Repsol Profit Rises Both With And Without YPF

Repsol Profit Rises Both With And Without YPF

MADRID - Spanish oil company Repsol YPF SA moved Thursday to demonstrate that it has a solid future without its recently-nationalized Argentine unit, as it published first-quarter earnings figures that showed a net profit increase both with and without YPF SA.

The company said net profit in the three months to March 31 including YPF increased 3.5%, to EUR792 million from EUR765 million in the same period of 2011.

Adjusted to exclude the Argentine unit, Repsol's net profit would have climbed 12.4%, to EUR643 million, from EUR572 million.

The earnings update is the first since Argentina nationalized 51% of YPF, Argentina's leading oil-and-gas company, leaving Repsol with a 6.4% stake. The Madrid-based oil major decided to provide figures excluding YPF in its earnings statement even though the Argentine unit hadn't yet been nationalized in the first quarter.

Repsol previously had been consolidating YPF's earnings as if it owned 100% of the company, and it accounted for 46% of Repsol's reserves and more than half of its daily hydrocarbon output in 2011.

"Against the background of Argentina, Repsol had little option but to pull out all the stops on results," said Peter Hutton, an analyst with RBC Capital Markets. "Repsol has clearly wanted to show strength in its underlying business."

After Argentina seized YPF on April 16 Repsol executives argued the company could be stronger, saying that although YPF has promising future growth prospects based on the development of unconventional oil and gas production, Argentina caps energy prices and its energy policies have been unstable.

But investors weren't fully persuaded, and amid worries that Repsol's debt load may put its credit rating under pressure and it may need to trim its dividend, year-to-date the company's stock has lost about 40% of its value.

Repsol executives sought to allay some of those fears Thursday. Chief Financial Officer Miguel Martinez said the company expects to raise about EUR2 billion in 2012 by swapping preference shares for convertible bonds and offering investors the option of receiving the dividend payment in shares instead of cash. He said the company planned no major asset sales this year.

In addition, he projected that the company's overall daily output would rise about 3.7% to 335,000 barrels of oil-equivalent in 2012 from the first-quarter level of 323,000 barrels of oil-equivalent. Such additional output in the upstream division--that explores for and produces oil and gas in the Gulf of Mexico, Libya, Sierra Leone and elsewhere--would help boost the company's cash flow.

"We believe that the future of the company has not changed," Martinez said. "The upstream division was always the center of our growth plan."

A key metric demonstrated some of the strengths of Repsol's business without YPF. Recurring replacement-cost-adjusted net profit (the figure most closely watched by analysts because it strips out volatile swings in the value of inventories) including the Argentine unit, fell 3%, to EUR635 million from EUR654 million a year earlier, but excluding YPF it increased 4%, to EUR474 million from EUR456 million.

Also helping boost profit, Repsol's production in Libya largely returned to pre-war levels in the quarter. Operations restarted late last year in Libya after ceasing in early 2011 and for the duration of that country's civil war.

Repsol's liquefied-natural-gas division helped bolster profits as well. Its operating profit grew 37.4% to EUR158 million thanks largely to higher gas prices.

In the conference call, Martinez also issued some guidance for the year. He said that in the upstream division operating income would be about EUR2.2 billion to EUR2.5 billion while earnings before interest, taxes, depreciation and amortization, or Ebitda (a key measure of operating performance) would be EUR2.5 billion to EUR2.8 billion.

He added that Repsol planned to finance capital expenditures of about EUR3.5 billion, excluding expenses related to Repsol's 30% stake in power utility Gas Natural SDG SA, through the company's cash and its revolving credit lines.

At 1320 GMT Repsol shares were up 8.6% at EUR14.26, valuing the company at EUR17.4 billion.


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