Repsol Earnings: Shareholder Returns to Remain Intact Despite Earnings Fall

Repsol’s REP second-quarter adjusted earnings fell to EUR 827 million from adjusted earnings of EUR 2.2 billion a year ago largely on lower oil and gas prices and weaker refining margins. Operating cash flow fell to EUR 1.7 billion from EUR 1.8 billion the year before while capital spending grew to EUR 1.3 billion from EUR 859 million. Management expects full-year organic capital spending of EUR 5 billion. Repsol reiterated a 2023 30% payout ratio of cash flow to shareholders, on the upper end of the guidance range. This will amount to EUR 2.4 billion, including an additional 60 million shares to be repurchased by year-end for a total of 110 million in 2023.

Net debt including leases fell substantially to EUR 797 million from EUR 5.0 billion at the end of the second quarter, implying a net debt/capital ratio of 2.8%, well below most peers. Our fair value estimate and moat rating are unchanged.

Upstream segment adjusted earnings fell to EUR 410 million in the second quarter compared with EUR 947 million a year ago on lower oil and gas prices. Production rose to 596,000 barrels of oil equivalent a day from 540 mboe/d last year primarily due to the commissioning of new wells in the unconventional assets of Eagle Ford and Marcellus (USA). Despite rising production in the quarter, Repsol reduced its production guidance for 2023 to 600 mboe/d from 605 mboe/d.

Industrial (refining and chemicals) adjusted earnings fell to EUR 344 million compared with adjusted earnings of EUR 1.2 billion the year prior on lower refining margins mainly due to lower middle distillates and gasoline spreads together with lower utilization rates in the distillation. While margins have fallen considerably since last year, they remain high relative to historical levels and have improved since April, a positive sign for the segment going forward.