Repsol Profit Misses on Weaker Chemicals, Crude

(Bloomberg) --

Repsol SA reported fourth-quarter earnings that missed estimates as a weaker refining and chemicals business and a drop in crude prices had a larger impact than expected.

Like many industry peers, Repsol has suffered the effects of lower prices for oil and gas and higher exploration costs, while declining processing margins have hit downstream results. The Spanish producer has also taken impairments as part of an ambitious plan to slash emissions, raising questions over future spending and strategy.

Adjusted net income was 405 million euros ($437 million) in the quarter, down 36% from a year earlier and missing the 422.8 million-euro average estimate of analysts surveyed by Bloomberg.

Repsol stunned the industry in December by pledging to cut carbon emissions to net-zero by 2050, while also writing down the value of some oil and gas assets by 4.8 billion euros. The company said Thursday it would announce its new strategic plan on May 5, giving investors an idea of what Chairman Antonio Brufau’s clean-energy vision means for its oil business.

The shares rose as much as 1.5% in Madrid after an earlier loss. They traded up 0.3% at 12.39 euros as of 2:26 p.m. local time, paring their decline this year to 11%.

“Repsol has underperformed the sector of late,” Biraj Borkhataria, an analyst at RBC Europe Ltd., said in a note. “Despite headwinds from spot U.S. gas prices, we think Repsol now shows better risk-reward than most peers.”

One bright spot in earnings was operating cash flow, which rose 8% in 2019 from a year earlier as Repsol increased efficiencies in its downstream business, particularly through digitalization. That compensated for weaker cash generation in the exploration and production division.

Cash flow is set to climb a further 15% this year, the company said Thursday. It also forecast an 8% gain in annual earnings before interest, taxes, depreciation and amortization at current cost of supply -- a measure known as Ebitda CCS.

For oil companies to survive the energy transition in a world that’s gradually falling out of love with fossil fuels, they’ll need to make big investments in new sources of clean energy while ensuring cash keeps flowing from traditional assets and maintaining generous returns to investors.

Repsol has been pushing into renewable energy in Spain since 2018, having acquired power-generation assets and setting up a retail business. Repsol’s climate targets are among the industry’s most aggressive.

To contact the reporter on this story: Rodrigo Orihuela in Madrid at rorihuela@bloomberg.net

To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, Christopher Sell, Reed Landberg

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