Repsol Sa Sp/Adr

Good afternoon and welcome to Repsol's second quarter 2024 results conference call. Today we will be hosted by Joseon 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 a number of factors, as indicated in the disclaimer. I will now hand the conference over to Joseon.

Thank you very much, Ramon, and thank you everyone for joining us today. To begin with, I'll take you through the main messages of this quarter before moving to our review of our business performance and results. Following the presentation, we will be able to answer your questions. The first half of the year, has allowed Repsol to move forward in the direction defined in our recent strategic update. We are addressing the challenges of the energy transition from a position of strength, leveraging on our advantages and on our value creation track record in low carbon. We keep on developing the new business platforms that will allow us to generate more value with less emissions, advancing in our multi-energy proposition and diversifying our energy mix. Last quarter, Repsol delivered another set of resilient results supported by a solid operational performance across divisions. The commodities scenario was characterized by a less favorable refining environment, a stronger oil price, and the ongoing weakness of natural gas. Second quarter adjusted income reached 859 million euros 4% of all the same period in 2023, and 32% below the first quarter of the year. Cash flow from operations was 0.9 billion euros, 32% lower quarter over quarter, and 45% below last year. Cash generation was negatively impacted by 1 billion euros payment, related to the acquisition of the remaining 49% stake in our UK JV and the settlement with Sinopec as agreed last year. Excluding this effect, the operating cash flow was 216 million euros higher than in the same period of 2023. Net capex amounted to 1.5 billion euros in the quarter. The contribution of divestments and asset rotation was 0.3 billion for a total of 0.4 billion euros delivered in the first half of 2024. Our discipline CapEx policy remains aligned with investment plan and our commitment with maintaining a strong financial position. Our businesses are carrying on an intense portfolio activity with the objective of optimizing our capital and financing new investments. Net debt stood at 4.6 billion euros by the end of the quarter, a 0.7 billion increase compared to March, mostly related to the purchase of treasury shares and new leases. In July, the company distributed the second dividend of the year for a total of 0.9 euros per share in 2024, approximately a 30% increase over 2023. In addition, this month we have completed the buyback program launched in March, executing the 40 million share capital reduction committed in our February presentation. These two concepts add up to 1.7 billion euros in total shareholder remuneration delivered as of July. Moreover, aligned with our strategic cash flow distribution objective, we have announced today a new 20 million share buyback program and its corresponding share capital reduction to be executed in the second half of the year. This will bring the total number of shares canceled in 2024 to 60 million, equivalent to 5% of our share capital at the beginning of the year. The number of shares outstanding by year end will reach €1,157 million. Considering the 3% increase of the funds dedicated to cash dividends in 2025 for a total of €1,128 million as committed in our strategy, the lower number of outstanding shares implies a dividend of a minimum of 0.975 euros per share next year. This is equivalent to more than an 8% DPS increase compared to 2024, with further buybacks completing our cash flow from operation distribution range for 2025. Looking now briefly at the macroeconomic scenario for the second quarter, The oil price continued to be affected by geopolitical instability and the production policy of OPEC countries. Brent oil averaged $85 in the quarter, up by 2% quarter over quarter, and 9% above second quarter last year. In gas, the Henry Hub averaged $1.9 per million BTU, 17% below previous quarter, and 10% lower than a year ago, driven by high inventory levels and technical restrictions still limiting US exports. Our refining margin indicator averaged $6.3 per barrel, in line with the same period a year ago, but 45% lower quarter over quarter. Compared to the first quarter, The sharp decrease in diesel and kerosene differentials more than offset the stronger gasoline spreads. The Euro-dollar exchange rate averaged 1.08 in line with the previous quarter and with the same period in 2023. Moving on now to the performance of our businesses, the upstream division reported unadjusted income of 427 million euros, a 4% increase over the same quarter last year, and 3% below the first quarter in 2024. Year over year, the negative impact of lower gas prices was more than offset by higher oil realization and higher volume sold. Our business remains focused on the efficient delivery of the project pipeline, actively managing our assets to capture emerging opportunities in the portfolio. Production averaged 589,000 net barrels per day in line with the previous quarter and year over year. Compared to the same period in 2023, the higher volumes in Marcellus UK and Venezuela were compensated by a lower output in Eagle 4 and Norway. and the divestment of our Canadian assets effective since the fourth quarter of last year. The head team policy implemented for our North American gas production is helping us protecting profitability in this depressed natural gas price scenario. Around 20% of our volumes in 2024 have been covered with a floor of $3 per million BTU Roughly speaking, this structure allows us to fully compensate in the second quarter results the decrease in the Henry Hub compared to the same period in 2023. During the quarter, we operated one rig in Eagle 4 and one rig in Marcellus. At the end of June, the rig in Marcellus was effectively released with the aim of protecting value in this gas price environment. In Eagle 4, we agreed the divestment of our stake in the southwestern portion of our acreage as part of ongoing optimization of our position in this asset. Development activity in our three main projects continue, progressing according to plan. PICA in Alaska and Leon Castile in the Gulf of Mexico are expected to start production in the next 12 to 18 months, contributing with a combined 50,000 oil barrels per day of profitable higher cash flow from operations per barrel production. In Brazil, the Campo33 project progresses under plan in cost and time. The development reached a significant milestone with the construction of the FPSO Q's first gigablock. In Venezuela, Repsol and PDVSA agreed to incorporate two new fields, Toboporo and La Ceiba, to the Petroquiriquire JV. These two fields currently produce 20,000 barrels of oil per day in gross terms, and let me say that this agreement is going to help us to recover past commercial debt, increase production, and improve the cash profile of the JV to repay the loan granted by Repsol, enhancing also the availability of troops to our refining system. Lastly, in the exploration front, after a quarter and the operator of block 9 in offshore mexico announced positive results in the dupat well the preliminary estimation is of around 300 to 400 million bars of oil in place and repsol holds a 50 percent stake also in mexico the development of block 29 is currently in the conceptualization phase and this new discovery increases the potential to consolidate this basin along with our growth plans in the region. Moving now to industrial, this division continues maximizing value in the current environment, strengthening the competitiveness of the conventional business while scaling up the newer, lower carbon platforms that will drive its transformation. The adjusted income amounted to 288 million euros, 16% below a year ago. The higher results in refining, chemicals and trading were more than compensated by a lower result in wholesale and gas trading and a lower contribution from our business in Peru. In this case, we have to take into account that we have the program turned around in this Peruvian refinery this quarter. The refining business benefit by high utilization rates, partially offset by a more challenging margin scenario compared to previous months, with some seasonality effects that resemble what we had in the second quarter last year. If you compare, the margin is more or less the same we had one year ago. The average margin indicator stood at $6.3 per barrel, declining compared to the first quarter, mostly due to narrower middle distillate differentials. And year over year, the indicator was in line with the same period in 2023. Margins have not yet shown the seasonal strength we were expecting at this point, mainly due to the elevated stocks in the Atlantic Basin. But, I mean, we are convinced that going forward, and thanks to a better demand for diesel and improved economic scenario in Europe, we are going to see this recovery. The margin premium was $0.3 over the indicator, materially below the previous quarter, and in line with the second quarter last year. Let me say that this premium was negatively impacted by the planned turnarounds in Porto Llano and Bilbao and a less favorable market environment. We have almost finished the turnaround campaign this year. The average utilization of distillation capacity was 87%, while the run rate of the conversion units reached 96 percent in both cases evolved the levels achieved in second quarter 2023. maintenance activity included the multi-annual turn around of puerto llano started in the first quarter and complete in may and the shutdown of the fcc unit in bilbao finalized in july and as i said before we have already completed all the major planned maintenance for the year. And that means that we'll increase our plants availability in the second half. Last quarter, our refineries received more than 5 million barrels of crude from Venezuela, which compares with the 2 million barrels processed in the first quarter in the year. And this increased supply together with the diversification of our crude diet should allow us to maintain the current share of heavy crude oil in our feedstock mix for the rest of the year. In the chemical business, Repsol's petrochemical margin indicator averaged €269 per tonne, 31% over the previous quarter, and 6% lower than in the same period a year ago. The EBITDA contribution was 23 million euros, which compares to losses of 48 million euros in the second quarter of 2023. Despite this relatively improved picture, thanks to better demand and margins, I mean, market is improving, it's true, but it's still being affected by the fragile situation in Western Europe, where we are seeing, let me say, some recovery in the market, mainly in the polyolefins market, but there is still a slowdown of Chinese economy that is impacting this recovery. Looking forward, the CNES expansion project, which is expected to begin operations in the last quarter of 2025, should contribute an EBITDA of more than 100 million euros even in this challenging scenario. Looking now at the progress in our transformation projects, last quarter has been the first one with the Cartagena Advanced Biofuels Plant producing at full capacity, thanks to the flexibility of its design, production, alternated HBO and SAF, depending on market conditions. The project is expected to contribute around 50 million euros of EBITDA this year at these low margins, because, you know, renewable diesel margins have experienced a decline in the last months, mainly due to the mandate cuts applied in Sweden and the oversupplied market in the US and the influx of Asian products into Europe. We see this situation as transitory, anticipating a progressive recovery as we move forward to 2025 with the implementation of the new blending mandates in both sides of the Atlantic. The demand is there, and we will keep working to build a leading renewable fuels platform in Iberia. The transformation of our traditional sites into highly integrated renewable biorefineries and circular hubs is the most competitive, fastest, and affordable way to reduce the carbon footprint of our operations. The project to retrofit an existing gas-oil hydrotreater to produce HVO in Porto Llano progresses as planned, with first production expected in 2025, at the end of 2025, the beginning of 2026. Also, the strategic agreement with Bungie, announced in March, will allow us to cover around 80% to 85% of our total biofuel feedstock needs by the end of this decade. Finally, renewable hydrogen in July, our electrolyzer projects in Bilbao and Cartagena refineries receive public European funds of 315 million euros. Continuing now with the customer division, our strategy remains centered on maximizing the competitiveness of our fuel business, consolidating our multi-energy offering and growing the scale of returns of retail power and gas. The adjusted income was 158 million euros in line with the first quarter and 7% higher year over year. And compared to the same period in 2023, the higher contribution of retail power and gas, aviation, lubricants and mobility was partially compensated by lower results in LPG. Mobility sales in service stations and wholesales were affected by higher imports and the alleged fraud practices of some operators aiming to increase their market share in Spain. The growth of the Wallet app continues to drive the expansion of our multi-energy offering. And let me underline this important fact because I think that I mean, we have reached more than 8.6 million total digital clients by the end of June. So digital clients using our apps to buy energy or some other products. Currently Repsol has around 350 service stations in Spain and Portugal offering 100% renewable fuel solutions with the goal of reaching more than 600 a year and 1,500 in 2025. This way, we are accelerating our plans to achieve, as we expressed and mentioned when we presented the strategic update in February, we talked about 1,900 service stations in 2027, so we are anticipating these targets, and we are going to reach the figure of 1,500 in 2025. And I mean, that's a figure equivalent to almost a 45% of our total network. Finally, in retail power and gas, Repsol's client base reached 2.4 million customers in June, roughly an 8% increase compared to December. So we are going on growing in this business, in this case in an organic way. And the contribution of this business remains very solid, having generated an EBITDA of around 90 million euros in the first half of 2024. Finally, in the low-carbon generation division, we progress in the development of our extensive quality pipeline, mainly in Spain and the US. The adjusted income was 1 million euros, positive in the quarter, negatively impacted by the decline in power prices in Spain, and a significantly lower contribution of combined cycles. This result compares to losses of minus 6 million euros in the first quarter this year, and a positive result of 12 million euros a year ago. The average pool price in Spain was 33 euros per megawatt hour, its minimum level since 2020, and that was driven by record level contributions of renewable sources to the Spanish generation mix. I mean, it was a very rainy half of the year, and the impact of the hydro production was, let me say, exceptional and very material, this half of the year impacting on prices. Now we have seen a recovery of these prices in July. And thanks to our integrated position in Spain, the low prices impacting the generation business are opening, of course, an opportunity in retail, as we discussed before. With our disciplined growth plans in renewables, working in parallel on our first asset rotation in the U.S. Our installed operational renewable capacity reached 3.1 gigawatts in June. And we are developing the new pipeline platforms with the goal of reaching four gigawatts of global capacity by year end. Having completed the FRI project last quarter, we are now looking to the startup of Outpost later this year, which is expected to add the first 400 megawatts of production in the fourth quarter and an additional 229 megawatts in the first quarter of 2025. In July, we have announced the disposal of the residential rooftop solar business in France that was, remember, acquired with the Asterium transaction. And finally, last week, we signed a collaboration agreement with EDF Renewables for offshore wind opportunities in Iberia, expanding our technological roots. 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 for further details, I encourage you to refer to the complete set of documents that were released this morning. Moving now to our update outlook for the year. Starting with refining, our margin indicator has averaged around $8.5 a barrel year to date. Considering the current brand price and product spreads, we anticipate an average indicator of $8 in 2024. in line with our initial guidance and a ccs margin premium of around 1.7 dollars for the whole year over the indicator upstream production is expected to remain in the 570 to 600 000 barrels per day range as indicated earlier this year cash flow from operation is now expected to be in the lower end of our 6.5 to 7 billion euros range for 2024 mainly negatively affected by the lower gas prices this cash flow from operation figure doesn't factor of course the 1 billion euros payment related to sinopec litigation net capex after disposals and asset rotation is also unchanged at 5 billion euros for the whole year and finally considering the 60 million shares be redeemed in 2024, and the estimated cash flow from operations figure mentioned before, I mean the low range of this 6.5, 7 billion euros, a total shareholder remuneration in 2024 under these assumptions, of course, will be equivalent to around 31 percent of the operating cash generation. To conclude, we have completed the first half of the year with another remarkable performance, position to deliver on our objectives for 2024 in terms of strategic delivery, cash generation, and shareholder remuneration. The second half of the year will pivot again around advancing in our strategy and delivering value. We have made good progress in some of the upcoming FIDs as our teams remain focused on maturing the projects that will drive cash flow growth and profitability in coming years. We remain committed to our decarbonization route, leveraging the low-carbon solutions available to us required to decarbonize the largest portion of today's European economy that is not electrified. We are confident that the regulatory environment will evolve in a positive direction to guarantee security of supply, and the investment needed in our sector. With this, I will turn it over to Ramon as we move on to the Q&A session. Thank you very much.

Thank you, Yoshiyon. Now, as usual, before moving on to the Q&A session, I just would like the operator to remind us of the process to ask a question. Please, operator, go ahead.