The Company

FinancesJanuary – December, 2008

Sharp devaluation of stocks due to the sudden fall in crude prices, a lack of Argentine gas and the impact of the exchange rate, caused losses of US$ 958 million for ENAP in 2008

Empresa Nacional del Petróleo (ENAP) today reported a loss of US$ 958 million for 2008, mainly due to the following reasons:

1. The sharp fall in the oil price between August and December 2008, with a negative impact of over US$ 650 million on the consolidated results. The sustained increase in the crude oil price during the first half of 2008, reached a peak of US$ 145.3 per barrel on July 3, and then fell suddenly between August and December to its lowest level of just US$ 33.8 per barrel on December 26, which meant buying at high prices and selling the refined products at much lower prices, with the consequent depreciation of ENAP’s stocks of crude and products (as the normal business cycle varies between 45 and 75 days).

2. The lack of Argentine natural gas for the operation of ENAP’s refineries and meeting its contracts with third parties, plus the higher costs of electricity. This had a negative impact of US$ 100 million. There were also higher transportation costs in sea freight for fuels associated with the international oil price, and demurrage costs due to the need to increase supplies and the country’s restrictions in logistical capacity, which meant an additional amount of approximately US$ 60 million.

3. The substantial variation in the exchange rate during 2008, which mainly affected the convertibility of accounts receivable and taxes by US$ 128 million.

The drought affecting the country in the first months of 2008, led the company to import extraordinary volumes of crude oil and diesel, in the first case to increase refining and in the second to complement supplies to thermal-electric power plants and thus reduce the risk of electricity cuts in Chile and maintain industrial activity.

The consolidated operating income for 2008 was a loss of US$ 937 million. This is mainly explained by a negative gross margin of Enap Refinerías, partially offset by the positive operating results of the exploration and production businesses of Enap Sipetrol and ENAP Magallanes.

Following the important increase in the crude oil price during the first half of 2008, the international refining margin declined from US$ 7.2 per barrel in 2007 to US$ 5.2 per barrel in 2008.

Another adverse factor was the increase in other operating costs, mainly the rise in electricity prices and the cost of internal energy consumption of approximately US$ 100 million.

Sales

ENAP’s sales in 2008 amounted to US$ 12,185 million, an increase of 35% over the previous year. This reflects the substantial increase in global prices of hydrocarbons and the larger volume of fuel sales on the Chilean market, principally during the first half of the year (thermal electricity generation and industry).

The increase in sales volumes in the first half of 2008 was 9% with respect to the year before, mainly explained by the strong increase in demand by industry and thermal generators which was covered by massive imports of diesel due to the impossibility of meeting all that demand with the production of ENAP’s refineries.

In the second half of 2008, and as a result of the country’s hydrological conditions, demand from the thermal-generating declined sharply, thus reducing consumption, which meant that ENAP had to face the costs of financing these large stocks.

Non-operating Result

The non-operating result for 2008 was a loss of US$ 244 million, compared to a loss of US$ 62 million in 2007. A large part of the variation between both years is due to the larger loss from exchange differences of US$ 131 million, the result of the sharp rise in the exchange rate in the second half of the year. The company follows a policy of covering exchange risks, which enabled it to partially mitigate this effect on accounts receivable.

In addition, as a result of the greater needs for working capital finance, financial expenses increased by US$ 66 million, which figure was partly offset by an increase in financial income of US$ 62 million generated by the advanced liquidation of instruments related to a bond issued in Unidades de Fomento in 2002.

Market situation

The average West Texas Intermediate (WTI) international benchmark crude price was US$ 100.1 per barrel in 2008, a rise of 38.6% over of the average price for 2007 (US$ 72.2 per barrel).

Despite the record high seen in 2008, the trend of the WTI price throughout the year made it clear that the upward cycle begun in 2002 was ending, i.e. the price rose from US$ 99.6 per barrel at the start of the year to a peak of US$ 145.3 per barrel on July 3, before then starting to fall, first moderately until late August and then dramatically collapsing following the sudden worsening of the global economy, to close the year at US$ 44.6 per barrel.

The rising trend in the price in the first half of the year is partly explained by strong growth in global oil consumption until July, driven by the dynamism of the emerging economies of Asia, the Middle East and the principal developed countries, plus the depreciation of the dollar against the euro, the pound sterling and the yen which led investment funds to invest in oil and other commodities as forms of hedging against an expected acceleration of inflation in the United States.

At mid year, oil consumption in the United States began to fall due to the financial impact of the sub-prime mortgage crisis. In August, the rise in the oil price was detained, adding to the contraction in American and European consumption a sharp fall in imports of fuels by other regions. The worsening of the crisis in the last four months of the year led the oil price to collapse from the end of September.

Domestic Market

Demand for refined products on the domestic market was 19.9 million m3, an increase of 4% over 2007. Of this, 10.1 million m3 (51%) corresponded to diesel which saw demand increasing by 6.8%, mainly reflecting the larger requirements of thermal-generation plants in the first half of the year.

Other fuels that saw an important increase in 2008 were vehicle gasoline and fuel oil, with increases of 3.8% and 2.8% respectively over consumption in the previous year.