Repsol posted net income of 1.901 billion euros in the first nine months of 2011, 6.4% higher than the 1.786 billion euros reported in the year-earlier period. The group’s operating income totalled 4.102 billion euros, 1% higher than that recorded in September 2010.
The company said its encouraging results are partly due to the improvement of crude oil and gas realization prices and the continued recovery of the chemicals business, as well as the excellent results achieved by the LNG unit.
Repsol’s Upstream oil and gas realization prices increased 16.8% and 29.6% respectively, offsetting the lower production of liquids due to temporary circumstances. In this respect, operations in Libya that had been halted since 5 March resumed in October with encouraging initial production levels.
Operating income for the Upstream business was 1.206 billion euros, 15.7% higher than in the first nine months of 2010.
The LNG division showed an especially positive performance based on higher sales after the start-up of Peru LNG, boosting operating income by 367.8%.
The Downstream unit’s operating income was 1.097 billion euros, a fall of 3.2% due to the drop in sales and international refining margins. Nevertheless, and on a more positive note for the unit’s profits, the Chemicals business has consolidated its recovery.
At the end of the quarter, operations began in the new units at the Cartagena refinery, and tests are set to begin in mid-November on the new unit of the Petronor refinery in Bilbao. These projects have been completed 200 million euros below initial planned investment, due to lower costs during the construction phase.
YPF’s operating income was 1.008 billion euros compared with 1.205 billion euros in the first nine months of 2010, due to prolonged strikes in Argentina during the second quarter of 2011, now resolved, and higher costs. Gas Natural Fenosa posted an operating income of 712 million euros, 4.9% less than the year-earlier period.
Repsol maintains a secure financial position thanks to sound management practices and continued financial discipline. The group’s net financial debt, excluding Gas Natural Fenosa, was 2.909 billion euros at the close of the third quarter, a net debt over capital employed ratio of 8.4%.
Upstream: Improved results and better realisation prices
The Upstream unit’s operating income to the end of September 2011 rose to 1.206 billion euros, 15.7% higher than the previous-year period. The increase is mainly due to higher crude oil and gas realization prices and lower exploration costs, which more than made up for lower production due to temporary circumstances.
Especially significant was the increase in Repsol’s gas realization price, which rose 29.6% compared to an 8.7% decline of the Henry Hub reference price in the same period. Repsol’s crude realization price rose 16.8%. Prices had a positive impact of 512 million euros on the Upstream unit’s income.
In the year through September, oil and gas production was 301,101 barrels of oil equivalent per day, 12.8% less than the previous-year period due to temporary circumstances including reduced production as a result of the halt of operations in Libya, maintenance work in Trinidad and Tobago and the moratorium imposed by the United States in the Gulf of Mexico. The lifting of the American moratorium and the resumption of activity in Libya will allow Repsol to return to normal production in the medium-term.
Investments made during the period in this area totalled 1.148 billion euros, 58.1% more than the first nine months of 2010. Investment in field development represents 48% of the total and was assigned mainly to the United States, Bolivia, Brazil, Trinidad and Tobago Venezuela, and Peru. Investments in exploration were mainly made in the United States and Brazil.
In the fourth quarter, the company’s exploration campaign had new successes in Brazil, on November 4 announcing an offshore gas discovery in the Malombe well, in the Brazilian post-salt of the Espíritu Santo basin.
LNG: Exceptional results
Operating income at the LNG business in the first nine months of the year was 276 million euros, 367.8% higher than the 59 million euros for the same period of the previous year.
These excellent results are due to higher production and sales owing to production start-up at the Peru LNG plant as well as higher margins.
Downstream: Improved chemicals and efficient completion of Cartagen and Bilbao
Operating income at the Downstream unit (Refining, Marketing, LPG Chemicals and Trading) at the end of September 2011 was 1.097 billion euros, 3.2% less than the same period in 2010.
The lower earnings are mainly the result of lower crude refining margins and volumes due to, amongst others, the preparation for the start-up of the expanded Cartagena refinery. These factors were partially offset by the recovery of the Chemicals business.
Investment in this area was 1.067 billion euros, mainly spent on the strategic expansion projects of the Cartagena and the Bilbao refineries. The new units at the Cartagena refinery began tests for start-up late in September 2011. At Bilbao tests began in mid-November 2011.
Both projects increase the efficiency of the business, raise margins and considerably increase the production of diesel. Repsol’s efficiency in project execution has reduced to 4.080 billion euros the investment in these projects, compared to the 4.304 billion originally planned.
YPF: Historic discovery of non-conventional crude
YPF’s operating income in the first nine months of 2011 totalled 1.008 billion euros, a 16.3% decline from the previous year. The reduced earnings are a result of prolonged strikes during the second quarter of the year, now resolved, and the inflationary effect on costs.
Production of hydrocarbons was 489,567 boepd, an 11.1% fall from the previous year as normal production has not yet resumed following the strikes in previous months.
Internal prices have continued their trend toward parity with import prices in dollars, posting an average 15% rise at service stations.
Investment in YPF during the period totalled 1.218 billion euros, of which 912 were spent on exploration and production. Of the E&P investment, 77% was dedicated to development projects.
In the first half of the year, Repsol carried out a number of share sales which, added to the execution of a purchase option by Petersen Group, result in Repsol currently holding a 57.4% stake in the argentine company.
In the fourth quarter, Repsol YPF confirmed its largest oil find to date, located in one of the world’s largest non-conventional reservoirs-the Vaca Muerta formation in Argentina’s Neuquén province. The company has confirmed recoverable resources of 927 million barrels of oil equivalent of non-conventional hydrocarbons, of which 741 million are high quality oil (40-45º API), in an area of 428 km² of the Loma La Lata Norte formation in the Neuquén province.
Repsol YPF has also begun activity in another discovery, in a 502 km² producing area in the same Vaca Muerta formation. The well is producing similar volumes to those in the previously mentioned area of high quality shale oil (35° API). This new area can thus be expected to have large resources to develop in the future once the appropriate studies and preliminary work to determine resources is completed.
The find is in Argentina’s Neuquén province in the formation know as Vaca Muerta, covering an extension of 30,000 km2 of which Repsol owns rights to 12,000 km2.
Wood Mackenzie identified the Vaca Muerta shale as one of the best in the world, describing the formation as “excellent.”.
Gas Natural Fenosa
The operating income of Gas Natural Fenosa through September was 712 million euros, a decline of 4.9% from the year-earlier period.
The decline is mainly a consequence of lower electricity sales in Spain and a smaller consolidation perimeter, partially offset by higher margins in wholesale gas sales and an improvement in electricity distribution in Spain.
Investments in the period totalled 716 million euros, spent mainly on electricity and gas distribution in Spain and Latin America and financial investments.