Repsol’s Net Income Drops 6.1%. Upstream Unit Improves

Spanish oil company Repsol posted net income of 2.060 billion euros for 2012, a 6.1% decline from the year earlier. At current cost of supply (excluding the change in value of the oil inventories that the company stocks as part of Spain’s strategic reserve) Repsol’s net income was 2.048 billion euros, 5.4% higher than 2011, when the earnings of YPF were included for the whole period.

The Upstream unit, the company’s growth engine, saw an improved performance in all metrics in 2012. Output rose 11% during the year with a record reserve replacement ratio of 204%.

During 2012, Repsol completed the execution of four out of its ten key growth projects from the 2012-2016 Strategic Plan, significantly advancing its production increase goals.

In 2013, Repsol achieved a significant milestone with the start of commercial production from the giant Sapinhoá field in Brazil, one of the largest fields developed in that country to date.

The Downstream unit posted wider refining margins and an optimisation of production following the completion of the improvement and expansion projects of the Cartagena and Bilbao refineries, setting them amongst Europe’s most advanced units.

The industrial activity was accompanied by a strategy of financial strengthening as outlined in the company’s strategic plan. Last year, the company started the “Repsol Flexible Dividend” program, with an acceptance rate  higher than 60% of the company’s shareholding. This, together with divestments and active financial management, allowed the company to cut debt through December 31 by 2 billion euros and generate liquidity (excluding Gas Natural Fenosa) which triples short-term debt maturities.

Additionally, following the year’s close and in accordance with the strategic goal of asset divestments, Repsol agreed to sell LNG assets to Shell for $6.653 billion, With this divestment, Repsol has more than met its targets in the  2012-2016 Strategic Plan of divesting assets worth between 4 and 4.5 billion euros.

The LNG sale agreement strengthens the company’s balance sheet and allows Repsol to reduce net debt, (excluding Gas Natural Fenosa) to 2.2 billion euros. Yesterday, the Board of Directors of Repsol approved to submit to its shareholders for approval at the next General Shareholders Meeting the continuation of the “Repsol Flexible Dividend” program and the payment to shareholders of a final dividend for the fiscal year 2012 equivalent to a gross 0.50 euros per share, comprising a dividend in cash of 0.04 euros (gross) per share with dividend rights and the implementation, within the framework of the program, of the third scrip dividend of the company.

The “Repsol Flexible Dividend” Program allows shareholders to elect receiving newly issued paid-up shares of the company without tax withholding or, at their election, receiving an amount in cash through the sale of the free-of-charge allocation rights at the market price or to the company at a guaranteed fix price.

UPSTREAM: EARNINGS AND PRODUCTION RISE TOGETHER WITH A RECORD RESERVE REPLACEMENT RATIO OF 204%
During 2012, the Upstream unit supported the company’s growth with significant improvement in all its metrics. Operating income was 2.208 billion euros, a 56.3% increase from the previous year. The area’s earnings now represent more than half the group’s total. This significant improvement was due to the return to normal of activity in Libya, higher earnings from Bolivia (due to the start-up of Margarita-Huacaya) and a stronger dollar against the euro.

Production in 2012 was 332.435 barrels of oil equivalent per day, an increase of 11% from the previous year. During the year, Repsol completed the execution of four of its ten key projects from its strategic plan, adding new production from Bolivia (Margarita-Huacaya), the United States (Mid-Continent), and Spain (Lubina and Montanazo.) The company also added assets in Russia following the incorporation of the AROG joint venture.
Production increases were accompanied by five new discoveries, including Pão de Açucar, in Brazil, one the world’s largest in 2012. The Sagari discovery in Peru, which shows great potential and is close to the Kinteroni development, adds to finds in TIHS1 in Algeria, Chipirón T2 and Cano Rondón East in Colombia. With these discoveries, Repsol has exceeded the annual resources incorporation goal included in its 2012-2016 Strategic Plan.
The new discoveries add to the growing portfolio of the group, which in 2012 added 68 new blocks in the United States, Angola, Aruba, Australia, Bulgaria, Romania and Namibia, significantly increasing its geographic footprint.

The exploratory success of the last few years has allowed the company to achieve a record reserve replacement ratio of 204%, especially significant when the large increase in production is taken into account. Repsol also increased its resources base, guaranteeing a high future reserve replacement ratio. At the start of 2013, Repsol began commercial production at the giant Sapinhoá field in Brazil, which will reach an output of 120,000 barrels of oil equivalent in the first development phase. Repsol’s crude realization prices increased 5.7%, against a 0.4% rise in Brent, and the company’s gas realization prices improved 5.7% compared with a 30% decline in the Henry Hub price. Operating investments during the year totalled 2.423 billion euros, 34% higher than the previous year. Of the total, 60% was spent on development, mainly in the US, Brazil, Trinidad & Tobago, Venezuela and Bolivia. A further 18% was spent on exploration, mainly in the US, Peru and Brazil. The LNG business’s operating income was 535 million euros in 2012. In accordance
with the strategic goal of asset divestments, Repsol on February 26, 2013 agreed to sell LNG assets to Shell for $6.653 billion.

[mappress]
Press Release, February 28, 2013