Repsol Sa Sp/Adr

Good morning and welcome to RAPSO's third quarter results presentation. Today's conference call will be hosted by Josue Yonimath, 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 disclaimers. I will now hand the conference call over to Josio.

Thank you, Pablo. Good morning, everybody. First of all, today, on behalf of everyone at Repsol, let me first express our concern with the consequences of the devastating flash floods that are affecting the southeastern part of Spain. take advantage to send our condolences and support to those who have lost relatives or friends. I want to add that Repsol has put all its resources at the disposal of authorities in an effort to alleviate the situation and in trying to help establish key services in the impacted areas as soon as possible. Now, going on with the conference, let me start with the main messages before taking you through the performance and results of our businesses. Finally, at the end of this conference, I will provide you with our update outlook to year. As usual, of course, following the presentation, we will be available to answer your questions. starting with the key messages during the first nine months of 2024 the main drivers of our industry have gradually returned to more normalized levels coming down from the unprecedented situation of the previous two years that notably affected gas prices and refining markets the first quarter in particular was characterized by a demanding market environment underlined by a weaker refining volatile oil prices and increased geopolitical instability. In addition, our performance was negatively impacted by the interruption of production in Libya for almost two months. The adjusted income reached €558 million, a 49% decrease year over year, as a result of the very strong refining scenario in the third quarter of 2023. Cash flow from operations amounted to 1.5 billion euros, a 16% improvement over the third quarter last year. Including the settlement with Sinopec, the accumulated operating cash flow to September amounted to 4.7 billion euros in line with the first nine months of 2023. Net capex stood at 1.3 billion euros, totaling 4.9 billion euros year to date. Net debt closed the quarter at 5.5 billion euros, a 0.9 billion increase compared to June, mostly related to the payment of July's dividend, the purchase of treasury shares, and the second and final payment associated with the windfall tax. Regarding distributions in July, we complete the cash dividend payment for 2024 for a total 0.9 euros per share, Approximately a 30% increase versus 2023 and 40 million shares were canceled after carrying out the first share buyback of the year. The additional 20 million share buyback announced with our second quarter results was launched in August. As of today, a total of 16 million shares have been purchased and the corresponding capital reduction will be executed in the next few weeks. Looking forward, Repsol enters this part of the economic cycle, having delivered significant strategic progress in the previous scenario. Repsol is now a more resilient company with a firm focus on value generation for its shareholders, focus on efficiency, and also on capital visiting. Our business model incorporates the necessary capex flexibility to modulate the speed of development of the portfolio. Our strong balance sheet that remains a strategic pillar, provide us with a solid financial framework to keep investing in our transformation, committed to deliver on the ambitious targets defined in our strategy. Looking now briefly at the macro scenario of the third quarter, the oil price reflected the uncertainty about demand, mainly in China, and questions on the OPEC plan to unwind its production cuts. Brent averaged $80 in the quarter, down by a 6% quarter over quarter, and 7% below the same period last year. In gas, U.S. prices were tightened by the supply disruptions caused by the hurricanes affecting the Gulf of Mexico. The Henry Hub averaged $2.2 per million BTU, 16% higher than the previous quarter, but still 12% below a year ago. In Europe, the TTF and MVP price references improved significantly over the previous quarter, impacted by geopolitical tensions and lower gas flows from Norway. Repsol's refining margin indicator averaged $4 per barrel, 37% below the previous quarter and 71% below a year ago, negatively impacted by the reduction of metal distillate and the gasoline spreads. Finally, the dollar lost some ground against the euro due to the expectation of a more flexible monetary policy by the Federal Reserve. Moving on now to the performance of our businesses. In the upstream division, the third quarter adjusted income was 280 million euros, 33% lower than the second quarter, and 16% below the same period in 2023-2024. in both cases negatively affected by lower volumes and oil price realizations. Production averaged 553,000 barrels of oil equivalent per day, 6% below the second quarter, and 7% below, lower year over year. The accumulated production to September averaged 577,000 barrels equivalent per day, 4% below the first nine months of 2023. If we compare to the same period of 2023, third quarter volumes were negatively affected by the force majeure declared in Libya and the divestment of our Canadian assets in October 2023, partially offset by a higher production in the UK and in Peru. The Austrian division keeps working on the efficient delivery of its project pipeline, aiming to add material new production of high margin and lower emission barrels. Selective portfolio management is being employed to strengthen the business. And the Libya production in El Shalala field was interrupted on the 3rd of August, and the ensuing Forksmajor declaration was not lifted until the beginning of October. The quality of the reservoir allowed for a quick recovery after restarting operations, reaching plateau by mid-October. The current four-week development campaign in El Chalara was not impacted by the Fox Mayor. Out of 15 wells expected to be drilled this year, 11 wells have been connected by the end of September. The goal of the campaign is to offset decline maintaining plateau close to 40,000 net barrels per day through Repsol. In unconventionals, activity was limited last quarter to only one rig in Eagle 4 as we keep modulating our development activity to protect value and cash in the current gas price scenario. Our strategy for North American gas is to hedge approximately 50% of our volumes in the next two years and Our hedging structure has allowed us to secure a floor of $3 per million BTU that guarantees the continuity of our development plans, preserving, of course, the option to capture the upside if prices improve. In Brazil, the operator of Campus 33 awarded the contract of the upcoming drilling campaign, expected to begin in the first half of 2026. This is one of the main growth projects in our strategy and is expected to contribute 44 net thousand barrels per day of production in 2029. In Alaska, the development of the first phase of PICA is 67% complete, with the startup expected as early as end 2025. The contribution to production is expected at around 32 net thousand barrels per day to be sold in 2027. Finally, in Mexico, we reached an agreement to increase our ownership in Block 29 from 30 to close to 47%. This block contains the Pollock and Chinua discoveries, and together with Block 9, which holds the Job Path 1 discovery, communicated in July by ENI, supports our growth plans in the region. Continuing now with industrial, the adjusted income reached €185 million, 36% below the second quarter and 67% below the same period a year ago. Year over year, the higher results in chemicals trading and wholesale and gas trading were more than offset by the lower contribution of refining, I mean the refining coming from the business in Peru. In refining, the margin indicator averaged $4 per barrel, which compares to $6.3 in the second quarter, negatively impacted by narrower gasoline and middle-district differentials, mostly due to a weaker demand. Year over year, the indicator declined from the $13.6 achieved in the third quarter of 2023, which benefits from a strong demand, low levels of inventories and the ban on Russian exports. Up to September, the average margin indicator was $7.3, 39% below the same period in 2023. The premium captured last quarter in the actual CCS margin was $0.4 indicator, negatively impacted by higher exports. Bios didn't contribute to the premium last quarter, reflecting short-term pressure on SAF and HVO differentials. The average utilization of distillation capacity was 88% in line with previous quarter and year-over-year. The run rate of the conversion units reached 102% of named plate capacity, six percentage points above second quarter, and a similar level compared to the third quarter of 2023. The increased supply of Venezuelan heavy cruises to our system continued. In the third quarter, our refineries processed a total of seven cargoes, amounting to 6.5 million barrels of oil. In trading, wholesale and gas trading, the operating result was 59 million euros, higher year over year, thanks mainly to a higher contribution from both businesses. The accumulated EBITDA generation to September surpassed 700 million euros, combining these two businesses, trading and gas trading. Finally, in chemicals, the challenging situation persists. Although the margin indicator increased by 31% compared to the third quarter last year, the EBITDA contribution was still negative, with margins negatively impacted by a weak domestic demand and lower product prices all within a fragile economic outlook in Europe. Continuing now with customer, in the current environment, this division maintains its differential value proposition, grounded on the stability of the business and its history of cash flow growth. The adjusted income was 180 million euros, a 14% higher quarter over quarter, and a 5% below the same period last year. Year over year, the higher contribution of mobility, aviation and lubricants was more than compensated by the lower results in retail power and gas and LPG business. In mobility, sales in service stations and wholesales were still affected by the alleged fraud practices of some operators. We are confident that with the fraud control measures already taken by the Spanish authorities and those still under analysis, market conditions should normalize in 2025. In retail power and gas, the client base in Spain and Portugal surpassed 2.4 million customers in September, an 11% increase compared to the end of last year, Repsol has maintained a steady growth since entering this business in 2018, tripling its customer base and becoming the company that has captured more clients in Spain. The contribution to results remains solid in the third quarter, having generated an EBITDA of 120 million euros in the first nine months of 2024, equivalent to 1.7 times its contribution in the same period of last year. The success of our WILET app continues to drive the expansion of our multi-energy offering, having reached almost 9 million digital clients by the end of September. WILET contributes to this growth, adding more than 3,000 new users per day, having reached 230,000 daily transactions. And what is most important for us, the fuel consumption of WILET users, at our service stations doubles that of traditional clients. Finally, in the low-carbon generation division, the adjusted income was €7 million negative, which compares to €1 million profit last quarter, and a positive result of €13 million a year ago. Year over year, the third quarter was negatively impacted, mainly by the results of equity affiliates And adding to this factor, you have a decline in power prices in Spain during the quarter, comparing with that year, and a lower contribution of combined cycles. The average full price in Spain was 79 euros per megawatt hour, 19% below year over year, with high intraday volatility, pressured by the high weight of renewables in the generation mix. In Chile, we reached an agreement to divest the solar portfolio held through our JV with Iber Eolica. We maintain our wind portfolio, and we have the aim to optimize our position in that country, increasing this wind part of the business. Our installed global renewable capacity reached 3.2 gigawatts as of the end of September. We expect to reach 4 gigawatts under operation by year end. following the startup of Outpost Solar Firm in the U.S., and the additional phases of Delta II and P projects in Spain. In the U.S., we continue developing our pipeline with a focus on the portfolio acquired through ConnectGen. We expect to take the FID of several solar and wind projects in fourth quarter 2024 and in 2025, totaling more than one gigawatt of generation capacity. Moving now briefly to the financial results. In this slide you may find a summary of the figures that we have discussed when reviewing the performance of our businesses. And of course, as always, 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. Average production in 2024 is expected to be in the lower end of our forecast. 570 to 600,000 barrels of oil equivalent per day, estimate. And this figure was negatively affected compared to our previous guidance by the interruptions in Libya. In refining, a weaker global demand and the addition of new capacity have deteriorated gasoline, diesel, and jet tracks in the second half of the year. In October, we have seen a recovery of diesel margins, mostly driven by the seasonal demand of heating oil. And we currently expect to reach an average margin indicator of around $7 in the full year as seasonal effects amongst run-cats and the increase of pet supply support product spreads in the last portion of the year. The update cash flow from operations estimate for 2024, excluding the settlement with Sinopec, has been revised down to 6 billion euros. This is below the lower end of our previous guidance due to weaker refining margins this last third quarter, unexpected, including a lower contribution from buyers, the impact of Libya shutdowns and a worse exchange rate. Net capex after disposals and asset rotations has been slightly revised upward to a total of 5.5 billion euros this year due to a lag effect between investment plan and the closing of the M&A transactions that we are working on. We remain committed to a net capex of 16 to 19 billion euros from 2024 to 2027. and to a financial flexibility that preserves our strong balance sheet aligned with our current credit rating. With regard to shareholder distribution due to the weaker macro scenario, we don't expect to implement additional share buybacks before year end, considering, of course, we maintain the target we have in terms of dividend plus the total distribution for shareholders in the range from 25% to 35% over the whole period of the strategic plan, comparing with the cash flow from operations. And considering the 60 million shares to be redeemed this year equivalent to 5% of the outstanding shares at the beginning of the year, total shareholder remuneration in 2024 will be within our 30% to 35% cash flow from operations distribution range. For 2025, we will increase the funds dedicated to cash dividends by 3% to a total of 1,128,000,000 euros as committed in our strategic plan. And the 0.475 euros per share, generally dividend announced this morning, will be complemented later in the year to reach a minimum total cash dividend of 0.975 euros per share in 2025. To conclude, after the changes triggered in the energy landscape in 2022 and 2023, this year we are seeing some kind of normalization of the prices and returns in our industry. Repsol is now a more resilient company, Having made the best of that favorable scenario to accelerate its transformation and create the foundations of our strategy for years to come, the main strategic lines defined in our February update remain intact. Repsol has a robust company model with a strong financial position that offers the required flexibility to face the current scenario from a much improved baseline. Our strategic priorities will continue guiding our performance. First, a clear, transparent, and competitive distribution policy with the committed growing cash dividend that is written in stone. Second, maintaining our current solid credit rating. And third, a disciplined and transformational investment. We have flexibility to manage our net capex between 16 and 19 billion euros in the strategic period, depending on the macro and business conditions, and of course, selecting the most profitable and transformational projects in our portfolio. With this, I will turn it over to Pablo as we move on to the Q&A session. Thank you very much.

Thank you, Joshua. Now, as usual, before moving on to the Q&A, I just would like the operator to remind us the process to ask questions. Please, operator, go ahead.