Repsol Sa Sp/Adr

Hello and welcome to the Repsol's third quarter 2026 results conference call. Today's conference will be conducted by Mr. Josu Jon Imaz, CEO, and a brief introduction will be given by Mr. Pablo Bannatyne, Head of Investor Relations. I will now like to hand the call over to Mr. Bannatyne. Sir, you may begin.

Thank you, Operator, and good morning to everyone joining us today. Welcome to Repsol's third 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 in our disclaimer. With that, I will hand the conference call over to Josu Jon.

Thank you, Pablo. Good morning and welcome to everyone. And let me say that before we begin, I would like to extend our deepest condolences on behalf of everyone at Repsol to the families and loved ones of those who lost their lives in yesterday's tragic train accident in Spain. Our thoughts are today also with those who were injured and with everyone affected by this tragedy during this very difficult time. It's not the best day to enter in this kind of messages, but I mean, it's also our duty to go into the key messages impacting in the third quarter of Repsol. So going back to what is the aim of today's speech, let me say that Repsol delivered a very strong set of results on cash flow generation in the third quarter of 2026, underpinned by high refining margins A robust contribution from trading and discipline execution across all business divisions. Market conditions were, again, extremely volatile over the quarter, reflecting ongoing geopolitical tensions and elevated levels of uncertainty. Operations at our industrial assets remain stable, allowing us to ensure continuity of supply to our customers in an exceptionally tight middle-district market. The complexity of the current scenario continues to underscore the critical role of energy security and a diversified energy mix for our economies. The commodity environment remains highly supportive, driven by stronger refining margins and oil prices averaging close to $100 per barrel. In addition, volatility generated significant opportunities for trading, while resilient demand in Spain continues to support the performance of our commercial businesses. built on Aldidin multi-energy proposal. In this context, Repsol continues to deliver on its strategic commitments while capturing favorable market conditions supported by disciplined capital allocation, reliable operations, and the successful delivery of growth projects. Looking ahead, the refining outlook remains positive, even assuming a normalization of the situation innermost driven by the necessity to replenish inventories Restore disrupted refining capacity and complete deferred maintenance. Turning to the results, third quarter adjusted net income was 2.7 billion euros, roughly a 2 billion euros increase over the same period in 2025, with the industrial division as the main contributor. Cash flow from operations amounted to 3.5 billion euros in the quarter, a 2.3 billion increase year on year. Cumulative operating cash flow to September stood at 6.5 billion euros, already exceeding our initial estimate for the full year. Working capital was mostly driven by higher inventory levels in refining and trading, reflecting higher prices and a strong focus on security of supply to ensure the availability of diesel and jet fuel across Spain and what would be defined in some way as our natural hinterland. Net debt stood at 2 billion euros at the end of the quarter, a 1.6 billion reduction compared to June, driven by a strong cash flow generation. The giving ratio stood at 6.2% as of the end of September. Shareholder remuneration delivered in the quarter remained aligned with our distribution framework. The second dividend of the year was paid in July, bringing the total dividend in 2020 26 to 1.051 euros per share, approximately an 8% increase compared to 2025. And regarding share buybacks, the capital reduction associated with the second 500 million euros program was executed this week on Monday, bringing total year to date buybacks to 850 million through the redemption of 33.1 million shares. Furthermore, to deliver on our strategic cash flow from operation distribution commitment, this morning we announced our third 950 million euro share buyback program to be executed by year end. As a result, total buybacks executed in 2026 will reach 1.8 billion bringing total shareholder remuneration to 3 billion euros which will place distributions at the lower end of the committed range. Regarding the evolution of the main macro indicators in the quarter, starting with oil, Brent crude averaged $97 per barrel, 7% below the previous quarter, but 40% above the same period in 2025. In gas, every half averaged $3 per million BTU, 3% higher quarter on quarter, and 3% below the same quarter a year ago. In Europe, main price references continue to stress them, reflecting a tight gas inventory situation on the continent. The refining margin indicator averaged $36 per barrel, a $22 increase over the second quarter, and $27 higher than in the third quarter of 2025. Finally, at the exchange rate, the US dollar remained stable against the euro at an average of 1.15. Continuing with upstream performance, our focus remains on the successful execution of our development pipeline, maximizing value in Venezuela, and further optimizing the portfolio. Third quarter adjusted net income was 415 million euros, a 93% increase year-on-year, supported by stronger oil and gas price realizations, higher volumes, and a greater contribution from equity affiliates. Production averaged 574,000 barrels equivalent per day, a solid 4% increase year-on-year driven by the ramp-up of PICA, the contribution of Leon Castile, and higher volumes in unconventionals and in Libya. Excluding organic transactions, production increased 5% year-on-year. The average production in the first nine months of 2026 was 557,000 barrels per day, Production has averaged 590,000 barrels per day in October, with daily volumes exceeding 600,000 barrels a day on multiple occasions quarter to date. In Alaska, the PICA project contributed an average of around 10,000 net barrels per day to third quarter volumes. Phase one continuous production operations commenced, was launched in June. reaching 69,000 gross barrels per day at the end of September, nearing its plateau of 80,000 gross barrels per day. We continue working in increasing production through the bottlenecking and preparing the phase two FID. The second phase is expected to add a further 40,000 gross barrels per day of production by 2030. In the horseshoe unit, we plan to apprise the stirrup discovery during the upcoming winter exploration campaign. Going on with Libya, third quarter production averaged 45,000 net barrels of oil per day, a 12% increase year on year, driven by better field performance and positive contractual effects. In Brazil, the development of raya is progressing well, with two of the six development wells already complete with significant time and cost savings, increasing our confidence in delivering first oil on a schedule and within budget. In Venezuela, production averaged 72,000 barrels per day in the third quarter, and our priorities remain firmly centered on monetizing current production and increasing volumes investing in that country. In problem four, we aim to increase production from the current 580 million gross cubic feet per day to 645 in the first quarter of 2028. Of the five cargoes to be received by Repsol in 2026 as payment for gas production, three have been monetized and the remaining two are already committed. At the J.B. Petrochiriquide, we have made solid progress since assuming Operatorship in April, including the award of a significant proportion of the contracts required to increase light crude oil production. Lastly, at Peso Carabobo, we are also making progress towards having a productive participation contract in place by year end, in line with the agreement reached with the country's Minister of Hydrocarbons. This heavy crude oil asset offers the greatest upside potential because it's a greenfield nature and subject to the appropriate conditions being in place could make, from my point of view, a substantial contribution to the country's production growth. Continuing now with the industrial division, adjusted net income was 2 billion euros, 1.7 billion higher than in the same quarter a year ago. Results benefit from stronger contributions in refining liquids and gas trading. and from the operations we have in Peru. Compared to the previous quarter, the refining business benefits from a better margin environment driven by higher middle distillate and gasoline spreads, wider heavy to light crude differentials and higher utilizations. These improvements were partially offset by a negative price lag effect. You perfectly know because I explained that last quarter, the jet effect when jet prices is rising, and the premium generated over the indicator was $10 per barrel, in line with the previous quarter, bringing the current realized CCS margin to around $46. Utilization of distillation capacity was 81%, while conversion units, that is our main driver, operated at 98%. Crude processing continues to be negatively impacted by the reduced availability of Cartagena Topin III unit that is expected to restart the normal operations in the fourth quarter. Our remaining refinery maintenance schedule for 2026 doesn't include major turnarounds in our facilities, and all that is going to allow us to run at full conversion capacity until year end. At the beginning of October, the refinery margin indicator was and the potential emergency stock releases. Since then, the indicator has recovered to around 44-45 dollars per barrel, bringing month-to-date average to around 18-19 dollars per barrel. Turning to the trading businesses, the solid third quarter results reflected Our ability to capture the optionality embedded in such a high volatile market, excluding the working capital bill, crude and gas trading activities generated 1.1 billion euros of cash flow from operations in the first nine months of 2026, a 153% increase over 2025. The spike of a threat costs creates a material opportunity for trading through fleet management. Lastly, in chemicals, performance was negatively impacted by lower prices, sales, and utilizations reflecting a weaker market. The petrochemical margin indicator averaged 387 euros per ton, 32% below the second quarter. The CNES expansion project is expected to commence operations in November, improving the earnings contribution of the chemical business with a strong focus on differentiation and specialties. Continuing now with customer, adjusted net income was 244 million euros, 4% increase over the same quarter in 2025. Performance was driven by a higher contribution from lubricants, asphalt, aviation, and specialty business. Cash flow from operations remained strong at 511 million euros in the quarter, representing a 32% increase compared to the same quarter last year. Demand in Spain has proven resilient through the current price environment supported by the mitigation measures adopted by the Spanish government, the record tourism activity this quarter, population growth, and higher sales across our hinterland. The aviation segment continues to benefit from solid demand, with the Spanish market growing by 4% year-on-year, In mobility, sales of transport fuels at our service stations were broadly in line with the same period last year. Including wholesale, volumes were 8% above the third quarter of 2025, and the non-oil contribution margin grew by 6% year-on-year. The business continues to reflect the customer support initiatives introduced by Repsol on the 21st of March. These measures deliver approximately 30 million euros in discounts to professional and retail customers in the quarter for an accumulated 80 million euros to September since their implementation. Reinforcing our customer value proposition price environment as we are in power and gas retail customer activity and commercial performance remain solid. Our customer base reached 3.4 million as of the end of the quarter. This figure represents a 60% growth year on year. Finally, our digital client base through our wallet app reached 12 million at the end of September. This figure is a 15% increase over the third quarter in 2025. and that is supported by this ambitious multi-energy offering built, as I mentioned before, around the WILET application. Turning to the low carbon generation adjusted net income was 37 million euros, a 48% increase year on year, thanks to higher contribution from renewable generation and also the contribution of combined cycles. The average full price in Spain was 122 euros per megawatt hour, 84% higher year-on-year. Persistent intraday volatility drove record margins in pump storage hydro generation, so a while, which stood 82% higher compared to the third quarter in 2025. Rapsol's total power generation reached 3.9 terawatt hour, an 18% increase compared to the third quarter of last year, 2025. Wind and solar production amounted to 2.5 kWh, 31% higher year-on-year. At the same time, the company continues to lay the foundations for future growth in Spain, the US, and Italy. In the US, we recently took the final investment decision on the Reiter Station solar project that is located in the state of Ohio, which will add 269 MW to our portfolio. We currently have close to 1.4 gigawatts of wind plus solar capacity under construction, all with FID taken in this country, distributed in four different projects. Looking ahead, the business continues to focus on consolidating its self-funding position. You can see that in the figures of this quarter or previous quarter. and for full year 2026 we anticipate a positive free cash flow supported by active portfolio management. Moving now briefly to a summary of the financial results. In this slide you may find an overview of all the figures I mentioned and all the figures covered today. For further details, of course, I encourage you to refer to the complete set of documents that were released this morning. At this point, let me review. Our outlook to the end of the year. During 2026, we have continued to deliver on our strategic priorities based on a competitive shareholder remuneration, a solid financial position and capital discipline. For the full year, upstream production is expected to average between 560,000 to 570,000 barrels per day in line with our initial guidance. Net capex is expected to remain at between 2.5 and 3 billion euros by year end. The company is actively managing cost pressures to preserve the value and returns of its investments. Under the current commodity price context and a fourth quarter refining margin indicator of around 22, 23 dollars plus a figure that could be close to eight dollars per barrel as a premium, We expect to generate between 9 to 9.5 billion euros of cash flow from operations in full year 2026 and with 3 billion euros of shareholder remuneration through dividends and buybacks we expect to be at the lower end of our cash flow distribution range. Let me underline that this reflects a prudent approach given the uncertainty of the current environment While still, I think that we are delivering attractive shareholder returns that are supported by strong cash generation. To conclude, eight months into the execution of our strategic update, we presented, remember, the Capital Market Day in March, we continue to deliver against our key priorities, supporting, better said, our key priorities, all that is based and supported by a strong business momentum. A solid operational performance across all divisions of the company. The strength and resiliency of our industrial model built on flexible tier one refining assets, advantage positioning and diversified sourcing capabilities has allowed us to ensure continuity of supply. That's important for the Spanish economy and we are fully focused on ensuring the security of supply in our Natural Hinterland, while capturing value across the portfolio. Moreover, we are on track to deliver on our targeted profitable production growth based on new projects coming on stream and with the US as one of the main contributors. And a better than expected macro scenario combined with this solid operational performance has allowed us to increase our cash flow for an operational expectation for 2026 by around 60%. In line with our capital allocation framework, we are deploying this additional cash to support higher shareholder distributions and reinforce our financial position while delivering on our investment plan. Our stronger balance sheet enhances our resiliency against fluctuations in the current scenario while preserving flexibility to capture potential attractive growth opportunities. With this, I will turn it over to Pablo as we move on to the Q&A. Thank you very much.