Repsol sees production stabilizing this year, capex returning in 2021

Barcelona — Spanish integrated energy group Repsol sees 2020 production stabilizing at the top end of its May estimate and could reverse an upstream capital expenditure cut next year if oil prices sustain a level around $45/b to $50/b, company CEO Josu Jon Imaz said July 23.

The company is forecasting full-year output of 650,000 barrels of oil equivalent/day for 2020, including a potential return of production in Libya in the fourth quarter, Imaz said.

The figure would be at the top end of Repsol's revised range of 630,000 boe/d to 650,000 boe/d that it forecast in May in light of the coronavirus pandemic and slightly higher than its second quarter of 2020 production of 640,000 boe/d.

While the return of the Libyan operations, which can net Repsol up to 39,000 boe/d, is out of the company's hands, natural gas production in Indonesia and Peru might be lifted by increased Asian gas demand, while unconventional North American production has the flexibility to resume depending on gas prices and breakeven levels in the US, Imaz said.

Upstream production in Q2 2020 fell 8% year on year to its lowest quarterly total since Repsol's 2015 purchase of Talisman as halted Libyan production was compounded by halts in Colombia's Akacias and Canada's Chauvin plays as well as reduced production in Canada's Duvernay Formation, among others, due to low prices, the company said.

However, Imaz told analysts on a conference call that some of the wells that had been shut, namely Buckskin in Gulf of Mexico and Norway's Rev, were running again, while production has also been increasing in the Marcellus Shale play in the US after it had successfully reduced the breakeven level in the region.

SPENDING PLANS

The company said it expects an upstream spending cut implemented for 2020 will not be extended into 2021.

"If next year, we are where we expect to be, something in between $45/b to $50/b, the upstream business is going to go on investing," Imaz said.

Upstream capex could be around $2 billion in 2021, he said, which would be roughly in line with its initial $2.1 billion capex target for 2020 prior to a pandemic-related cut of $800 million.

The company will present an updated strategic plan for 2021 to 2025 in November with updated metrics, it said.

For the rest of 2020, Repsol said it intends to further squeeze operating expenditure and capex after posting an adjusted loss of Eur258 million in Q2, with damage from weak upstream prices and reduced sales within the group.

It plans to cut operating costs by Eur450 million in 2020, Eur100 million more than its previous estimate in March after it reduced Q2 operating expenditure in its upstream division to $7.90/b from $9.00/b in the year-ago quarter, leading to cost cuts of Eur250 million in the quarter.

It also expects to reduce capex by the end of 2020 by a further Eur100 million for the year - for a total cut of Eur1.1 billion.

Q2 LOSS

The company's upstream division reported a loss of Eur141 million in Q2 -- a swing from a profit of Eur323 million in Q2 2019 -- due to lower oil and gas prices and lower volumes.

Its average sales price for crude was $25.50/b in the quarter, down 59% year on year and down 42% from Q1 2020, while its average gas sales price was $1.90/Mcf, down 39% year on year and down 21% quarter on quarter.

For its bottom line, the company made a provision of Eur1.3 billion in the upstream division related to lower crude and gas prices for 2020 and 2021, driving overall net loss down to Eur2.0 billion in Q2.

The company said it is using an estimate of $59.60/b for Brent for the 2020 to 2050 period and an estimate of $3.30/MMBtu for Henry Hub.

In March, Repsol cut its price assumptions to $35/b for Brent for the remainder of 2020 and a Henry Hub price of $1.80/MMBtu from previously assumed price benchmarks of $65/b for Brent in 2020 and $2.80/MMBtu for Henry Hub.

The other main loss came from its Corporation division, which lost Eur167 million in Q2 as a result of the negative impact of adjustments for crude sales within the group and internal demand, the company said. The division had reported a Eur131 million loss in Q2 2019.

In the downstream segment, Q2 throughput fell 22% to 8.3 million mt, with a 14% year-on-year decline in refining margin to $3/b as the gasoline to Brent differential fell 79% year on year to $2.50/b and the diesel to Brent differential fell 35% to $8.90/b, it said.