
| 1,027 | 17,603 | (1,462) | (230) |
The "corridor" excess, in the amount of tEuros 1,462, relating to the liability for healthcare, life insurance and defined contribution plan minimum benefit, will be recognised as a cost in future years based on the average expected period of service of the employees covered by the plans (Petrogal 3.52; Lisboagás 4.33; Beiragás 24.57; Galp Energia, S.A. 27.06 for life assurance and 16.70 for health insurance; Galp Power 24.61; GDP 8.57; Lusitaniagás 24.72; Galp Exploração 28.09; Galp Gás Natural 22.21; Saaga 21.81 and Sacor Marítima 4.91). Therefore in 2009 costs net of income, in the amount of tEuros 229, relating to amortisation of the "corridor" excess, will be recognised in the caption "Employee costs".
The non-current and current caption "Other payables" at 31 December 2008 and 2007 is made up as follows:
| 2008 | 2007 | |||
|---|---|---|---|---|
| Caption | Current | Non–current | Current | Non–current |
| State and Other Public Entities: | ||||
| ISP – Tax on petroleum products | 177,279 | – | 179,874 | – |
| Value Added Tax | 170,868 | – | 175,316 | – |
| Other taxes | 8,381 | 9 | 6,125 | 13 |
| Social Security contributions | 5,426 | – | 4,677 | – |
| Personal and Corporate Income Tax Withheld | 4,639 | – | 4,383 | – |
| Advances on account of sales (Note 17) | 190,611 | – | 302,375 | – |
| Suppliers of fixed assets | 221,917 | 247 | 115,680 | 683 |
| Overlifting – Block 14 partners | 26,739 | – | 49,247 | – |
| Guarantee deposits and guarantees received | 15,671 | – | 15,141 | – |
| Personnel | 4,397 | – | 2,495 | – |
| Credit balances of clients | 3,630 | – | 1,416 | – |
| Advances from customers | 850 | – | 756 | – |
| Loans – Associated, participated and related companies (Note 29) | – | 2,902 | – | 3,756 |
| Loans – Other shareholders | – | 4,669 | – | 3,914 |
| Other payables – Associated, participated and related companies (Note 29) |
364 | – | 26 | – |
| Other payables – Other shareholders | 173 | – | 202 | – |
| Other creditors | 21,841 | 3,243 | 16,826 | 2,915 |
| 852,786 | 11,070 | 874,539 | 11,281 | |
| Accrued costs: | ||||
| Vacation pay, vacation subsidy and corresponding personnel costs |
34,445 | – | 25,636 | – |
| External supplies and services | 30,705 | – | 24,151 | – |
| Productivity bonus | 18,070 | – | 16,766 | – |
| Permited revenue – ERSE regulation (Note 6) | 7,467 | – | – | – |
| Discounts, bonuses and volume discounts on sales | 6,161 | – | 8,704 | – |
| Fast Galp prizes | 4,618 | – | 5,312 | – |
| Accrued interest | 4,619 | – | 1,717 | – |
| Accrued insurance premiums | 1,300 | – | 1,930 | – |
| Financial costs | 917 | – | 1,794 | – |
| Accrued personnel costs – others | 86 | – | 308 | – |
| Other accrued costs | 6,988 | – | 3,526 | – |
| 115,376 | – | 89,844 | – | |
| Deferred costs: | ||||
| Services rendered | 6,441 | – | 6,236 | – |
| Fibre optics | 4,263 | 42,508 | 4,263 | 47,167 |
| Others | 3,155 | 2,578 | 6,184 | 3,309 |
| 13,859 | 45,086 | 16,683 | 50,476 | |
| 982,021 | 56,156 | 981,066 | 61,757 |
The amount of tEuros 26,739 in the caption "Overlifting – Block 14 partners" corresponds to the Group's liability for lifting crude in excess of its production quota and is stated at market value (Note 2.7 e)).
The amount of tEuros 15,671 reflected in the caption "Guarantee deposits and guarantees received" includes tEuros 13,551 relating to Petrogal's liability at 31 December 2008 for guarantees received for ceding gas bottles, recorded at cost, which corresponds, approximately, to their fair value.
The amount of tEuros 4,669 in the caption "Loans – Other shareholders" corresponds essentially to:
The amount of tEuros 4,618 in the accrued costs caption "Fast Galp prizes" corresponds to Petrogal's liability for Fast Galp card points issued but not yet claimed up to 31 December 2008, which are expected to be exchanged for prizes in subsequent years.
Income relating to the cession of rights to use telecommunications infrastructures contract reflected in the "Deferred income – Fibre optics" caption is recognised in the income statement over the period of the contract. Deferred income at 31 December 2008 to be recognised in future years amounts to tEuros 46,771.
The changes in provisions in the year ended 31 December 2008 were as follows:
| Captions | Beginning balance |
Increases | Decreases | Utilisation | Adjustments | Change in perimeter (Note 3) |
Ending balance |
|---|---|---|---|---|---|---|---|
| Legal processes | 10,357 | 2,991 | (1,536) | (444) | 222 | – | 11,590 |
| Investments | 2,006 | 264 | – | (1,085) | 100 | – | 1,285 |
| Taxes | 14,307 | 5 | (871) | (1) | – | 52 | 13,492 |
| Environment | 9,008 | 280 | – | (449) | – | – | 8,839 |
| Other risks and charges | 46,893 | 28,561 | (3,448) | (10,118) | 211 | 2,163 | 64,262 |
| 82,571 | 32,101 | (5,855) | (12,097) | 533 | 2,215 | 99,468 |
The increase in provisions net of decreases was recorded by corresponding entry to the following consolidated income statement captions:
| Provisions (Note 7) | 25,073 |
|---|---|
| Financial costs | 1,173 |
| 26,246 |
The amount of tEuros 11,590 in the caption "Legal processes" includes tEuros 4,993 with respect to liabilities for the payment of taxes for occupation of the subsoil by the Petrogal group relating to differences between the Group and the Municipal Council of Matosinhos.
The provision for investments represents the Group's joint liability to the following associated companies that have negative equity (Note 4):
| Sonangalp – Sociedade Distribuição e Comercialização de Combustíveis, Lda. | 1,039 |
|---|---|
| Energin – Sociedade de Produção de Electricidade e Calor, S.A. | 246 |
| 1,285 |
The caption provision for taxes in the amount of tEuros 13,492 includes essentially:
The amount of tEuros 8,839 reflected in the caption "Environment" is to cover costs of decontaminating some installations occupied by the company where it has been decided to decontaminate due to legal requirements.
The increase of tEuros 28,561 in the provision for other risks and charges refers essentially to:
The decrease of tEuros 3,448 refers essentially to reversal of the provision recorded in 2007 to cover the claim made by EDP in the securities reserve area, as the Group believes that payment of that amount is not probable.
The total other provisions for risks and charges utilised, in the amount of tEuros 10,118, includes essentially:
The caption "Provisions for other risks and charges" in the amount of tEuros 64,262 at 31 December 2008 corresponds essentially to the following:
The trade payables caption at 31 December 2008 and 2007 is made up as follows:
| 2008 | 2007 | |
|---|---|---|
| Suppliers - current accounts | 504,571 | 713,749 |
| Suppliers - invoices pending | 488,641 | 241,680 |
| Suppliers - Notes payable | 54 | 124 |
| 993,266 | 955,553 |
The caption "Suppliers – invoices pending" corresponds essentially to purchases of crude oil raw material, natural gas and goods in transit as of those dates.
The Group uses financial derivatives to hedge interest rate and refining margin fluctuation risks, namely risks of variation in crude oil prices, finished products and refining margins, which affect the amount of assets and future cash flows resulting from its operations.
In addition, the Group is exposed to market fluctuation risks, namely risks of variation in crude oil prices, finished products and refining margins, which affect the amount of assets and expected future cash flows resulting from its operations.
The increase in the fair value reflected in Assets and Liabilities and, consequently, in the fair value of Equity in the year ended 31 December 2008, in the negative amount of tEuros 4,500, refers essentially to cash flow hedges. Therefore the fair value of the efficient portion of the hedge is reflected in the equity caption attributable to equity holders of the parent "Hedging reserves", in the amount of tEuros 4,014, less tEuros 480 attributable to minority shareholders, plus tEuros 6 relating to fair value fluctuations of associated companies.
The changes in fair value reflected in Equity for the year ended 31 December 2007 amounted to tEuros 686 of wich, tEuros 781 of the fair value being attributable to equity holders of the parent, less tEuros 105 relating to Minority interest, plus tEuros 200 relating to change in fair value of associated companies.
The Group's derivative financial instruments evolved as follows in 2008 and 2007:
| Assets | Liabilities | ||||
|---|---|---|---|---|---|
| Interest rate derivatives | Non-current | Current | Non-current | Current | |
| Fair value at 1 January 2007 | 1,121 | 269 | (252) | (667) | |
| Purchased during the year | – | – | – | – | |
| Sold during the year | (272) | 16 | 153 | 39 | |
| Increase /(decrease) on the sale reflected in the income statement | 272 | (16) | (153) | (39) | |
| Increase /(decrease) in fair value reflected in the income statement | – | (19) | 37 | 627 | |
| Increase /(decrease) in fair value reflected in equity | 95 | 341 | 210 | 40 | |
| Fair value at 31 December 2007 | 1,216 | 591 | (5) | – | |
| Purchased during the year | – | – | – | – | |
| Sold during the year | (687) | (811) | (208) | – | |
| Increase /(decrease) on the sale reflected in the income statement | 687 | 811 | 208 | – | |
| Increase /(decrease) in fair value reflected in the income statement | – | (316) | – | (12) | |
| Increase /(decrease) in fair value reflected in equity | (1,216) | (275) | (3,009) | – | |
| Fair value at 31 December 2008 | – | – | (3,014) | (12) |
Interest cost and income from interest rate derivatives are reflected in Financial costs and income.
The accounting effect on Cost of Sales for the years ended 31 December 2008 and 2007 is as follows:
| Assets | Liabilities | |||
|---|---|---|---|---|
| Commodity derivatives | Non-current | Current | Non-current | Current |
| Fair value at 1 January 2007 | – | 6,874 | – | (2,260) |
| Purchased during the year | – | 3,550 | – | – |
| Sold during the year | – | (5,549) | – | (5,021) |
| Increase /(decrease) on the sale reflected in the income statement | – | 199 | – | 5,021 |
| Increase /(decrease) in fair value reflected in the income statement | – | (4,975) | – | 2,260 |
| Increase /(decrease) in fair value reflected in equity | – | – | – | – |
| Fair value at 31 December 2007 | – | 99 | – | – |
| Purchased during the year | – | – | – | – |
| Sold during the year | – | 2,773 | – | (3,131) |
| Increase /(decrease) on the sale reflected in the income statement | – | (2,773) | – | 3,131 |
| Increase /(decrease) in fair value reflected in the income statement | – | 15 | – | (1,491) |
| Increase /(decrease) in fair value reflected in equity | – | – | – | – |
| Fair value at 31 December 2008 (Note 18) | – | 114 | – | (1,491) |
The Galp Energia group also trades financial instruments known as Commodity Futures. Given their high liquidity, as they are traded on the Stock Exchange, they are classified as Cash. The gain and loss on Commodity Futures were also classified as Cost of sales. As the futures are traded on the Stock Exchange, subject to the Clearing House, the gain and loss is recognised continuously in the Income Statement as follows:
| Assets | Liabilities | |||
|---|---|---|---|---|
| Commodity futures | Non-current | Current | Non-current | Current |
| Fair value at 1 January 2007 | – | 904 | – | – |
| Purchased during the year | – | 25,745 | – | – |
| Sold during the year | – | (20,785) | – | – |
| Increase /(decrease) on the sale reflected in the income statement | – | (4,926) | – | – |
| Fair value at 31 December 2007 | – | 938 | – | – |
| Purchased during the year | – | 122,442 | – | – |
| Sold during the year | – | (113,386) | – | – |
| Increase /(decrease) on the sale reflected in the income statement | – | (9,534) | – | – |
| Fair value at 31 December 2008 | – | 460 | – | – |
In 2008 the Galp Energia group purchased financial derivatives in auctions (known as VPP's – Virtual Electric Power Production capacity), namely options over electric energy. Because of the complexity of valuing this type of derivative as it is not storable and the MIBEL market (Mercado Ibérico de Electricidade – Iberian Electricity market) is still considered a recent market, it was decided that the mark to market of these financial derivatives is not yet reliably measurable. Therefore Galp Energia records these financial derivatives at cost. At 31 December 2008 there were no open positions.
The purchase of electricity underlying the exercise of options is recorded in the caption "Cost of sales" and its sale in the caption "Sales". The impact at 31 December 2008 in the "Cost of sales" caption amounts to tEuros 2,135 and in the "Sales" caption amounts to tEuros 2,434.
The Group's derivative financial instruments at 31 December 2008 were as follows:
| Type of derivative over interest rate |
Interest Rate | Nominal value | Maturity | Fair value of the derivatives in tEuros |
|---|---|---|---|---|
| Liability | ||||
| Cash-flow hedge | ||||
| Collar | Pays between 3.25% and 1.75% | tEur 13,440 | 2010 | (40) |
| Receives Euribor 6m | ||||
| Caps | Pays Cap of 3.25% | tEUR 4,610 | 2010 | (12) |
| Receives Euribor 6m | ||||
| Cap with "Knock out" | Pays Euribor 12m with Cap 3.49% with knock-out of 5.25% | tEUR 5,755 | 2010 | (17) |
| Receives Euribor 3m | ||||
| Interest rate Swaps | Pays between 3.17% and 6.24% | tEUR 325,395 | 2010 to 2013 | (2,945) |
| Receives between Euribor 3m and 6m | ||||
| Other Financial Derivatives | ||||
| Interest rate Swaps | Pays 3.94% | tEUR 10,000 | 2009 | (12) |
| Receives Euribor 3m | ||||
| (3,026) |
| Fair value of the | |||
|---|---|---|---|
| Type of derivative over Commodities | Nature | Maturity | derivatives in tEuros |
| Assets | |||
| Swaps | Propane gas | 2009 | 114 |
| 114 | |||
| Liabilities | |||
| Swaps | Natural gas | 2009 | (1,491) |
| (1,491) | |||
| Total Assets | 114 | ||
| Non-current | - | ||
| Current (Note 18) | 114 | ||
| Total Liabilities | (4,517) | ||
| Non-current | (3,014) | ||
| Current | (1,503) |
Fair value was determined by banking entities based on generally accepted models and valuation techniques.
Balances and transactions with related parties in 2008 and 2007 are as follows:
| 2008 | |||||||
|---|---|---|---|---|---|---|---|
| Non-current | Current | ||||||
| Total of related parties |
Loans granted (Note 15) |
Other receivables (Note 15) |
Trade receivables |
Loans granted (Note 15) |
Other receivables (Note 15) |
Accruals and deferrals |
|
| Associated and participated companies: | |||||||
| Galp Comercialização Portugal, Lda. (a) | 28,647 | – | – | 7,250 | 10,543 | 10,769 | 85 |
| Tagusgás – Empresa de Gás do Vale do Tejo, S.A. | 15,239 | 3,058 | – | 5,710 | – | 5,530 | 941 |
| Gasoduto Al–Andaluz, S.A. | 13,105 | 12,450 | – | – | – | – | 655 |
| Setgás – Sociedade de Produção e Distribuição de Gás, S.A. |
12,654 | 11,079 | – | 918 | – | 638 | 19 |
| Energin – Sociedade de Produção de Electricidade e Calor, S.A. |
9,969 | 8,868 | – | 1,101 | – | – | – |
| Gasoduto Extremadura, S.A. | 8,513 | 7,625 | – | – | – | – | 888 |
| Setgás Comercialização, S.A. | 5,853 | – | – | 3,890 | – | 50 | 1,913 |
| EMPL – Europe Magreb Pipeline, Ltd. | 3,457 | – | – | (3) | – | 150 | 3,310 |
| Sonangalp – Sociedade Distribuição e Comercialização de Combustíveis, Lda. |
2,890 | – | 764 | 1,436 | – | 658 | 32 |
| Empresa Nacional de Combustíveis – Enacol, S.A.R.L. | 1,916 | – | – | 773 | – | 1,143 | – |
| Terparque – Armazenagem de Combustíveis, Lda. | 497 | – | – | 497 | – | – | – |
| Gásfomento – Sistemas e Instalações de Gás, S.A. | 177 | – | – | 180 | – | (5) | 2 |
| Galp Energia Portugal Holdings B.V. | 120 | – | – | – | – | 120 | – |
| Metragaz, S.A. | 23 | – | – | (5) | – | – | 28 |
| Moçamgalp Agroenergias de Moçambique, S.A. | 16 | – | – | – | – | 16 | – |
| Brisa Access, S.A. | 7 | – | – | 7 | – | – | – |
| COMG–Comercialização de Gás, Lda. | 4 | – | – | – | – | 4 | – |
| 103,087 | 43,080 | 764 | 21,754 | 10,543 | 19,073 | 7,873 | |
| Related companies: | |||||||
| Ventinveste Industrial, SGPS, S.A. | 374 | 37 | – | – | – | 340 | (3) |
| FINA – Petróleos de Angola, S.A. | 148 | – | – | – | – | – | 148 |
| Agene – Agência para a Energia, S.A. | 91 | 90 | – | 1 | – | – | – |
| Eni, S.p.A. | 85 | – | – | 74 | – | 11 | – |
| Cooperativa de Habitação da Petrogal, CRL | 53 | 53 | – | – | – | – | – |
| Italgás | 8 | – | – | – | – | 9 | – |
| PME Capital – Sociedade Portuguesa de Capital de Risco, S.A. |
1 | – | – | 1 | – | – | – |
| 760 | 180 | – | 76 | – | 360 | 145 | |
| 103,847 | 43,260 | 764 | 21,830 | 10,543 | 19,433 | 8,018 |
| Non-current | Current | ||||
|---|---|---|---|---|---|
| Total of related parties |
Loans granted (Note 15) |
Other receivables (Note 15) |
Trade receivables |
Other receivables (Note 15) |
Accruals and deferrals (Note 15) |
| 16,096 | 10,283 | – | 1,935 | 2,145 | 1,733 |
| 15,354 | 14,769 | – | – | – | 585 |
| 12,464 | 9,976 | – | 2,479 | – | 9 |
| 10,701 | 9,841 | – | – | – | 860 |
| 7,156 | 2,849 | – | 2,085 | 1,589 | 633 |
| 3,056 | – | – | – | 196 | 2,860 |
| 1,937 | 596 | 722 | 614 | 5 | – |
| 1,235 | – | – | 368 | 867 | – |
| 118 | – | – | 16 | 210 | (108) |
| 68,117 | 48,314 | 722 | 7,497 | 5,012 | 6,572 |
| 7,097 | – | – | 1 | 19 | 7,077 |
| (150) | 143 | – | 5 | 42 | (340) |
| 6,947 | 143 | – | 6 | 61 | 6,737 |
| 75,064 | 48,457 | 722 | 7,503 | 5,073 | 13,309 |
| 2007 |
(a) Company not consolidated as explained in Note 3 f).
The medium and long term loans to associated companies at 31 December 2008 correspond essentially to loans granted by subsidiary companies:
These loans bear interest at market rates and do not have defined repayment dates.
| 2008 | |||||||
|---|---|---|---|---|---|---|---|
| Total of | Non-current | Current | |||||
| related parties |
Loans obtained (Note 25) |
Trade payables |
Other payables (Note 25) |
Accruals and deferrals |
|||
| Associated companies | |||||||
| EMPL – Europe Magreb Pipeline, Ltd. | 12,076 | – | 12,076 | – | – | ||
| Gasoduto Extremadura, S.A. | 1,877 | – | 1,877 | – | – | ||
| Gasoduto Al-Andaluz, S.A. | 1,788 | – | 1,788 | – | – | ||
| Setgás – Sociedade de Produção e Distribuição de Gás, S.A. | 1,178 | – | 958 | – | 220 | ||
| Tagusgás – Empresa de Gás do Vale do Tejo, S.A. | 873 | – | 666 | – | 207 | ||
| Gásfomento – Sistemas e Instalações de Gás, S.A. | 369 | – | 51 | 318 | – | ||
| Empresa Nacional de Combustíveis – Enacol, S.A.R.L. | 316 | – | 302 | 14 | – | ||
| Setgás Comercialização, S.A. | 93 | – | – | (2) | 95 | ||
| Sonangalp – Sociedade Distribuição e Comercialização de Combustíveis, Lda. |
34 | – | 1 | 33 | – | ||
| Brisa Access, S.A. | 24 | – | 23 | 1 | – | ||
| Galp Comercialização Portugal, Lda. | 8 | – | 8 | – | – | ||
| 18,636 | – | 17,750 | 364 | 522 | |||
| Related companies | |||||||
| Eni, S.p.A. | 16,320 | 2,902 | 10,480 | – | 2,938 | ||
| Central–E, S.A. | (84) | – | (84) | – | – | ||
| 16,236 | 2,902 | 10,396 | – | 2,938 | |||
| 34,872 | 2,902 | 28,146 | 364 | 3,460 |
| 2007 | |||||
|---|---|---|---|---|---|
| Total of | Non-current | Current | |||
| related parties |
Loans obtained (Note 25) |
Trade payables | Other payables (Note 25) |
Accruals and deferrals |
|
| Associated companies | |||||
| EMPL - Europe Magreb Pipeline, Ltd. | 12,666 | – | 12,666 | – | – |
| Gasoduto Al-Andaluz, S.A. | 889 | – | 889 | – | – |
| Gasoduto Extremadura, S.A. | 909 | – | 909 | – | – |
| Empresa Nacional de Combustíveis - Enacol, S.A.R.L. |
963 | – | 937 | 26 | – |
| Setgás - Sociedade de Produção e Distribuição de Gás, S.A. |
262 | – | 239 | – | 23 |
| Tagusgás - Empresa de Gás do Vale do Tejo, S.A. | 691 | 853 | 1,706 | – | (1,868) |
| Other associated and participated companies | (42) | – | (73) | – | 31 |
| 16,338 | 853 | 17,273 | 26 | (1,814) | |
| Related companies | |||||
| Eni, S.p.A. | 4,331 | 2,903 | 246 | – | 1,182 |
| 4,331 | 2,903 | 246 | – | 1,182 | |
| 20,669 | 3,756 | 17,519 | 26 | (632) |
The amount of tEuros 2,902 reflected as a long term payable to Eni, S.p.A. corresponds to shareholders' loans obtained by the subsidiary Lusitaniagás - Companhia de Gás do Centro, S.A., which bear interest at market rates and do not have a defined repayment plan..
| 2008 | ||||
|---|---|---|---|---|
| Financial costs | Financial income | |||
| Operating costs | Operating income | (Note 9) | (Note 9) | |
| Associated and participated companies: | ||||
| Moçamgalp Agroenergias de Moçambique, S.A. | – | (16) | – | – |
| Galp Comercialização Portugal, Lda. | 39 | (20,631) | – | (85) |
| Brisa Access, S.A. | 232 | (108) | – | – |
| Ecogen – Serviços de Energia Descentralizada, S.A. | – | (1) | – | – |
| EMPL – Europe Magreb Pipeline, Ltd. | – | (2,849) | – | – |
| Energin – Sociedade de Produção de Electricidade e Calor, S.A. | – | (24,246) | – | (587) |
| Gásfomento – Sistemas e Instalações de Gás, S.A. | 23 | (166) | – | – |
| Gasoduto Al–Andaluz, S.A. | – | (70) | – | (830) |
| Gasoduto Extremadura, S.A. | – | (27) | – | (546) |
| Metragaz, S.A. | – | (456) | – | – |
| Empresa Nacional de Combustíveis – Enacol, S.A.R.L. | 2 | 6,796 | – | (149) |
| Sonangalp – Sociedade Distribuição e Comercialização de Combustíveis, Lda. |
– | (41) | – | – |
| Setgás Comercialização, S.A. | 95 | (20,209) | – | – |
| Setgás – Sociedade de Produção e Distribuição de Gás, S.A. | 3,345 | (1,953) | – | (827) |
| Tagusgás – Empresa de Gás do Vale do Tejo, S.A. | 1,514 | (8,924) | – | (260) |
| Terparque – Armazenagem de Combustíveis, Lda. | – | (443) | – | – |
| 5,250 | (73,344) | – | (3,284) | |
| Related companies: | ||||
| Agene – Agência para a Energia, S.A. | – | (7) | – | – |
| Central-E, S.A. | 164 | (3) | – | – |
| Eni, S.p.A. | 1,865 | (90,415) | 233 | – |
| PME Capital – Sociedade Portuguesa de Capital de Risco, S.A. | – | (34) | – | – |
| PME Investimentos – Sociedade de Investimento, S.A. | – | (3) | – | – |
| 2,029 | (90,462) | 233 | – | |
| 7,279 | (163,806) | 233 | (3,284) | |
| 2007 | |||||
|---|---|---|---|---|---|
| Operating costs | Operating income | Financial costs (Note 9) |
Financial income (Note 9) |
||
| Associated and participated companies: | |||||
| Brisa Access, S.A. | 205 | – | – | – | |
| Ecogen – Serviços de Energia Descentralizada, S.A. | – | (6) | – | – | |
| EMPL – Europe Magreb Pipeline, Ltd. | – | (3,094) | – | (904) | |
| Energin – Sociedade de Produção de Electricidade e Calor, S.A. | – | (25,075) | – | (521) | |
| Gásfomento – Sistemas e Instalações de Gás, S.A. | (22) | – | – | – | |
| Gasoduto Al–Andaluz, S.A. | – | 556 | – | (886) | |
| Gasoduto Extremadura, S.A. | – | 792 | – | (618) | |
| Metragaz, S.A. | – | (414) | – | – | |
| Empresa Nacional de Combustíveis – Enacol, S.A.R.L. | – | 1,816 | – | – | |
| Sonangalp – Sociedade Distribuição e Comercialização de Combustíveis, Lda. |
– | (1,752) | – | – | |
| Setgás – Sociedade de Produção e Distribuição de Gás, S.A. | 94 | (16,559) | – | (697) | |
| Tagusgás – Empresa de Gás do Vale do Tejo, S.A. | 176 | (7,611) | – | (194) | |
| Terparque – Armazenagem de Combustíveis, Lda. | 11 | (6) | – | – | |
| 464 | (51,353) | – | (3,820) | ||
| Related companies: | |||||
| Eni, S.p.A. | 1,966 | (117,268) | 210 | – | |
| 1,966 | (117,268) | 210 | – | ||
| 2,430 | (168,621) | 210 | (3,820) |
The amount of tEuros 73,344 in the caption "Operating income" corresponds essentially to sales and services rendered.
The amount of tEuros 90,415 in the caption "Operating income" relating to Eni, S.p.A., refers essentially to sales of natural gas.
Remuneration of the Administrators of Galp Energia for the years 2007 and 2008 amounted to tEuros 5,526 and tEuros 5,827, respectively, of which tEuros 3,562 and tEuros 3,762 correspond to basic remuneration, tEuros 1,255 and tEuros 1,265 to bonuses, tEuros 501 and tEuros 592 payments to the defined contribution pension funds and tEuros 208 and tEuros 209 to other benefits, respectively (Note 7).
Remuneration of the Administrators of Galp Energia designated by the shareholders Eni, S.p.A., Amorim Energia, B.V. and Iberdrola S.A. are included in the caption "External supplies and services and amounted to tEuros 1,711 and tEuros 1,864, respectively, for the years 2007 and 2008.
In accordance with the current policy, remuneration of the administrators of Galp Energia includes all the remuneration due for the positions exercised in the Galp Energia group.
Dividends out of net profit for 2007 attributed to the Group's shareholders amounted to tEuros 265,360 in accordance with a decision of the Shareholders' General Meeting held on 6 May 2008. Interim dividends of tEuros 126,046 have been paid during the year ended 31 December 2007 and the balance of tEuros 139,314 have been paid in the year ended 31 December 2008.
In addition, in accordance with a decision of the Shareholders' General Meeting held on 24 September 2008, an interim dividend of tEuros 124,095 was paid out of profit for 2008.
In 2008 dividends of tEuros 594 were paid, of which tEuros 57 relates to the subsidiaries of the Petrogal group and tEuros 537 relates to the subsidiaries of the Galp Power group.
Consequently as mentioned before, in the year ended 31 December 2008 the Group paid dividends of tEuros 264,003.
Galp's petroleum reserves are subject to independent valuation by a duly qualified company. The methodology used is established in accordance with the Petroleum Resources Management System ("PMRS"), approved in March 2007 by the Society of Petroleum Engineers ("SPE"), the World Petroleum Council, American Association of Petroleum Geologists and Society of Petroleum Evaluation Engineers. Consequently, the reserves reported in this report and used for accounting purposes are the result of a evaluation study carried out as of 31 December 2008 by the company DeGolyer and MacNaughton.
The reserves can be related to concession contracts or production sharing agreements ("PSA"). Presently, Galp's total reserves relate to a single PSA in Angola.
In accordance with the rules established by the market and approved by the above mentioned entities, the reference price used to project future income, as from which the net entitlement reserves are estimated, must be the average price of the year. In 2008 the average reference price for brent that was consequently used to value Galp's reserves was of \$97.0/bbl. Therefore Galp's reserves suffered a decrease resulting from the increase in the price of petroleum in relation to the preceding year.
At 31 December 2008 and 2007 the developed and undeveloped proved net entitlement reserves, as well as the average reference price for determining them are as follows:
| amounts in Mbbl | ||
|---|---|---|
| Proved reserves: | 2008 | 2007 |
| Developed | 6,891 | 8,311 |
| Undeveloped | 12,911 | 14,804 |
| Total proved reserves | 19,802 | 23,115 |
| Price per barrel in USD | \$97 | \$72,30 |
The variation in approved petroleum reserves between the periods results from production for the year, changes in the estimates, new discoveries resulting from investments made and variation in the selling price of the petroleum barrel.
The decrease in reserves had a direct impact in the amount of depreciation, the recording of which in accordance with production units is explained in Note 2.3.
Galp Energia is exposed to several types of market risk (price risk, exchange rate and interest rate risk) inherent in the petroleum and natural gas industries, which affect the Group's results. The main market risks result from fluctuation of the price of crude oil and derivatives and exchange rate.
Because of the nature of its business, Galp Energia is exposed to the risk of volatility of the international price of crude oil and derivatives and natural gas. The constant change in the price of crude oil and refined products generates uncertainty and has a significant impact on operating results.
The Company controls and manages this risk through the oil derivatives market, to protect the refining margin and inventories from adverse market changes.
The Group controls and manages risk in the natural gas market through the establishment of purchase and sale contracts with similar indexing, so as to protect the business margin from adverse market changes.
The US dollar is the currency used for the reference price in the oil and natural gas markets. As Galp Energia's Group financial statements have as functional currency the Euros, this factor, among others, exposes the operations to exchange risk. Given that the operating margin is related mainly to US dollars, the Company is exposed to fluctuations in the rates of exchange, which can contribute positively or negatively to income and margins.
As this is a currency risk relating to other variables, such as the price of oil and natural gas, the Company takes a cautious approach to hedging risk, as there are natural hedges between the balance sheet and cash flows. The level of exposure of cash flow and especially of the balance sheet is based on the price levels of oil and natural gas.
Therefore, Galp Energia controls its exchange rate exposure on an integrated basis rather than on each operation exposed to exchange risk. The objective of risk management is to limit the uncertainty resulting from variations in exchange rates. Hedging debits and credits based on market speculation is not allowed. At 31 December 2008 there were no exchange hedging contracts in force.
The total interest rate position is managed centrally. Interest rate exposure relates mainly to interest bearing bank indebtedness. The objective of managing interest rate risk is to reduce the volatility of financial costs on the income statement. The interest rate risk management policy is aimed at reducing exposure to variable rates through fixing interest rate risk on indebtedness, using simple derivatives such as swaps.
The analysis prepared by the Group in conformity with IFRS 7 is intended to illustrate the sensitivity of results before taxes, and equity to potential variations of the price of brent, exchange rates and interest rates of financial instruments, defined in IAS 32, such as financial assets and liabilities and financial derivatives reflected on the balance sheet as of 31 December 2008 and 2007. The financial instruments affected by the above mentioned market risks include Trade receivables, Other receivables, Trade payables, Other payables, Under and Overlifting, Loans, Cash and Financial derivatives. When cash flow hedges are applied, fair value is recorded in the equity caption "Hedging reserves" only if it is shown that the hedge is efficient.
There may be financial instruments subject to more than one market risk, in which case the sensitivity analysis is made of one variable at a time, the others remaining constant, therefore ignoring any correlation between them, which is not usually found.
Foreign currency investments were not included in the analysis as the Group does not record them at fair value as defined in IAS 39.
Therefore, the sensitivity analysis serves as an example and does not represent the actual current loss or gain, or other variations in equity.
The following assumptions were considered in the sensitivity analysis of the commodity:
The effect of changes in proved petroleum reserves in relation to changes in the price of a barrel of brent was not calculated.
The following assumptions were considered in the sensitivity analysis of exchange rates:
The following assumptions were considered in the sensitivity analysis of interest rates:
Following is a summary of the sensitivity analysis made of the financial instruments reflected on the balance sheet:
| 2008 | 2007 | ||||
|---|---|---|---|---|---|
| Income statement | Equity | Income statement | Equity | ||
| +/-1 USD/BBL variation in Brent | tEUR | n.a | -/+325 | ||
| +/-10% variation in the in the price of the underlying derivatives over commodities |
tEUR | -724/-1,940 | n.d. | ||
| +/- 10% variation in USD/EUR | tEUR | -/+3,032 | -/+12,353 | ||
| +/- 0.5% parallel dislocation in the interest rate | tEUR | -/+4,694 | +3,991/-3,567 | -2,115/+2,393 | +611/-506 |
Note: USD/BBL - USD/Barrel of Brent
n.a. - not applicable for 2008
n.d. - not available for 2007
Liquidity risk is defined as the amount by which profit and/or cash flow of the business are affected as a result of the Group's difficulty in obtaining the financial resources necessary to meet its operating and investment commitments.
The Galp Energia Group finances itself through cash flows generated by its operations and maintains a diversified portfolio of loans. The Group has access to credit facilities, for amounts not fully used but that are at its disposal. These credit facilities can cover all loans that are repayable in 12 months. The available short and medium and long term facilities not used are sufficient to meet any immediate needs.
Credit risk results from potential non-compliance by third parties with contractual obligations to pay and so the risk level depends on the financial credibility of the counterparty. In addition, counterparty credit risk exists on monetary investments and hedging instruments. Credit risk limits are established by Galp Energia and are implemented in the various business segments. The credit risk position limits are defined and documented and credit limits for certain counterparties are based on their credit ratings, period of exposure and monetary amount of the exposure to credit risk.
Following the sale in 1999 of 40% of OPTEP SGPS, S.A.'s share capital, corresponding to 440,000 shares with a nominal value of Euros 5 per share, the base selling price of tEuros 189,544 was contractually established, of which tEuros 74,818 was attributed to the 093X segment and tEuros 114,726 to the E3G/Edinet segment.
The sale by GDP, SGPS, S.A. (currently called Galp Energia, SGPS, S.A. for purposes of the merger carried out in 2008) and Transgás, S.A. (currently called Galp Gás Natural, S.A.) to EDP, S.A. was established with the condition that if OPTEP SGPS, S.A., 093X or any other entity directly or indirectly controlled or participated in by EDP sells or in any other way disposes of, to a third party, a participation equivalent to 5% of Optimus, that is 450,000 shares with a nominal value of Euros 5 per share, during a period of 3 years as from the date of signature of the agreement (24 June 1999), the difference between the amount of tEuros 74,818 and the sales price would be divided between the parties, as follows:
| tEuros for each 220,000 shares | EDP | GDP group |
|---|---|---|
| Between 37,409 and 42,397 | 0% | 100% |
| Between 42,397 and 52,373 | 25% | 75% |
| More than 52,373 | 75% | 25% |
On 28 September 2000 the parties GDP SGPS, S.A., Transgás SGPS, S.A., currently called GDP Distribuição, SGPS., S.A. for purposes of the merger carried out in 2006), Transgás, S.A. and EDP, S.A. made an amendment to the agreement, under which the deadline for dividing any potential gain on the future sale of Optimus shares was extended to 31 December 2003.
On 22 March 2002 EDP announced the sale of the participation in OPTEP SGPS, S.A., the company that holds a 25.49% participation in Optimus, to Thorn Finance, S.A.. The sales price was fixed at tEuros 315,000, which means that Thorn Finance valued Optimus at tEuros 1,235,779, which is higher than the value established between the parties, which was tEuros 748,197. Therefore, there will be an upside of tEuros 30,253 payable by EDP, S.A., to be divided equally between GDP SGPS, S.A. (merged into Galp Energia SGPS, S.A. effective as of 1 January 2008) and Transgás SGPS, S.A. (currently called GDP Distribuição SGPS, S.A. as a result of the merger in 2006).
As EDP has not agreed to the GDP group's expectations, this account receivable has not been recorded.
At 31 December 2008 the Company and subsidiaries had the following contingent liabilities:
In the course of negotiating the Concession Contract between the General Directorate of Energy and Geology and the Company, it was agreed, among other matters, that the Concessionaire has the right to reflect, on the entities commercialising gas and on the final consumers, the full amount of the subsoil occupation rates assessed by the local governments in the areas conceded under the previous concession contract but not yet paid or contested legally by the Concessionaire if such payment is considered to be mandatory by the competent authority, after issuance of the sentence, or after express prior consent of the Conceding entity. The subsoil occupation rates paid each year will be reflected on the entities commercialising gas that use the infrastructures or on the final consumers served by them, during the subsequent years, under the conditions to be defined by ERSE. The subsoil occupation rates will also be reflected on each municipality, based on the amount assessed by it.
The Group's financial commitments not included in the balance sheet as of 31 December 2008 are as follows:
The contract establishes the following specific obligations, at an estimated cost of tEuros 619,776 excluding discount of the remuneration of the electric energy produced by the wind farms:
The contractual obligations are safeguarded by an autonomous, unconditional first demand bank guarantee in the amount of tEuros 25,332 and guarantee given by the shareholders of Galp Power, Martifer and Enersis divided in equal parts, corresponding to approximately 10% of the total Direct Investment, i.e., tEuros 50,665. The amount of the guarantee will be reduced each half year based on the contracted investment realised in the preceding half year.
In guarantee of compliance with the specific obligations relating to the industrial project, the amount covered by the bank guarantee can never be less than tEuros 902, as from the start of operations up to the latest of the following dates: (i) end of the 9 year term as from the date the Industrial project starts operating; or (ii) date on which the ratio Exports/Sales reaches 60% regarding production up to that time, in which the bank guarantee will be reduced to an amount corresponding to multiplication of the number of years remaining to complete the minimum term of 17 years of useful life of the Industrial project by tEuros 113, the maximum amount guaranteed being progressively reduced each year by tEuros 113 up to the end of the 17 year period.
In addition, the shares of Ventinveste Eólica, SGPS, S.A. and Ventinveste Indústria, SGPS, S.A. were pledged in guarantee.
The full amount of the assets and liabilities of this contract have not been recognised since at 31 December 2008 all these Investments and obligations had not been implemented.
Galp Power, SGPS, S.A., as a shareholder of Ventinveste, S.A. has the commitment and responsibility under the contract and other agreements made with DGEG to comply in full and on a timely basis with 1/3 of the obligations of the wind farm project, consisting of the promotion, construction and operation of the Wind Farms.
In guarantee of the loan contracted by Carriço Cogeração – Sociedade de Geração de Electricidade e Calor, S.A. the surface rights over a plot of land in the municipality of Pombal, acquired by the Company for a period of 15 years, was mortgaged in favour of BES Investimento and BES, up to a maximum of tEuros 28,237.
Galp Power SGPS, S.A. constituted itself as guarantor and principle payer of a loan of the subsidiary Carriço Cogeração – Sociedade de Geração de Electricidade e Calor, S.A.. The guarantee is limited to 65% which corresponds to the participation in the company, up to a maximum of tEuros 11,700.
At 31 December 2008 the guarantees given amounted to tEuros 138,132 and tUSD 78,284, made up essentially of the following:
| Type | Galp Gás Natural's | |
|---|---|---|
| BEI | Bank | 56,364 |
| ICO | Bank | 21,920 |
| 78,284 |
The main challenges facing refining operations are compliance with the objectives of reducing greenhouse gas emissions in the period from 2008 to 2012 defined in the Kyoto Protocol, reducing the proportion of sulphur in fuel consumed in the facilities and increasing energy efficiency.
Decree-Law 233/2004 of 14 December with the text given to it by 243-A/2004 of 31 December and as amended by Decree-Law 230/2005 of 29 December establishes the greenhouse gas emissions trading regime (Diploma CELE), which applies to the industrial activity gas emissions listed on Appendix I thereof, which includes the Galp Energia group's installations.
Order 2836/2008, which approves the existing list of installations participating in Emissions Trading for the 2008-2012 period and related initial granting of Emission Licences (EL), was published in Diário da República (Journal of the Republic). The Group believes that the quantity of greenhouse gas emission licences granted for the refining and co-generating sectors of the Group for the 2008-2012 period in accordance with the Order are sufficient to cover the needs of the installations currently operating considering the production profiles for the five year period.
The following table shows the installations operated by the Group and related annual emission licences granted under PNALE II (Plano Nacional de Alocação de Licenças de Emissão), as well as the quantities of greenhouse effect gas emissions (Ton/CO2 ) per installation:
| Company | Installations | Licences Ton/CO2 attributed PNALE II |
Gases emitted in 2008 | Accumulated Ton/CO2 licences on hand |
|---|---|---|---|---|
| Petrogal | Sines refinery | 2.137.550 | 1.828.182 | 309.368 |
| Porto refinery | 1.098.025 | 1.121.765 | (23.740) | |
| 3.235.575 | 2.949.947 | 285.628 | ||
| Carriço Cogeração | Co-generation | 161.539 | 113.021 | 48.518 |
| Powercer | Co-generation | 47.192 | 39.419 | 7.773 |
| 208.731 | 152.440 | 56.291 | ||
| 3.444.306 | 3.102.387 | 341.919 |
The accumulated licences on hand at 31 December 2007, and so relating to the 2005-2007 period (PNALE I), were used to cover the greenhouse gas emissions in 2007. The remaining licences on hand that were not used lost their validity for the 2008-2012 period.
The Galp Energia group has not recognised in its financial statements the valuation or devaluation of these licences. If it acquires or sells licences it will record them.
However, if an insufficiency of licences occurs the appropriate provisions will be recorded, if that becomes appropriate. However as detailed above, only the estimated emissions of the Porto refinery installation for the year exceeded the estimated volume of gas emission licences issued. This deficit, if it is verified, can be compensated between installations of the Galp Energia group. The licences allocated to the Group at 31 December 2008 exceed the volume of gases emitted and so no provision was recorded for the year.
The main subsequent events that occurred after 31 December 2008 were as follows:
In January 2009 there was a fire in the utilities plant of the Sines refinery that supplies electricity to the refinery. It was expected that the refinery would remain stopped for a period of up to six weeks. However, it started operating at the end of February 2009, a few days before the period communicated. The incident did not result in any personal or environmental damage. The Galp Energia insurance program covers operating loss, material damage and third party responsibility risks. Up to this date no amounts have been quantified.
The Galp Energia group rescinded the agreement relating to cession of the operation of eight service stations at Continente hypermarkets. The agreement, that included service stations integrated by Sonae Distribuição in its acquisition of the former Carrefour Portugal in December 2007, was entered into in February 2008 and still awaited a decision of the Competition Authority.
The financial statements were approved by the Board of Directors on 25 March 2009. However, they are still subject to approval by the Shareholders' General Meeting under the terms of current Portuguese legislation.
These financial statements are a translation of financial statements originally issued in Portuguese in accordance with International Financial Reporting Standards as adopted by the European Union (Note 2.1) some of which may not conform to generally accepted accounting principles in other countries. In the event of discrepancies, the Portuguese language version prevails.
The accountant The board of directors
(Translation of a report originally issued in Portuguese – Note 37)
The Company's Board of Directors' is responsible for: (i) the preparation of consolidated financial statements that present a true and fair view of the financial position of the companies included in the consolidation, the consolidated results of their operations, their consolidated cash flows and their consolidated statement of changes in equity; (ii) the preparation of historical financial information in accordance with International Financial Reporting Standards as adopted by the European Union which is complete, true, timely, clear, objective and licit, as required by the Portuguese Securities Market Code; (iii) the adoption of adequate accounting policies and criteria and the maintenance of appropriate systems of internal control and (iv) the disclosure of any significant facts that have influenced the operations of the companies included in the consolidation, their financial position and results of it's operations.
Our responsibility is to examine the financial information contained in the documents of account referred to above, including verifying that, in all material respects, the information is complete, true, timely, clear, objective and licit, as required by the Portuguese Securities Market Code, and to issue a professional and independent report based on our work.
Lisbon, March 25, 2009
Deloitte & Associados, SROC S.A. Represented by Jorge Carlos Batalha Duarte Catulo
(Translation of a report originally issued in Portuguese)
The Company's Board of Directors is responsible for the preparation of consolidated financial statements that present a true and fair view of the financial position of the companies included in the consolidation, the consolidated results of their operations, their consolidated cash flows and their consolidated statement of changes in equity, the adoption of adequate accounting policies and criteria and the maintenance of appropriate systems of internal control and the disclosure of any significant facts that have influenced the operations of the companies included in the consolidation, their financial position and results of operations.
Our responsibility is to issue a professional and independent opinion based on our examination of those financial statements.
Our examination was performed in accordance with the Auditing Standards ("Normas Técnicas e as Directrizes de Revisão/Auditoria") issued by the Portuguese Institute of Statutory Auditors ("Ordem dos Revisores Oficiais de Contas"), which require that the examination be planned and performed with the objective of obtaining reasonable assurance about whether the consolidated financial statements are free of material misstatement. Our examination included verifying, on a sample basis, evidence supporting the amounts and disclosures in the financial statements and assessing the estimates, based on judgments and criteria defined by the Board of Directors, used in their preparation. Our examination also included verifying the consolidation procedures used, assessing the adequacy of the accounting policies used, their uniform application and their disclosure, taking into consideration the circumstances, verifying the applicability of the going concern concept, assessing the adequacy of the overall presentation of the consolidated financial statements.
Our examination also included verifying that the consolidated financial information included in the consolidated Board of Directors' Report is consistent with the other consolidated financial statements.
We believe that our examination provides a reasonable basis for expressing our opinion.
Lisbon, March 25, 2009
P. Matos Silva, Garcia Jr., P. Caiado & Associados, SROC, Represented by Pedro João Reis de Matos Silva
According to article 245, first paragraph c) of the Portuguese Securities Code.
The board of directors declares that to the best of their knowledge the information mentioned on the article 245, first paragraph a) of the Portuguese Securities Code for the individual and consolidated financial statements (i) was prepared in compliance with the applicable accounting requirements and give a true and fair view of the assets, liabilities, financial position and profit or loss of Galp Energia and the companies included in the consolidation as a whole, (ii) includes a fair review of the development of the business and the performance and position of Galp Energia and the undertakings included in the consolidation taken as a whole and (iii) includes a accurate description of the principal risks that Galp Energia's operations face.
Chairman:
Francisco Murteira Nabo
Manuel Ferreira De Oliveira
Manuel Domingos Vicente Fernando Manuel dos Santos Gomes José António Marques Gonçalves André Freire de Almeida Palmeiro Ribeiro Carlos Nuno Gomes da Silva Rui Paulo da Costa Cunha e Silva Gonçalves João Pedro Leitão Pinheiro de Figueiredo Brito Alberto Chiarini Claudio De Marco Paolo Grossi Camillo Gloria Fabrizio Dassogno Giuseppe Ricci Luigi Piro Joaquim José Borges Gouveia
(Translation of a report originally issued in Portuguese)
In the performance of its duties in 2008, the supervisory board had the opportunity to closely follow the company's progress in all respects relevant to its remit. In this work, the supervisory board relied on the cooperation of:
All these people and entities provided complete answers to the questions posed by the supervisory board, namely regarding the manner in which they perform their supervisory and risk control duties and the procedures used.
In a year characterised by the extreme volatility in crude oil prices and worsening of the economic crisis without precedent in the last decades, in particularly in the financial sector, the supervisory board is grateful for being able to testify the high standards of professionalism with which activities were discharged but also the extreme care in adopting applicable international best practice.
The supervisory board is also grateful for being able to testify the ongoing growth of the Company's business through the execution of the investment plan previous approved and through taking advantage of acquisition opportunities.
Upon close of the financial year, the supervisory board reviewed in particular the accounting treatment of assets likely to attract discretionary or subjective valuation. The questions asked to the internal departments, the external auditors and the statutory auditors regarding the criteria and principles used in treating these situations on the consolidated balance sheet and profit and loss account were all answered to the entire satisfaction of the supervisory board. In this respect and as an additional source of comfort and security, the following should be emphasised:
Upon being informed by the statutory auditors of the content of the statutory audit report and, with which we are in agreement, our opinion is that:
The supervisory board declares that to the best of their knowledge the information mentioned on the article 245, first paragraph a) of the Portuguese Securities Code for the consolidated financial statements (i) was prepared in compliance with the applicable accounting requirements and give a true and fair view of the assets, liabilities, financial position and profit or loss of Galp Energia and the companies included in the consolidation as a whole, (ii) includes a fair review of the development of the business and the performance and position of Galp Energia, SGPS, S.A. and the undertakings included in the consolidation taken as a whole and (iii) includes a accurate description of the principal risks that Galp Energia's operations face.
Lastly, the supervisory board wishes to express its gratitude to the board of directors and the executive committee of Galp Energia SGPS, S.A. whose cooperation materially simplified at all times the performance of the supervisory board's duties.
Lisbon, April 6, 2009
Chairman - Daniel Bessa Fernandes Coelho
Member - José Gomes Honorato Ferreira
Member - José Maria Rego Ribeiro da Cunha
Gravity expressed in API, defined by the American Petroleum Institute as the following formula:
Where g is the density of the crude oil at 60 degrees Fahrenheit (15.6ºC). It is used worldwide to refer to the density of crude oil. The higher the API gravity, the lighter the crude oil.
A group of unsaturated cyclic hydrocarbons characterised by having at least one benzene ring and known as aromatics for their distinctive sweet odour. Common aromatics include benzene, toluene and xylene.
Crude oil distillation at atmospheric pressure. By this process, oil components are separated into fractions such as light gasoline, heavy gasoline, gasoil and heavy products. After receiving adequate treatment, these fractions become the components of finished refined products.
A unit volume measurement used for petroleum, based on the volume of one barrel, equal to 0.15891 m3 for a crude oil barrel at 60 degrees Fahrenheit (15.6ºC).
The main component of lubricant blends, obtained from distillates after being subjected to several processes.
Diesel fuel that contains components derived from raw materials such as vegetable oils and animal fat.
Any fuel that is derived from biomass, such as alcohol, bioethanol and biodiesel.
Solid, semi-solid or viscous mixture of hydrocarbons, obtained by primary distillation of crude oil or as a product of residual vacuum distillation. It is waterproof and sticky and is primarily used for paving roads, though it also has industrial uses.
A light North Sea crude oil, that since July 2006 incorporates also Forties and Oseberg grades. This basket of crudes has an average API of 38.9º API.
The price for prompt shipments of Brent crude as reported by price agencies. It is the price benchmark for the vast majority crude oils sold in Europe, Africa and the Middle East and one of the most important benchmarks for spot market prices.
The conversion of a lighter fraction (such as heavy gasoline), obtained through primary distillation, into a heavier fraction based on aromatics (reformate) and with higher octane level, thus constituting a major blending component for finished gasoline. These reactions are obtained in the presence of a catalyst (platinum) and produce significant quantities of hydrogen. Reformates are also the main feedstock for the petrochemical industry (production of benzene, toluene and xylene).
Carbon dioxide, a colourless gas, heavier than air, from which it is one of its natural components. It is produced through natural processes such as the carbon cycle and by the combustion of fossil fuels.
Generation technique for combined electricity and heat production. The advantage of cogeneration is the ability to capture the heat produced by the fuel whereas in classical electricity generation this heat is lost. This process also allows the same facility to meet the heating (hot water or steam) and electricity needs of both industrial and local authority customers. This system improves the energy efficiency of the generation process and reduces fuel use.
Solid residue with high carbon content resulting from the thermal decomposition of refined petroleum residues.
Electric power plant that usually integrates a gas turbine and a steam turbine. CCGTs have a first-cycle gas turbine that generates electricity through the combustion of gas. The exhaustion gases (heat) out of this process are converted into steam in a heat recovery steam generator, which then fuels a second-cycle steam turbine, producing more electricity.
Largely homogeneous product, produced in large quantities by many different producers, with the items from each different producer being considered substitutes, more or less of undifferentiated quality. Some examples of commodities are oil, cereals and metals.
A key industry measure referring to an oil refinery's ability to process feedstock such as heavier and higher sulphur content crude oils into value-added products. Generally, the higher the complexity and the more flexible the range of feedstock, the better positioned the refinery is to take advantage of lower-priced crude oils, resulting in incremental gross margin opportunities for the refinery. A refinery's complexity is measured by a "complexity index" which is separately calculated by different industry organisations, among them energy consultants Solomon Associates and Nelson. A refinery's complexity index is calculated by assigning a complexity factor to each of the refinery's units, based primarily on the level of technology used in the unit's construction and taking as a reference point a primary crude-oil distillation plant that is attributed a complexity factor of 1.0. Each unit's complexity index is calculated by multiplying the unit's complexity factor by the unit's capacity. A refinery's complexity is equal to the weighted average of the complexity indices of all units including the distillation unit. A refinery with a complexity index of 10.0 is considered ten times more complex than a refinery equipped only with atmospheric distillation for the same amount of throughput.
Liquid hydrocarbons found at the surface and, under normal conditions of temperature and atmospheric pressure, recovered from natural gas reservoirs. Condensates are mainly composed of pentane and other heavier products.
Quantities of petroleum that are estimated on a given date to be potentially recoverable from known accumulations but are not currently considered to be commercially recoverable. This may happen for a variety of possible reasons, for example due to maturity issues (the discovery needs further appraisal in order to firm up the elements of the development plan), technological issues (new technology needs to be developed and tested in order to produce the volumes commercially) or market-driven issues (sales contracts are not yet in place or the infrastructure needs to be developed in order to get the product to market). Volumes that fall into this category cannot be referred to as reserves.
Refers to the several treatments (catalytic or thermal) whose main impact is on the carbon connections. It can be more or less intense depending on the conditions imposed. This process is usually associated with the conversion of fuel oil into lighter and more valuable fractions (gasoil, gasoline and petroleum gases). In a modern refinery, these processes are increasingly significant.
Difference between the price of the final product and the price of crude oil.
The refining process of breaking down the larger, heavier, lower-value and more complex hydrocarbon molecules into simpler, lighter and higher-value molecules. Cracking is carried out either at high temperatures and pressures (thermal cracking) or with the aid of a catalyst (catalytic cracking) which enables, for the same temperatures, a deeper and more selective conversion of heavier fractions.
Ratio of the total amount of crude oil processed through crude oil distillation units to the operable capacity of these units.
A purification process designed to eliminate sulphur and, at the same time, oxygen, nitrogen and metals from petroleum-refined products. Desulphuration can be made through catalytic or chemical methods.
Blend of hydrocarbons used as a fuel for ignition by compression engines ("Diesel cycle"). Its characteristics, such as its behaviour in low temperatures, vary a lot between regions or countries where it is used.
Any petroleum product produced by distillation of crude oil.
Method for separating (liquid or solid) substances by evaporation followed by condensation. Distillation may be at atmospheric pressure or in vacuum, depending on the desired
Releases of gases into the atmosphere. In the context of global climate change, they include potentially climate-changing greenhouse gases, e.g. the release of carbon dioxide during fuel combustion.
First generation biodiesel obtained by transesterification.
Cracking process using a fluid catalytic agent that is continuously regenerated. It is an effective method to increase the gasoline yield from crude oil.
Imperial unit for measuring length which is equivalent to 30.48 cm in the metric system.
Percentage of the shares in a listed company which is freely traded on the market, i.e. which is not held by strategic investors.
Blend of hydrocarbons mainly used for heat production in thermal installations. There are several types of fuel oil with different viscosity levels that limit each type's uses.
Fuel for internal combustion engines in automobiles that use the "Otto cycle". It must comply with specifications regarding its physical and chemical characteristics, the most important of which is resistance to self-inflammation.
The process of producing electric energy by transforming other forms of energy. The amount of energy can be expressed in joules, kilowatt-hours, calories or British thermal units, and all these units can be applied to all kinds of energy irrespective of their source.
The result of trapping radiant infrared energy in a closed space. The greenhouse effect produced by carbon dioxide in the atmosphere has the possible consequence of keeping the earth's surface warmer than it would otherwise be.
Investment portfolios managed by means of advanced or risk strategies – i.e. the short sale of assets or the use of derivative instruments – with a view to achieving superior returns typically for a restricted number of professional investors. These portfolios are usually composed of financial assets that may include equities linked to oil development.
A monthly pricing benchmark for natural gas in the United States. The United States has distinct markets for natural gas (spot and futures markets). Natural gas futures are traded on the New York Mercantile Exchange (NYMEX). This is the most widely quoted US natural gas price. The NYMEX natural gas contract calls for delivery at a location in Northwest Louisiana called Henry Hub. However, less than 1% of all futures contracts are ever held to delivery. The NYMEX natural gas contract serves instead as a benchmark for monthly pricing. This benchmark is referred to as "Henry Hub".
A cracking process that uses hydrogen in the presence of a catalyst to convert heavier fractions of hydrocarbons that have higher ebullition levels and are less valuable into lighter and more valuable fractions. The presence of hydrogen allows the fractions to operate more selectively and at lower temperatures, thus yielding higher returns. The products resulting from this process are saturated compounds with significant stability characteristics.
Transformation, in the presence of a catalyst and hydrogen, of straight-chain paraphynic hydrocarbons into branched-chain hydrocarbons. Its main purpose is to obtain a light fraction with high octane index, an important blending component for gasoline.
A petroleum product used as a fuel in aviation (jet engines) or as a heating or lighting fuel. It contains additives in order to achieve the necessary safety conditions for its use.
Liquid that results when natural is cooled to approximately –160ºC at atmospheric pressure. LNG's volume is approximately 1/600 of the volume of natural gas, making it more efficient for transportation.
A mixture of C3 and C4 hydrocarbons that is gaseous in normal temperature and atmospheric pressure conditions but can be liquefied by increasing the pressure or lowering the temperature, enabling it to be transported and stored. The most common types are propane and butane.
Products obtained by blending base oils and additives following specific formulations depending on their final utilisation. The percentage of additives in lubricants can reach 40%. Lubricants have three major applications: automobiles, industry and marine.
Methyl tertiary butyl ether, an oxygenate component (performance-enhancing fuel additive) used in the production of gasoline.
A light fraction of refined crude oil between gases and petroleum. It is used as feedstock by the petrochemical industry as its cracking supplies several products and it can also be used as a component for gasoline (light naphtha) or to produce reformate (heavy naphtha).
Production percentage of the rights for exploration and production of hydrocarbons in a concession after the effect of production-sharing agreements.
Conventional scale used to characterise in figures the fuel's ability to resist detonation when burned in an internal combustion engine using the Otto cycle. The higher the figure, the higher the fuel's ability to resist detonation.
Crude oil exploration that takes place on the sea. Offshore exploration is said to be conducted on shallow water, deep water or ultra-deep water depending on depth: less than 1,000 feet, between 1,000 and 5,000 feet and more than 5,000 feet, respectively.
Crude oil exploration that takes place on land.
An intermediate product of oil refining which is used as a feedstock for polymers and various other chemical products.
Under the definitions approved by the SPE and the WPC, probable reserves are a category of unproved reserves. Unproved reserves are based on geological or engineering data similar to that used in estimates of proved reserves but in relation to which technical, contractual, economic or regulatory uncertainties preclude such reserves from being classified as proven.
Quantities of petroleum that have, on a certain date, been estimated as potentially recoverable from undiscovered accumulations by application of future development projects. The estimation of resources quantities for a prospect is subject to both technical and commercial uncertainties. The quantities classified as prospective resources cannot be classified as contingent resources or reserves.
Under the definitions approved by the SPE and the WPC, proved reserves are those quantities of petroleum which, by analysis of geological and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date forward, from known reservoirs and under current economic conditions, operating methods and government regulations. If deterministic methods are used, the expression "reasonable certainty" is intended to express a high degree of confidence that the quantities will be recovered. If probabilistic methods are used, there should be at least a 90% probability that the quantities actually recovered will equal or exceed the estimate. Establishment of current economic conditions should include relevant historical petroleum prices and associated costs. In general, reserves are considered proven if the commercial producibility of the reservoir is supported by actual production or formation tests. In this context, the term "proven" refers to the actual quantities of petroleum reserves and not just the productivity of the well or reservoir. The area of the reservoir considered as proven includes (1) the area delineated by drilling and defined by fluid contacts, if any, and (2) the undrilled portions of the reservoir that can reasonably be judged as commercially productive on the basis of available geological and engineering data. Reserves may be classified as proven if facilities to process and transport those reserves to market are operational at the time of the estimate or there is a reasonable expectation that such facilities will be installed.
An industrial facility used to process crude oil in order to transform it into the products needed by end consumers (fuels, lubricants, bitumen, etc.) or feedstock for other industries (such as the petrochemical industry).
Processing LNG in order to convert it into its natural gaseous state by thermal exchange with water or air
Energy available from natural and permanent sources that can be exploited economically in present conditions or in the near future.
In addition to using the replacement cost method, adjusted profit excludes non recurrent events such as capital gains or losses on the disposal of assets, impairment or reinstatement of fixed assets and environmental or restructuring charges which may affect the analysis of the company's profit and do not reflect its operational performance.
As the financial statements have been prepared according to IFRS, the cost of goods sold is valued at WAC. This may, however, lead to substantial volatility in results when commodities and goods prices fluctuate sharply leading to gains or losses in inventory which may not reflect operational performance. In this document, we call this impact the inventory effect. According to this method, the cost of goods sold is valued at replacement cost, i.e. at the average cost of the raw materials in the month when the sales were realised and irrespective of the inventories held at the start or the end of the period. The replacement cost method is not accepted by either Portuguese GAAP or IFRS and is therefore not used to value inventories. The method does not reflect the replacement cost of other assets.
Also known as Rotterdam benchmark, it is the most commonly used refining margin benchmark in Europe. The refining margins are usually compared with benchmark margins for three major global refining centres. These are the US Gulf Coast (USGC), North West Europe (NWE – Rotterdam) and Singapore. In each case they are based on a single crude oil appropriate for that region and have optimised product yields based on a generic refinery configuration (cracking, hydrocracking or coking) appropriate for that region. The margins are on a semi-variable basis which means they are calculated after all variable costs and fixed energy costs have been deducted. The Northwest Europe Refining Margin is determined by using as a reference point the prices achieved by refinery products in the Antwerp-Rotterdam-Amsterdam region.
With respect to commodities such as oil, a term used to describe the international trade in one-off cargoes or shipments of commodities such as crude oil in which prices closely follow demand and availability
An obligation usually contained in gas contracts which commits one party to purchase agreed quantities of gas whether delivery effectively occurs or not.
An installation used by trunk and gathering pipeline companies, crude oil producers and terminal operators (except refineries) to store crude oil and oil products.
Distillation process at a lower pressure than atmospheric pressure. The residue (heavier fractions) of the atmospheric distillation is subject to vacuum distillation in order to separate it without decomposing the residue by lowering the pressure and consequently its ebullition levels. It is used, for example, in the production of base oils.
A group of wind turbines interconnected to a common utility system through a system of transformers, distribution lines and (usually) one substation. Operation, control and maintenance functions are often centralised through a network of computerised monitoring systems, supplemented by visual inspection.
Kinetic energy present in wind motion which can be converted into mechanical energy for driving pumps, mills and electric power generators.
Production percentage of the rights for exploration and production of hydrocarbons in a concession before the effect of production-sharing agreements.
Amorim Energia: Amorim Energia, B.V. ANP: National Petroleum, Natural Gas and Biofuels Agency BAT: Best available tehniques Bbl: Barrel of oil BBLT: Benguela, Belize, Lobito, Tomboco Bcm: Billion cubic metres Boe: Barrel of oil equivalent Boepd: Barrels of oil equivalent per day Bopd: Barrels of oil per day CCGT: Combined cycle gas turbine CDP: Conceptual Development Plan CGD: Caixa Geral de Depósitos, S.A. CMVM: Portuguese Securities Market Regulator CO's: Company Operated CPT: Compliant Piled Tower CSE: Center South East CURr: Last-resort retail marketing DEMAC: Degolyer and Macnaughton DGEG: Portuguese Energy and Geology Directorate DO's: Dealer Operated E&P: Exploration & Production ECB: European Central Bank EIA: Energy Information Administration EMPL: Europe Magrebe Pipeline ENH: Empresa Nacional de Hidrocarbonetos Eni: Eni, S.p.A. EPC: Engineering, Procurement and Construction EPCI: Engineering, Procurement, Construction and Installation EPS: Earnings per share ERSE: Entidade Reguladora dos Serviços Energéticos (Energy Regulator) €: euro FCC: Fluid Catalytic Cracking FED: American Federal Reserve FEED: Front-End Engineering & Design FIFO: First in, First Out FPSO: Floating, Production, Storage and Offloading G&P: Gas & Power Galp Energia: Galp Energia, SGPS, S.A., Company or Group GBP: British pound GDP: Gross Domestic Product HSE: Health, Safety and Environment IBAMA: Instituto Brasileiro do Meio Ambiente e dos Recursos Naturais Renováveis IEA: International Energy Agency INETI: Instituto Nacional de Engenharia, Tecnologia e Inovação IOC's: International Oil Companies JPY: Japanese Yen Kboepd: Thousand barrels of oil per day Kbopd: Thousand barrels of oil per day LNG: Liquefied Natural Gas LPG: Liquefied Petroleum Gas M€: Million of euros m3: cubic metre Mbbl: Million of barrels Mbopd: Million of barrels of oil per day mmbtu: Thousand of british thermal unit Mton: Million tonnes NOC's: National Oil Companies OECD: Organisation for Economic Co-operation and Development OMIP: Iberian Energy Market Operator OPEC: Organization of the Petroleum Exporting Countries OTC: Over-the-counter markets PDVSA: Petróleos de Venezuela, S.A. PGAAP: Portuguese General Accepted Accounting Principles PSA: Production Sharing Agreement PSC: Portuguese Securities Code R&D: Research & Development R&M: Refining & Marketing RAB: Regulated Asset Base RCA: Replacement cost adjusted REN: Rede Eléctrica Nacional, S.A. RSL: Refining, supply and logistics SPE: Society of Petroleum Engineers SROC: Statutory Audit Firm SXEP: DJ Europe STOXX Oil & Gas index TAN: Total Acid Number TGL: Liquid Bulk Terminal TL: Tômbua-Lândana Ton: tonne US: United States of America Usd: Currency unit of the United States of America USSR: Union of Soviet Socialist Republic VGO: Vacuum Gasoil VR: Vented Riser VSS: Vortex Separation System WAC: Weighted Average Cost WPC: World Petroleum Council
This Annual Report & Accounts contains forward-looking statements about the results of Galp Energia's operations as well as some company plans and objectives about those results. The terms "anticipates", "believes", "estimates", "expects", "predicts", "aims", "plans" and other similar ones aim to identify such forward-looking statements. As a result of their nature, forward-looking statements involve risks and uncertainties as they are associated with events and circumstances that may occur in the future. Real outcomes and developments may as a result of several factors differ significantly from outcomes, either express or implicit, in the statements. These include but are not limited to changes in costs, economic conditions or regulatory framework.
Forward-looking statements only refer to the date when they were made and Galp Energia has no obligation to update them in the light of new data or future developments or otherwise explain the reasons actual outcomes are possibly different.
+ Edition
+ Translation
+ Design and conception
+ Non-identifi ed photos
Manuel Aguiar and Image Bank
Galp Energia, SGPS, S.A. Public Company Investor Relations and Corporate Communication Division
Rua Tomás da Fonseca, Torre C 1600-209 Lisboa Telephone: +351 217 240 866 Fax: +351 217 242 965 e-mail: [email protected] www.galpenergia.com
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