Spanish integrated energy company Repsol SA expects to increase capital expenditures (capex) to pre-pandemic levels of 3.8 billion euros ($4.3 billion) in 2022, according to CEO Josu Jon Imaz.
The Madrid-based firm has an exploration and production (E&P) presence in 15 countries, including an extensive portfolio throughout the Americas.
The forecast increase in capex is “mostly due to higher investment in the transformation of our businesses, the flexibility of our E&P, and in projects that benefit from the price scenario,” Imaz told analysts during a conference call to discuss fourth quarter and full-year 2021 earnings.
The 15-country footprint is down from 26 countries just two years ago, Imaz said. Repsol now is “concentrating activity in areas where the company has competitive advantages,” management said.
These areas include Mexico, Trinidad and Tobago, Brazil, Bolivia, Colombia and Peru.
Repsol in September completed a deepwater appraisal well at offshore Block 29 in Mexico’s Salina Basin, where a Repsol-led consortium announced two oil discoveries in 2020.
The delineation well produced a “positive result,” management said, explaining this is “a key milestone for approval to the development phase.”
Repsol is the first international company to conduct such a test in Mexico’s deep waters, the company said.
Last year also saw the startup of Repsol’s Matapal natural gas project located about 80 km off the southeastern coast of Trinidad. Initial production is expected to range from 250-350 MMcf/d.
In Brazil, Repsol and partners Equinor ASA and Petróleo Brasileiro SA, aka Petrobras, approved the development concept for the BM-C-33 block. The block targets a gas and condensate field located within the Campos Basin in Brazil’s prolific pre-salt layer.
In Bolivia, Repsol in January 2021 confirmed a natural gas discovery at its operated Caipipendi contract area. The discovery is tentatively estimated to contain around 1 Tcf of reserves and prospective resources.
About 30% of the 2022 capex budget is earmarked for low-carbon projects, according to management.
Roughly 1.7 billion euros ($1.92 billion) is slated for the upstream, Imaz said, with about 1 billion euros ($1.13 billion) going to the industrial segment and another 1 billion euros for the “customer-centric and renewables” businesses.
Natural Gas Prices Soar
Strong commodity prices helped Repsol achieve its strongest financial performance in over a decade in 2021, Imaz said.
“The first year of our strategic plan to 2025 has consolidated our journey towards our long-term goals and the energy transition,” he explained. “Moreover, the extra cash generated in a higher commodity price scenario has allowed us to reinforce our financial position and to move into the next phase of the capital allocation framework defined in our strategy.”
Imaz said that “under our planning assumptions for 2022, we will be able to increase capex significantly and improve shareholder remuneration through additional buybacks, all while maintaining debt under control.”
Repsol management said that in 2021, “Liquefied natural gas (LNG) from the United States was in high demand in the Asian market, which was willing to pay high prices to secure supplies, and later also in Latin America and Europe.”
Imaz highlighted that U.S. natural gas prices “have reached levels not seen on a sustained basis since 2014,” averaging $5.80/MMBtu in Q4, more than double the price seen in 4Q2020.
“In Europe, gas prices reached record levels in the fourth quarter, driven by a tight supply-demand balance, geopolitical tensions, [and] competition from Asia.”
He cited that the Dutch Title Transfer Facility benchmark gas price averaged $14/MMBtu for full-year 2021, up from $3 in 2020.
Repsol’s strong performance in 2021 “is clear evidence of our high-quality integrated portfolio, disciplined execution and forward-looking strategy,” the CEO said. “We are coming out of 2021 with a solid financial position, ready to accelerate our strategy to be a net zero company by 2050 through the improvement of our intermediate decarbonization targets and with a proposal to the next Annual General Meeting to increase our shareholder distribution.”
‘Value Over Volume’
The company’s 2021-2025 strategic plan prioritizes “value over volume,” according to management.
“Between 2021 and the beginning of 2022, we have completed our exit from six countries, getting closer to the strategic objective of concentrating our geographical footprint, contributing to [increasing] the resilience of our E&P business,” Imaz said. “In the fourth quarter, we reached an agreement to divest our position in Ecuador and complete the disposal of our last remaining asset in Vietnam.”
The company achieved an organic free cash flow breakeven oil price of below $30/bbl for its upstream assets in 2021.
Repsol’s 2022 budget assumes a price deck of $70/bbl Brent oil and $3.70/MMBtu Henry Hub natural gas.
“Therefore, price-wise, we have planned 2022 to be, on average, similar to 2021, expecting a higher cash generation, thanks to an increased production, better refining margins and improved overall operations,” said Imaz.
Repsol is forecasting average production of around 600,000 boe/d in 2022, driven by the ramp-up of the Yme project in Norway, higher volumes in unconventionals and lower expected downtimes.
Repsol has set a capex budget of 19.3 billion euros ($21.8 billion) for 2021-2025, with 35% of that total earmarked for low-emission initiatives.
Imaz said Repsol is “focused on maximizing value in this positive environment, making the most out of our current portfolio while having, as a company, a very clear decarbonization pathway to 2025 and 2030.”
By 2030, Repsol is targeting a 55% reduction in emissions from operated assets (Scope 1 and 2), and a 30% reduction of net emissions (Scope 1, 2 and 3) versus 2016 levels.
Repsol reported average realized prices of $71.10/bbl for oil and $6.60/Mcf for natural gas during 4Q2021, versus $40.40/bbl and $2.70/Mcf in 4Q2020.
Production totaled 561,000 boe/d in the fourth quarter, comprising natural gas output of 2.08 Bcf/d and liquids production of 190,000 b/d. These figures compare to 628,000 boe/d, 2.31 Bcf/d and 217,000 b/d in the year-earlier period.
The decline in output was due to planned and unplanned maintenance activities in Bolivia, Canada, the UK and Malaysia, the natural decline of fields in the Marcellus and Eagle Ford shales and in Canada, the negative production sharing contract effect due to higher oil and gas prices as well as the divestment of producing assets, management said.
Production increased, however, in Venezuela, Norway, Trinidad and Tobago, and Colombia.
Accrued upstream investments totaled 534 million euros ($604 billion) in 4Q2021, a 352 million-euro increase from 4Q2020.
Exploration investments accounted for 13% of the total, and were allocated to the United States (52%), Norway (16%), Mexico (11%) and Bolivia (5%).
Repsol, which reports in euros (1 euro/US$1.13), posted net income of 560 million euros (0.37 euros/share) for the fourth quarter, versus a loss of 711 million euros (minus 0.47 euros) in 4Q2020. Full-year net income was 2.5 billion euros (1.64 euros/share) in 2021, compared to a loss of 3.29 billion euros (minus 2.13 euros) in 2020.
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