Galp maintains 2020 output, capex targets on Brazil ramp-ups

Barcelona — Portugal's Galp said Oct. 26 it will maintain its 2020 targets for increased production and reduced capital expenditure due to ongoing ramp-ups offshore Brazil and a reduction in production costs.

Galp will continue to target a 10% growth in working interest production for full year 2020, equivalent to an average 133,980 b/d of oil equivalent, after posting an average of 132,500 boe/d in January-September, the company said in a regulatory filing to the Lisbon stock exchange.

During the third quarter, the floating production, storage and offloading vessel at Tupi North (formerly Lula North, Galp 9.2%) off Brazil reached plateau, meaning that the first phase ramp-up of Tupi/Iracema is completed, Galp said.

Meanwhile, the ramp up of Berbigao/Sururu (Galp 10%) is resuming with the connection the fourth producer well of the FPSO in early October and progress is being made with partners (Petrobras, Shell) on the next development phases of Tupi/Iracema, it said.

These moves would give the company future optionality, the company added.

Galp cleared its Capital Markets Day guidance in April following the onset of the coronavirus pandemic and announced a 50% cut in capital expenditure to Eur600 million ($709 million) for each of 2020 and 2021.

It confirmed Oct. 26 that it expects to hit this target net of adjustments and divestments and following a 38% cut to upstream capex in January-September to Eur257 million.

During the Q3, Galp said it reduced production costs to $1.90/b from $3.30/b a year earlier, without adding details.

In continued to invest in the execution of Tupi and Berbigao/Sururu in Brazil, as well as of Area 4 projects, in Mozambique, it said.

Overall, 46% of its Eur724 million January-September capex has been allocated to renewables, including the Eur325-million acquisition of a 2.9-GW solar pipeline in Spain.

As part of its asset rotation strategy, the company announced Oct. 26 that it agreed to sell its majority stake in local gas distribution group Galp Gas Natural Distribucao (GGND) to Allianz European Infrastructure group for Eur368 million, which will more than offset the outlay on the renewable business.

Downstream weakness

In its downstream business, Galp reported a weak environment leading to a 30% drop in oil product sales in Q3 to 1.5 million mt, weighed by weak demand from the aviation and bunkers segments.

The company's refining margin fell into negative territory in the quarter, averaging minus 70 cents/boe due to low distillate cracks, it said.

The environment has led the company to idle its fuel production units at its smaller Matosinhos refinery until market conditions improve.

Nonetheless, refinery throughput from its two units increased 14% year on year in Q3 to 23.4 million boe during the period, as last year's operations were impacted by planned maintenance.

Middle distillates (diesel and jet) accounted for 48% of production and gasoline for 21%. Fuel oil production accounted for 16%, all of it very low sulfur fuel oil.

Crude oil accounted for 89% of raw materials processed, of which 92% were medium and heavy crudes. Sweet crudes accounted for 91% of the total crudes processed, Galp said.