Repsol Sa Sp/Adr

Good morning to everyone joining us today. Welcome to REPSOL's second quarter 2026 results presentation. Today's conference call will be hosted by Josu Jon Imaz, 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 Josu Jon.

Thank you, Pablo. Good morning and welcome to everyone. Repsol delivered a strong set of results and strategic execution in the second quarter of 2026. Operating under a highly volatile commodity environment shaped by a complex and evolving geopolitical scenario. Tensions, as you perfectly know, around the Strait of Hormuz disrupted energy trade flows, resulting in an estimated 1.3 billion barrels of oil supply lost due to the crisis and the shutdown of nearly 3 million barrels per day of refining capacity. Despite multiple At times to deescalate the situation, agreements for the reopening of this trade were repeatedly broken down until a ceasefire was announced in June. The collapse of these peace negotiations in July has generated extreme volatility to this date. The conflict broke into focus the importance of security of supply, diversification of energy sources, Reduction of domestic resources and protection of European Union refining capacity. In this context, Repsol remains fully committed to ensuring security of supply while continuing to deliver on its well-established priorities, growing cash flow, enhancing shareholder returns, and allocating capital in a disciplined manner, all while preserving a strong financial position. Furthermore, our performance demonstrated once again the strength of Repsol's business model. Our advantage, Atlantic Basin positioning, flexible Tier 1 refining, and diversified sourcing capabilities allow us to maintain stable operations, ensuring continuity of supply to our customers while capturing value across the portfolio. In particular, the industrial division benefits from a strong momentum in the refining. Chemicals and trading businesses as market dynamics evolved into a scenario of factual physical supply disruptions. In the afternoon, the first story achieved at PICA represents a major milestone to consolidate the United States as one of the primary drivers of our growth, incorporating our world-class assets with our long-life plateau. And in low-carbon generation, we continue to execute our successful asset rotation strategy as we transition the business into a self-financed growth model in renewables. In terms of results, second quarter adjusted net income was 1.8 billion euros, more than 1 billion higher year on year, largely reflecting the stronger contribution for industrial. First half adjusted net income was 7.2 billion, 135% higher compared to same period in 2025. Cash flow from operations stood at 1.9 billion euros, 24% higher year over year, for an accumulated 3 billion euros delivered in the first half of 2026. Cash generation was impacted by 1.3 billion euros working capital build-up, mainly related to inventories. This reflects our focus on reinforcing security of supply, Increasing storage and ensuring availability of diesel and jet fuel in Spain and in our natural hinterland in a highly disrupted market environment. Excluding working capital movements, operating cash flow generation amounted to 3.3 billion euros in the quarter and 5.7 billion accumulated to June. Net debt stood at 3.7 billion euros by quarter and a reduction of 1.1 billion compared to March and this included the deconsolidation of approximately €0.6 billion of debt associated with the renewable assets divested in Spain. The GIGI ratio stood at 11.3% as of June and at 3.1% if we exclude leases. Shareholder remuneration remained aligned with our cash distribution framework Following the payment of the second dividend earlier this month in July, the total cash dividend for 2026 reached 1.051 euros per share, approximately 8% higher than in 2025. With respect to Share by Bucks, the initial program of 350 million euros launched in March was complete this week and the corresponding capital reduction was executed through the redemption of and 15.8 million shares. Additional share buybacks will be implemented in the second half of the year to deliver, as promised, on our 30% to 40% cash flow for an operation distribution target. I will provide further details when we touch on the outlook of the remainder of 2026. Turning now to the evolution of the main macroeconomic indicators, Brent crude averaged $114 per barrel 53% higher year-on-year, as you could see in the slide, driven by geopolitical tensions and disruptions to oil supply. Enrehab averaged $2.9 per million BTU, 15% below the same quarter last year, mostly reflecting weaker seasonal demand in North America. European gas prices experienced very different dynamics. Main references rose more than 40% year-on-year, Due to geopolitical risk and, of course, the disruptions to critical LNG export infrastructure, that increased concerns over security of supply. Repsol's refining margin indicator averaged $14 per barrel, supported by stronger diesel, jet fuel, and gasoline spreads, together with wider heavy-to-light crude differentials. At the exchange rate, the US dollar averaged 1.16 against the euro, A depreciation of approximately 3% compared with the second quarter last year. Jumping into the upstream performance, let me express our deepest condolences and support to Venezuela following the devastating earthquake that struck the country last month. As a long-established partner in this country, Repsol stands in solidarity with its people during this difficult time. Second quarter adjusted net income was 371 million euros, 19% higher year-on-year, driven by stronger oil and gas price realizations, higher volumes, and an increased contribution from equity affiliates, partially offset by the Indonesia country exit that, remember, was executed in 2025. Production on average 558,000 barrels of oil equivalent per day, is the highest level in two years and 4% above the previous quarter. Quarterly volumes were supported by higher contributions from the UK, Brazil, and the US. The US contributed more than 200,000 barrels of oil equivalent per day, representing approximately 37% of total company volumes. And conventional production averaged around 175,000 barrels per day, A 17% increase over the first quarter driven by the connection of new wells. In the Gulf of America, production averaged more than 30,000 barrels of oil equivalent per day underpinned by the ramp up of Leon Castile. In Alaska, the first phase of PICA initiated production in May as part of its late stage commissioning process. Current production stands at around 23,000 gross barrels per day, and the first oil sales are expected in August. The project remains on track to reach the plateau of 80,000 gross barrels per day in this quarter, in the third quarter. Production in Venezuela averaged 71,000 barrels of oil equivalent per day, broadly in line with the same quarter last year, and our activity was not impacted, was not affected by the earthquake. In May, we received the first cargo under the new US export licenses and the framework agreed with the Venezuelan government that was associated to the gas production of Cardon. An additional four cargos are expected in 2026, one to help fund the investment needed to increase gas production by approximately 10% and three more cargos to monetize current production. During the quarter, an agreement was reached, was achieved to evaluate the potential development of the Orkon area. This area of Orkon is in the eastern part of the Maracaibo lake between Barua and Motatan fields. and both of which are already part of our portfolio. And we have, let me say, a lot of expectation regarding Orkon, that is an area that we know in a deep way from the past. Operations in Libya remain stable. Our position was strengthened through the signature of the PSCs that were associated with the blocks that were awarded in the February licensing round. In Brazil, we are currently drilling the second development well in Raya. Remember, Raya is the new name for the former Campo 33. The project, which is expected to contribute a peak production of 40,000 to 50,000 barrels net to Repsol, remains on track to achieve a first oil in 2028. Looking at the third quarter, production has hovered around 580,000, 585,000 barrels of In this first three weeks of July and full year, 2026 expected production remains in the range we announced from 560 to 570,000 average barrels per day, probably in the high part of this range. At this point, allow me to dedicate some minutes to highlight the potential of our North Slope assets in Alaska. Our position includes three fields within the nano-supply with ongoing appraisal activity to unlock future developments with PICA scale potential. The PICA unit is a high-quality oil development with robust economics and significant long-term growth visibility. Phase one, that is the Phase that is now producing this 23,000 barrels gross a day that I mentioned before brings around 400 million gross barrels of 2p reserves into production with further to see resources expected to be developed through a phase plan. In this direction, I mean, phase two refer also PICA expansion or PICA2 is expected to add another 40,000 gross barrels per day of production. With all major key permits secure, the project will leverage existing infrastructure to accelerate this development. In the Cuoca unit that is located, as you can see in the map, in the southeast part of the prospect, The recent appraisal confirmed a high-quality light oil reservoir. Just considering the 2C resources estimated for the northern area, I could say that Cuoca has the potential to become a major development that could have a similar scale to PICA. The horseshoe unit that you could see in the southwest part of this map is located I mean this west part I mentioned before and in some way represents another promising opportunity with material upside. The STIRAP 2 well planned for this winter in the window we could have to drill in winter is the next step to apprise the subsurface potential. Lastly, our position in the play, you know, was strengthened by the 42 new exploration licenses secured in the latest federal round in partnership with Shell, with Repsol as operator supporting future development plans. Going on now with the industrial division, adjusted net income was 1.2 billion euros. This figure compares with 100 Three million in the same quarter a year ago, but remember that that period last year was affected by the negative consequences of the blackout in the Iberian Peninsula. Results benefit from material stronger contributions from refining, from Peru, from chemicals, and also for the liquid trading business, together with the unwinding of non-transcendent sales adjustments that they were registered as negative in the first quarter. Refining was positively impacted by higher product spreads, wider heavy-to-light crude differentials, and the normalization of the kerosene sales price-lack effect that, remember, I also mentioned in the first quarter conference, which have negatively impacted that first quarter. The refining margin indicator was 28% higher quarter on quarter, and 137% enrolled the second quarter last year. The premium generated in the second quarter averaged around $10 per barra. Diesel and the jet fuel supply remain exceptionally tight. I mean, that is curious because I don't know if the financial markets are really reflecting this tightness we are seeing in the physical market. And this situation is driven by the simultaneous disruptions in the Strait of Hormuz and is probably more forgotten than what is happening in Russia that reduce refinery availability and low global inventories. Gasoline spreads benefit from the refinery maintenance season in Europe, the maximization of middle distillate yields and a higher seasonal demand. The utilization of distillation capacity reached 79% while conversion units operated at 89%. This crude processing was negatively impacted by the reduced availability of the Cartagena Topin III unit that is expected to restart by year end. The HVO, the Minus Unconverted Oil Spread remain, the UCO spread, sorry, remain at healthy levels. That was supported by the correlation with the mineral alternative and also the transposition of RED3 directive, the European directive in Germany. In the second quarter biofuels generated more than 100 million euros of EBITDA and looking forward we expect that RED3 to be transposed also in Spain this year and that is going to bring greater regulatory certainty about biofuels in the market. Looking ahead, We expect the refining margins to remain at healthy levels through year end and into 2027, and that is going to be underpinned by first the replenishment of inventories, our resilient demand that is still very resilient, and the catch-up effect of deferred maintenance. In July, the refining margin indicator has averaged more than $30 per barrel. And the premium of this refining margin in July was above $9 per barrel. So in real terms, the refining margin exactly as of today, the average is $34 per barrel with a premium of $9 per barrel. So benefiting from lower rent prices, Comparing with what we experienced in March-April, a stronger middle distillate and wider gasoline spreads in the middle of the driving season where we are now. Continuing with chemicals, the business registered its first positive operating result in two years, thanks to better international margins and higher operational rates at our plants. Repsol's petrochemical margin indicator averaged €569 per ton, More than three times its value in the first quarter and the plant utilization benefit from the restart of the CNES cracker in Portugal which have been shut down since 2023 because the low margins of the monomers. Looking ahead the CNES expansion project that you know includes two new plants of high value other polymeric materials is expected to start operating between this quarter and the beginning of one of the plants. Linear polyethylene is going to be operational in September and polypropylene at the end of September, the beginning of October. The liquids trading business deliver a very strong performance as well. Dublin, its contribution compared to second quarter 2025 Crude and gas trading activities generated more than 500 million euros of combined cash flow from operations over the first half of 2026. Lastly, the new HBO unit in Porto Llano started operations in April, becoming our second on-purpose facility of this kind. Our third project, that will be the second of retrofitting, is currently under evaluation in Spain. Continuing now with customer, the adjusted net income was very positive, 209 million euros, a 7% increase over the same quarter in 2025. And this increase was driven by a higher contribution from the lubricants, asphalt, aviation, and specialties business, and power and gas retail. Cash flow from operations amounted to 483 million euros in the quarter, And despite the sharp fuel price increase generated by instability in the Middle East, we haven't seen no signs of demand destruction in the short term. And that is, from our point of view, supported by resilient economic activity in Spain and by the measures, the positive measures that were adopted by the Spanish government to mitigate the impact of higher energy prices on consumers. Repsol's sales of road transportation fuels in Spain were 7% higher year-on-year. Non-oil contribution margin in service stations was also higher, 6% higher compared to 2025. The mobility business was logically impacted by the customer support initiatives that were proactively implemented by Repsol since March on, on top of adding our effort to The government measures and these initiatives which enhance our customer value proposition have delivered approximately 50 million euros in this period in the second quarter in discounts to both professional and retail customers since the 21st March that was the day where we enforced these discounts. This quarter Repsol has extended these measures to weekends From the middle of July till the end of August, because weekends are the days with a higher driving activity in holidays, in summer, mainly in a country like Spain that remember the year we will receive again more than 100 million tourists, 100 million visitors in our country. In power and gas retail, we had 116,000 new customers, equivalent to an 18% increase year on year, reaching 3.3 million clients by quarter end. The number of digital clients reached 11.6 million, a 15% increase over the same period of 2025, again with Violet as the main contributor. Turning to low carbon generation, to renewable generation, adjusted net income was 10 million euros, Thank you very much. The portfolio comprises 402 MW of wind generation capacity, 303 MW of solar, and more than 0.5 GW of hybridization opportunities. This transaction is expected to reduce Repsol's net debt by 700 million euros The assets will be jointly controlled with our industrial partner, Masdar, which resulted in the deconsolidation in the second quarter of 550 million euros financing secured in 2025. And in addition, Repsol will receive cash proceeds of 150 million that are not in our accounts in this quarter because the closing is expected in the last quarter of 2026. Since completing our first asset rotation almost five years ago in November 2021, we have successfully rotated roughly two-thirds of our global renewable portfolio, including all our wind and solar assets in Spain. These transactions have generated an average equity IRR of 10%, above 10% better said, demonstrating our ability to create value while accelerating Our transition towards self-funded growth in this business. Moving now briefly to a summary of the financial results in this slide, you may find an overview of the figures that we are covering today. For further details about these numbers, of course, I encourage you to refer to the complete set of documents that they were released this morning. Let me now update probably to the most difficult part of my speech, that is the outlook. for the rest of the year, because believe me, I suppose that we are going to discuss a bit about that later, but in this context, it's really difficult to update an outlook about what is happening in the world. Of course, I'm going to try being very accurate about the outlook of our own internal metrics. In the first half of 2026, we generated 5.7 billion euros of cash flow from operations, excluding working capital movements, and that was underpinned by a solid operational performance and a supportive macro. This figure is ahead of our estimates at the beginning of the year. The duration and impact of the disruptions in Hormuz and Russia remain really difficult to assess. That said, we remain positive about the business outlook for the second half. particularly in refining and trading, but also in the upstream supported by higher production volumes. Based on this outlook, our second buyback program of the year has been increased from 350 to 500 million euros. Let me underline that this program that is the second program of the year, but not the last one, It has to be or is going to be executed before the end of October. So it's a program for now on to October. And this program already takes us beyond our initial shared buyback guidance for 2026. In our first quarter result presentation in October, Probably we are going to have a greater visibility on full-year cash flow from operation generation and that day we will announce the third and final share buyback program for 2026. So we are going to launch a third program in October and we are going to deliver what is written on stone. I mean the 30 to 40 percent of operating cash flow to our shareholders and the amount of the program and this percentage of course will be announced that day depending of course of the macro conditions and the situation that day so but we are going to launch a third program in October our discipline capital approach will remain at the core of our decision making and the projected full-year net capex is around 2.7 billion euros in line with our expectation at the beginning of the year. In conclusion, over the first half of 2026 Repsol delivered strong financial performance and we continue strategic progress supported by the optimization of the industrial value chain, profitable production growth, the resilience and good performance of our commercial businesses and the ongoing evolution of our renewable platform to be more competitive, growing in a self-financed strategy. Shareholder remuneration will remain our top priority, as you know. And aligned with this, we have already raised the total expected share buyback for 2026. But again, that is not the end. And a further upgrade will be announced with the third quarter results to deliver on our cash flow from operation distribution target. So with this, I will turn it over to Pablo, and we are going to move Pablo to the Q&A. Thank you so much.

Thank you, Josu Jon. Before opening the Q&A, I will kindly ask participants to limit yourselves to a maximum of two questions. If time permits, we will try to cover more in a second round. To begin, I would like the operator to remind us of the process to ask a question. Please, operator, go ahead.