Repsol Profit Jumps; No Decision on Dividend

MADRID (Dow Jones Newswires), Nov. 11, 2010

Repsol Thursday posted a 70% increase in third-quarter net profit, excluding inventory effects, and said it hasn't yet made a decision on whether it will increase the dividend following the sale of part of its Brazilian business.

Repsol's Argentine unit YPF, which accounts for around half of Repsol's oil and natural gas reserves, reported a 77% increase in operating profit, largely because Argentina's government allowed higher pump prices, a long-standing request by foreign firms operating in the country. YPF's operating profit was EUR374 million for the quarter, up from EUR211 million a year ago.

Repsol's overall replacement-cost-adjusted net profit, the figure most closely watched by analysts, as it strips out volatile swings in the value of inventories, rose to EUR502 million from EUR296 million a year earlier, on higher refining margins and an improved contribution from its Argentine operations. Analysts projected adjusted net income of EUR428.4 million, according to First Call.

Repsol's earnings didn't include any contribution from Repsol's sale of 40% of its Brazilian operations to China Petrochemical Corp., or Sinopec, for $7.1 billion, announced in September, as the deal hasn't been completed yet.

Asked about recent press reports saying the company might distribute part of those funds to shareholders--notably cash-strapped construction company Sacyr-Vallehermoso, Repsol's top shareholder--Repsol's Chief Operating Officer Miguel Martinez said at a conference call with analysts that Repsol is planning to use the proceeds to develop its promising Brazilian operations.

Repsol expects it will spend between $15 billion and $20 billion on developing the Brazilian fields over the next seven years, Martinez said.

The final decision on any dividend increase would be up to the board of directors, he said.

The company's overall oil and gas output rose 5.8% to 346,000 barrels of oil equivalent a day due to an increased contribution from Venezuelan and Libyan fields, but said it remains focused on Brazil, which accounted for 78% of all exploration investment in the quarter.

Meanwhile, refining margins stood at a relatively high $5.6 a barrel for the nine months to Sept. 30, and rose to $1.5 a barrel in the third quarter from $0.3 a barrel in the same period a year ago.

Still, margins slowed from $3.3 a barrel in the second quarter, in line with trends seen elsewhere in the European energy industry. This is because in the summer third-quarter fuel consumption included a lower component of diesel for heating systems, and because Spain's gasoline exports to the U.S. were lower than usual due to weak U.S. demand, leaving the local gasoline market oversupplied.

"The exploration and production unit should continue to be the driver of the investment case on the back of the extensive drilling campaign taking place in Brazil, while West Africa may be a wild card," analysts at BPI said in a note. BPI rates the stock at accumulate, with a EUR20.20 target.

At 1542 GMT, Repsol's shares were up 0.1% at EUR19.77, outperforming a falling wider market.

Copyright (c) 2010 Dow Jones & Company, Inc.


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