Spain: Repsol 2010 Net Income Surges to EUR 4.7 Billion

 

Repsol posted net income of 4.693 billion euros for 2010 compared to 1.559 billion euros in the previous year. Excluding extraordinary items, recurring net profit improved 54.9% to 2.360 billion euros.

The 2010 earnings increase is mainly due to the good performance of the company’s ongoing activities, boosted in the fourth quarter by the capital increase of Repsol Brazil.

All the company’s core businesses experienced significant increases in recurring operating income: Upstream (+66.6%), Downstream (+45.5%), YPF (+106%) and Gas Natural Group (+14%).

In 2010, Repsol’s recurring operating income was 5.213 billion euros, 66.7% higher than the previous year, mainly due to improved upstream realization prices and a 3.2% increase in production.

Improved refining margins also had a positive impact, as they almost doubled to $2.5 per barrel, as well as the results of the marketing business and the recovery of the chemicals’ business margins and volumes.

YPF’s recurring operating income rose by 106% to 1.625 billion euros compared with 789 million euros in 2009, mainly due to the increasing convergence of domestic prices with international parity.

2010: Decisive steps in the Horizon 2014 Strategy

The agreement between Repsol and China’s Sinopec to develop exploration and production projects offshore Brazil, allowed the company to meet one of its main strategic objectives and was a major milestone of the last few years.

In December 2010, Repsol and Sinopec successfully concluded a deal whereby the Chinese company subscribed in its entirety a capital increase in Repsol Brazil, a deal that led to the creation of one of the largest private energy groups in Latin America, valued at $17.777 billion. Repsol owns 60% of the resulting company and Sinopec the remaining 40%.

Also in Brazil, exploration wells were drilled in the Guara, Carioca and Piracucá fields, all of which key assets in Repsol’s Strategic Plan, which further increased the prospects of the already enormous potential of these fields. Additionally, a new discovery was made in the Creal B well (Albacore Leste block) where production testing will commence in 2013.

Another milestone reached during the year was the start-up of the gas liquefaction plant, at the Peru LNG project. The plant is located in Melchorita (Peru), and is the first gas liquefaction plant in South America. The project involves total spending of $3.8 billion, the largest investment ever made in a single project in the history of Peru.

In Venezuela, the increase in reserves in the Perla field and the award of a project to develop heavy crude oil reserves in the Carabobo project are clear examples of the progress being made in Repsol’s upstream strategy.

In November 2010, YPF was awarded 13 new licenses for exploration of unconventional resources in Argentina’s Neuquen province in partnership with other major international companies including Exxon and Total. Successful exploitation of unconventional resources (tight & shale resources) have created a very promising new growth vector in Argentina for YPF.

Regarding other major strategic growth projects for Repsol, the expansion and modernization of the Cartagena refinery and the fuel oil reduction unit at the Bilbao Petronor complex have both advanced considerably during 2010. The start of operations at both sites in 2011 will mark the completion of Repsol’s key downstream objectives.

The sale of Repsol’s 5% stake in CLH, 25% stake in Bahia Bizkaia Gas, S.L., 30% stake in the Brazilian REFAP refinery and the agreement to sell the Gaviota underground natural gas storage facility are all part of Repsol’s strategy of gradual divestment of non-strategic assets. The sale of a total of 4.2% of YPF in the last quarter of 2010 is part of a significant advancement in achieving greater diversification of the company’s asset portfolio.

These deals have allowed Repsol to significantly reduce its net financial debt which, excluding Gas Natural Fenosa, stood 1.697 billion euros at year end compared with 4.905 billion in 2009. This implies a net debt to capital employed ratio of 5.5%.

Gross dividend increases 23.53%

During a meeting held yesterday, the Board of Directors agreed to convene the next Annual General Meeting for April 15, and proposed a final dividend payout for 2010 earnings of 0.525 euros per share, to be paid on July 7, 2011.

With this proposal, which must be approved by the Annual General Shareholders’ meeting, the total gross dividend for 2010 will be 1.05 euros per share, which represents a 23.53% increase from the previous year.

The total dividend payout from 2010 earnings will be 1.282 billion euros.

Upstream: Reserves and production growth

The Upstream unit’s operating income was 1.473 billion euros in 2010, a 66.6% increase compared to the same period of 2009. This was a result of higher oil and gas prices and increased production, particularly liquids.

During 2010, hydrocarbons production was 344 boepd, 3.2% more than the year-earlier period, consolidating the trend initiated at the beginning of the year. This increase was mainly due to production in Shenzi (USA) an increased share in Libya and the start-up of the Peru LNG project.

Especially significant was the increased reserve replacement ratio, of 131%, which endorses the implementation of the company’s successful reserve replacement policy of recent years.

Noteworthy is the improved production mix, in which the weight of liquids increased from 40.2% to 42.3%. Repsol’s crude realization price increased 26.7%, in line with the rising Brent (28.8%) and WTI (28.2%) prices. The gas realization price rose 17.4%, significantly higher than the rise in the Henry Hub (10%).

Investments in the Upstream unit during the period were in line with the previous year, totalling 1.126 billion euros. This was spent mainly (50%) on field development in Trinidad & Tobago, Bolivia, Brazil, Peru, USA, Ecuador and Libya. Investment in exploration was mostly assigned to Brazil and the United States.

More discoveries in 2010

Of the company’s reported discoveries during this period, the Mercury 1 exploration well offshore Sierra Leone allowed Repsol to identify a new area of high exploratory potential which was previously unexplored. The Perla 2 and Perla 3 wells in Venezuela increased estimated reserves in the super giant Perla field, the largest ever gas find in Venezuela.

In Brazil, the Piracucá Creal B and 2 findings could significantly increase the potential of offshore reserves in this country. In 2011, Repsol made a new discovery of high quality crude in ultra-deep waters in the Santos Basin. The Carioca Northeast well is in the Carioca area, one of the company’s key exploration plays.

In Peru, following the success of the Kinteroni field, appraisal work is continuing with the Kinteroni 2 well, with very positive results. This gas field is expected to start producing in 2012.

Repsol will drill 27 wells in 2011, focusing especially on offshore Brazil and West Africa, in line with the group’s strategic objectives of maintaining investment in exploration and production as the company’s key growth driver.

LNG business growth with Peru LNG start-up

The LNG (liquefied natural gas) unit’s recurring operating income was 127 million euros in 2010, a 154% increase on 50 million euros at the end of 2009. This increase is mainly due to increased margins and high product sales and the entry into operation of the liquefaction gas terminal in Melchorita (Peru) integrated in the Peru LNG project.

The start-up of the Peru LNG project allows Repsol to increase its presence in the Pacific basin, adding to the privileged position in the Atlantic and the Mediterranean basins. The start of production at the facility will allow Repsol to increase overall shipped volumes by 50% in 2011.

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Source:Repsol, February  24, 2011;