Repsol Sa Sp/Adr

Good morning to all. Welcome to RAPSO's second quarter 2025 results presentation. Today's conference call will be hosted by Joshua Yonimath, our chief executive officer, with other members of the executive team joining us as well. At the end of the presentation, we will be available for the Q&A session. 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 call over to Joseon.

Thank you, Pablo. Good morning to everyone, and thank you for joining us today. During the second quarter of 2025, our industry operated in a complex environment shaped by geopolitical uncertainty, tariff announcements, and the OPEC Plus decision to return production at a faster rate. Average oil and gas prices declined compared to the first quarter, along with a weaker dollar. In refining, despite initial fears of potential demand destruction due to tariffs, the emerging environment remains solid, consolidating the recovery trend initiated in the second half of 2024. In Iberia, activity in our key industrial facilities was negatively impacted by the power outage that affected the entire peninsula in April, reducing utilization rates and preventing us from capturing the positive refining momentum. Against this broader context, Repsol delivered a solid set of results, driven by the recovery of upstream volumes and the continued robustness of its commercial businesses, highlighting once again the resilience of our business model. Second quarter adjusted income was €702 million, 8% above the first quarter of the year. Cash flow from operations amounted to €1.7 billion, a 50% improvement compared to the first quarter, benefiting by just €0.6 billion working capital inflow, mostly related to inventories and optimization messages. The accumulated operating cash flow until June was 2.9 billion euros, 25% higher than in the same period a year ago. That includes a settlement with Sinopec with a neutral contribution from working capital movements in the first half of the year. CapEx amounted to 1.3 billion euros in the quarter and 2.7 billion in the first six months. Regarding our divestment target, out of the 2 billion euros objective for 2025, we have announced disposals and asset rotation for a total of 1.2 billion, of which 0.5 billion were cashed in in the first semester. Net cap existed at 1.2 billion euros in the quarter and 2.2 billion accumulated until June. If we had cashed in all the divestments announced this year, Net capex until June will stand at 1.5 billion euros. Net debt closed at 5.7 billion euros, a 2% reduction compared to March. Dealing, including leases, was 17.9% by quarter end. Looking ahead, we remain on track to deliver on our main strategic objectives for 2025, according to the priorities defined at the beginning of the year. If back in April we discussed the possibility of an ACID scenario for the rest of the year, the evolution of the main indicators has brought us back to our base case. Regarding our shareholder remuneration objectives, we will distribute 30% to 35% of the cash flow from operations generated in 2025 through a combination of cash dividends and share buybacks. We have increased the funds dedicated to dividends by 3% as committed in our strategic plan. In July, we paid the second dividend of the year for a total DPS of 0.975 euros, equivalent to an 8.3% increase compared to 2024 after factoring for the lower number of shares after the capital reductions executed last year. For 2026, our AGM held in May approved to distribute a first dividend of 0.5 euros to be paid next January. 2025 dividend in cash will be complemented by share buybacks for the equivalent of 700 million euros to reduce capital. Yesterday, we announced a first capital reduction through the redemption of 29 million shares acquired by an equivalent amount of 350 million euros. A second capital reduction of shares to be acquired for the equivalent of another €350 million will be executed before year-end. For this purpose, €300 million will be acquired through a new share-back program to be launched in coming days' weeks, and the remainder €50 million through the settlement of existing derivatives. Looking at the evolution of the main macroeconomic indicators over the last quarter, Brent averaged $68 per barrel, 10% lower compared to the first quarter, and 20% below the same quarter last year. The oil price experienced significant volatility fluctuating within a $20 range over the course of the period. The Hermit Hub averaged $3.4 per million BTU, 8% lower quarter over quarter, but significantly, I mean, 79% of all the same period in 2024, with market consensus pointing to a rise of U.S. gas price, I mean, towards the end of the year. In refining, Repsol's margin indicator averaged $5.9, 11% higher than in the previous quarter, primarily driven by stronger gasoline spreads. After declining to around $4 in April, the indicator recovered in May and June supported by solid demand, low inventories, capacity closures, and delays in some of the new projects coming on stream. Finally, the dollar weakened significantly against the euro to an average of 1.13 in the quarter, And this trend has continued in July with the euro-dollar trading in the 2016-2017 range. Turning to the highlights of the upstream division, our focus remains firmly on value generation and portfolio optimization, supported by the upcoming startup of new strategic projects. Second quarter adjusted income was 439 million euros, 4% below the previous quarter, and 3% higher than in the same period last year. Year over year, the higher gas realization prices, lower production costs, and lower taxes were partially compensated by lower oil prices, lower volumes, and the depreciation of the dollar. Production averaged 557,000 barrels per day, a 3% increase over the first quarter thanks to the higher contribution in UK, Trinidad and Tobago, Eagle 4, and Libya that compensated the impact of divestments and natural decline. July's production has stayed at second quarter levels, putting year-to-date average at around 550,000 barrels per day at the higher end of our full year guidance. In Indonesia, as part of our objective to concentrate operations in countries where we have to grow competitive advantages, we reached an agreement to divest our 24% stake in Corridor for $425 million. This non-operated position contributed around 17,000 barrels per day to our production in the first half of 2025. In Trinidad and Tobago, the Cyper and Minto projects reached first gas in April and May respectively, expecting an average 28,000 barrels per day, barrels equivalent, I mean, contribution over the 2026-2028 period. In the UK, the closing of the agreement with Neo Energy is expected in coming days, before probably the end of this month, after receiving the approval from the NSTA. The resulting joint venture will become one of the largest independent producers in the UK continental shelf, with a projected production of 130,000 barrels per day in 2025, of which 68% is oil. Post-closing, Rexall UK production, so from the end of this month on, will increase to around 59,000 barrels equivalent per day, which compares to a production of around 30,000 barrels a day in the first half of 2025, in this legacy position. In unconventionals, we resume drilling activity in the Marcellus with one operated rig from April to June. In response to the better gas price outlook, we are preparing the campaign for 2026, expecting to have one rig in Marcellus and one rig in Eagle 4. And around 55% of our 2025 and 2026 North American gas volumes are covered through a zero-cost collar between $3 and $5.5 to $6 per million BQ. In the Gulf, the development of Leon Castile is reaching its final stages with the start of production planned for this third port. In Alaska, the development of the first phase of PICA progresses towards an early startup between December 2025 and January 2026. We expect full ramp-up of production during 2026, reaching a gross capacity of 80,000 barrels per day within the year. Finally, in Venezuela, on the 27th of May, the United States administration revoked the oil license of several international companies, including Repsol. Cardone 4 continues producing gas, and the management of Petro-Kirikiri operation has been returned to PDVSA. In industrial, second quarter adjusted income was 99 million euros, 189 million euros below the same quarter in 2024, mainly due to the lower results in refining, chemicals and trading, partially compensated by a higher contribution of Peru on wholesale and gas trading. Let me underline this point. The quarter was defined by the consequences of the power blackout that affected the Iberian Peninsula on the 28th of April. Due to un-networked stability, ABLACAL disconnected all generation facilities in Spain and Portugal from the grid. This led to the shutdown of all our refineries and petrochemical plants, which had to be restored progressively. Our teams act swiftly to restore operations and ensure continuity in supply. In refining this blackout, the outage along with the electricity supply disruptions in Cartagena and Puerto Llano had an estimated impact of around 130 million euros at EBIT level. All these challenges coincide with planned maintenance across several sites. And as a result, utilization of distillation capacity declined to 74% while conversion units reached 86% of nameplate capacity. The current refining margin, or the actual refining margin over the period was, better said, $0.3 below the indicator, reflecting a negative premium due to the issues that affected our operations. Excluding the impact of the blackout and subsequent incidents, the margin premium would have reached $2.1 positive in the quarter. Activity in our refining complexes has normalized in the third quarter. The margin indicator has averaged $9.6 in this quarter, so in July, for an average of $6.1 year-to-date, benefiting from very healthy product spreads, in particular diesel cracks. The utilization of distillation has reached 93-94% this month, and conversion units have run in July at 102%. In addition, margins for renewable diesel have reached levels above $900 per ton, as supportive policy developments have stimulated demand and domestic production. Going to the chemical business, Repsol's margin indicator increased by 76% over the first quarter, driven by cheaper NAFTA and LPG stocks. However, this better margin, again, this better margin environment couldn't be captured due to the lower utilizations and soft demand. The blackout had a negative impact of around 45 million euros in the operating result. We have to take into account that we are talking about three petrochemical complexes, Tarragona, Porto Llano, and Sines in Portugal. Without the impact of the outage, the business wouldn't reach breakeven in EBIT terms. The total estimated impact of the incidents that occur in our industrial business in the Iberian Peninsula during the second quarter amounts to approximately 175 million euros. And the company is currently assessing legal actions and awaiting the official determination of responsibilities related to the power outage, to the blackout. Finally, in wholesale and gas trading, we have received five LNG cargoes from Calcassier Pass after the plan to start commercial operations in April ahead of date assumed in our budget. And this factor increases the total number of gas cargos to be lifted by Rapsol in 2025 from 7 to 11, contributing an additional 100 million euros to the operating result over the whole year. Moving to customers, this division continues to demonstrate a sustained track record of solid quarterly results built around a competitive multi-energy offering recently enhanced by a new identity and brand evolution. Second quarter adjusted income was 198 million euros, a 25% increase over the same period in 2024, thanks to a higher contribution in all the business segments. The accumulated EBITDA until June was 0.7 billion euros, putting us on track to meet the 1.4 billion. Remember that that was the target originally set for 2027. and is going to be captured as early as in 2025, shortly here, anticipating two years, the target we have in our strategic plan. In mobility, sales of road transportation fuels grew by 16% year over year, mostly due to the anti-fraud measures and control mechanisms adopted in Spain. The solid evolution of sales now in pre-pandemic levels challenges, projections that anticipated a significant destruction of demand. The number of service stations offering 100% renewable fuels reached more than 1,200 as of the end of June, and we expect to reach 1,500 by the end of the year. In Spain, 53% of our network already offers multi-energy solutions. The number of digital clients, including Waylet users, reached 10.1 million, a 17% increase over the same period in 2024. Finally, in power and gas retail, last quarter we had 142,000 new net customers, reaching 2.8 million clients by the end of June, consolidating Repsol as the fourth largest operator in the Spanish electricity market. In low carbon generation, the adjusted income was 7 million euros, 6 billion higher than a year ago, thanks to the higher result in combined cycles and in renewable generation. The average full price in Spain was 39 euros per megawatt hour, five euros higher than in the same quarter last year, due to a lower share of renewables in the generation mix. The power generated by Rapsol reached 2.8 terawatt hour, 58% higher year over year. The execution last quarter of our first asset rotation in the U.S. confirmed the strength and appeal of our portfolio for leading investors. We agreed to divest a 56% stake in a 777-megawatt portfolio for $340 million, including the Fry Solar project in Texas and the Jicarilla Solar and Storage Complex in New Mexico. The portfolio was valued at $795 million, including 60 million in tax equity proceeds. Finally, we reached an agreement to settle the litigation process with Hecate. Under the terms of the settlement, Repsol will divest its 40% stake in the company, resulting in a negative impact of around 100 million euros registered against second quarter results under special items. Looking ahead, our growth in the U.S. will be driven by the platform acquired through ConnectGen, mainly focused on onshore wind. Now, regarding our updated outlook to the end of 2025, the guidance for the year remains broadly unchanged. Under a $70 trend, $4.50 and a $6 refining margin indicator scenario, We expect to generate around 6 billion euros of cash flow from operations after factoring the impact of the Iberian blackout. Investment will remain concentrated on the efficient development of our growth projects in the upstream. The transformation of our industrial assets and, let me say, optimization of them, growing our power and gas retail business, enhancing the multi-energy offering to our clients, and expanding our low-carbon generation portfolio. In renewable fuels, the construction in Porto Llano of our second advanced biofuels plant in Spain progresses toward starting up in the first quarter of 2026. Net capex is estimated for the year 2025 at around 3.5 billion euros, subject to the timing of the investment processes and the execution, but that is the target and the guidance we have now with the best information we have in our hands. In renewables, we are currently working on two new asset rotations expected to be closed before year-end. One is in Spain for a 700-megawatt wind and solar portfolio, and the other involves the Outpost project in Texas. As discussed before, we maintain our shareholder remuneration commitment for the year. The dividends paid in cash together with share buybacks for the equivalent of 700 million euros will put total distributions of 30 to 35% of the cash flow from operations at the higher end of our strategic range. To conclude, despite the material impact of the blackout affecting the Iberian Peninsula, Repsol delivered a resilient performance in the first half of 2025, supported by the recovery of our action volumes in the second quarter and the continuous strength of the commercial business. We remain confident on delivering our strategic objectives for 2025, growing value for our shareholders in a sustainable way, firmly committed to a profitable transformation and the achievement of our decarbonization goals. The strength of our business model, built on a sound financial position and a disciplined capital allocation approach, position us well to manage the uncertainties of the current volatile environment. In industrial, following the normalization of operations in July, we expect to capture in coming quarters the ongoing positive momentum of the refining business. In the upstream, the completion of Leon Castile and Alaska will enhance future cash flow generation and enable us to normalize capex levels from 2026 onward after the significant investments made in 2024 and the first half of 2025. In addition, our exposure to North America could benefit from the relative strength of the Henry Hub, driven by new LNG infrastructure, increasing demand, and the potential deregulation of the U.S. energy sector. With this, I will turn it over to Pablo as we move on to the Q&A session. Thank you very much.

Thank you, Josillon. Before opening the Q&A, I would like to ask participants to leave yourself to a maximum of two questions. If time permits, we will try to cover more in a second round. Of course, the IR team will be happy to assist for any follow-ups afterwards. As usual, I would like the operator to remind us of the process of to ask a question. Please go ahead, operator.