Repsol posted net income of 761 million euros in the first quarter of 2015, supported by the strength of its integrated business model, which allowed it to minimize the impact of the sharp fall in oil prices. This represents a 6% drop from the 807 million euros posted in the first quarter of 2014 when 299 million euros of earnings and capital gains were recorded, due in large part to the definitive execution of the sale of liquid natural gas (LNG) assets.
Adjusted net income, which specifically measures how the business units are performing, was 928 million euros. This represents a 74% increase over the results of the first quarter of 2014. The strong performance of the refining and chemicals business units and the strength of the dollar against the euro compensated the effect of the 50% drop in oil prices on the exploration and production business units.
The company posted a net loss of 190 million euros in the Upstream unit (exploration and production), compared to the 255 million euros obtained in the first quarter of 2014, due in large part to the interrupted production in Libya and the sharp fall in oil prices.
Repsol’s realization prices performed better than the international benchmarks. Repsol's average crude realization price fell by 48%, while Brent fell by 50.2%. For its part, Repsol's price of production for gas fell by dropped 33%, compared to a 38.8% drop in the Henry Hub price.
During this quarter, Repsol made a new discovery in the K-4 well in Russia, in addition to the 12 discoveries that it made in 2014. In April, Repsol drilled its third positive survey in the Sud-Est Illizi block, in Algeria, confirming the great potential of the area explored.
The ongoing exploratory and appraisal campaigns in Alaska, Russia and Brazil continue, with good expectations from the results already obtained. In Alaska, drilling goals were accomplished and production tests were positive. In Russia, a new discovery well in block K-1 will add contingent resources, and in Brazil the Pao de Açucar appraisal 1 well consolidates certifiable volumes of resources in the area.
The effect of the lower price of crude was partially compensated by the increase in hydrocarbon production. Repsol increased production in 8 of the 12 countries in which it operates. The Kinteroni project in Peru, the Sapinhoá field in Brazil, and the Margarita-Huacaya project in Bolivia all stand out. As a consequence, the group's total production increased by 3.7%, for a total of 354,600 barrels of oil equivalent. Had it not been for Libya, and the conflict that the country is experiencing, production would have increased by 10% compared to the first quarter of 2014.
Investment in the Upstream unit increased 59% to 753 million euros over the quarter.
The Downstream unit increased earnings by 84.1% to 534 million euros (calculated based on stock valuation at current cost of supplies [CCS]), mainly due to wider margins in the refining and chemicals business units, driven by the measures introduced in the company’s competitivity plans.
The recovery of economic activity in Spain led to greater sales in the refining, chemicals and liquefied petroleum gas (LPG) business units. This in turn contributed to improved earnings at the Downstream unit.
The efficiency of Repsol's refining system, following the significant investments made at the company’s facilities, had an unmistakable impact in the first quarter, achieving the highest refining margins in Europe at $8.7 a barrel, compared with $3.9 a barrel in the first quarter of 2014.
The greater efficiency in Repsol's chemicals plants resulting from operational improvements implemented in recent months together with better international market conditions increased the area's earnings by 97 million euros.
At the end of the quarter, the group's net financial debt was 126 million euros, a reduction of 1.809 billion euros compared to the close of the previous financial year. In March, Repsol issued two hybrid bonds for a total of two billion euros, in two tranches of one billion euros. Since Repsol monetized its Argentinian assets, the company held a net-long cash position in dollars. In December 2014, this dollar position was further lengthened when Repsol agreed to acquire Talisman, in order to pay the transaction and because the company’s macroeconomic analysis forecast strong signs of a dollar appreciation. The results achieved confirmed Repsol’s hypothesis, and during the first quarter the company registered a significant and positive result in the context of the dollar appreciation.
Repsol is set to close the purchase of the Canadian oil company Talisman Energy tomorrow after the fulfillment of all the necessary conditions, announced on 30 April at the Annual General Meeting. The acquisition of Talisman Energy will transform Repsol into a bigger group, more balanced in terms of the composition and the geographical location of its assets, and with a better outlook for future development. The Repsol Group will noticeably increase its presence in OECD countries following the acquisition, and will become one of the largest private oil companies in the world. Production will practically double, with assets on every continent.