Spain: Repsol Quarterly Income Hits EUR 765 Million

Repsol posted net income of 765 million euros in the first quarter of 2011, 11.2% more than the year-earlier period. Excluding extraordinary items, recurring net income improved 23.4%, to 791 million euros.

The 2011 earnings increase is mainly due to improved oil and gas price realization prices, with a 13.4% and 14.8% rise respectively, this was boosted by the solid performance of the liquefied natural gas (LNG) division and the recovery of the chemicals business.

During the first quarter, the group’s operating income increased 4.7% year on year to 1.611 billion euros.

Repsol’s core businesses also experienced significant increases in operating income: Upstream (+13.4%), LNG (+238%) and Downstream (+14.1%), while the operating income of its holdings fell slightly: YPF earnings fell 6.8% and Gas Natural Fenosa declined 3.5%.

Net financial debt, excluding Gas Natural Fenosa, stood at 2.180 billion euros at the end of the first quarter. This implies a net debt to capital employed ratio, excluding Gas Natural Fenosa, of 6.9% at the end of the period.

The Group’s financial strength, with significant cash generation, allows Repsol to undertake the planned investments in productive assets. In the first quarter, EBITDA was 2.518 billion euros, and investments totalled 1.107 billion euros, 43% higher than the same period last year.

So far this year, Repsol has made significant progress in its strategy to divest part of its stake in YPF, aiming to retain a 51% share.

Following the divestments made late last year, during the first quarter of this year an agreement was reached to sell 3.8% to a number of investment funds, and a placement of a further 7.7% stake of YPF capital through a share sale was successfully completed in March. Additionally, The Petersen Group in May announced its decision to exercise an option to buy an additional 10% of YPF, taking its stake to 25.5%.

Repsol aims to sell as much as an additional 3% of YPF to Argentinean minority investors if the market conditions allow it.

Upstream: increased earnings and investment

Operating income for the Upstream Business was 490 million euros in the first quarter of 2011, an increase of 13.4% from the year-earlier period. The increase was a result of higher crude oil and gas realisation prices and lower exploration costs.

Especially significant was the increase in Repsol’s gas realization price, which rose 14.8% compared to a 22.6% decline of the Henry Hub reference price. Repsol’s crude realization price rose 13.4% compared to a 38% increase in Brent crude.

Crude oil and gas realisation price increases had a positive effect of 153 million euros on recurring operating income, while lower exploration costs, the appreciation of the Dollar against the Euro and lower amortization due to decreased production especially in the United States, added 46 million euros to earnings. This compensated the negative impact of lower production, especially in liquids.

Production in the first quarter was 324,348 boed, a decline of 7.4% from the previous year. The fall is explained by circumstantial factors such as the suspension of activity in Libya and maintenance work in Trinidad and Tobago.

Investments in the Upstream unit totalled 437 million euros, a 216.7% increase from the first three months of the previous year. Field development accounted for 36% of total expenditure, mainly in the United States, Venezuela, Bolivia Brazil and Peru. Exploration investment was focused on Brazil and the United States.

LNG: Earnings triple

The LNG business’s operating income for the first quarter was 115 million euros, a 238.2% improvement on the previous year.

These earnings are the result of the growth in sales volumes, basically in Peru LNG and Canaport (Canada), added to higher margins.

Downstream: the chemicals business consolidates its recovery

Operating income at the Downstream unit (Refining, Marketing, LPG, Chemicals and Trading) was 445 million euros in the first quarter of 2011, a 14.1% increase from the same period of the previous year. Excluding inventory effects, operating income was 217 million euros, up 15.4%.

Especially significant was the recovery of volumes and margins in the chemicals business, which returned to profitability, posting income 38 million euros higher than in the year-earlier quarter.

In refining, slightly higher distilled volumes in Spain and the optimization of production added 11 million euros to overall earnings.

Regarding LPG, bottling margins were in line with the previous year because of the time-lag in the formula with which they are calculated by the government of Spain and which negatively affects results.

Investment in the Downstream unit totalled 288 million euros in the quarter, spent mainly on the strategic expansion projects of the Cartagena and Bilbao refineries.

Both these strategic projects will be put into operation this year, increasing the efficiency of the business and considerably increasing the volume of diesel produced, helping reduce Spain’s import needs.

YPF: Discoveries of non-conventional resources

YPF’s operating income in the first quarter totalled 383 million euros, a 6.8% decline from the previous year. The reduced earnings are mainly a result of significantly higher costs and lower production as a result of strikes in the last few months.

Exploration activity in Argentina continued in the first quarter, with the work carried out in the Vaca Muerta formation being especially significant as it has confirmed the great potential of non-conventional hydrocarbons (shale oil and shale gas) in the country.

The discovery of 150 million barrels of oil equivalent of shale oil recoverable resources announced this week adds to the significant shale gas finds in the Neuquén basin and the 4.5TCF (approximately 800 million barrels of oil equivalent) of tight gas resources in Loma La Lata announced in December of 2010.

Investment in YPF during the quarter totalled 302 million euros, spent mainly on exploration and production. YPF’s hydrocarbons production was 523,882 boed, a 4.7% decline from the year earlier period.

Gas Natural Fenosa

The operating income of Gas Natural Fenosa for the first quarter was 247 million euros, compared with 256 million euros in the first quarter of 2010.

The decline is mainly a consequence of lower sales in Spain and by the smaller consolidation perimeter consequence of the divestments made after the merger of Gas Natural and Union Fenosa. This decline was partially offset by higher electricity distribution and by improved earnings from Unión Fenosa Gas.

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Source:Repsol , May 12, 2011;