Repsol net income falls. Production rises despite interruptions in Libya

Spanish Repsol posted a recurring net income of 1.823 billion euros for 2013, calculated at current cost of supply (CCS), 6.7% lower than the previous year.

The company said that these earnings – that exclude atypical results and take into account replacement costs of raw materials and products – reflect Repsol’s ongoing business performance during a period marked by a complex economic and political environment (general economic slowdown and unrest in Libya) and a significant increase in the company’s activity (increased hydrocarbons production and reserves).

Hydrocarbons production grew 4%, mainly due to the start-up of new key projects in the Upstream business, which offset the effect of production interruptions in Libya. This increase, added to higher margins and volumes from the LNG business, helped compensate for lower refining and petrochemical margins, all in an environment marked by the slowdown in the pace of global growth and weak refining margins in Europe.

In 2013, net production reached 346.000 barrels of oil equivalent per day. Three new projects included in the company’s growth strategy began producing: Sapinhoa, Brazil, in block BM-S-9, which started commercial production in January and reached total output of 30,000 barrels of oil a day; Syskonsininskoye (SK), in Russia, where gas production began in February and had reached 1.7 million cubic metres per day at the end of the year, and; phase II of the Margarita-Huacaya field in Bolivia, which increased its gas production to 15 million cubic metres per day. Also, in February 2014, the company connected a second well to the Sapinhoa project in Brazil, which will add more than 4,000 barrels per day of new production to the Repsol group.

These projects add to those which began producing in 2012, in Spain (Lubina and Montanazo), USA (Mississippian Lime), Russia (AROG) and Bolivia (phase I of the Margarita field). Development continued in the remaining strategic projects, where the Declaration of Commerciality (DoC) for the Carioca field in block BM-S-9 in Brazil was especially significant.

The production added by new projects, together with an improved performance from the Trinidad and Tobago fields, allowed for an increase in output in 2013, despite the interruption of operations in Libya for more than three months due to conflicts and security problems in the country.

The reserve replacement ratio (RRR) in 2013 was 275%, which was a new organic record high for Repsol and the highest in the industry worldwide. By the end of the year, proved reserves totalled 1.515 billion barrels of oil equivalent.

Repsol maintained spending in exploration projects during 2013, consolidating the successful trend started in 2005, with nine positive wells in Brazil (BM-S-50), Alaska (North Slope), Algeria (is Illizi) and Russia (Karabahsky-2). Thus, over the course of the year, Repsol incorporated more than 300 million barrels of oil equivalent, exceeding its annual goal set out in the 2012-2016 strategic plan.

65 new exploration blocks

To ensure long-term exploration activity, Repsol acquired 65 new exploration blocks that cover a total area of 64.183 km2 (Repsol net 37.194 km2), mainly in the United States (44 blocks) and Norway (6 blocks).

Regarding its Downstream unit, Repsol has once again demonstrated the quality of its assets, even more so after the completion of the major overhauls at the Cartagena and Petronor refineries, achieving an EBITDA of 863 million euros and leading its European competitors in integrated marketing and refining margins. All this in an environment marked by the continued fall in demand in Europe, particularly in Spain, which has weakened refining and petrochemical margins as well as retail sales.

Gas Natural Fenosa’s operating income was in line with the previous year. Lower earnings of the electricity business in Spain due to higher taxes and the new regulations, were offset by higher wholesale gas margins and improved results in Latin America.

The company’s recurring net income of 1.823 billion euros (CCS) translated to a net income (MIFO) of 195 million euros. The difference is explained by a 187 million-euro difference between the result calculated on a CCS basis and that calculated based on MIFO criteria and, mainly, due to the extraordinary impairments related to the YPF compensation agreement (1.279 billion euros) and the restatement of the value of North American assets (1.105 billion euros) partially offset by the sale of Liquefied Natural Gas (LNG) assets in 2013 (1.263 billion euros).

The Republic of Argentina and Repsol reached an agreement that recognises a value of $5 billion as compensation of the expropriated 51% stake in YPF, which has been approved by the Board of Directors and will be included in the Agenda for ratification at the next AGM.

In February 2013 an agreement was signed to sell LNG assets to Shell that included holdings in liquefaction plants (Atlantic LNG and Peru LNG) and marketing and transportation assets. On December 31, 2013 the first phase of this sale and the transfer of shares was completed for the liquefaction plants and LNG supply contracts. On January 1, 2014 the transaction was completed with the transfer of the remaining sold assets (marketing and transportation). Also, in October Repsol’s Bahia Bizkaia Electricidad (BBE) stake was sold to BP.

These sales resulted in Repsol receiving 4.3 billion dollars and booking a post-tax capital gain of 1.263 billion euros in 2013 and 328 million euros in January 2014. As a result of these sales, and by applying maximum financial prudence, Repsol has adjusted in its financial statements the value of the remaining LNG assets, registering a total post-tax provision of 1.105 billion euros.

By the end of the year, net debt – ex Gas Natural Fenosa – was 5.358 billion euros 27.9% lower than the same period of the previous year. Repsol also has significant liquidity, totalling 9.282 billion euros.

Shareholder remuneration continued to be competitive in 2013 with dividend returns at 6%. Through the “Repsol Flexible Dividend” program, which has been a great success, the company continues to offer its shareholders the choice of receiving payment in new shares or in cash.

The Repsol Board of Directors agreed to propose at the next AGM the continuation of the “Repsol Flexible Dividend” program, and a payment of a final dividend from 2013 earnings equivalent to 0.50 euros per share.

During the year Repsol’s shares gained 19.5%, more than its European peers (10.4%).

Other milestones in 2013 were the sale of treasury shares (5%), allowing Repsol to include amongst its stakeholders one of the most prestigious investment companies in the world, Temasek; and the voluntary repurchase of the Group’s preference shares.

During 2013, Repsol won numerous acknowledgments in corporate social responsibility and commitment to society, and maintained a leadership role in the institutions and organizations in which it participates.

Regarding its commitment to society and its employees, Repsol has invested over 20 million euros in training, which represents an average 40 hours per employee, reduced the accident frequency rate (0.59 in 2013) and avoided the emission into the atmosphere of 353,000 tons of CO2.