Spain’s Repsol increases investment to pre-pandemic levels, with focus on exploration and production in Latin America

Spanish integrated energy company Repsol SA plans to increase capital expenditure (capex) to pre-pandemic levels by 3.8 billion euros ($4.3 billion) in 2022, according to CEO Josu Jon Imaz.

The Madrid-based company has an exploration and production (E&P) presence in 15 countries, including an extensive portfolio across the Americas.

The projected increase in capital expenditure is “mainly due to higher investments in transforming our business, flexibility in our E&P and projects that benefit from the price scenario,” Imaz told analysts during a briefing. a conference call to discuss the fourth quarter and full year 2021 results.

The footprint of 15 countries is down from 26 countries just two years ago, Imaz said. Repsol “is now focusing its activities in areas where the company has competitive advantages,” management said.

These areas include Mexico, Trinidad and Tobago, Brazil, Bolivia, Colombia and Peru.

Repsol in September completed a deepwater appraisal well on offshore Block 29 in Mexico’s Salina Basin, where a Repsol-led consortium announced two oil discoveries in 2020.

The scoping did produce a “positive outcome”, management said, explaining that it is “a key step for the approval of the development phase”.

Repsol is the first international company to perform such a test in Mexico’s deep waters, the company said.

Last year also saw the start of Repsol’s Matapal natural gas project, located about 80 km off the southeast coast of Trinidad. Initial production should be between 250 and 350 MMcf/d.

In Brazil, Repsol and its partners Equinor ASA and Petróleo Brasileiro SA, alias Petrobras, have approved the concept for the development of block BM-C-33. The block targets a gas and condensate deposit located in the Campos Basin, in the prolific pre-salt layer of Brazil.

In Bolivia, Repsol confirmed in January 2021 a discovery of natural gas in its contract area operated in Caipipendi. The discovery is tentatively estimated to contain approximately 1 Tcf of prospective reserves and resources.

Around 30% of the 2022 capex budget is spent on low-carbon projects, according to management.

About 1.7 billion euros ($1.92 billion) is planned for the upstream, Imaz said, with about 1 billion euros ($1.13 billion) for the industrial segment and 1 billion for additional euros for “customer-centric and renewable energy” activities.

Natural gas prices are skyrocketing

High commodity prices helped Repsol achieve its best financial performance in more than a decade in 2021, Imaz said.

“The first year of our strategic plan to 2025 consolidated our journey towards our long-term objectives and the energy transition,” he explained. “Furthermore, the additional liquidity generated in a scenario of rising commodity prices allowed us to strengthen our financial position and move into the next phase of the capital allocation framework defined in our strategy.”

Imaz said that “based on our planning assumptions for 2022, we will be able to significantly increase capital spending and improve shareholder returns through additional buybacks, while keeping debt under control.”

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Repsol management said that in 2021, “liquefied natural gas (LNG) from the United States was in high demand in the Asian market, which was ready to pay high prices to guarantee supply, and later also in Latin America and Europe”.

Imaz pointed out that U.S. natural gas prices “reached levels not seen in a sustained fashion since 2014,” averaging $5.80/MMBtu in Q4, more than double the price seen in 4Q2020.

“In Europe, gas prices reached record levels in the fourth quarter, driven by a tight supply-demand balance, geopolitical tensions, [and] competition from Asia.

He cited that the Dutch Title Transfer Facility’s benchmark gas price averaged $14/MMBtu for the year 2021, compared to $3 in 2020.

Repsol’s strong performance in 2021 “is clear evidence of our high-quality integrated portfolio, disciplined execution and forward-looking strategy,” the CEO said. “We come out of 2021 in a strong financial position, ready to accelerate our strategy to be a net zero company by 2050 through the improvement of our intermediate decarbonization targets and with a proposal at the next General Assembly to increase our shareholder distribution. ”

“Volume Value”

The company’s 2021-2025 strategic plan prioritizes “value over volume,” according to management.

“Between 2021 and early 2022, we have completed our exit from six countries, bringing us closer to the strategic objective of concentrating our geographical footprint, contributing to [increasing] the resilience of our E&P business,” Imaz said. “In the fourth quarter, we reached an agreement to divest our position in Ecuador and complete the divestment of our last remaining asset in Vietnam.”

The company achieved an organic free cash flow breakeven oil price below $30/barrel for its upstream assets in 2021.

Repsol’s 2022 budget assumes a price of $70/bbl of Brent oil and $3.70/MMBtu of Henry Hub natural gas.

“Therefore, price-wise, we expect 2022 to be, on average, similar to 2021, expecting higher cash generation, driven by increased production, better refining margins and improved operations. global,” Imaz said.

Repsol forecasts average production of around 600,000 boe/d in 2022, driven by the ramp-up of the Yme project in Norway, higher volumes in unconventionals and lower expected downtime.

Repsol has set an investment budget of 19.3 billion euros ($21.8 billion) for 2021-2025, 35% of which is earmarked for low-emissions initiatives.

Imaz said Repsol “is focused on maximizing value in this positive environment, making the most of our current portfolio while having, as a business, a very clear decarbonization path through 2025 and 2030. “.

By 2030, Repsol aims for a 55% reduction in emissions from operated assets (Scope 1 and 2) and a 30% reduction in net emissions (Scope 1, 2 and 3) compared to 2016 levels.

Good results

Repsol announced average realized prices of $71.10/bbl for oil and $6.60/Mcf for natural gas in 4Q2021, compared to $40.40/bbl and $2.70/Mcf in 4Q2020.

Production totaled 561,000 boe/d in the fourth quarter, including natural gas production of 2.08 Bcf/d and liquids production of 190,000 bbl/d. These figures compare to 628,000 boe/d, 2.31 Bcf/d and 217,000 b/d during the prior year period.

The drop in production is due to planned and unplanned maintenance activities in Bolivia, Canada, the United Kingdom and Malaysia, the natural decline of deposits in the Marcellus and Eagle Ford shales and in Canada, the ‘negative effect of the production sharing contract due to higher oil and gas prices as well as the divestment of production assets,’ management said.

However, production increased in Venezuela, Norway, Trinidad and Tobago and Colombia.

Accumulated upstream investments totaled €534 million ($604 billion) in 4Q2021, an increase of €352 million compared to 4Q2020.

Exploration investments represented 13% of the total and were allocated to the United States (52%), Norway (16%), Mexico (11%) and Bolivia (5%).

Repsol, which publishes in euros (1 euro/1.13 USD), recorded a net profit of 560 million euros (0.37 euro/share) for the fourth quarter, compared to a loss of 711 million euros ( minus 0.47 euro) in 4Q2020. The annual net result stood at 2.5 billion euros (1.64 euros/share) in 2021, compared to a loss of 3.29 billion euros (minus 2.13 euros) in 2020.