Galp Energia

Earnings Release • Jul 29, 2016

July 29, 2016

Results Second quarter 2016

Cautionary Statement

By attending or reading this presentation, you acknowledge and agree to be bound by the following limitations and restrictions. This presentation has been prepared by Galp Energia, SGPS, S.A. ("Galp" or the "Company") and may be amended and supplemented, but may not be relied upon for the purposes of entering into any transaction. This presentation is strictly confidential, is being distributed to a limited range of persons solely for their own information and may not (i) be distributed to the media or disclosed to any other person in any jurisdiction, nor (ii) be reproduced in any form, in whole or in part, without the prior written consent of the Company.

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Actual future results, including financial and operating performance; demand growth and energy mix; Galp's production growth and mix; the amount and mix of capital expenditures; future distributions; resource additions and recoveries; project plans, timing, costs, and capacities; efficiency gains; cost savings; integration benefits; product sales and mix; production rates; and the impact of technology could differ materially due to a number of factors. These include changes in oil or gas prices or other market conditions affecting the oil, gas, and petrochemical industries; reservoir performance; timely completion of development projects; war and other political or security disturbances; changes in law or government regulation, including environmental regulations and political sanctions; the outcome of commercial negotiations; the actions of competitors and customers; unexpected technological developments; general economic conditions, including the occurrence and duration of economic recessions; unforeseen technical difficulties; and other factors.

The information, opinions and forward-looking statements contained in this presentation speak only as at the date of this presentation, and are subject to change without notice. Galp and its respective representatives, agents, employees or advisors do not intend to, and expressly disclaim any duty, undertaking or obligation to, make or disseminate any supplement, amendment, update or revision to any of the information, opinions or forward-looking statements contained in this presentation to reflect any change in events, conditions or circumstances.

2Q16 highlights

• 2Q16 Ebitda of €337 m, down 25% YoY, given lower oil prices and refining margins
• Strong execution of key upstream assets, with six units already producing in Brazil
• WI production of 54.7 kboepd, down 3% QoQ, impacted by maintenance in Brazil during April
• Increase in raw materials processed QoQ, after maintenance in hydrocracker in 1Q16
• G&P contribution benefitting from sourcing optimisation
• Regulated gas infrastructure partnership with Marubeni/Toho Gas

Agenda

Execution Update

Financial Overview

Appendix

2Q16: High inventories cap crude price increase

Brent price vs. Refining margin (\$/bbl) Iberian market evolution (kton, mm³

• Significant capacity outage sustained an \$11.6/bbl QoQ Brent increase
• Refining margins showed a slight QoQ decrease, with main products under pressure due to high inventories

)

• Iberian oil market increased 3% YoY, supported by high demand for middle distillates
• A cooler season across Iberia had a positive impact on gas demand

Source: Platts, APETRO, CORES, REN, Enagás.

Brazil: Strong execution in Lula/Iracema

FPSO #1 Angra dos Reis – Lula Pilot

100 kbopd

• Turnaround maintenance in April
• Steady production at plateau during the remainder of the quarter

FPSO #2 Paraty - Lula NE 120 kbopd

• Topside maintenance in April

Steady production

Connection to gas export network expected in Q4 to provide additional flexibility

FPSO #3 Mangaratiba – Iracema South 150 kbopd

Second quarter 2016 results

Unit returned to plateau

FPSO #4 Itaguaí – Iracema North 150 kbopd

• Five producers connected

• Production still constrained by gas export availability, with connection expected during Q3

• FPSO ramp-up ahead of plan

• Three producers and two injectors connected

FPSO #6 Saquarema – Lula Central 150 kbopd

• Start-up on July 8
• Production of c.30 kbopd from one well

Africa: Development activities under progress

• Focus on improving FLNG solution in Coral
• Analysing EPC proposals for the first stage of development of Mamba onshore

Mozambique: area 4 Angola: blocks 14/14k and block 32

• Block 14/14k: 2Q16 production slightly impacted by shutdown of TL platform for rig demobilisation
• Block 32: ongoing drilling campaign in Kaombo and FPSO and subsea construction underway

Downstream and gas: Consistent delivery

Refining & Marketing

• Planned maintenance in some units during Q2
• Realised margin continuing to benefit from arbitrage opportunities, namely gasoline exports to the U.S.
• Optimising marketing activities in Iberia

Gas & Power

• Natural gas activity positively impacted by sourcing optimisation
• Power benefitting from increased electricity sales to the grid

Second quarter 2016 results

Ring fencing regulated gas infrastructure business

Transaction structure

Values @ June 30, 2016

	Galp Energia, SGPS, SA Total Assets: €11.7 bn Net Debt: €1.8 bn
Galp Energia, SGPS, SA
Total Assets: €13.0 bn	Shareholder loans €568 m	Equity 100%
Net Debt: €2.5 bn
	€0 m	77.5%
(GGND fully consolidated)
	Galp Gás Distribuição (GGND)	Natural
	Total Assets: €1.3 bn
	Net Debt1	: €0.6 bn

Highlights

• Marubeni led consortium with Toho Gas to acquire a stake of 22.5% in GGND
• Shared governance leading to accounting deconsolidation
• €138 m equity transaction, implying c.€1.3 bn EV, a 27% premium over RAB and 11.5x Ebitda 2016E multiple
• GGND to raise own funding to repay existing shareholder loans.
• Total cash proceeds of c.€700 m to Galp at completion

About GGND

• Holding of nine local distribution concessionaries
• €1.05 bn Regulated Asset Base, with RoR of 6.2% for the period Jul'16 - Jul'17

Agenda

Execution Update

Financial Overview

Appendix

Profit & Loss RCA (€m)

	1Q16	2Q15	2Q16	QoQ	YoY	1H16	YoY
Turnover	2,829	4,247	3,267	+15%	(23%)	6,095	(25%)	despite production growth YoY
Ebitda	293	447	337	+15%	(25%)	631	(23%)
E&P	48	119	86	+79%	(27%)	135	(37%)
R&M	148	230	143	(3%)	(38%)	291	(22%)
G&P	90	89	97	+9%	+10%	187	(15%)
Ebit	137	304	185	+35%	(39%)	323	(39%)	effect
Associates	21	17	24	+14%	+42%	45	+5%
Financial results	3	(10)	15	n.m.	n.m.	18	n.m.
Taxes1	(39)	(107)	(79)	+100%	(26%)	(118)	(34%)
Non-controlling interests	(9)	(15)	(12)	+41%	(16%)	(21)	(19%)
Net Income	114	189	133	+17%	(29%)	247	(20%)
Net Income (IFRS)	(58)	110	66	n.m.	(40%)	8	(89%)	inventory effect of €31 m

• E&P results impacted by oil price decline despite production growth YoY
• R&M down given lower refining margins
• G&P benefitted from natural gas sourcing effect
• Positive financial results driven by gains in mark-to-market of refining hedges
• RCA net income down 29% to €133 m in Q2, with IFRS net income of €66 m, impacted by non-recurring items of -€98 m and positive

¹Includes the Special Participation tax payable in Brazil and IRP payable in Angola. Notes:

Effective on 1 January 2016, exchange rate differences from operating activities are allocated to operating results. Until the end of 2015, these exchange rate differences were accounted for under financial results.

Second quarter 2016 results

The accounting method for taxes on the energy sector in Iberia has changed and the annual cost is now mostly accounted for in Q1. Both of these changes were applied to 2015 in order to make periods comparable. Please see additional detail on section 10. of the quarterly report.

Group capex of €287 m in 2Q16

Capital Expenditure (€m)

• 85% of overall investment allocated to E&P, of which 95% to development activities
• Downstream and gas capex of c.€42 m, up €15 m, impacted by planned refining maintenance
• 2016 capex guidance maintained at €1.1 - €1.3 bn, of which €630 m during 1H16

Notes: E&A: Exploration & Appraisal. D&P: Development & Production. D&G: Downstream & Gas.

Pre-expansion FCF of €215 m during 1H16

(€m)

Maintaining a robust financial position

Balance Sheet (€m)¹

	Dec.2015	Mar.2016	Jun.2016 (prior to GGND 2 reclassification)	Jun.2016	Jun-Dec	Jun-Mar
Net fixed assets	7,892	8,077	8,439	7,304	(588)	(773)
Work in progress	2,077	2,133	2,347	2,347	+270	+214
Working capital	510	369	377	365	(145)	(4)
Loan to Sinopec	723	627	576	576	(147)	(50)
Other assets (liabilities)	(515)	(573)	(624)	(335)	+180	+238
Non-current assets/liabilities held for sale			-	842	+842	+842
Capital employed	8,610	8,499	8,768	8,752	+142	+253
Net debt3	2,422	2,467	2,483	2,467	+45	(0)
Equity	6,188	6,032	6,285	6,285	+97	+253
Net Debt + Equity	8,610	8,499	8,768	8,752	+142	+253

• Net fixed assets of €8.4 bn, or €7.3 bn considering infrastructure assets accounted as held for sale
• Net debt of €1.9 bn considering loan to Sinopec as cash and equivalents, with implicit net debt to Ebitda of 1.6x⁴

¹IFRS figures.

² Figures do not consider non-current assets/liabilities held for sale, in order to make previous periods comparable. ³ Not considering loan to Sinopec as cash. Net debt as at 30 June 2016 excludes net bank debt of GGND (€16 m), which is considered under non-current assets/liabilities held for sale.

⁴ Ratio considers net debt including the €576 m loan to Sinopec as cash, plus €169 m corresponding to Sinopec MLT Shareholder Loan to Petrogal Brasil and LTM Ebitda RCA of €1,323 m.

Agenda

Execution Update

Financial Overview

Appendix

E&P: Net entitlement production up 28% YoY

Main E&P data

		1Q16	2Q15	2Q16	QoQ	YoY	1H16	YoY
Working interest production1	kboepd	56.3	43.8	54.7	(3%)	+25%	55.5	+30%
Oil production	kbopd	52.9	40.5	51.7	(2%)	+28%	52.3	+33%
Net entitlement production1	kboepd	53.7	40.9	52.2	(3%)	+28%	53.0	+33%
Angola	kbopd	7.9	7.4	7.1	(10%)	(3%)	7.5	(1%)
Brazil	kboepd	45.8	33.5	45.0	(2%)	+34%	45.4	+41%
Realised sale price2	USD/boe	26.2	53.0	38.3	+46%	(28%)	32.1	(38%)
Production cost	USD/boe	8.9	7.6	9.8	+10%	+29%	9.3	(3%)
DD&A3	USD/boe	15.8	18.8	14.8	(6%)	(21%)	15.4	(13%)
Ebitda RCA	€ m	48	119	86	+79%	(27%)	135	(37%)
Ebit RCA	€ m	(22)	56	24	n.m.	(57%)	2	(98%)
Net Income from E&P Associates	€ m	3	1	8	n.m.	n.m.	11	+21%
CAPEX	€ m	316	285	245	(23%)	(14%)	561	+0%

• Brazilian production increased YoY, impacted by the start-up of FPSO #4 and FPSO #5
• Production cost up YoY, driven by higher cost base, with two new units, and lower dilution effect
• Ebitda decreased 27% YoY as production growth did not offset decline in oil prices

Note: Unit figures based on net entitlement production.

¹Includes natural gas exported, excludes natural gas used or reinjected.

²Galp average oil and gas realised sale price, including change in production effects.

3 Includes abandonment provisions.

17 R&M: Ebitda down YoY driven by lower refining contribution

Main R&M data

		1Q16	2Q15	2Q16	QoQ	YoY	1H16	YoY
Galp refining margin	USD/boe	4.1	7.3	4.6	+12%	(37%)	4.3	(35%)
Refining cash cost1	USD/boe	2.0	1.4	1.7	(12%)	+25%	1.8	+17%
Impact of refining margin hedging2	USD/boe	0.1	(1.1)	(0.0)	n.m.	+98%	0.1	n.m.
Raw materials processed	kboe	25.2	29.8	26.3	+5%	(12%)	51.5	(8%)
Total refined product sales	mton	4.2	4.7	4.6	+9%	(4%)	8.7	(4%)
Sales to direct clients	mton	2.1	2.3	2.3	+5%	(2%)	4.4	(3%)
Ebitda RCA	€ m	148	230	143	(3%)	(38%)	291	(22%)
Ebit RCA	€ m	78	167	71	(9%)	(58%)	149	(36%)
Net Income from R&M Associates	€ m	1	(1)	(0)	n.m.	+75%	0	n.m.
CAPEX	€ m	23	21	35	+51%	+67%	59	n.m.

• Refining margin of \$4.6/boe given lower margins on the international market
• Sales to direct clients slightly lower YoY due to client portfolio optimisation
• Hedging of refining margins with neutral impact in Ebitda, compared to €30 m loss in 2Q15

18 G&P: Ebitda up YoY driven by positive sourcing optimisation

Main G&P data

		1Q16	2Q15	2Q16	QoQ	YoY	1H16	YoY
NG supply total sales volumes	mm3	1,860	1,869	1,593	(14%)	(15%)	3,454	(15%)
Sales to direct clients	mm3	901	919	882	(2%)	(4%)	1,782	(7%)
Trading	mm3	960	951	712	(26%)	(25%)	1,672	(22%)
Ebitda RCA	€ m	90	89	97	+9%	+10%	187	(15%)
Ebit RCA	€ m	75	73	81	+8%	+11%	156	(16%)
Net Income from G&P Associates	€ m	18	17	17	(5%)	+0%	34	+0%
CAPEX	€ m	3	5	7	n.m.	+19%	9	+9%

• NG volumes down YoY, reflecting decrease in trading volumes sold
• Sales to direct clients down 4%, due to lower sales to the electrical segment as hydro power generation increased in Iberia
• Stable regulated infrastructure and higher power contribution

Investor Relations team

Pedro Dias, Head Otelo Ruivo, IRO Cátia Lopes João G. Pereira João P. Pereira Teresa Rodrigues

+351 21 724 08 66

investor.relations@galpenergia.com

Results & presentation weblink :

www.galpenergia.com/en/investidor/Relatorios-eresultados/resultados-trimestrais

For further information on Galp, please go to: www.galp.com