In a context of extraordinary difficulty, Repsol has prioritized its status as a supplier of basic products and services for society
Repsol maintains its commitment to total shareholder remuneration in 2020
Two bond issuances to strengthen Repsol’s financial capacity
In the first quarter of 2020, Repsol produced an adjusted net income of 447 million euros, which represents a decrease of 27.7% compared to the 618 million registered in the same period the previous year. This result, which specifically measures the performance of the company’s business areas, was achieved in a context of exceptional complexity, marked by a sharp drop in oil and gas prices, a drastic decrease in demand triggered by Covid-19, and with Repsol keeping its facilities operational and playing an essential public service role in the global health crisis.
Repsol’s integrated business model and its flexibility and resilience were fundamental in allowing its businesses to achieve solid results in this extremely adverse scenario.
The average price of Brent and WTI crude oils dropped by 21% and 17%, respectively, compared to the first three months of 2019. At the end of the quarter, Brent traded at under 20 dollars per barrel. In the case of gas, the drops were even sharper, ranging from 36%, on the Henry Hub, to 56% on the Algonquín.
This volatility and decline in international commodities prices has reduced the valuation of the company’s inventories to an extraordinary degree. With a negative impact of 790 million euros, the resulting net income in the first quarter of 2020 was -487 million.
Repsol’s CEO, Josu Jon Imaz, highlighted the company’s response to the pandemic: “I am proud of the way that Repsol has adapted to this scenario, applying all of its technological, industrial, and human capacities to fighting the coronavirus. Our company has a culture of discipline, flexibility, and cooperation that enables us to confront challenges like the one represented by this crisis. This culture is also essential for addressing the challenges confronting our industry, and in the face of these we reaffirm our commitment to leading the energy transition.”
The priority of the company, taking precedence over the usual criteria of profitability, has been to provide essential services in the countries where it operates as well as to apply all available measures to protect the health and safety of its employees, customers, and suppliers. Furthermore, Repsol has placed its industrial and human capacities at the service of the authorities and society as a whole to help in this fight.
Following this premise at all times, the company is guaranteeing the supply of products and services that are essential for the functioning of society, such as energy and key raw materials for the manufacture of various medical supplies such as masks, respirators, syringes, surgical material, etc.
Protocols for assisting customers have been modified to be able to continue meeting their needs as safely as possible. Likewise, measures have been implemented in the industrial facilities and in the low-carbon electricity generation assets, crucial to the supply of fuels, chemical products, and electricity, to ensure that the operations continue without disruption.
After analyzing the macroeconomic environment and the extraordinary conditions of the recent months, Repsol's Board of Directors, on March 25, decided to implement a series of measures to strenthen the soundness of the company’s balance sheet.
To address the current circumstances, Repsol adopted a Resilience Plan for 2020. It includes initiatives that will represent additional reductions of more than 350 million euros in operating expenses and over 1 billion in investments, as well as optimizations of working capital of nearly 800 million with respect to what was initially budgeted.
Repsol’s asset portfolio is very flexible. It allows the company to be agile when taking investment optimization decisions, making it one of the most useful levers for addressing this new and complex scenario and key to the 26% reduction of the investments originally planned for this year.
On March 31, the company’s net debt totaled 4.478 billion euros, compared to 4.22 billion at the close of last year. In line with its Resilience Plan for 2020, Repsol estimates that the net debt at year end will not have increased compared to the end of 2019.
Repsol enjoys ample liquidity. At the end of March, this allowed the company to cover its debt maturities in the short term until the end of 2024 without the need for refinancing. Furthermore, at the beginning of April, the company strengthened its position with two bond issues, of five and ten years, respectively, totaling 1.5 billion euros. The demand was 2.6 times the offer. Repsol also increased the credit lines committed in 2020 by 1.3 billion euros.
Despite the adverse context, the commitment to a shareholder remuneration of 1 euro per share in 2020 will be maintained, as established in the current Strategic Plan. Therefore, a remuneration of 0.55 euros per share will be made effective in July, under the formula of a scrip divided and in lieu of a complementary dividend, once it has been approved by the Annual General Meeting on Friday, May 8. The reduction in capital through a repurchase of company shares, aimed at offsetting the dilution effect of the scrip dividend, is also being maintained in 2020.
The results of all Repsol’s business areas were positive in the first quarter of the year, despite the various contextual factors affecting their operations.
In line with its role as a multi-energy company and its goal of leading the energy transition, Repsol has redefined its business segments and, starting in 2020, the Downstream area will be split in two: Commercial and Renewables (Mobility, LPG, Lubricants, and Electricity and Gas) and Industrial (Refining, Repsol Peru, Chemicals, Trading, and Wholesale and Gas Trading).
The Commercial and Renewables business posted a result of 121 million euros, compared to 137 million in the same period in 2019. The restrictions imposed to combat the coronavirus depressed demand and affected the Mobility area. LGP also saw sales drop due to the impact of Covid-19 on the hotel and restaurant sector and to the higher than usual temperatures in January and February.
The company has offered solutions to meet the needs of the customers under the current circumstances, above and beyond the essential services that it is keeping in place. Accordingly, it has implemented two options for supplying food and hygiene products in most of the convenience stores at its service stations. Thanks to these initiatives, users can place their orders by telephone and pick them up at more than 800 stations. Or, if they prefer, they can make their purchases from urban service stations in 22 cities through Deliveroo and receive them at home.
As for the Industrial business, it increased its income by 6%, to 288 million euros, compared to 271 million in the first quarter of last year. This business area successfully offset the negative impact of the volatile price climate and the depressed demand that mainly affected the Refining area.
As for the Chemicals business, this area has been affected by maintenance at the facilities in Sines and Tarragona. Since the beginning of the pandemic, it has had to adjust its operations to the fall in demand in the automotive sector, among others, as well as to the increase in demand in other sectors related to healthcare and food products that are vital in the fight against Covid-19 and for which chemical raw materials are crucial.
Lastly, the Upstream business posted an income of 90 million euros, compared to 323 million between January and March 2019. The results of this area have been hampered primarily by the extraordinary drop in international commodities reference prices. Average production increased by 1.4%, to 710,300 barrels of oil equivalent per day.
Although exploration activities have been significantly reduced, the six wells that Repsol has drilled so far this year — in Colombia, the United States, and Mexico — have all shown positive results. The estimated resources total 650 million barrels of oil equivalent.
Two important discoveries made in Mexican waters in April, after the close of the quarter, stand out. Located in the Salina Basin, both were completed with lower costs and shorter timelines than estimated, following the strictest health and safety protocols and with specific measures to prevent spread of coronavirus.
Repsol reaffirms its commitment to leading the energy transition that was made even before the current exceptional global context. On December 2 last year, it announced that it was orienting its strategy to become a company with zero net emissions by 2050, in accordance with the Paris Agreement. Now, it is maintaining the targets for 2020 that will help it to achieve this goal.
The company will reduce its Carbon Intensity Index by 3% this year compared to the 2016 baseline. It will reduce CO2 emissions in all businesses and significantly increase its renewable generation capacity.
Relating to the latter, in April, Repsol began the construction of its first solar farm, known as Kappa and located in the municipality of Manzanares (Ciudad Real).
This facility will have a total installed capacity of 126 megawatts (MW) and will represent an investment of 100 million euros. It is expected to come online at the beginning of next year.
Kappa is one of the seven renewables projects that Repsol is currently pursuing on the Iberian Peninsula and the second to break ground in Spain. The first was the Delta wind project, located in the provinces of Zaragoza and Teruel, where construction began in December last year and is still ongoing. It will have a total installed power of 335 MW, it represents an investment of 300 million euros, and it is expected to start operating at the end of this year.
Additionally, the construction of the Valdesolar solar project (Badajoz), with 264 MW and a projected investment of 200 million euros, is expected to start soon. Together, these three projects — Kappa, Delta and Valdesolar — add up to a total investment in renewable projects of 600 million euros.
The last asset that the company has added to its renewables portfolio is Delta 2 that was announced at the end of February of this year. This 860 MW wind project is made up of 26 farms located in the provinces of Huesca, Zaragoza, and Teruel in northeastern Spain. It will be developed over the next three years and, once finished, it will supply electricity to approximately 1.8 million people and offset the emissions of more than 2.6 million tons of CO2 every year, when compared to electricity produced from coal.
The information included in this document is considered inside information in accordance with article 226 of the Spanish Securities Market Law.
This document contains information and statements or claims that represent estimates or future projections regarding Repsol. These estimates or projections may include statements regarding current plans, objectives and expectations, including statements related to trends that affect Repsol’s financial situation, financial ratios, operating results, businesses, strategy, geographic concentration, production volumes and reserves, capital expenditures, costs savings, investments and dividend policies. These estimates or projections may also include assumptions about future conditions of an economic or any other nature, such as future crude oil prices or other prices, refining margins or marketing, or exchange rates. The estimates or future projections are generally identified by the use of terms like “expects”, “anticipates”, “predicts”, “believes”, “estimates”, “assesses”, and similar expressions. These statements are not guarantees of future performance, prices, margins, exchange rates, or other events, and they are subject to significant risks, uncertainties, changes, and other factors that may be beyond Repsol’s control or difficult to foresee. Such risks and uncertainties include the factors and circumstances identified in the filings made by Repsol and its subsidiaries with the Comisión Nacional del Mercado de Valores (CNMV) in Spain and all other supervisory authorities of markets where the securities issued by Repsol and/or its subsidiaries are traded.
Except to the extent that it is required to do so by applicable law, Repsol undertakes no obligation, even when new information is published or in response to new developments, to publicly update or revise any forward-looking statements.
ASome of the resources cited do not, as yet, constitute proven reserves and will be recognized as such when they meet the formal criteria established by the “SPE/WPC/AAPG/SPEE/SEG/SPWLA/EAGE Petroleum Resources Management System” (SPE-PRMS) (SPE – Society of Petroleum Engineers).
In October 2015, the European Securities Markets Authority (ESMA) published its Guidelines on Alternative Performance Measures (APMs). These mandatory guidelines are aplicable to regulated information published on or after 3 July 2016. The information and breakdowns relative to the APMs used in this press release are included in Annex I “Alternative Performance Measures” of the consolidated Management Report for 2019, which is updated quarterly on the Repsol website .
This document does not constitute an offer or an invitation to purchase or subscribe shares, in accordance with the provisions of Royal Legislative Decree 4/2015, of 23 October, approving the recast text of the Spanish Securities Market Law and its implementing regulations. Likewise, this document does not constitute an offer to purchase, sell, or exchange, nor a request for an offer of purchase, sale, or exchange of securities in any other jurisdiction.
The information contained in this document has not been verified or reviewed by Repsol’s External Auditors.