Repsol YPF S.A. (REPYY.PK) reported adjusted first-quarter 2011 earnings of 89 cents per ADR, up from 76 cents earned a year ago. The improvement can be attributed to higher oil and gas prices as well as solid performance by the liquefied natural gas (LNG) business segment.
Operational Performance
Adjusted Upstream operating income in the quarter was Euro 490 million (US$669.7 million), reflecting a 13.4% increase year over year, mainly due to increased commodity price realizations and lower exploration costs.
Total production averaged 324.3 thousand barrels of oil equivalent per day (MBOE/d) –– 40% liquids –– down 7.4% from the year-earlier level. The decline was due to operational disruption in Libya and maintenance activities in Trinidad and Tobago.
Repsol’s liquids price realizations surged 13.4% from the year-ago quarter. The average natural gas price realization during the quarter also experienced a 14.8% increase year over year.
Investments in the Upstream segment totaled Euro 437 million (US$597.2 million), reflecting a substantial increase from the year-ago level of Euro 138 million (US$191.2 million). Field development, which accounts for 36% of the investment, was mainly centered on the United States, Venezuela, Bolivia, Brazil and Peru, and exploration investment was mainly in Brazil and the United States.
Adjusted operating income from the Downstream segment was Euro 217 million (US$296.6 million), up 15.4% from the first quarter of 2010. Significant recovery of volumes and margins in the chemicals business led to higher profitability in the quarter. The company invested Euro 288 million (US$393.6 million) in its Downstream segment during the quarter.
Operating income from YPF decreased 6.8% from the year-earlier quarter to Euro 383 million (US$523.4 million), attributable to higher costs and lower volume due to strike-related issues.
The company’s adjusted income from operations in the Gas Natural Fenosa segment declined 2.7% year over year to Euro 249 million (US$340.3 million).
Finally, Repsol’s LNG division earned Euro 115 million (US$157.2 million), up significantly from the prior-year quarter level of Euro 34 million (US$47.1 million).
Financials
Cash balance at the end of first quarter stood at Euro 5,825 million (US$8,212 million). Excluding Gas Natural Fenosa, net financial debt stood at Euro 2,180 million (US$3,073.3 million) at the end of the first quarter, with a debt-to-capitalized ratio of 6.9%.
Outlook
Repsol is Spain’s largest integrated oil and gas company. Its wide footprint in Latin America yields the majority of operating earnings for the company with Argentina comprising the largest share of the pie.
Repsol is also investing in exploration activities in Brazil’s offshore Santos Basin with partners, China Petroleum & Chemical Corp., akaSinopec (SNP) and Petroleo Brasileiro S.A. or Petrobras (PBR) while making significant advancements in its divestment of YPF. During the quarter, the company took crucial steps in its divestment strategy for a part of its stake in YPF with a successful 7.7% share sale and aims to keep at least 51%.
Previously, Repsol had mentioned that it expects annual volume growth of approximately 4% through 2014, on the back of production start-up in Brazil and Peru. The company also intends to spend 28 billion Euros in the period from 2010 to 2014, mainly on field developments in Venezuela, Bolivia and Algeria. For 2011, the total capital outlay is expected to be about 6 billion Euros, with drilling activities comprising 25 to 30 exploration and evaluation wells. This reflects Repsol’s aggressiveness toward upstream development in exotic locations.
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