Repsol Sa Sp/Adr

Hello and welcome to the first quarter 2026 results conference call. Today's conference will be conducted by Mr. Josillon Imath, CEO, and a brief introduction will be given by Mr. Pablo Banatine, Head of Investor Relations. I would now like to hand the call over to Mr. Banatine. Sir, you may begin.

Thank you, operator. And good morning to everyone joining us today. Welcome to REPSO's first quarter 2026 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 a Q&A session. Before we begin, let me remind you that 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 on our disclaimer. With that, I will hand the conference call over to Giorgio.

Thank you, Pablo. Good morning and welcome to everyone. Last quarter, Mark has sold the start to the first year of our update 2026-2028 strategic roadmap. that we presented six weeks ago in March here in Madrid, and most of you were present here. This strategic roadmap is built on three clear pillars. Increase cash flow generation, higher shareholder returns, and discipline capital allocation, always preserving the strength of our balance sheet. Since then, since our capital markets day, the escalation of the conflict in the Middle East has had global implications for our industry, increasing volatility across commodities and reinforcing uncertainty around the near-term economic outlook. Our market environment has since become more complex, shifting from concerns about oversupply risk to a very different context of actual physical distractions. The closure of key energy routes factor to a significant tightening of oil, gas, and products markets, increasing price fluctuations and reshaping global trade flows. In this situation, Repsol has remained focused on the safe and efficient operation of its assets, ensuring continuity of energy supply while taking timely and disciplined actions to help mitigate the impact of fuel price volatility to our customers. As of today, across our assets remain stable and reliable. All the operations, I mean. With no material exposure to the Middle East, we are well positioned to navigate the current environment and benefits from commodity market dynamics. All that support by a diversified and resilient portfolio. Looking at the main developments of the first quarter, in the after we complete the agreement to incorporate total energy to our UK JV, creating the largest independent oil and gas producer in the UK continental shelf. In addition, we continue moving forward with our project pipeline, starting production of LACA Southwest, and reaching the latest stages of development in PICA, Alaska. In Venezuela, the recent updates in the country could provide a material upside within the portfolio, In the industrial side, the performance benefited from the strong refining environment in March and increased contribution from trading businesses. Results were partially held back by no transcendent results and time-lapse effects on product pricing, which are expected to flow through the P&L in coming months, in the next quarter. In customer, activity remained resilient, supported by higher mobility sales and the continued growth of our customer base. In terms of results, first quarter adjusted net income reached 873 million euros, a 57% increase over the same period in 2025, mostly due to a stronger contribution from industrial. Cash flow from operations stood at one billion euros, two percent higher than in the first quarter last year. Cash generation was impacted by are 1.4 billion euros working capital build-up, mainly related to inventories, linked to higher prices and volumes as we ensure full security of supply to our refining system in this complex and volatile environment. Experiencing working capital movements operating cash flow generation amounted to 2.4 billion euros, more than covering investments, interest, and shareholder remuneration in the quarter. Net debt closed at 4.8 billion euros, a 0.3 billion increase over December, giving rate years to that 14.3% and 6.5% if we exclude leases. Shareholder remuneration was aligned with our distribution objectives. The first cash dividend of 2026 was paid in January, amounting to 0.5 euros per share. The second dividend will be paid in July to reach a total dividend of 1.051 euros per share in the full year. And thus, this figure is, rather speaking, an 8% increase compared to 2025. Dividends will be complemented with shares by BACs to reach our committed 30% to 40% cash flow for an operational distribution objective. And aligned with this, the first buyback program of 2026 was launched in March for up to 350 million euros, with additional buybacks to be implemented in the second half of the year. Looking briefly at the evolution of the main macroeconomic indicators in the period. Brent oil averaged $81 per barrel, 7% higher year-on-year. moving within a range between $61 and $127 through the quarter, so a strong volatility in the period. The average average $5.1 per million BQ, 30% higher than in the same period in 2025, driven by severe weather at the beginning of the year and the ongoing ramp-up of new LNG export facilities in the U.S. Repsol's refining margin indicator was 106% higher compared to the same period in 2025, mostly driven by higher middle distillate spreads since March, particularly diesel and jet fuel. At the exchange rate, the dollar averaged 1.17 in the quarter and 11% depreciation compared to the first quarter last year in 2025. Turning now to upstream performance. adjusted net income was 302 million euros, 5% lower year over year, driven by a weaker dollar, as I mentioned before, and the divestments executed in 2025. This was partially compensated by higher gas realization prices, and a stronger contribution from equity affiliates. Production averaged 539,000 barrels equivalent per day, in line with the first quarter in 2025, The higher contribution in the U.K., the Gulf of America and San Tobago, was partially offset by disposals, a force majeure situation in Peru, and the lower unconventional production due to the extreme weather conditions we had in the U.S., mainly in January and February. Excluding these disposals I mentioned before, production was 4% higher year over year. In the UK, on the 13th of March, we complete the agreement to incorporate total energy assets into our North Sea JV. The resulting entity that is named NeoNext Plus is projected to produce around 250,000 barrels per day in 2026, of which around 60,000 are net to Russell. In Libya, first quarter production reached 42,000 net barrels 11% evolved the same period in 2025, demonstrating the resilience of our operations despite a localized disruption in March. Furthermore, we strengthened our position after being awarded with two new exploration blocks in the first licensing round held in the country in nearly two decades. In our development pipeline, the volume growth forecast to 2028 will be supported by the risk of projects that are already producing or close to first oil. In Brazil, in the Santos Basin, the development of Lapa Southwest reached first oil in March. The project features three wells tied back to the existing FPSO, contributing to increase the total production in the Lapa field to 60,000 gross barrels of oil per day, where Repsol holds a 15% interest. Furthermore, the development of Raya, Raya, remember, that is the former Campus 33 in the campus basin, enter its six-world drilling phase, representing an important milestone towards the planned startup in 2028. In Alaska, the first phase of PK is mechanically complete and undergoing final commissioning. First oil is expected in May. in an immediate period, coming days, coming weeks, and key facilities have been integrated with the objective of reaching a plateau production capacity of 80,000 gross barrels per day by the end of July, early third quarter. In the Quokka unit, that is located in the Nanusuk area to the east of Pika, the successful completion of the first appraisal well, earlier this month, in April, has further delineated the potential of all these nanoshock reservoirs. In addition, our commitment to Alaska was reinforced after securing 42 new exploration licenses in the latest federal round, supporting future development plans in the area. Finally, in Venezuela, last quarter, we reached a strategic agreement to ensure the continuity of natural gas production in Carbon Fault, Moreover, after quarter end, we signed an agreement to resume operational control of the Petro-QDT oil asset, and this includes plans to increase gross crude oil production in the country by 50% within 12 months, and to triple it over the next three years, all under a disciplined free cash flow positive framework for capital allocation. Our priorities in the country are clear. monetizing current production, and increasing of volumes. Within this framework, next week, our Cartagena refinery will receive the first cargo linked or associated to the gas production of Cardon since the issuance of the new U.S. export licenses that, remember, we received, we were allowed to produce licenses at the end of February. Additional cargoes are expected going forward. Continuing with industrial, first quarter adjusted net income was 440 million euros, 233% higher than in the same period a year ago. The improvement was driven by higher contributions in refining, Peru, and the trading businesses, partially offset by weaker chemicals and non-transcendent sales. In refining, the better results due to higher refining margins were partially offset by non-transcendent sales adjustments, as I mentioned before, and a negative price lag effect, mainly in kerosene sales. I mean, these adjustments are expected to be fully reverted in coming quarter. The refining margin indicator averaged $10.9 per barrel. roughly in line with the fourth quarter of 2025, and $5.6 higher than the first quarter last year. The indicator averaged $6 per barrel through January and February, rising in March to an average of $20 driven by stronger middle distillates as a result of the conflict in Iran. since the closure of the Strait of Hormuz, diesel and jet fuel spreads have suffered extreme volatility resulting from the interruption of products flows and tight global inventories. HBO and SAF margins have also experienced a material increase due to the escalation of the mineral alternatives and also because the increase of of the regulatory demand of these kind of products. The premium generated over the indicator averaged $5.7 per bar in the quarter, mainly due to a better crude and products balance optimization on the contribution of buyers. Let me say that in this disrupted and complex situation, I mean, the margin indicator in some ways losing the capacity to define what is happening in margin terms in a refining system. So we are going to see this kind of, let me say, exceptional premiums because with the high flexibility of the assets we have, all that is enabling us to efficiently adapt the crude diet and our products yield to this kind of exceptional situations and disruptions that are happening in the market. That is the explanation, let me say, for this exceptional situation. Utilization of distillation capacity reached 79% in the quarter, while conversion units operated at 86%. Throughputs were negatively impacted by the reduced availability of the topping units in Cartagena. Remember, the the fire we had in January, together with cold supply constraints in January and February due to the severe weather and the storms that were preventing vessels from docking at some of our fires, mainly Tarragona, Petronor, and Coruña. The trading businesses delivered a very strong performance in the first quarter, The operating income was 343 million euros higher year over year, reflecting a solid contribution from both crude and gas trading activities. In chemicals, Rapsol's margin indicator averaged 174 euros per ton in the first quarter, negatively impacted by the sharp increase of raw material costs in March, which was not yet reflected in selling prices. The situation in the Middle East has tightened the global petrochemical market due to supply constraints from the consequent production of production in Asia and Europe. Margins are going through a period of exceptional volatility, especially affecting NAFTA-dependent producers with limited feedstock flexibility. Regarding the transformation projects within our industrial portfolio, the new HBO unit in Portugal, is this week starting the production, becoming our second facility in Spain for the production of 100% renewable fuels. In renewable hydrogen, we approved the construction of our second large-scale electrolyzer to be built in Bilbao at our Petronas refinery and expected to start up in 2029. Remember that the project has received 160 million euros in funding from the European Union. Going on now with the customer division, first quarter adjusted net income was 160 million euros, a 3% increase over the same period in 2025, and this result was mostly driven by a higher contribution from mobility. Cash flow from operations amounted to 429 million euros in the quarter. Sales of road transportation fuels in Spain were 11% higher compared to the same period last year, non-oil contribution margin in service stations was 11% higher year over year. So non-oil is increasing step by step its contribution margin to our service station business. In a complex environment of higher fuel prices and significant daily volatility, Repsol strength its customer value proposition by doubling discounts that are applied through the wallet app, as well as increasing discounts to professionals and self-employed workers. These initiatives have a direct and positive effect on wallet registrations and fuel sales. In power and gas retail, we had 129,000 customers in the first three months of 2026, reaching 3.2 million clients. That is equivalent to a 20% increase year over year And as a result of a larger customer base, the power commercialized by Repsol was 26% higher compared to the first quarter in 2025. The number of digital clients reached 11.2 million at the end of the quarter, a 17% increase over the same period of 2025 with Wallet as the main contributor. Finally, around 1,500 service stations offer 100% renewable fuels as of the end of March, with 62% of our Spanish network already providing multi-energy solutions. Turning now to low-carbon generation, the adjusted net income was 4 million euros negative, a 6 million decrease compared to the first quarter in 2025, And results were negatively impacted by lower electricity prices in Spain that more than compensated the higher power production. The average food price in Spain was 43 euros per megawatt hour, roughly 50% below the same period last year, due to an exceptionally rainy quarter. The power generated by result increased by 57% year over year, due to a higher contribution from combined cycles and renewables. Wind and solar production reached 2.3 gigawatts hour, 80% higher compared to 2025. Renewable generation capacity under operation reached six gigawatts by the end of the quarter, thanks to a startup of new capacity in Spain and the addition of the last part, 133 megawatts of Pinnington solar farm in the U.S. that is now reaching its maximum capacity of 825 megawatts. Finally, we continue to execute our asset rotation strategy. In the U.S., the divestment of high-staking outposts agreed in December was cashed in the first quarter, and the rotation of Pennington is expected to be launched over the course of 2026. And in Spain, we are progressing with the second phase of the rotation that was launched in 2025. Moving now briefly to a summary of the financial results in this slide, you may find an overview of the figures that we covered today. And for further details, I encourage you to refer to the complete set of documents released this morning. Regarding the outlook for the rest of the year, let me say that it is the most important complex part of my space, because first, I mean, what is known, April production has been impacted by the turn-around of Peru LNG liquefaction plant, and now almost complete, which is factor in our budget. Full-year production guidance remains in the range between 560,000 and 570,000 barrels per day, and that is driven by the increased production in conventional, that is already happening, and the startup of Alaska. In refining, diesel and jet prices are expected to remain strong in the second and third quarters, even in the case of the reopening of the strait tomorrow. Moreover, the drawdown of strategic reserves implies that inventories will need to be refined boosting European diesel demand into the second half of the year. The refining margin indicator has averaged $11 in April, and the current scenario of refinery maintenance plan for 2026 has been adjusted to prioritize production and feedstock flexibility. The premium over the indicator has averaged above $10 this month, Underpinned by the higher share of middle distilleries in our mix and increased sales to our domestic market in Iberia, strong disruptions in spreads and discounts of our crude slate and products are allowing optimization of our planning and programming, increasing our refining premium to high figures. And with respect to the cash flow from operations outlook, and I was referring to this outlook when I said that this is the most complex part of my speech, I mean, in light of the extreme level of uncertainty and volatility we are not providing a revised guidance at this point. And let me remind you that based on the update sensitivities under the new reporting model, Every $10 increase in the Brent price would translate into roughly 250 million euros of incremental annual operating cash flow, on average for the period of 2026-2028. Roughly speaking, it's a bit higher, 285. I mean, this year, because the gas component in the production is a bit higher, then the approach saying that could be, roughly speaking, 250 million euros, Similarly, for every $1 per barrel increase in the refining margin indicator, the cash flow for an operation would increase by around 200 million euros. You may apply those sensitivities to estimate the expected cash flow for an operation under the commodity scenario you deem appropriate. I mean, I don't have the crystal ball that is needed to give you a guidance about the evolution of the commodities over this in this disruptive scenario. And that being said, we can confirm that between 30% to 40% of the additional cash generated will be allocated to shareholder remuneration in any case, as I said in the speech of the Capital Markets Day last month, in line with our capital allocation policy. To conclude, these first quarter marks are a solid start to the first year of our update strategic roadmap. Our recent capital markets, they establish a robust framework to deliver cash flow growth with great visibility, increase shareholder remuneration, and maintain a rigorous capital discipline. Even though the current market environment is clearly more uncertain than what we had at the beginning of the year, as the closure of the Strait of Hormuz has altered international trade flows, The economic impact of the conflict will depend on its duration, the damage to energy infrastructure that we don't know in the whole dimension, and indirect effects through industrial value chains and financial conditions. In this scenario, we have solved benefits by unlimited exposure to the Middle East and our Tier 1 refining system in Europe, heavily weighted towards middle distillates, outputs, and production, with flexibility to adapt our crude oil diet. In addition, our advantage location in the Iberian Peninsula provides access to feed stocks and markets in the Atlantic Basin. The startup of PICA will provide near-term growth to our upstream volumes while adding a world-class asset to our portfolio with a long-term production plateau. The improved situation in Venezuela, no factor in our projections, is another material upside for a strategic plan. At this moment, we are prevalent in our financial outlook, as I mentioned before, subject to the evolution of macroeconomic scenario in coming months, always maintaining our commitment to distribute 30% to 40% of the cash from operations to our shareholders. With this, I will turn it over to Pablo as we move on the Q&A, and thank you very much for your attention.