Galp Energia

Earnings Release • Feb 21, 2017

RESULTS FOURTH QUARTER 2016

February 21, 2017 Investor Relations

1.		EXECUTIVE SUMMARY3
2.		KEY FIGURES4
3.		MARKET ENVIRONMENT4
4.		EXPLORATION & PRODUCTION6
	4.1.	Development activities 6
	4.2.	Operating performance 8
5.	REFINING & MARKETING10
6.		GAS & POWER 12
7.		FINANCIAL DATA14
	7.1.	Income statement 14
	7.2.	Capital expenditure16
	7.3.	Cash flow17
	7.4.	Financial position19
	7.5.	Financial debt19
	7.6.	RCA turnover by business20
	7.7.	Reconciliation of IFRS and replacement cost adjusted figures 21
	7.8.	Non-recurring items 22
	7.9.	IFRS consolidated income statement23
	7.10.	Consolidated financial position 24
8.		BASIS OF PRESENTATION 25
9.		DEFINITIONS 26

1.Executive summary

Main highlights of the full year of 2016

• Group Ebitda on a replacement cost adjusted (RCA) basis amounted to €1.4 billion (bn), above the Company's guidance of €1.2 - €1.3 bn.
• Capital expenditure totalled €1.2 bn, in the middle of the expected range. Of that total, 85% was allocated to the Exploration & Production (E&P) business, namely to block BM-S-11 in Brazil.
• Net debt at the end of 2016 was €1,260 million (m), considering the loan to Sinopec as cash and equivalents, down €439 m YoY, due to a robust operating performance and to the partial divestment of the regulated gas infrastructure business. In this context, net debt to Ebitda stood at 1.0x.

Main highlights of the fourth quarter of 2016

• Working interest production increased 15% QoQ, and 63% YoY to 84.9 thousand barrels of oil equivalent per day (kboepd). In Brazil, FPSO #4 reached plateau production during 3Q16, and FPSOs #5 and #6 started production during the year, respectively in the Lula Alto and Lula Central areas. FPSO #5 reached plateau production in December, 10 months after starting production.
• Consolidated RCA Ebitda was €396 m, up 28% YoY as the increased results of the E&P business offset the lower contribution from the Refining & Marketing (R&M) and Gas & Power (G&P) businesses.
• E&P RCA Ebitda was up by €181 m YoY to €232 m, driven by the increase in production and higher oil prices during the period. It should be noted that, as of October 1 2016, the contribution of the oil trading activity started to be allocated to the E&P business. This was previously accounted for in the R&M business. The impact of the first nine months of 2016, of €22 m, was accounted for during 4Q16.
• R&M Ebitda decreased €60 m YoY to €105 m. In addition to the reallocation of the trading contribution, R&M was also impacted by the time lag in pricing formulas, given the significant increase in commodity prices during the quarter. Results were also impacted by operational exchange rate differences from the rapid Dollar appreciation during the quarter, allocated to operating results since the beginning of 2016. The refining activity increased its contribution to results. The spread over the benchmark margin was \$1.4/boe, as the Company benefited from gasoline arbitrage opportunities with the USA.
• G&P Ebitda amounted to €53 m, down €36 m YoY, affected by the lower contribution of the natural gas business, which had benefited from a higher NG/LNG sourcing optimisation effect in the previous year, and by the deconsolidation of GGND's regulated gas infrastructure business as of the end of October 2016.
• Group RCA Ebit was €238 m. DD&A increased €52 m YoY, mainly due to the R&M business, following the revised useful life of certain refining assets. The 4Q16 figure includes the impact of the 2H16.
• RCA net income decreased €27 m YoY to €121 m. Non-recurring items amounted to €108 m. The impairments were mainly in block 14 in Angola, as well as in relation to the transfer of contracts for the construction of the replicant FPSO hulls. International Financial Reporting Standards (IFRS) net income was €80 m.
• Cash flow from operations amounted to €558 m and more than offset the investment made during the period. Excluding the GGND deal impact, net debt during the fourth quarter would have decreased by €160 m.

2.Key figures

Financial data

€ m (RCA)

		Quarter				Twelve Months
3Q16	4Q15	4Q16	Var. YoY	% Var. YoY		2015	2016	Var.	% Var.
384	309	396	87	28%	Ebitda RCA	1,538	1,411	(127)	(8%)
127	51	232	181	n.m.	Exploration & Production1	352	494	141	40%
180	165	105	(60)	(36%)	Refining & Marketing1	779	576	(203)	(26%)
73	90	53	(36)	(40%)	Gas & Power	382	313	(69)	(18%)
211	178	238	60	34%	Ebit RCA	969	772		(197) (20%)
194	(18)	221	239	n.m.	Ebit IFRS	423	544	120	28%
115	148	121		(27) (18%)	Net income RCA	639	483		(156) (24%)
91	6	80	75	n.m.	Net income IFRS	123	179	57	46%
244	431	344		(87) (20%)	Capex	1,283	1,218	(64)	(5%)
1,631	1,699	1,260		(439) (26%)	Net debt including loan to Sinopec2	1,699	1,260		(439) (26%)
1.4x	1.2x	1.0x	-	-	Net debt to Ebitda RCA3	1.2x	1.0x	-	-

¹ Reallocation to the E&P business of the contribution of the trading activity related to the oil produced. This was previously accounted for in the R&M business. The full year impact was accounted for in 4Q16. ²Considering loan to Sinopec as cash. ³As at 31 December 2016, ratio considers net debt including €610 m loan to Sinopec as cash, plus €179 m of Sinopec MLT shareholder loan to Petrogal Brasil and 2016 Ebitda of €1,411 m.

Operational data

		Quarter					Twelve Months
3Q16	4Q15	4Q16	Var. YoY	% Var. YoY		2015	2016	Var.	% Var.
74.0	52.1	84.9	32.9	63%	Average working interest production (kboepd)	45.8	67.6	21.8	48%
71.5	49.2	82.7	33.4	68%	Average net entitlement production (kboepd)	43.2	65.1	21.9	51%
36.4	30.0	42.1	12.1	40%	Oil and gas average sale price (USD/boe)	43.5	37.7	(5.8)	(13%)
29.4	28.8	28.8	0.1	0%	Raw materials processed (mmboe)	114.6	109.7	(4.8)	(4%)
3.4	4.1	5.2	1.1	26%	Galp refining margin (USD/boe)	6.0	4.3	(1.7)	(29%)
2.3	2.2	2.2	(0.0)	(2%)	Oil sales to direct clients (mton)	9.1	8.8	(0.3)	(3%)
950	992	1,048	56	6%	NG sales to direct clients (mm3 )	3,843	3,780	(63)	(2%)
800	700	814	113	16%	NG/LNG trading sales (mm3 )	3,822	3,285	(537)	(14%)

Market indicators

		Quarter				Twelve Months
3Q16	4Q15	4Q16	Var. YoY	% Var. YoY		2015	2016	Var.	% Var.
1.12	1.10	1.08	(0.02)	(1%)	Exchange rate (EUR:USD)	1.11	1.11	(0.00)	(0%)
45.9	43.8	49.3	5.6	13%	Dated Brent price1 (USD/bbl)	52.4	43.7	(8.7)	(17%)
(2.1)	(2.3)	(1.6)	0.8	(32%)	Heavy-light crude price spread2 (USD/bbl)	(1.4)	(2.1)	(0.6)	45%
4.4	5.5	5.9	0.4	6%	UK NBP natural gas price3 (USD/mmbtu)	6.2	4.7	(1.5)	(24%)
5.6	7.1	7.5	0.4	6%	LNG Japan and Korea price1 (USD/mmbtu)	7.5	5.7	(1.7)	(23%)
2.3	4.0	3.9	(0.1)	(3%)	Benchmark refining margin4 (USD/bbl)	5.2	3.1	(2.1)	(40%)
16.0	15.1	15.5	0.4	3.0%	Iberian oil market5 (mton)	60.1	61.7	1.6	2.7%
7,135	8,370	9,530	1,159	13.9%	Iberian natural gas market6 (mm3 )	31,497	32,338	842	2.7%

1 Source: Bloomberg. ² Source: Platts. Urals NWE dated for heavy crude; dated Brent for light crude. ³Source: Platts.

⁴For a complete description of the method of calculating the benchmark refining margin see "Definitions". ⁵Source: APETRO for Portugal; CORES for Spain. ⁶Source: Galp and Enagás

3.Market environment

Dated Brent

During the fourth quarter of 2016, the average price of dated Brent increased \$5.6/bbl YoY to \$49.3/bbl, reflecting market expectations following the agreement to reduce production reached by OPEC and other oil-producing countries.

During 2016, dated Brent averaged \$43.7/bbl, down \$8.7/bbl YoY.

In the fourth quarter of 2016, the average price spread between dated Brent and Urals narrowed YoY from \$2.3/bbl to \$1.6/bbl, due to higher demand for Urals in Asia, as well as a high fuel oil crack, which supported the demand for heavy crude with high sulphur content.

During 2016, the price spread widened \$0.6/bbl YoY, to \$2.1/bbl.

Natural gas

During the fourth quarter, the natural gas price in Europe (NBP) increased YoY from \$5.5/mmbtu to \$5.9/mmbtu, due to higher gas consumption, on the back of a more severe winter and lower exports of electricity from non-fossil fuel, mainly from France.

In 2016, NBP averaged \$4.7/mmbtu, down \$1.5/mmbtu YoY.

During the fourth quarter, the Asian LNG reference price (JKM) increased YoY from \$7.1/mmbtu to \$7.5/mmbtu, following higher demand, namely from China, which hit an all-time high of LNG imports in December.

During 2016, JKM averaged \$5.7/mmbtu, a decrease of \$1.7/mmbtu YoY.

Refining margins

During the fourth quarter of 2016, the benchmark refining margin remained stable YoY at \$3.9/bbl, with the appreciation of fuel oil offsetting the depreciation of light distillates.

The gasoline crack was \$9.9/bbl during the period, compared to \$10.9/bbl the previous year, on the back of larger inventories of light distillates, namely in the U.S. East Coast, a regular outlet for European production.

In the fourth quarter, the diesel crack stood at \$13.0/bbl, up \$0.2/bbl YoY, supported by higher European demand.

During 2016, the benchmark refining margin was \$3.1/bbl, down \$2.1/bbl YoY, as the gasoline and diesel crack spreads dropped \$4.4/bbl and \$5.2/bbl YoY, respectively, pressured by larger inventories throughout the year.

Iberian market

During the fourth quarter of 2016, the Iberian market for oil products grew 3.0% and reached 15.5 million tonnes (mton), impacted by higher demand for jet, resulting from a rise in tourism, and LPG, which benefited from an incentive programme in Spain.

In 2016, the Iberian market for oil products rose to 61.7 mton from 60.1 mton during the previous year.

During the fourth quarter, the Iberian natural gas market increased 13.9% YoY to 9,530 mm³. This increase resulted from a greater demand for natural gas for electricity generation, part of which was exported to France, due to nuclear power plants' maintenance.

In 2016, the Iberian natural gas market increased 2.7% YoY to 32,338 mm³, due to higher demand for gas for electrical generation in Portugal, as well as higher conventional consumption in the Spanish market.

Results fourth quarter 2016 February 21, 2017

4. Exploration & Production

4.1. Development activities

Brazil

Galp and its partners continued with the development works on the Lula/Iracema field. It is worth highlighting the operational efficiency achieved by the consortium in ramping-up production, with a total of 11 wells connected during the fourth quarter of 2016.

FPSOs Cidade de Angra dos Reis (FPSO #1) and Cidade de Paraty (FPSO #2), allocated to the Lula Pilot and Lula Northeast (NE) areas, respectively, continued to produce at plateau levels. A seventh producer well was connected to FPSO #1, which is currently conducting the extended well test (EWT) of the Lula West area, aiming to increase reservoir knowledge in the area.

FPSO Cidade de Mangaratiba (FPSO #3), in the Iracema South area, produced at plateau levels, benefiting from a higher operational flexibility, after the connection in October to the gas export network through the Cabiúnas pipeline.

FPSO Cidade de Itaguaí (#4), in the Iracema North area, contributed at plateau production during the quarter. This unit had been connected to the gas export network in August.

FPSO Cidade de Maricá (#5), in the Lula Alto area, reached plateau production in December, only 10 months after starting production, following the connection of the fifth producer and third injector wells and the connection to the gas export network.

FPSO Cidade de Saquarema (#6), allocated to the Lula Central area, continues to ramp-up, with the connection of three additional producer and two injector wells during the fourth quarter. In early 2017, the fifth producer well was connected. The connection to the gas export network is planned for the first half of 2017.

It is also worth highlighting the arrival of the first replicant FPSO to the Lula South area on February 6, with the start of production planned for the first half of the year. This unit has a daily production capacity of 150 thousand barrels of oil (kbpd) and 6 mm³ of natural gas, with the development plan including the connection of 10 producer wells and eight injector wells. Out of the 18 planned wells, 13 were already drilled.

Regarding the remaining replicant FPSOs, the unit allocated to the Lula North area is currently at the COOEC shipyard (China), where the topsides integration works are being executed. In what concerns the third replicant unit scheduled to start production, in the Lula Extreme South development area, the hull construction works in the COSCO shipyard (China) were completed in January 2017, and it sailed away to Brazil, where the topsides modules will be installed at Brasfels shipyard.

Development wells in the Lula/Iracema areas

	Project	Type of wells	Planned	Drilled	Connected
	Lula Pilot	Producers	7	7	7
#1	FPSO Cidade de Angra dos Reis	Injectors	5	5	5
	Lula Northeast	Producers	8	6	6
#2	FPSO Cidade de Paraty	Injectors	6	6	6
#3	Iracema South	Producers	8	8	7
	FPSO Cidade de Mangaratiba	Injectors	8	7	5
	Iracema North	Producers	8	8	6
#4	FPSO Cidade de Itaguaí	Injectors	8	7	5
	Lula Alto	Producers	1 0	7	5
#5	FPSO Cidade de Maricá	Injectors	7	6	3
	Lula Central	Producers	9	8	5
#6	FPSO Cidade de Saquarema	Injectors	9	6	3

Note: As at February 20, 2017.

Mozambique

In December 2016, Galp's Board of Directors approved the investment in the Coral South area, the first development project related to the discoveries made in Area 4 of the Rovuma basin. The Final Investment Decision is still subject to the approval of the project by the remaining partners in the consortium, closing of the financing of the project and approval by the Mozambican Government of the financing conditions related to the Empresa Nacional de Hidrocarbonetos carry.

It is also worth noting that, during the fourth quarter of 2016, the consortium signed an agreement with BP for the entire offtake of LNG produced in the Coral South area for a 20-year period.

The Coral South project involves the construction of a floating LNG (FLNG) unit with a capacity of more than 3.3 mtpa that will be connected to six wells.

Regarding the Mamba onshore project, the consortium continued to analyse the engineering, procurement and construction (EPC) proposals for the upstream and midstream solutions.

Angola

In block 32, the two FPSO units that will be allocated to the Kaombo area are currently being converted in the Sembawang shipyards in Singapore. Also, the drilling campaign continues with two rigs drilling simultaneously.

4.2. Operating performance

		Quarter					Twelve Months
3Q16	4Q15	4Q16	Var. YoY	% Var. YoY		2015	2016	Var.	% Var.
74.0	52.1	84.9	32.9	63%	Average working interest production1 (kboepd)	45.8	67.6	21.8	48%
68.8	48.9	75.6	26.7	54%	Oil production (kbpd)	42.5	62.3	19.8	46%
71.5	49.2	82.7	33.4	68%	Average net entitlement production1 (kboepd)	43.2	65.1	21.9	51%
7.3	7.6	6.8	(0.8)	(10%)	Angola	7.2	7.3	0.1	1%
64.2	41.6	75.8	34.2	82%	Brazil	36.0	57.8	21.8	60%
36.4	30.0	42.1	12.1	40%	Oil and gas average sale price2 (USD/boe)	43.5	37.7		(5.8) (13%)
3.7	3.6	4.1	0.5	13%	Royalties3 (USD/boe)	4.2	3.7		(0.5) (12%)
7.6	10.5	5.8		(4.7) (45%)	Production costs (USD/boe)	9.8	7.7		(2.1) (22%)
13.8	9.8	5.8		(4.0) (41%)	Amortisation4 (USD/boe)	14.8	11.9		(3.0) (20%)
-	-	22	22	n.m.	Reallocation to E&P of the contribution of oil trading activities related to previous quarters2	-	-	-	n.m.
127	51	232	181	n.m.	Ebitda RCA	352	494	141	40%
82	41	41	0	1%	Depreciation & Amortisation4	211	255	44	21%
(0)	-	0	0	n.m.	Provisions	-	(0)	(0)	n.m.
46	10	191	181	n.m.	Ebit RCA	142	239	97	69%
18	(76)	103	179	n.m.	Ebit IFRS	(28)	28	56	n.m.
2	2	4	2	92%	Net Income from E&P Associates	13	17	4	30%

€ m (RCA, except otherwise stated; unit figures based on net entitlement production)

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

²Starting in the fourth quarter of 2016 (and for the twelve months period), the contribution of the trading activity related to the oil produced has been reallocated from the R&M business to the E&P business. The full year impact was accounted for in 4Q16, but the average realised sale price in 4Q16 is normalised.

³Based on production in Brazil.

4 Includes abandonment provisions.

Operations

Fourth quarter

During the fourth quarter of 2016, the average working interest production of oil and natural gas increased 63% YoY to 84.9 kboepd, of which 89% was oil production.

Production from Brazil increased 34.2 kboepd YoY to 75.8 kboepd. This increase was mainly due to the contribution of FPSOs #4, #5 and #6. Exports of natural gas also increased 6.2 kboepd YoY to 9.4 kboepd.

In Angola, working interest production was 9.1 kbpd in the quarter, down 12% YoY, impacted by the natural decline of the mature fields in block 14.

Net entitlement production increased 68% YoY to 82.7 kboepd in the quarter, a progress in line with the working interest production.

Twelve months

During 2016, working interest production increased 48% YoY to 67.6 kboepd, on the back of the higher contribution of the Brazilian pre-salt, with the start of production of units #5 and #6, as well as the ramp-up of FPSO #4.

Exports of natural gas increased 2.0 kboepd to 5.3 kboepd, following the connection of FPSOs #3, #4 and #5 to the gas export infrastructure. Out of the total gas exports, 4.8 kboepd were from the Lula/Iracema area.

Results fourth quarter 2016 February 21, 2017

Net entitlement production increased 51% YoY to 65.1 kboepd.

Results

Fourth quarter

Ebitda RCA amounted to €232 m, up €181 m YoY, mainly on the back of increased production, but also higher oil and natural gas prices during the period.

It is worth highlighting that, as of October 1, 2016, the contribution of the trading activity related to oil produced, which used to be accounted for under the R&M business, is now accounted for in the E&P business. The impact of €22 m from the previous three quarters was also accounted for in the fourth quarter of 2016.

Production costs decreased around €3 m YoY to €41 m in the quarter. In unit terms and on a net entitlement basis, production costs decreased by \$4.7/boe YoY to \$5.8/boe, as a result of production dilution and a one-off adjustment in Brazil, corresponding to \$2.0/boe.

During the fourth quarter of 2016, depreciation charges (including abandonment provisions) amounted to €41 m, in line YoY. On a net entitlement basis, depreciation charges (including abandonment provisions) decreased YoY to \$5.8/boe from \$9.8/boe.

Ebit RCA was €191 m, compared to €10 m in the fourth quarter of 2015. Non-recurring items reached €88 m, mostly related to impairments in exploration assets from block 14, in Angola.

Results from associated companies related to the E&P activities amounted to €4 m.

Twelve months

In 2016, Ebitda RCA increased €141 m YoY to €494 m, benefiting from higher net entitlement production and despite the lower average sale price of \$37.7/boe.

Production costs increased €26 m YoY to €166 m, due to the higher number of operating units in Brazil. In unit terms, production costs decreased \$2.1/boe YoY to \$7.7/boe, also impacted by a one-off adjustment in Brazil.

Depreciation charges (including abandonment provisions) increased €44 m YoY to €255 m, following the increased asset base in Brazil. On a net entitlement basis, unit depreciation charges were \$11.9/boe, compared to \$14.8/boe in 2015.

Ebit RCA was €239 m during the year, up €97 m YoY, while Ebit IFRS stood at €28 m. Non-recurring items of €211 m included impairments in block 14/14k in Angola accounted for during the year, as well as the Brazilian onshore impairment, which had been accounted for in the third quarter of 2016.

The contribution of associated companies related to the E&P activities reached €17 m in the period.

5. Refining & Marketing

€ m (RCA, except otherwise stated)

		Quarter					Twelve Months
3Q16	4Q15	4Q16	Var. YoY	% Var. YoY		2015	2016	Var.	% Var.
3.4	4.1	5.2	1.1	26%	Galp refining margin (USD/boe)	6.0	4.3		(1.7) (29%)
1.5	1.8	1.7	(0.1)	(6%)	Refining cash cost1 (USD/boe)	1.6	1.7	0.1	5%
0.2	(0.2)	(0.2)	(0.0) (9%)		Impact of refining margin hedging2 (USD/boe)	(0.8)	0.0	0.8	n.m.
29.4	28.8	28.8	0.1	0%	Raw materials processed (mmboe)	114.6	109.7	(4.8)	(4%)
26.4	25.6	27.0	1.4	6%	Crude processed (mmbbl)	102.0	100.5	(1.5)	(1%)
4.6	4.5	4.6	0.1	1%	Total refined product sales (mton)	18.2	17.8	(0.4)	(2%)
2.3	2.2	2.2	(0.0)	(2%)	Sales to direct clients (mton)	9.1	8.8	(0.3)	(3%)
-	-	(25)	(25)	n.m.	Reallocation relative to the contribution of oil trading activities to E&P3	-	(25)	(25)	n.m.
180	165	105		(60) (36%)	Ebitda RCA	779	576		(203) (26%)
70	66	105	40	60%	Depreciation & Amortisation4	271	305	35	13%
3	(4)	(1)	3	69%	Provisions	4	14	10	n.m.
107	103 1 (103) (99%)			Ebit RCA	504	257		(248) (49%)
116	(1)	72	73	n.m.	Ebit IFRS	156	243	87	55%
(2)	0	0	0	n.m.	Net Income from R&M Associates	(1)	(2)		(0) (25%)

¹Excluding impact of refining margin hedging operations.

²Impact on Ebitda.

3 Starting in the fourth quarter of 2016 (and for the twelve months period), the contribution of the trading activity related to the oil produced has been reallocated from the R&M business to the E&P business. The full year impact was accounted for in 4Q16.

⁴ During the fourth quarter of 2016, the useful life of certain refining assets was reviewed, leading to an increase in DD&A for the second half of 2016. The fourth quarter of 2016 includes the third quarter impact.

Operations

Fourth quarter

During the fourth quarter of 2016, 28.8 mmboe in raw materials were processed, in line with the same period of 2015, which had been impacted by instability in some units. It is worth highlighting the planned outage for 13 days of the FCC unit in the Sines refinery during the fourth quarter of 2016. Crude oil accounted for 94% of raw materials processed, of which 82% were to medium and heavy crudes.

Gasoline accounted for 20% of production, down 2 p.p. YoY, namely due to the lower availability of the FCC, while middle distillates (diesel and jet) accounted for 48% of total production. Consumption and losses accounted for 7% of raw materials processed.

Volumes sold to direct clients stood at 2.2 mton in the quarter, down 2% YoY, following the Group's strategy of reducing exposure to low margin wholesale activities in Iberia. Volumes sold in Africa accounted for about 9% of total volumes sold to direct clients.

Twelve months

Raw materials processed of 109.7 mmboe implied a decrease of 4% YoY resulting from the planned outages at the Sines and Matosinhos refineries during 2016. Crude oil accounted for 92% of raw materials processed, of which 83% were medium and heavy crude.

Gasoline accounted for 23% of production in the period, while middle distillates accounted for 46%. Consumption and losses accounted for 7% of raw materials processed.

Results fourth quarter 2016 February 21, 2017

Volumes sold to direct clients reached 8.8 mton in the year, down 3% YoY, given the reduced exposure to low margin clients. Volumes sold in Africa rose 7% YoY, accounting for 9% of total volumes sold to direct clients during 2016.

Results

Fourth quarter

Starting on October 1, 2016, the contribution of the trading activity related to oil produced, which used to be accounted under the R&M business, is accounted for in the E&P business. The full year impact was accounted for in the fourth quarter of 2016, totalling €25 m.

Ebitda RCA for the R&M business decreased YoY to €105 m, reflecting a lower contribution from marketing of oil products. This activity was impacted by a time lag from pricing formulas, which was due to the significant increase in commodity prices during the fourth quarter. Results were also negatively impacted by operational exchange rate differences from the rapid appreciation of the Dollar against the Euro during the period, which are allocated to operating results since the beginning of 2016.

The refining activity increased its contribution to results, as Galp's refining margin reached \$5.2/boe, compared to \$4.1/boe in the previous year. The spread to the benchmark margin was \$1.4/boe, as the Company benefited from gasoline arbitrage opportunities with the USA.

Refining cash costs stood at €46 m, in line with the fourth quarter of 2015. In unit terms, cash costs were \$1.7/boe.

During the period, refining margin hedging operations had a negative impact in Ebitda of €5 m.

Depreciation and provisions increased €42 m YoY to €104 m, following a revision in the useful life of certain refining assets. The fourth quarter of 2016 includes the third quarter impact.

RCA Ebit stood at €1 m. IFRS Ebit increased to €72 m. The inventory effect amounted to €78 m and non-recurring items were €8 m.

Twelve months

Ebitda RCA for the R&M business during the year decreased €203 m YoY to €576 m, due to the lower contribution from the refining activity, the time lag in pricing formulas and the reallocation of the contribution of the oil trading activity.

Galp's refining margin was \$4.3/boe, compared to \$6.0/boe during the previous year, reflecting the lower refining margins. The spread over the benchmark margin was \$1.2/boe.

Refining cash costs increased €2 m YoY to €172 m, on the back of higher costs with maintenance in 2016, mainly related to the hydrocracker in Sines. In unit terms, cash costs were \$1.7/boe.

Hedging operations had a positive impact in Ebitda of €3 m during 2016, compared to a loss of €83 m the previous year.

Depreciation charges and provisions totalled €319 m, up €45 m YoY following the revision of the useful life of certain refining assets.

Ebit RCA decreased to €257 m, while Ebit IFRS increased €87 m YoY to €243 m. There was an inventory effect of €23 m and non-recurring items reached €37 m, mainly related to restructuring costs and to impairments in refining equipment.

6. Gas & Power

€ m (RCA except otherwise stated)

		Quarter					Twelve Months
3Q16	4Q15	4Q16	Var. YoY	% Var. YoY		2015	2016	Var.	% Var.
1,750	1,692	1,861	169	10%	NG/LNG total sales volumes (mm3 )	7,665	7,065	(600)	(8%)
950	992	1,048	56	6%	Sales to direct clients (mm3 )	3,843	3,780	(63)	(2%)
800	700	814	113	16%	Trading (mm3 )	3,822	3,285	(537)	(14%)
1,297	1,170	1,292	123	10%	Sales of electricity (GWh)	4,636	5,010	374	8%
73	90	53		(36) (40%)	Ebitda RCA	382	313		(69) (18%)
39	60	34	(25)	(42%)	Natural Gas	251	194	(57)	(23%)
26	31	8	(22)	(73%)	Infrastructure	129	100	(29)	(23%)
8	(1)	10	11	n.m.	Power	2	19	18	n.m.
15	15	8	(6)	(45%)	Depreciation & Amortisation	61	52	(8)	(14%)
3	12	3	(9)	(73%)	Provisions	19	7	(11)	(60%)
55	63	42		(21) (33%)	Ebit RCA	303	253		(49) (16%)
57	58	43		(15) (26%)	Ebit IFRS	275	251	(24)	(9%)
16	18	20	2	13%	Net Income from G&P Associates	69	70	2	2%

Operations

Fourth quarter

Total NG/LNG volumes sold increased 10% YoY to 1,861 mm³, mostly due to higher network trading volumes and higher sales to direct clients.

During the quarter, network trading volumes increased 159 mm³ to 370 mm³ . On the other hand, five LNG trading operations were carried out, based on sale contracts previously established (structured contracts), one less than during the previous quarter.

Sales to direct clients increased 6%, with a 7% increase in volumes sold to the electrical segment to 376 mm³, benefiting from lower renewable production in Iberia. Volumes sold in the conventional segment (industrial and retail) went up 5% YoY, mostly due to higher consumption from the units installed in the Galp refineries.

Sales of electricity increased 123 GWh YoY to 1,292 GWh, due to higher sales of electricity to the grid by the cogenerations and the start of production of five new wind farms during 2016, with a combined capacity of c.172 MW.

Twelve months

Sales of natural gas in 2016 decreased 8% YoY to 7,065 mm³, mainly reflecting the lower volumes sold in the trading segment.

Volumes sold in this segment decreased 14%, due to fewer opportunities in the international markets. There were 25 LNG trading operations during the period, eight less than during the previous year. Network trading volumes amounted to 1,151 mm³ .

Volumes sold to the electrical segment reached 1,179 mm³ , up 9% YoY, mostly from the lower use of coal for electricity generation in Iberia.

Volumes sold in the conventional market decreased 6%, particularly due to increased competition in the industrial segment. The sale in 2015 of the marketing activities related to the Spanish residential segment also contributed to this decrease.

Sales of electricity increased 374 GWh YoY to 5,010 GWh, mainly due to the increased production from the wind farms in which Galp holds a stake, and to the higher sales of electricity to the grid by the cogenerations in the refineries.

Results

Fourth quarter

Ebitda RCA for the G&P business during the fourth quarter of 2016 was down €36 m YoY to €53 m, following the lower contribution from the natural gas activity and the deconsolidation of the regulated infrastructure business.

Ebitda for the natural gas segment was €34 m, a decrease of €25 m compared to the previous year, which had benefited from a higher NG/LNG sourcing optimisation effect.

Ebitda for the regulated infrastructure business was €8 m, due to the deconsolidation of Galp Gás Natural Distribuição, S.A. (GGND) as of the end of October, following the conclusion of the deal announced during the third quarter.

Ebitda for the power business was €10 m, up €11 m compared to the previous year, which had been negatively affected by the sub-optimal operation of the cogeneration units.

Ebit RCA went down €21 m to €42 m. The inventory effect was €3 m and non-recurring items amounted to €2 m. Ebit IFRS reached €43 m, compared to €58 m the previous year.

Results from associated companies increased to €20 m, reflecting the partial contribution from GGND.

Twelve months

Ebitda for the G&P segment decreased €69 m YoY to €313 m during the year, mainly following lower results from the natural gas activity.

Ebitda for the natural gas segment decreased 23% YoY to €194 m, mostly due to narrowed opportunities in the international LNG market.

Ebitda of the regulated infrastructure business was €100 m, down €29 m YoY, reflecting the lower remuneration rate during the second half of 2016 and the full deconsolidation of GGND in November and December.

Ebitda for the power business increased €18 m compared to the previous year, which had been affected by the sub-optimal operation of the cogeneration units and by the lag in the natural gas purchase price indexes, compared to the pricing formulas of energy produced.

Ebit RCA was €253 m, down €49 m YoY. The inventory effect was €3 m in the period. Ebit IFRS reached €251 m, compared to €275 m the previous year.

Results from associated companies related to the G&P business amounted to €70 m.

7.Financial data

7.1. Income statement

€ m (RCA, except otherwise stated)

		Quarter					Twelve Months
3Q16	4Q15	4Q16	Var. YoY	% Var. YoY		2015	2016	Var.	% Var.
3,492	3,429	3,547	118	3%	Turnover	15,504	13,119	(2,384)	(15%)
(2,715)	(2,714)	(2,731)	18	1%	Cost of goods sold	(12,436)	(10,156)	(2,281)	(18%)
(318)	(325)	(334)	9	3%	Supply & Services	(1,228)	(1,259)	31	3%
(83)	(89)	(89)	(1)	(1%)	Personnel costs	(330)	(319)	(11)	(3%)
8	7	2	(5)	(66%)	Other operating revenues (expenses)	29	26	(3)	(10%)
384	309	396	87	28%	Ebitda RCA	1,538	1,411	(127)	(8%)
392	198	467	269	n.m.	Ebitda IFRS	1,174	1,389	215	18%
(168)	(122)	(174)	52	43%	Depreciation & Amortisation	(544)	(636)	92	17%
(6)	(8)	17	(25)	n.m.	Provisions	(25)	(3)	(22)	(89%)
211	178	238	60	34%	Ebit RCA	969	772		(197) (20%)
194	(18)	221	239	n.m.	Ebit IFRS	423	544	120	28%
16	23	24	1	4%	Net income from associated companies	83	85	2	2%
(16)	(2)	(27)	(25)	n.m.	Financial results	(70)	(25)	45	65%
211	200	236	36	18%	Net income RCA before taxes and non-controlling interests	982	833		(150) (15%)
(83)	(43)	(88)	44	n.m.	Taxes¹	(290)	(289)	(2)	(1%)
(13)	(8)	(27)	19	n.m.	Non-controlling interests	(54)	(61)	8	14%
115	148	121		(27) (18%)	Net income RCA	639	483		(156) (24%)
(37)	(55)	(108)	53	97%	Non recurring items	(244)	(324)	80	33%
77	93	13		(80) (86%)	Net income RC	395	159		(236) (60%)
14	(88)	67	155	n.m.	Inventory effect	(272)	20	292	n.m.
91	6	80	75	n.m.	Net income IFRS	123	179	57	46%

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

Fourth quarter

RCA Ebitda went up 28% to €396 m, following a higher contribution from the E&P business. IFRS Ebitda rose €269 m to €467 m.

RCA Ebit was €238 m, up €60 m YoY, while IFRS Ebit increased €239 m to €221 m.

Results from associated companies remained stable at €24 m.

Financial results were negative €27 m, and included a €14 m loss in the mark-to-market operations, mainly related to refining margin hedging. Net financial interest was €22 m, down €3 m YoY.

RCA taxes increased to €88 m, due to higher E&P results. Taxes on oil and gas production totalled €57 m.

Non-controlling interests, mainly attributable to Sinopec's stake in Petrogal Brasil, increased €19 m to €27 m.

Net income RCA reached €121 m, down €27 m YoY, considering a €67 m inventory effect and non-recurring items of €108 m. The impairments were mainly in block 14 in Angola, as well as in relation to the transfer of contracts for the construction of the replicant FPSO hulls.

IFRS net income was €80 m.

Results fourth quarter 2016 February 21, 2017

Twelve months

RCA Ebitda was €1,411 m, down €127 m YoY, following a lower contribution from the R&M and G&P business segments. IFRS Ebitda was €1,389 m.

RCA Ebit decreased 20% to €772 m, while IFRS Ebit increased €120 m to €544 m.

Results from associated companies accounted for €85 m, in line YoY.

Financial results were negative €25 m, compared to -€70 m the previous year. This was due to a gain of €17 m in mark-to-market hedging operations, which compares to a loss of €13 m during 2015, and also to a €19 m decrease in net interest.

RCA taxes stood in line YoY at €289 m.

Non-controlling interests, primarily attributable to Sinopec, increased €8 m to €61 m, following improved results in Brazil.

RCA net income was €483 m, down €156 m YoY, while IFRS net income was €179 m.

The inventory effect was €20 m and non-recurring items reached €324 m, including the asset impairments in Angola, as well as in relation to the transfer of contracts for the construction of the replicant FPSO hulls.

The CESE tax had a negative impact on IFRS results of around €56 m, of which c.€28 m related to CESE I, whose annual impact was fully accounted for in the first quarter. CESE II also amounted to c.€28 m. This provision related to CESE results from the strict applicability of accounting standards. However, in Galp's opinion, based on the opinion of renowned legal experts, the CESE laws have no legal grounds and, accordingly, such amounts are not due.

7.2. Capital expenditure

		Quarter					Twelve Months
3Q16	4Q15	4Q16	Var. YoY	% Var. YoY		2015	2016	Var.	% Var.
208	321	269	(52)	(16%)	Exploration & Production	1,103	1,039	(64)	(6%)
15	(1)	0	1	n.m.	Exploration and appraisal activities	94	37	(57)	(61%)
194	322	269	(53)	(17%)	Development and production activities	1,009	1,003	(7)	(1%)
26	60	68	8	14%	Refining & Marketing	110	153	42	39%
10	49	4	(45)	(93%)	Gas & Power	65	23	(43)	(65%)
1	1	3	2 n.m.		Others	4	4	(0)	(4%)
244	431	344		(87) (20%)	Capex	1,283	1,218	(64)	(5%)

Fourth quarter

Capital expenditure during the fourth quarter of 2016 was €344 m.

Investment in the E&P business, namely in development and production (D&P) activities, accounted for 78% of the total, with capex in the development of block BM-S-11 accounting for 69% of that total.

In the R&M and G&P businesses, capex amounted to €72 m in the quarter, including the investment in maintenance activities in the Sines refinery.

Twelve months

In 2016, capital expenditure was €1,218 m, 85% of which was allocated to E&P.

Development and production activities accounted for 96% of the investment in the E&P business, mainly allocated to the development of block BM-S-11 in Brazil, which accounted for 73% of D&P investment. The investment in block 32 in Angola accounted for around 21% of that total.

Capital expenditure in downstream and gas activities reached €175 m, and included investment in maintenance activities, in the ongoing upgrade of the oil retail network and of the natural gas infrastructure, as well as of IT systems, among others.

7.3. Cash flow

Indirect method

€ m (IFRS figures)	Quarter			Twelve Months
3Q16	4Q15	4Q16		2015	2016
194	(18)	221	Ebit	423	544
19	27	26	Dividends from associates	73	70
193	209	260	Depreciation, Depletion and Amortization (DD&A)	720	835
(164)	66	51	Change in Working Capital	458	21
242	285	558	Cash flow from operations	1,674	1,469
(242)	(390)	(200)	Net capex1	(1,190)	(1,054)
(23)	(25)	(22)	Net financial expenses	(119)	(101)
(63)	(33)	(30)	SPT and Corporate taxes	(127)	(172)
(207)	(1)	(6)	Dividends paid	(318)	(387)
-	-	632	GGND deconsolidation2	-	632
(29)	130	1	Others3	179	164
322	35	(933)	Change in net debt	(98)	(550)

¹ The fourth quarter and the twelve months of 2016 include the proceeds of €141m from the sale of 22.5% in GGND.

² Deconsolidation of assets and liabilities from GGND.

3 Includes CTAs (Cumulative Translation Adjustment) and partial reimbursement of the loan granted to Sinopec.

Fourth quarter

The deal regarding the partial sale of the share capital of GGND was concluded at the end of October. As such, GGND ceased to be fully consolidated from that date, resulting in a €632 m positive impact from deconsolidation plus €141 m cash proceeds to Galp. Hence, the total impact from GGND deal in the Group's financial position amounted to €773 m.

Excluding that impact, net debt during the fourth quarter would have decreased by €160 m.

Twelve months

During 2016, net debt decreased €550 m, on the back of the partial divestment of the regulated infrastructure activity.

Excluding that impact, net debt would have increased by €223 m after dividends, considering the strong cash flow from operations of €1,469 m.

Direct method

€ m
	Quarter			Twelve Months
3Q16	4Q15	4Q16		2015	2016
856	1,087	1,084	Cash and equivalents at the beginning of the period1	1,023	1,045
3,887	4,166	4,242	Received from customers	17,666	15,156
(2,432)	(2,785)	(2,600)	Paid to suppliers	(11,421)	(9,094)
(74)	(123)	(117)	Staff related costs	(371)	(373)
19	27	26	Dividends from associated companies	73	70
(762)	(635)	(737)	Taxes on oil products (ISP)	(2,633)	(2,752)
(407)	(334)	(374)	VAT, Royalties, PIS, Cofins, Others	(1,721)	(1,571)
231	317	441	Total operating flows	1,594	1,436
(261)	(385)	(161)	Net capex2	(1,194)	(1,074)
(16)	(26)	(20)	Net Financial Expenses	(111)	(120)
(207)	(1)	(6)	Dividends paid	(318)	(387)
(63)	(33)	(30)	SPT and Corporate taxes	(127)	(172)
549	(28)	(451)	Net new loans	(124)	(32)
0	79	-	Sinopec loan reimbursement	261	134
(6)	35	66	FX changes on cash and equivalents	40	93
1,084	1,045	923	Cash and equivalents at the end of the period1	1,045	923

¹Cash and equivalents differ from the Balance Sheet amounts due to IAS 7 classification rules. The difference refers to overdrafts which are considered as debt in the Balance Sheet and as a deduction to cash in the Cash Flow Statement.

²The fourth quarter and the twelve months of 2016 include the proceeds of €141m from the sale of 22.5% in GGND.

7.4. Financial position

€ m (IFRS figures)

	31 December, 2015	30 September, 2016	31 December, 2016	Var. vs 31 Dec., 2015	Var. vs 30 Sep., 2016
Net fixed assets	7,892	7,357	7,721	(171)	364
Working capital	510	529	492	(18)	(37)
Loan to Sinopec	723	575	610	(113)	35
Other assets (liabilities)	(515)	(383)	(409)	107	(26)
Non-current assets/liabilities held for sale	-	270	(1)	(1)	(271)
Capital employed	8,610	8,348	8,414	(196)	65
Short term debt	493	754	325	(167)	(429)
Medium-Long term debt	3,060	2,628	2,578	(482)	(51)
Total debt	3,552	3,383	2,903	(649)	(480)
Cash and equivalents	1,130	1,177	1,032	(98)	(145)
Net debt1	2,422	2,205	1,870	(552)	(335)
Total equity	6,188	6,143	6,543	355	401
Total equity and net debt	8,610	8,348	8,414	(196)	65

¹Net Debt as at 30 September 2016 does not include net debt of GGND (€599 m), which was considered under Non-current assets/liabilities held for sale.

On December 31, 2016, net fixed assets stood at €7,721 m, a €364 m increase compared to the end of September, as a result of investment made and of the Dollar appreciation in the period.

Work-in-progress, mainly related to the E&P business, amounted to €2,650 m at the end of the period.

7.5. Financial debt

€ m (except otherwise stated)

	31 December, 2015	30 September, 2016	31 December, 2016	Var. vs 31 Dec., 2015	Var. vs 30 Sep., 2016
Bonds	2,154	2,136	1,683	(471)	(453)
Bank loans and other debt	1,398	1,247	1,220	(178)	(27)
Cash and equivalents	(1,130)	(1,177)	(1,032)	98	145
Net debt1	2,422	2,205	1,870	(552)	(335)
Net debt including loan to Sinopec2	1,699	1,631	1,260	(439)	(371)
Average life (years)	3.1	3.2	2.6	(0.5)	(0.6)
Average debt interest rate	3.8%	3.5%	3.5%	(0.2 p.p.)	0.0 p.p.
Net debt to Ebitda RCA3	1.2x	1.4x	1.0x	-	-

¹Net Debt as at 30 September 2016 does not include net debt of GGND (€599 m). ²Net debt of €1,260 m adjusted for the €610 m loan to Sinopec. ³As at 31 December 2016, ratio considers net debt including loan to Sinopec as cash, plus €179 m corresponding Sinopec MLT Shareholder Loan to Petrogal Brasil, and 2016 RCA Ebitda of €1,411 m.

On December 31, 2016, net debt stood at €1,870 m, down €335 m compared to the end of September.

Considering the €610 m balance of the Sinopec loan as cash, net debt at the end of the period totalled €1,260 m, resulting in a net debt to Ebitda ratio of 1.0x. This ratio also considers Sinopec's €179 m shareholder loan to Petrogal Brasil as of the end of the period.

Results fourth quarter 2016 February 21, 2017

The average interest rate was 3.52% during the period.

At the end of December, around 50% of total debt was on a fixed-rate basis. Debt had an average maturity of 2.6 years, and medium and long-term debt accounted for 89% of Galp's total debt.

It should be noted that a €455 m bond, maturing in 2017, was called by Galp and was redeemed on November 21, 2016.

At the end of the fourth quarter of 2016, Galp had unused credit lines of approximately €1.2 bn. Of this amount, around 60% was contractually guaranteed.

Debt maturity profile

7.6. RCA turnover by business

3Q16 4Q15 4Q16 Var. YoY % Var. YoY ^{2015 2016} Var. % Var. 3,492 3,429 3,547 118 3% RCA Turnover 15,504 13,119 (2,384) (15%) 215 129 361 232 n.m. Exploration & Production¹ 617 852 235 38% 2,870 2,732 2,839 107 4% Refining & Marketing 12,097 10,518 (1,580) (13%) 586 679 630 (49) (7%) Gas & Power 3,230 2,437 (793) (25%) 29 33 36 3 8% Other 124 124 1 1% (210) (144) (318) 174 n.m. Consolidation adjustments (565) (812) 247 44% € m Quarter Twelve Months

¹Does not include change in production. RCA turnover in the E&P segment, including change in production, amounted to €322 m during the fourth quarter of 2016 and €823 m during the twelve months of 2016.

7.7. Reconciliation of IFRS and replacement cost adjusted figures

Ebitda by segment

€ m

		Fourth Quarter			2016	Twelve Months
Ebitda IFRS	Inventory effect	Ebitda RC	Non recurring items	Ebitda RCA		Ebitda IFRS	Inventory effect	Ebitda RC	Non recurring items	Ebitda RCA
467	(82)	385	11	396	Galp	1,389	(20)	1,369	42	1,411
232	-	232	0	232	E&P	481	-	481	13	494
176	(78)	98	8	105	R&M	572	(23)	549	27	576
54	(3)	51	3	53	G&P	310	3	312	1	313
5	-	5	0	6	Others	27	-	27	1	28

€ m

		Fourth Quarter			2015	Twelve Months
Ebitda IFRS	Inventory effect	Ebitda RC	Non recurring items	Ebitda RCA		Ebitda IFRS	Inventory effect	Ebitda RC	Non recurring items	Ebitda RCA
198	116	313	(5)	309	Galp	1,174	357	1,531	7	1,538
51	-	51	(0)	51	E&P	348	-	348	5	352
60	112	172	(7)	165	R&M	445	330	775	4	779
84	4	88	2	90	G&P	357	27	383	(2)	382
3	-	3	0	3	Others	25	-	25	0	25

Ebit by segment

€ m

		Fourth Quarter			2016	Twelve Months
Ebit IFRS	Inventory effect	Ebit RC	Non recurring items	Ebit RCA		Ebit IFRS	Inventory effect	Ebit RC	Non recurring items	Ebit RCA
221	(82)	140	99	238	Galp	544	(20)	523	249	772
103	-	103	88	191	E&P	28	-	28	211	239
72	(78)	(7)	8	1	R&M	243	(23)	220	37	257
43	(3)	40	2	42	G&P	251	3	254	(0)	253
4	-	4	0	4	Others	22	-	22	1	23

€ m

		Fourth Quarter			2015	Twelve Months
Ebit IFRS	Inventory effect	Ebit RC	Non recurring items	Ebit RCA		Ebit IFRS	Inventory effect	Ebit RC	Non recurring items	Ebit RCA
(18)	116	98	81	178	Galp	423	357	780	189	969
(76)	-	(76)	86	10	E&P	(28)	-	(28)	170	142
(1)	112	111	(7)	103	R&M	156	330	487	18	504
58	4	62	1	63	G&P	275	27	302	1	303
2	-	2	0	2	Others	20	-	20	0	21

7.8. Non-recurring items

	Quarter			Twelve Months
3Q16	4Q15	4Q16		2015	2016
9.1	(4.7)	11.0	Non-recurring items impacting Ebitda	7.4	42.1
0.0	0.1	0.9	Accidents caused by natural events and insurance compensation	(0.8)	(1.2)
(0.3)	(5.5)	(0.5)	Gains/losses on disposal of assets	(8.4)	(1.5)
0.4	0.7	0.7	Asset write-offs	6.1	1.7
-	-	-	Investment subsidies	(2.6)	-
5.0	0.1	0.0	Employee restructuring charges	13.2	14.7
0.2	-	-	Advisory fees and others	-	0.2
2.0	-	0.1	Compensation early termination rigs agreement	-	12.0
1.8	-	3.4	Litigation costs	-	9.7
-	-	6.3	Taxes from previous years	-	6.3
25.0	85.4	87.9	Non-recurring items impacting non-cash costs	181.6	206.6
0.0	(1.6)	2.5	Provisions for environmental charges and others	6.0	8.1
25.0	87.0	85.4	Asset impairments	175.5	198.5
8.9	(3.5)	39.7	Non-recurring items impacting financial results	64.0	68.0
(6.1)	(6.6)	(36.8)	Gains/losses on financial investments	12.0	(23.5)
15.0	3.1	76.5	Provision for impairment of financial investments	52.0	91.5
(0.8)	(14.0)		(2.9) Non-recurring items impacting taxes	12.5	39.5
(10.2)	(1.8)	(6.3)	Income taxes on non-recurring items	(35.0)	(24.2)
-	-	(10.3)	Tax deferrals on E&P	-	(10.3)
-	(19.4)	-	Tax deferrals reversions	(19.4)	-
-	-	5.9	Income tax from previous years	-	5.9
9.4	7.2	7.7	Energy sector contribution tax	67.0	68.0
(5.0)	(8.3)		(27.4) Non-controlling interests	(22.0)	(32.6)
37.2	54.9	108.2	Total non-recurring items	243.6	323.6

€ m
	Quarter			Twelve Months
3Q16	4Q15	4Q16		2015	2016
3,334	3,252	3,402	Sales	14,869	12,488
157	177	145	Services rendered	634	631
37	32	32	Other operating income	101	121
3,529	3,461	3,579	Total operating income	15,605	13,241
(2,698)	(2,829)	(2,650)	Inventories consumed and sold	(12,793)	(10,136)
(325)	(325)	(337)	Materials and services consumed	(1,228)	(1,285)
(87)	(89)	(89)	Personnel costs	(343)	(334)
(26)	(21)	(37)	Other operating costs	(66)	(98)
(3,136)	(3,264)	(3,112)	Total operating costs	(14,431)	(11,851)
392	198	467	Ebitda	1,174	1,389
(193)	(209)	(260)	Amortisation, depreciation, impairments	(720)	(835)
(6)	(7)	14	Provision and impairment of receivables	(31)	(11)
194	(18)	221	Ebit	423	544
7	27	(15)	Net income from associated companies	19	17
(16)	(2)	(27)	Financial results	(70)	(25)
11	10	11	Interest income	28	34
(35)	(35)	(33)	Interest expenses	(148)	(134)
26	23	10	Interest capitalised	89	82
(1)	(2)	(1)	Exchange gain (loss)	(10)	(9)
(13)	5	(14)	Mark-to-market of hedging derivatives	(13)	17
(5)	(3)	(0)	Other financial costs/income	(17)	(14)
185	6	179	Income before taxes	373	536
(76)	6	(92)	Taxes1	(151)	(260)
(9)	(7)	(8)	Energy sector contribution tax2	(67)	(68)
99	5	80	Income before non-controlling interests	154	208
(8)	1	0	Profit attributable to non-controlling interests	(32)	(29)
91	6	80	Net income	123	179

¹Includes tax related to the production of oil and natural gas, namely Special Participation Tax payable in Brazil and IRP payable in Angola.

2 Includes €28.4 m, €27.6 m and €12 m related to the CESE I, CESE II and Fondo Eficiencia Energética, respectively, in the twelve months of 2016.

7.10. Consolidated financial position

€ m
	31 December, 2015	30 September, 2016	31 December, 2016
Assets
Non-current assets
Tangible fixed assets	5,216	5,715	5,910
Goodwill	137	134	87
Other intangible fixed assets1	1,403	261	268
Investments in associates	1,114	1,218	1,432
Investments in other participated companies	2	3	3
Receivables	322	243	247
Deferred tax assets	462	338	335
Financial investments	24	30	26
Total non-current assets	8,681	7,943	8,307
Current assets
Inventories2	873	736	869
Trade receivables	805	944	1,041
Receivables	577	545	556
Loan to Sinopec	723	575	610
Financial investments	4	9	19
Cash and equivalents	1,131	1,179	1,033
Sub-total current assets	4,112	3,987	4,128
Non-current assets held for sale Total current assets	- 4,112	1,300 5,287	4 4,132
Total assets	12,793	13,229	12,439
Equity and liabilities
Equity
Share capital	829	829	829
Share premium	82	82	82
Translation reserve	(0)	127	404
Other reserves	2,684	2,684	2,687
Hedging reserves	(2)	(3)	4
Retained earnings	1,056	822	795
Profit attributable to equity holders of the parent	123	99	179
Equity attributable to equity holders of the parent	4,772	4,641	4,980
Non-controlling interests	1,416	1,501	1,563
Total equity	6,188	6,143	6,543
Liabilities
Non-current liabilities
Bank loans and overdrafts	1,151	964	912
Bonds	1,908	1,665	1,666
Other payables3	551	299	305
Retirement and other benefit obligations	422	347	359
Liabilities from financial leases	0	0	0
Deferred tax liabilities	109	78	66
Other financial instruments	2	0	1
Provisions	429	441	429
Total non-current liabilities Current liabilities	4,573	3,794	3,738
Bank loans and overdrafts	247	283	308
Bonds	246	471	17
Trade payables	656	629	850
Other payables4	844	837	884
Other financial instruments	29	5	17
Income tax payable	9	36	75
Sub-total current liabilities	2,032	2,262	2,152
Non-current liabilities associated with non-current assets held for
sale	-	1,030	5
Total current liabilities	2,032	3,292	2,157
Total liabilities	6,605	7,087	5,896
Total equity and liabilities	12,793	13,229	12,439

1 Includes concession agreements for the distribution of natural gas on 31 December 2015.

2 Includes €75 m in inventory from third parties on 31 December 2016.

3 Includes €179 m long-term loan from Sinopec to subsidiary Petrogal Brasil on 31 December 2016.

4 Includes €35 m in advance payments related to inventory from third parties on 31 December 2016.

8.Basis of presentation

Galp's consolidated financial statements for the years ended on 31 December 2016 and 2015 have been prepared in accordance with IFRS. The financial information in the consolidated income statement, as well as the consolidated financial position, is reported for the quarters ended on 31 December 2016 and 2015, and on 30 September 2016.

Galp's financial statements are prepared in accordance with IFRS, and the cost of goods sold is valued at weighted-average cost. When goods and commodity prices fluctuate, the use of this valuation method may cause volatility in results through gains or losses in inventories, which do not reflect the Company's operating performance. This is called the inventory effect.

Another factor that may affect the Company's results, without being an indicator of its true performance, is the set of non-recurring items, namely gains or losses on the disposal of assets, impairments or reinstatements of fixed assets, and environmental or restructuring charges.

For the purpose of evaluating Galp's operating performance, RCA profit measures exclude nonrecurring items and the inventory effect, the latter because the cost of goods sold and materials consumed has been calculated according to the Replacement Cost (RC) valuation method.

Recent changes

As of October 1, 2016, the contribution of the trading activity related to the oil produced, which was previously accounted for under R&M, started to be accounted for under E&P. The full year impacts on E&P and R&M were accounted for in the fourth quarter of 2016.

During the fourth quarter of 2016, the useful life of certain refining assets was reviewed, leading to an increase in DD&A for the second half of 2016. The fourth quarter of 2016 includes the third quarter impact.

Effective on 1 January 2016, exchange rate differences from operating activities are allocated to operating results of the respective business segment. Until the end of 2015, these exchange rate differences were accounted for under financial results. These changes were applied to 2015 figures in order to make periods comparable.

Following an accounting interpretation from Portuguese Securities Market Commission regarding the accounting treatment for CESE I, Galp started to recognise the full year cost and liability as of 1 January, instead of deferring the cost along the year. Regarding the energy sector contribution in Spain, to the Fondo Nacional de Eficiencia Energética, the impact was also fully accounted for during the first quarter of 2016. These changes were applied to 2015 figures in order to make periods comparable.

9.Definitions

Benchmark refining margin

The benchmark refining margin is calculated with the following weighting: 45% hydrocracking margin + 42.5% Rotterdam cracking margin + 7% Rotterdam base oils + 5.5% Aromatics.

Rotterdam hydrocracking margin

The Rotterdam hydrocracking margin has the following profile: -100% Brent dated, +2.2% LGP FOB Seagoing (50% Butane + 50% Propane), +19.1% PM UL NWE FOB Bg., +8.7% Naphtha NWE FOB Bg., +8.5% Jet NWE CIF, +45.1% ULSD 10 ppm NWE CIF Cg. +8.9% LSFO 1% FOB Cg; Terminal rate: \$1/ton; Ocean loss: 0.15% over Brent dated; Freight 2015: WS Aframax (80 kts) Route Sullom Voe / Rotterdam – Flat \$7.60/ton. Yields in % of weight.

Rotterdam cracking margin

The Rotterdam cracking margin has the following profile: -100% Brent dated, +2.3% LGP FOB Seagoing (50% Butane + 50% Propane), +25.4% PM UL NWE FOB Bg., +7.5% Naphtha NWE FOB Bg., +8.5% Jet NWE CIF, +33.3% ULSD 10 ppm NWE CIF Cg. and +15.3% LSFO 1% FOB Cg.; C&L: 7.4%; Terminal rate: \$1/ton; Ocean loss: 0.15% over Brent dated; Freight 2015: WS Aframax (80 kts) Route Sullom Voe / Rotterdam – Flat \$7.60/ton. Yields in % of weight.

Rotterdam base oils margin

Base oils refining margin: -100% Arabian Light, +3.5% LGP FOB Seagoing (50% Butane + 50% Propane), +13.0% Naphtha NWE FOB Bg., +4.4% Jet NWE CIF, +34.0% ULSD 10 ppm NWE CIF, +4.5% VGO 1.6% NWE FOB Cg.,+ 14%; Base Oils FOB, +26% HSFO 3.5% NWE Bg.; Consumptions: -6.8% LSFO 1% CIF NWE Cg.; Losses: 7.4%; Terminal rate: \$1/ton; Ocean loss: 0.15% over Arabian Light; Freight 2015: WS Aframax (80 kts) Route Sullom Voe / Rotterdam – Flat \$6.95/ton. Yields in % of weight.

Rotterdam aromatics margin

Rotterdam aromatics margin: -60% PM UL NWE FOB Bg., -40% Naphtha NWE FOB Bg., +37% Naphtha NWE FOB Bg., +16.6% PM UL NWE FOB Bg., +6.5% Benzene Rotterdam FOB Bg., +18.5% Toluene Rotterdam FOB Bg., +16.6% Paraxylene Rotterdam FOB Bg., +4.9% Ortoxylene Rotterdam FOB Bg. Consumption: -18% LSFO 1% CIF NEW. Yields in % of weight.

Replacement cost (RC)

According to this method of valuing inventories, the cost of goods sold is valued at the cost of replacement, i.e. at the average cost of raw materials on the month when sales materialise irrespective of inventories at the start or end of the period. The Replacement Cost Method is not accepted by the Portuguese IFRS and is consequently not adopted for valuing inventories. This method does not reflect the cost of replacing other assets.

Replacement cost adjusted (RCA)

In addition to using the replacement cost method, RCA items exclude 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.

ABBREVIATIONS

APETRO: Associação Portuguesa de Empresas Petrolíferas (Portuguese association of oil companies) bbl: barrel of oil BBLT: Benguela, Belize, Lobito and Tomboco Bg: Barges bn: billion boe: barrels of oil equivalent CESE: Contribuição Extraordinária sobre o Sector Energético (Portuguese Extraordinary Energy Sector Contribution) Cg: Cargoes CIF: Costs, Insurance and Freights CMVM: Portuguese Securities Market Commission COOEC: China Offshore Oil Engineering Corporation CORES: Corporación de Reservas Estratégicas de Produtos Petrolíferos COSCO: China Ocean Shipping Company CTA: Cumulative Translation Adjustment D&P: Development & Production E&P: Exploration & Production Ebit Earnings before interest and taxes. Ebitda: Ebit plus depreciation, amortisation and provisions. EPC: Engineering, Procurement and Construction EUR/€: Euro EWT: Extended well test FCC: Fluid catalytic cracking FLNG: Floating liquefied natural gas FOB: Free on Board FPSO: Floating, production, storage and offloading unit Galp, Company or Group: Galp Energia, SGPS, S.A., subsidiaries and participated companies G&P: Gas & Power GGND: Galp Gás Natural Distribuição, S.A GWh Gigawatt per hour IAS: International Accounting Standards

IFRS: International Financial Reporting Standards IRP: Oil income tax ISP: Tax on oil products JKM: Japan Korea Marker k: thousand kbbl: thousands of barrels kboe: thousands of barrels of oil equivalent kboepd: thousands of barrels of oil equivalent per day kbpd: thousands of barrels of oil per day LNG: liquid natural gas LPG: liquefied petroleum gas LSFO: low sulphur fuel oil m: million mmbbl: millions of barrels mmboe: millions of barrels of oil equivalent mmbtu: million British thermal units mm³: million cubic metres mton: millions of tonnes MW: megawatt NBP: National Balancing Point NG: natural gas n.m.: no meaning NWE: Northwestern Europe OPEC: Organisation of Petroleum Exporting Countries p.p.: percentage points QoQ: quarter-on-quarter R&D: Refining & Distribution RC: Replacement Cost RCA: Replacement Cost Adjusted T: tonnes USA: United States of America USD/\$: Dollar of the United States of America VGO: Vacuum gas oil WAC: weighted-average cost

YoY: year-on-year

CAUTIONARY STATEMENT

This report has been prepared by Galp Energia SGPS, S.A. ("Galp" or the "Company") and may be amended and supplemented.

This report does not constitute or form part of and should not be construed as, an offer to sell or issue or the solicitation of an offer to buy or otherwise acquire securities of the Company or any of its subsidiaries or affiliates in any jurisdiction or an inducement to enter into investment activity in any jurisdiction. Neither this report nor any part thereof, nor the fact of its distribution, shall form the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever in any jurisdiction.

This report may include forward-looking statements. Forward-looking statements are statements other than in respect of historical facts. The words "believe", "expect", "anticipate", "intends", "estimate", "will", "may", "continue", "should" and similar expressions usually identify forward-looking statements. Forward-looking statements may include statements regarding: objectives, goals, strategies, outlook and growth prospects; future plans, events or performance and potential for future growth; liquidity, capital resources and capital expenditures; economic outlook and industry trends; energy demand and supply; developments of Galp's markets; the impact of regulatory initiatives; and the strength of Galp's competitors.

The forward-looking statements in this report are based upon various assumptions, many of which are based, in turn, upon further assumptions, including without limitation, management's examination of historical operating trends, data contained in the Company's records and other data available from third parties. Although Galp believes that these assumptions were reasonable when made, these assumptions are inherently subject to significant known and unknown risks, uncertainties, contingencies and other important factors which are difficult or impossible to predict and are beyond its control. No assurance, however, can be given that such expectations will prove to have been correct. Important factors that may lead to significant differences between the actual results and the statements of expectations about future events or results include the Company's business strategy, industry developments, financial market conditions, uncertainty of the results of future projects and operations, plans, objectives, expectations and intentions, among others. Such risks, uncertainties, contingencies and other important factors could cause the actual results of Galp or the industry to differ materially from those results expressed or implied in this report by such forward-looking statements.

Real future income, both financial and operating; an increase in demand and change to the energy mix; an increase in production and changes to Galp's portfolio; the amount and various costs of capital, future distributions; increased resources and recoveries; project plans, timing, costs and capacities; efficiency gains; cost reductions; integration benefits; ranges and sale of products; production rates; and the impact of technology can differ substantially due to a number of factors. These factors may 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 report speak only as at the date of this report, 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 report to reflect any change in events, conditions or circumstances.

Galp Energia, SGPS, S.A. Investor Relations:

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

Contacts:

Tel: +351 21 724 08 66 Fax: +351 21 724 29 65

Address: Rua Tomás da Fonseca, Torre A, 1600-209 Lisboa, Portugal Website: www.galp.com Email:investor.relations@galp.com

Reuters: GALP.LS Bloomberg: GALP PL