Repsol YPF net income for January to September 2004 rose 5.5% to EUR1,696 million versus EUR1,608 million in the same period a year earlier. Operating income increased 10.4% to EUR3,320 million, while January to September net cash-flow was up 7.1% year-on-year, reaching EUR3,794 million.
These earnings were achieved in an international context of high oil prices, with Brent trading at an average $36.29 per barrel compared to $28.65 per barrel the year before, and wider refining margins, which rose from $3.23 per barrel to $4.97 per barrel in the first nine months of 2004. International chemical margins improved, while results in the gas & power business area reflected the higher stake in Gas Natural SDG and enhanced performance by same.
Performance was negatively affected by a 10.2% appreciation of the euro against the dollar, lower marketing margins, and the Companys average tax rate over the first nine months of the year, which increased from 32% to 38%.
Repsol YPFs average oil and gas production in the January-September 2004 period climbed 3.7% year-on-year, reaching 1,171,700 boepd. The sharp 11.8% rise in gas production played a large part in this growth.
Repsol YPF´s net financial debt at 30 September 2004 was EUR5,598 million versus EUR5,951 million at the end of the first nine months of 2003.
Debt ratio dropped from 24.3% at 30 September 2003 to 22.1% at the same date in 2004. The Companys financial expenses totalled EUR224 million, shrinking 24.1% year-on-year as a result of lower net debt and average debt cost for the period. EBITDA to interest cover ratio was 20.0x, significantly higher than at the end of 2003, when it was 13.7x.
These figures underscore Repsol YPFs strong cash generation capacity, EUR3,794 million in the three quarters. This figure, 63% higher than investments in this period, also served to finance EUR632 million in dividend payout, and a significant rise of EUR1,010 million in working capital, resulting mainly from the impact of higher oil and oil product prices on the inventory value.
Repsol YPF investments from January to September 2004 fell 15.2% year-on-year to EUR2,330 million. Divestments in this period totalled EUR161 million, and included the sale of part of the stake held by Gas Natural SDG in Enagas, and other lesser disposals.
Operating income from exploration & production was up 8.3% in the first nine months, to EUR1,978 million year on year.
Growth in operating income came from higher international crude oil prices; improvement in gas realisation prices; and an increase in both gas production and sales, particularly in Trinidad & Tobago, Bolivia, and Argentina.
On the negative side, there was the depreciation of the dollar against the euro; higher exploration expenses; strikes and operating problems in Argentina and Trinidad and Tobago. The tax levied by the Argentine government on natural gas exports (20%); and a rise in export tax on oil of between 3% to 20% for WTI prices ranging from $32 to $45 per barrel, on top of the 25% tax in place until August, also had an adverse effect on performance.
Repsol YPF´s liquids realisation price averaged $29.88/barrel over the three quarters, versus $25.49/barrel a year earlier. Average gas prices in the first nine months were $1.20/tscf, 13.2% higher than in the same period 2003, reflecting the higher price in Argentina (following the increases agreed in May and implemented in May and October) and the greater relative weighting of Trinidad & Tobago in total sales, at higher prices than the Company average.
Average oil and gas production rose 3.7% in these first nine months to 1,171,700 boepd year on year. The strikes and operating problems in Argentina and Trinidad & Tobago, and the effect of high crude prices on production sharing contracts in Algeria caused a cutback of 20,400 boepd.
Repsol YPF accumulated gas production climbed 11.8% to 598,000 boepd. Strong performance was boosted by 8.7% production growth in Argentina; 38.2% production growth in Bolivia underpinned by higher sales to Brazil and the start of exports to Argentina, and enhanced performance in Trinidad and Tobago, where there was 14.9% growth thanks to a full year of operation from Train 3 which offset the production loss caused by the incidents mentioned previously.
Investments in the E&P business area totalled EUR892 million in the first nine months of 2004 versus EUR1,831 a year earlier. Investments in development represented 65% of overall expenditure, spent mainly in Argentina (65%), Trinidad & Tobago (10%), and Venezuela (6%). One of the highlights in this area was the awarding to the Repsol YPF-Gas Natural SDG consortium an oil and gas exploration block in the Gassi Chergui West zone, in the western part of the Berkine Basin, offered for tender by the Algerian Ministry of Energy and Mining at the end of July. This block, which covers 4,831 square kilometres, is in the east of Algeria, adjacent to the Gassi Rhourde Nouss area.
Furthermore, Repsol YPF and Shell signed a project framework agreement with NIOC for the LNG Persia Project. Although this agreement is subject to confidentiality clauses, it is of considerable importance as part of the Companys strategy for the development of the integrated LNG chain, and opens new business opportunities in this region.
In October, the Company signed a contract with the National Iranian Oil Company (NIOC) to explore the Mehr and Farooz block in the south of the Persian Gulf. This agreement, with an initial duration of two-and-a-half years, contemplates an investment commitment of $27 million.
Refining & Marketing posted a nine-month operating profit of EUR1,136 million, up 17.1% year-on-year.
Improvement in this business area was driven mainly by excellent refining margins, up 53.9% up on the same period the year before. The companys refining margin indicator was $4.97 per barrel versus $3.23/bbl in 2003.
Marketing margins were lower, particularly in Latin America, adversely affected by the rise in international product prices and the inability to fully pass on these costs to customer retail prices.
Total accumulated sales of oil products at September 2004 reached 40.6 million tons, up 1.6% year-on-year. Sales in Spain increased 1.7% to 24.4 million tons, and in Argentina rose 1.1% to 9.6 million tons. Sales of light products to our own network in the nine-month period grew 2.5% in Spain and 7.6% in Argentina, from a year ago.
Total Liquefied Petroleum Gas (LPG) sales increased 1.1% in the first nine months. In Spain, sales were down 1.5%, but rose 5.2% in Latin America thanks to strong growth in Peru and Ecuador. Despite negative performance in the second and third quarters, LPG margins in Spain were still 1.9% up year-on-year. In Latin America, there was margin growth in all businesses except in Argentina and Bolivia.
January to September investments in Refining & Marketing were EUR599 million, 47.2% more than in the same period a year earlier. Expenditure was mainly allotted to current refining projects, including a mild Hydrocracker in Puertollano, an FCC hydro-treatment unit in La Coruña, a vacuum unit and a visbreaking facility in Peru, revamping of the REFAP refinery in Brazil, upgrading the service station network, and the development of LPG products in Spain and Latin America.
A highlight in this business area was the agreement for the companys acquisition of the Royal Dutch/Shell marketing and logistics businesses in Portugal (excluding LPG and lubricants), unconditionally approved by the European Commission on 13 September last. Under this deal, Repsol YPF acquired 303 service stations, boosting its oil product sales by 1.85 Mm3., and with 417 service stations, is now the third largest operator in Portugal with a 19% market share and one of the highest average sales volumes in that country. Repsol YPF also becomes the second-ranking company in direct oil product sales with a 21% market share.
In Chemicals, nine-month operating income at September 2004 jumped 53.7% to EUR186 million versus EUR121 million in the same period a year earlier.
Wider international margins on the Repsol YPF product mix, particularly from the cracker and on urea and methanol in Argentina, contributed to this stronger performance, whereas in derivate chemicals in Europe, it was impossible to fully pass higher feedstock costs through to the end customer.
Total petrochemical sales for the three quarters reached 3.1 million tons, 0.7% up on the 3.0 million tons equivalent in 2003.
January to September investments, reaching EUR54 million, were mainly earmarked for small capacity increases, the upgrading of existing units, and the start of the project for revamping the propylene oxide/styrene complex at Tarragona.
In October, Repsol YPF entered an agreement with Borealis A/S for the acquisition of Boreales Polímeros Lda., including all the assets in the petrochemical complex at Sines, Portugal. This deal will boost the companys cracker capacity by 38%, polyolefin production by 28%, and polyethylene production by 55%.
Gas & Power operating income at the end of September 2004 was EUR204 million, 35.1% higher than the EUR151 million recorded in the same period 2003. This increase reflects the impact of Repsol YPFs higher stake in Gas Natural SDG and the latters positive earnings performance.
This improvement, bolstered by the higher activity in gas distribution in Spain, organic growth in Latin American activities, and acquisitions in Puerto Rico, Brazil, and Italy, was partially curtailed by the fall in unitary margins on gas commercialisation in Spain and low Spanish electricity pool prices.
Gas sales in the first nine months of this year were 24.13 Bcm, 9.4% up year-on-year owing to an increase in sales to the marketing company and growth in Italy and Latin America.
Investment in the first nine months of 2004 was EUR665 million, up 83.2% year-on-year. This rise is mainly attributable to the acquisition of an additional stake in Gas Natural SDG accumulated over the period, to reach a current holding of 30.847%, and that companys higher rate of investment in 2004.
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