Repsol YPF net income in first three-quarters of 2005 was up 23.9% year-on-year to EUR2,584 million. Income from operations rose 30.7% to EUR4,500 million, and cash flow reached EUR4,811 million, jumping 46.8% year-on-year, proving the company's large capacity for cash generation.
Income from operations was significantly higher in all Repsol YPF business areas, particularly in refining & marketing, which rose 75.7%. Performance from exploration & production also improved 12.8%, chemicals 38%, and gas & power income rose 31.2%.
These January to September 2005 results were achieved in a scenario of high crude oil prices and a 3% appreciation of the euro against the dollar. The company's refining margin indicator reached $8.28 per barrel, 66.6% above the 2004 equivalent. In chemicals, international margins on our product mix were wider than the year before, while gas and power benefited from good performance in Latin America and the growth of gas distribution in Spain.
Sharp reduction in debt
Repsol YPF net debt at the end of September 2005 stood at EUR5,343 million, EUR548 million lower than in September 2004. The majority of this reduction came from the strong cash flow generated in the period, which was sufficient to finance investments and a large increase in working capital, while offsetting the effect of dollar revaluation. The net debt to capitalization ratio fell to 21.3%, posting a near 4 percentage point drop with respect to September 2004.
Investments from January to September 2005 were EUR2,169 million, and went mostly to exploration & production (EUR931 million) and refining & marketing (EUR705 million).
Exploration & Production: income from operations up 12.8%
At EUR2,251 million, cumulative income from exploration & production operations in the first nine months of 2005 was 12.8% higher than the EUR1,996 million posted in the same period a year earlier. This growth was mainly driven by the increase in crude oil reference prices and gas realisation prices in Trinidad & Tobago and Argentina.
The Repsol YPF liquids realization price averaged $36.27 (EUR28.74) per barrel versus $29.88 (EUR24.41) per barrel in the first three quarters 2004. The average price of gas was $1.47 per thousand standard cubic feet (tscf), 21.4% up on the $1.20 per tscf registered in 2004, shored up by higher average gas prices in Trinidad & Tobago and Argentina, and a larger sales volume in Trinidad & Tobago.
The company's average oil and gas production for the nine months fell slightly year-on-year, to 1,156,300 boepd. This drop was mainly the result of strikes in Argentina, scheduled shutdowns in Trinidad & Tobago, and the maturity of the Argentine fields.
Gas showed a production increase of 3.5%, to 619,200 boepd (3,473 Mscf/d), with enhanced production mostly from Bolivia, Trinidad & Tobago, and Venezuela.
January-September investments in the exploration & production business area were EUR931 million. Investment in development represented 76.2% of total investment, and was spent mainly in Argentina (66.9%), Venezuela (7.3%), Trinidad & Tobago (8.7%), Bolivia (4.3%), Ecuador (3.5%), and Libya (1.6%).
Refining & Marketing: income from operations rises 75.7%
Income from operations in the refining & marketing area, at EUR2,093 million, was up 75.7% year-on-year. This performance is mainly attributable to a 66.6% improvement in the company's refining margin. Marketing margins were slightly down against the same period 2004, because the rise in international crude prices was not passed through to retail prices.
Total oil product sales increased 5.2% year-on-year to 42.7 million tons. Sales in Spain, at 24.9 million tons, were 2% higher year-on-year, and in Argentina, Brazil, and Bolivia (ABB) rose 2% to over 11.5 million tons. In the rest of the world, sales showed 28.4% growth, reaching 6.3 million tons, boosted by the incorporation of new assets in Portugal. Sales to our own marketing network were higher in Spain, ABB, and the rest of the world.
Turning to the LPG business, total sales reached 2,448 million tons, showing a 1.9% rise. In Europe there was 1% sales growth thanks to larger volumes in Portugal which compensated for a 3% drop in Spain because of warmer weather. In Latin America, sales were 3.1% higher year-on-year shored up by strong growth in Ecuador and good performance in Chile.
In the first nine months of 2005, investments in refining & marketing amounted to EUR705 million against EUR599 million in the same period a year earlier, and were mainly allotted to current refining projects and the acquisition of LPG assets in Portugal.
Chemicals: sales rise 6.6%
In Chemicals, cumulative income from operations up to September 2005 improved 38% year-on-year to EUR265 million, versus EUR192 million in the same period a year earlier. Strong performance here came from wider international margins on our product mix and the income contribution from the recently acquired Sines complex in Portugal.
Total petrochemical product sales reached 3,274 thousand tons, 6.6% more than the 2004 equivalent, boosted by the inclusion of sales from Sines and 50% of the Propylene Transformer (TDP initials in original language) in Tarragona.
Investments in the Chemical area totaled EUR118 million, 118.5% up on the same period 2004, and were mainly spent on increasing capacity, particularly at the propylene oxide/styrene plant in Tarragona, and in upgrading existing units.
Gas & Power: income from operations rises 31%
Income from Gas & Power operations from January to September 2005 rose 31.2% to EUR290 million, versus the EUR221 million recorded in 2004. This increase basically reflects capital gains realised on the sale of Enagas shares and earnings growth posted by Gas Natural SDG.
Enhanced performance from Gas Natural SDG stemmed from improvement in gas distribution in Spain and in Latin America, where there was a change in the consolidation scope for Brazil and organic operating growth in Mexico, Colombia, and Brazil.
January-September 2005 investment in gas & power was EUR337 million versus EUR664 million in the same period a year earlier.
We would like to highlight the following events that have arisen to date, in 2005:
- In February last, Repsol YPF entered an agreement with the Dutch company, Basell, to acquire 50% of the latter's stake in Transformadora de Propileno A.I.E., including a polypropylene plant at the Tarragona Petrochemical Complex, with a 160,000 tons/year capacity, in which Repsol already holds the other 50%. This transaction boosts Repsol YPF's polypropylene capacity by 15%, thus increasing its presence in the polyolefin business in Europe, and represents a further step forward in one of the company's core strategic lines for growth.
- In Venezuela, Repsol YPF has been awarded a large block on the Orinoco strip, called Junin 7, covering an area of approximately 500 km2 with a high reserves potential and production to be developed. The concession of this block is even more significant if we note that Repsol YPF is the only one of the world's major private oil companies to have been awarded a block. The Orinoco strip holds the world's largest reserves of heavy and extra-heavy oil and is considered one of the greatest petroleum reservoirs on the planet.
- Repsol YPF and PDVSA entered an agreement to set up two production joint ventures in basins of high oil value in Venezuela. The first will operate in the Venezuelan oil mining region of Barúa-Motatán and other possible areas. In parallel, a joint venture between these two oil companies will be created to operate the Junín 7 block and/or other blocks in the Orinoco oil strip. This regional alliance also contemplates an association between Repsol YPF and PDVSA, through which the Spanish company will grant a portion of its crude oil originating from the Argentine State concessions to Petróleos de Venezuela. The percentage of the crude oil to be made available to PDVSA will not surpass 10% of the production from said concessions. This agreement will not affect the ownership of the concessions, which belong to Repsol YPF.
- Repsol YPF and Gas Natural SDG, in April entered an agreement for Liquefied Natural Gas (LNG) businesses, including the exploration, production, and liquefaction of natural gas reserves. This agreement will grant both companies access to new markets under more favorable conditions. In the exploration, production, and liquefaction (upstream) area, the agreement contemplates joint association for the development of new projects in which Repsol YPF, will be operator with a 60% stake in assets, and Gas Natural SDG will hold the remaining 40%.
- Repsol-Gas Natural LNG, S.L. was set up in August, for the trading, wholesale marketing and transport of liquefied natural gas (LNG). This joint venture between Repsol YPF and Gas Natural SDG is the third largest in the global market by volume of LNG handled, immediately behind KOGAS and Tokyo Electric, and will permit both owning companies to exploit the synergies of their upstream and midstream businesses, formerly run separately, enabling them to face with a strong spirit of leadership the changes and challenges brought by increased market globalization in the international LNG market.
- In June, Repsol YPF and Irving Oil Limited entered an agreement to develop the first LNG regasification plant on the east coast of Canada, forming a new company, Canaport LNG, which will construct and operate the terminal to supply markets in the surrounding area, as well as the northeast coast of the United States. The Canaport terminal will initially be capable of delivering 10 Bcm per year of LNG to the market. Repsol YPF will supply the natural gas to feed the terminal and hold a contract for 100% of the plant's regasification capacity. This plant is scheduled to go on stream and distribute natural gas to the market from 2008 onwards, and Repsol YPF will market the regasified LNG mostly in the USA.
- Also in June, Repsol YPF signed a Memorandum of Understanding with Hunt Oil to develop the Peru LNG project. This project consists of a Hunt Oil and SK Corporation joint venture for building and operating a liquefaction plant in Pampa Melchorita (Peru). The plant, expected to be operational in 2009, will produce 4 million tons per year of LNG for sale on the west coast of the United States and Central America. The Peru LNG project will be fed by natural gas from block 88 and block 56 of the Camisea field, in which Repsol YPF will also have a stake. This MOU also contemplates Repsol YPF taking a stake in Transportadora de Gas del Peru SA (TGP), the company that delivers natural gas from the Camisea area via the trans-Andean pipeline.
- In addition, on 16 June, Moody's international rating agency upgraded Repsol YPF issuer rating to Baa1 from Baa2, based on the company's solid financial profile, management's stated strategy to broaden the group's asset diversification, sustained strong positions and cash generation from the group's Spanish refining & marketing business, and gradual improvements in Argentina's operating environment.
- On 5 July 2005, as approved at the company's last Annual General Shareholders Meeting held on 31 May 2005, Repsol YPF paid a gross complementary dividend of EUR0.25 per share against the 2004 financial year.
- Also in July, Repsol YPF became one of the main oil and gas producers in the Caribbean on exercising a call option for the purchase from BP of three oil fields and one gas field in Trinidad & Tobago, for a price of $229 million. The Trinidad & Tobago State oil company, Petrotrin, is expected to purchase a 15% stake in the fields. The transaction is subject to approval by the Government of Trinidad & Tobago. The three oil fields, Teak, Samaan and Poui, currently produce 20,500 barrels of oil equivalent per day. The 3P risk reserves for the fields are estimated at 174 million barrels of oil equivalent. Investment in the oil fields and the development of the gas field will be around $500 million up to the year 2025.
- Repsol YPF, in October last, made a new discovery of light crude in the prolific Murzuk basin, in Libya. During production testing, the well gave a natural flow of 2,060 barrels per day. The find was made at a depth of 1,717 meters by well l1 of exploration block NC186, 800 km south of Tripoli, in the Sahara desert. Repsol YPF is operator of this block, with a 32% stake, in partnership with the Libyan National Oil Company and three European companies: OMV (Austria), Total (France) and Hydro (Norway).