Repsol Sa Sp/Adr

Good afternoon and welcome to REPSOL first quarter 2024 results conference call. Today's call will be hosted by Josue John Imath, our chief executive officer, with other members of the executive team joining us as well. Before we start, let me draw your attention to our disclaimer. During this presentation, we may make forward-looking statements based on estimates. Actual results may differ materially depending on the number of factors as indicated in the disclaimer. I will now hand the call over to the host.

Thank you, Ramon. Hello. Good afternoon to everybody, and thank you for joining us today. I begin this presentation with a review of the main infrastructure, followed by our business performance and results. After the presentation, we will be available, of course, to answer your questions. To begin with, last February, Repsol released its strategic update for the period 2024 to 2025, a story of value growth built on our strengths. This update roadmap preserves the foundation of our previous strategic plan, adapting then to a new energy context and a better positioning of Repsol. Our longer-term vision remains doubly unchanged, being committed to our decarbonization targets and the profitable business opportunities identified in the energy transition. The new plan prioritizes shareholder distributions in order to provide certainty, predictability, and upside to our dividends. In the next four years, our commitment is to allocate between 25% to 35% of the cash flow from operations to remunerate our shareholders, including dividends and share buybacks. We'll distribute 4.6 billion euros in cash dividends, guaranteed regardless of the scenario. This year, we'll increase the dividend by around 30% to 0.9 euros per share, And from 2025 to 2027, we'll increase the funds distributed as dividends by 3% per year. On top of this, in our central case, remember that we talked about our central case eight weeks ago, we will devote up to 5.4 billion euros to buybacks for a total of 10 billion in shareholder distributions in the four years of the plan. Hence... DPS, or distribution per share, will grow well above the 3% baseline, reaching, in the best scenario, up to a 12% annual growth from 2025 to 2027. Our second priority is to maintain our current rating and strong balance sheet, ensuring the delivery of our remuneration objectives and investment plans. And thirdly, we have our investment plan. will target a net capex figure after disposals and asset rotation of 16 to 19 billion euros, with around 35% deployed in low carbon. The total net capex, and this net capex is going to be delivered and fulfilled over the period, in the horizon of the plan, won't surpass this 16 to 19 billion euros threshold. So, in the case of slower portfolio rotations or lower levels of divestment, I don't have any doubt, we will slow investment plans to maintain ourselves within our capital framework. So, we are going to fulfill this net capex concept in many cases. Continuing now with our performance in the first quarter, the adjusted income reached 1.3 billion euros, 6% higher than in the previous quarter, and 33% below the same period a year ago. Persistent volatility derived from geopolitical tensions and inflation concerns continue to affect commodity prices, and in this scenario, oil prices remain well-supported at around $80, while the price of natural gas show further signs of decline. Refining margins remain solid, having improved strongly over the last quarter of 2023, and in chemicals, margins displayed a modest recovery. Cash flow from operations was 1.4 billion euros, 26% lower year over year. Cash generation was negatively impacted by a 0.9 billion euros working capital build-up, mostly associated to seasonally higher inventory levels. And remember that we have a plan turnaround in Porto Llano. And because it's a landlocked, an inland refinery, that requires a higher level of stocks. And also from La Pampilla. I mean, assuming the same level of prices as at the end of 2023, this working capital effect will be fully reversed as we advance towards the end of the year. Net debt stood at 3.9 billion euros by the end of March, a 1.8 billion increase compared to December. This increase was mostly driven by the closing of the ConnectGen acquisition, the low mentioned investment in working capital, the payment of the January dividend, and new leases associated to our trading fleet. Net capex was 2.1 billion euros in the quarter, of which 0.7 billion corresponds to ConnectGen, and the contribution of divestment and asset rotation was 0.1 billion euros in the quarter. The investment level of the first quarter is aligned, fully aligned, with our objective of achieving a net capex of 5 billion euros in the year. So, we have a net capex of 5 billion euros in the year after disposals and rotations. We don't expect capex to be backlogged towards the end of the year, and we plan further proceeds from the investment and rotation to materialize as we progress in 2021. We have launched all the processes and we have taken all the measures to materialize these divestments and rotations as we progress in 2024. With regards to shareholder remuneration, last month we started the 35 million shares buyback program approved in February. Remember that we have the objective of canceling 40 million shares before the end of July. This will be complemented with additional buybacks later in the year to comply with our 30-35% of cash flow from operations distribution commitment 4.24. On the operational side, we may make significant progress towards the development of a leading renewable fuel platform in Iberia. thanks to the strategic partnership with Bungie, the acquisition of a 40% stake in renewable gas producer Genia Bioenergy, and the start of operations of an advanced biofuels plant in Cartagena. In low-carbon generation, the acquisition of Conegen adds some material on shore wind platform in the U.S. that also includes solar and energy storage projects. Also in the U.S., we complete the construction of the Friar project, our largest solar facility to date, with almost 1 million panels, and we are working on closing our first renewable asset rotation in this country. Looking briefly to the main macroeconomic indicators of the quarter, Brent oil averaged $83 in the period, 1.3% below previous quarter, and 2.5% above the same quarter a year ago. The geopolitical tensions that drove the oil price in the first quarter have persisted in April. The heavy hop averaged $2.3 per million BQ, a 20% reduction over the previous quarter, and 32% lower than a year ago. The downward trend in gas prices has continued so far in the second quarter, driven by high production levels and technical restrictions limiting U.S. exports. Repsol's refining margin indicator averaged $11.4 per barrel in the quarter, 27% above the previous quarter, and 27% below the same period last year. Market dynamics reflected the threat of supply disruptions, intensifying geopolitical conflicts and heavy global refinery maintenance. The euro-dollar exchange rate averaged 1.09 in line with previous quarters. Moving on now to the performance of our businesses. Starting with the upstream, our focus remains on the efficient delivery of the next batch of projects that will contribute to the upgrade of our portfolio through new production and higher margins. In the U.S., we are closely monitoring the gas price situation to limit our exposure to the depressed Henry Hub. First quarter adjusted income was €442 million, 20% lower compared to the previous quarter and 7% lower than a year ago, mostly due to the lower gas price, realization and lower volumes. Production averaged 590,000 net bars of oil equivalent per day, 1% below the previous quarter, and 3% lower year over year. Compared to the same period in 2023, quarterly volumes were impacted by the sell last year of our Canadian position, and a lower working interest in corridor in Indonesia. following the extension of the PSE. These effects were partially offset by the full consolidation of the UK and the contribution of New Wales in the Marcellus. In Libya, production in El Shareda was temporarily shut down some days due to force majeure in January, with an impact of around 4,000 or 5,000 barrels per day compared to the first quarter of 2023. In unconventional production, we are currently running one rig in Eagle 4 and one rig in Marcellus. In the current gas price environment, the rig in Marcellus will be released in June. Our exposure to heavy half has been mitigated through the hedging of approximately 20% of our North American gas production in 2024. 50% in 2025 and 50% in 2026. On average, around 40% of our North American production in 2024-2026 has been hedged through derivatives. In Alaska, in the TICA project, we are approaching almost 50% of the development scope in order to reach, first of all, including seven wells already drilled. Finally, in Mexico, we have reached an agreement for the preservation of an offshore production facility, which will substantially contribute to reach FIE in 2025. Continuing with industrial, our strategy in this division is twofold. On the one hand, we aim to maximize the value capture in this cycle on the conventional side of the business, and on the other hand, we are developing new low-carbon platforms to generate a leading renewable fuels and materials platform in Iberia. Looking at the first quarter performance, the adjusted income was 731 million euros, 30% higher quarter-over-quarter, and 43% below the same quarter a year ago. Year-over-year, results were negatively impacted by a lower contribution of our refining businesses, trading and wholesale and gas trading. In refining, the average margin indicator stood at $11.4 per barrel, 27% below fourth quarter 2023, thanks to the strengthening of gasoline and NAFTA, the differentials, and lower energy costs, partially compensated by narrower middle-district spreads. The margin premium of the indicator was $2.4, mostly due to program optimizations, the contribution of buyers, and the availability of heavy crews. Our refineries continue to receive crews from Venezuela for around 2 million barrels processed in the first quarter, The average utilization of our distillation capacity was 89%, while the run rate of the conversion units reached 99%. Maintenance activity included the multi-annual turnaround of Porto Llano that is going to be finished next week, next Monday, next Tuesday, more or less. Refining margins have been softening over time. recent weeks as a steady inflow of imports into Europe has strengthened inventories ahead of maintenance season. In April, the indicator has averaged around $7 a barrel, impacted by weaker middle distillate and naphtha spreads. In chemicals, demand in Western Europe improved over the previous quarter due to lower imports and unplanned downtimes in some facilities. In this scenario, petrochemical margins recover from the historical lows achieved in the second half of 2023, mostly due to strengthening of intermediate products and lower energy costs. Rapsol's petrochemical margin indicator averaged 205 euros per ton, 24% over the previous quarter, and 3% over the same period last year. Still, the EBITDA contribution of the chemical business remained negative at minus 32 million euros. The margin improvement has continued in April, with the margin indicator surpassing 300 euros per tonne month to date. Let me now review the progress of our industrial transformation projects. Starting with Cartagena, the C43 project was complete and the new advanced biofuels plant reached large scale production in April. In Porto Llano, the project to retrofit an existing soil hydro-treater to produce HBO continues progressing as planned. Establishing strategic partnerships with key players to ensure feedstock availability will be critical for our plants in renewable fuels. In this sense, the agreement reached last quarter with Bungie that increases our access to a portfolio of low-carbon intensity feedstocks will support our transition from first-generation vegetable oils to other lipidic feedstocks. The agreement includes three plants operated by Benji in Spain, located near Repsol's industrial sites. Finally, in the biomethane route, we reached an agreement to purchase a 40% stake in Genia Bioenergy, a Spanish company integrating the entire biogas and biomethane value chain. The gas produced will be used both for Repsol's internal consumption and for marketing to customers. This agreement creates a growth platform in the emerging renewable gas industry, considered strategic by the European Union. Continuing now with the customer division, first quarter performance benefits from the resilience of the commercial businesses and the development of our multi-energy proposition, despite a less favorable market situation. First quarter, adjusted income was 156 million euros, 53% higher over the previous quarter, and 10% lower than in the same period a year ago. Year over year, the lower results in mobility and LPG couldn't be fully offset by the higher contribution of retail power and gas from lubricants and aviation. In mobility, sales in service stations and wholesale were partially affected by alleged fraud practices of some operators aiming to increase their market share. As controlled measures on fraud are effectively implemented by Spanish administration, market conditions should go back to normal during 2024. The number of digital clients, which includes the users of Wallet, grew to 8.3 million by the end of the quarter. In the electricity market in Spain, the average pull price was 45 euros per megawatt hour, 40% lower quarter over quarter, and 54% below the same period last year, due to increase of the contribution of renewable energy. In return power and gas, Repsol continues increasing its current base, reaching 2.3 million customers as of the end of March. The EBITDA contribution of this business remains solid in the quarter at 49 million euros despite the lower demand. Finally, in low carbon generation as part of our strategy to achieve double-digit return And to limit our financial exposure, we are currently working on our first asset rotation in the U.S. First quarter adjusted income was minus 6 million euros, which compares to a positive result of 34 million euros a year ago. Driven by a lower pool price in Spain, a lower contribution of combined cycles, and overall, the integration costs, I mean, they are one-off costs associated to the purchase of ConnectGen. The acquisition of ConnectGen adds some material on shore wind platform to our U.S. portfolio with a deep project pipeline that also includes solar and energy storage projects. In the U.S., we expect to achieve between 3 and 4 gigawatts of installed capacity by 2027. A major milestone in our growth plans in this country has been the completion last quarter of the Frye Solar Project in Texas, with a total installed capacity of 637 megawatts, of which more than 600 are already under operation. As part of our strategy to lock in returns, we have agreed a long-term PPA for 89% of the output from the project. We have two other major solar projects under construction in Texas. The 629 megawatts outpost with expected commercial date between 2024 and 2025, and the 825-megawatt spinning-ton facility with planned startup between 2025 and 2026. In global terms, In 2024, we expect to add 1.3 GW of the new renewable operating capacity thanks to new additions in Spain, the ramp-up of FRI and the start of production in outposts, reaching around 4 GW of total installed capacity by year-end. Moving now briefly to the financial results, in this slide you will find a summary of the figures that we have discussed when reviewing the performance of our businesses. And, of course, as usual, for further details, I encourage you to refer to the complete set of documents that were released this morning. Moving now to our outlook for the year, let me say that the full guidance provided in February remains unchanged. In terms of cash generation, we are respecting a cash flow from operation in the 6.5 to 7 billion euros range. We are comfortable with this figure. Net capex after disposals and asset rotation is forecast, as we did it in February, at 5 billion euros this year, 2024. In refining year-to-date, the indicator has hovered on average around $11 per barrel, and this is well above the assumption of $8 in our full-year budget. That is the guideline we have for the whole year, $8 a bar. Our shareholder remuneration objectives are also maintained with the commitment to distribute this year 30% to 35% of our cash flow operations in the higher end of our distribution range for 2024 to 2027. To conclude, we are Positive that our updated strategic plan for 2024 to 2027 will translate into an attractive story of value, with a clear and committed growing dividend proposal. During the next four years, we will lever on capital, discipline, and our integration advantage to evolve our portfolio, developing new business platforms that will contribute, no doubt about that, to the increase of cash flows and returns to our shareholders. We remain committed to our decarbonization ambitions on the energy transition, ensuring the efficient delivery of energy products, and providing affordable, reliable, and decarbonized energy to society. In 2024, we have started the year with a solid set of results, working along the guidelines of our updated strategy to maximize value in the current environment, helped by our robust operational performance across all divisions. The strategic partnerships agreed last month to boost our supply of renewable fuels and biogas are significant milestones towards the development of new industrial low-carbon platforms in Spain. And following the ramp-up of the C43 project, we have become the only player in Iberia with a plant fully dedicated to the production of renewable fuels on an industrial scale. Finally, in renewables, we are ramping up the development of our used platform, incorporating a higher share of wind to our portfolio, and deploying a new operating model. With this, I think we can move on to the Q&A session. Thank you.

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