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    Repsol Impairs Upstream, Focuses on Low Carbon


Some upstream assets though remain key to the company's goals.

by: William Powell

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Repsol Impairs Upstream, Focuses on Low Carbon

Spanish energy company Repsol posted an adjusted net income of €600 ($724)mn in 2020 February 18, saying all its businesses were affected in some way by the collapse in prices but still generated cash. It was also scarred by the Covid-19 pandemic which wiped €978mn off the value of its inventories over the whole of 2020.

But the year ended positively: "The success of the measures adopted, together with an incipient recovery of demand and product prices, became more evident in the fourth quarter of the year in which the adjusted net income was €404mn, similar to the same period in 2019," it said.

The year was a turning point as it announced a strategy in November for the next five years that it hopes will take it to a net-zero carbon business by 2050. The main elements of the plan are: efficiency; the circular economy; renewable hydrogen; and capture and use of CO2.

The company recorded impairments of  €2.911bn on its upstream assets, meaning that overall the company lost €3.289bn. However it was able to generate positive cash flow of €1.979bn, of which over half – €1.178bn – went on debt reduction. Debt now stands at €3.042bn.

The upstream business earned €195mn on production of 648,000 barrels of oil equivalent/day, in a period in which it reduced the emissions from its operations by 269,500 tons of CO2e. It also had a record success rate with the drill, scoring seven commercial successes out of nine wells.

Although it is decarbonising, upstream assets remain important, it told NGW after launching the strategy: "Our priorities in the E&P business are short-cycle projects and a focus is on exploration in areas where we already have capabilities and knowledge. [Our] Sakakemang [find in Indonesia] is among these projects." 

Repsol CEO Josu Jon Imaz said the company had again confirmed that the company is “useful to society" It has "demonstrated that it is part of the backbone of the Spanish economy and one of its main driving forces. It plays a crucial role in the recovery from the crisis, and also in contributing to a more decarbonised world, using all available technologies.”

Prominent in its plans to decarbonise are two innovative industrial decarbonisation projects in Bilbao; Spain’s first advanced biofuels plant, in Cartagena; and the development and commissioning of renewable assets in the Iberian Peninsula as well as the beginning of the international expansion of this business with the creation of a joint venture in Chile.

Hydrocarbon discoveries were made in the US, Colombia, and Mexico. Two discoveries in the month of April in waters off the coast of Mexico are especially noteworthy. Both were explored with lower costs and shorter timeframes than estimated.

Upstream will generate €4.5bn in cash flow between 2021 and 2025 according to the plan, and it will reduce its cash flow breakeven target by 20% over the period, to under $40/barrel. At the same time, it will reduce its emissions of CO2e per produced barrel by 75% by 2025.

Repsol has also set ambitious goals for the biofuels segment where it aims to have a production capacity of 1.3mn metric tons by 2025 and more than 2mn by 2030. Renewable gas, from municipal waste, is another area for decarbonising.

The commercial and renewables unit achieved earnings of €485mn. The company has a total installed low-emissions generation capacity of almost 3.3 G and aims for 7.5 GW by 2025 and 15 GW by 2030, of which 2.6 GW may come from its Chliean joint venture.