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Repsol Spain shifts strategy focus from growth

Source: Reuters - Thu 15th Oct 2015
Repsol  Spain shifts strategy focus from growth

Spanish oil major Repsol abandoned its growth ambitions on Thursday to focus on protecting its investment grade rating and ensuring a generous dividend against a backdrop of lower crude prices.

The strategy shift came just 10 months after Repsol bought Canadian peer Talisman in a $8.3 billion deal that boosted its international profile and output but increased its debt and put the company on the back foot to weather the energy prices slump.

Echoing similar moves from European competitors, Repsol said it would step up asset sales, trim exploration and production investments (Capex) and cut costs in order to generate more cash, pay back debt and maintain its 1-euro-per-share dividend.

"The growth history of Repsol is over, now we will be focusing on efficiency," Chief Executive Officer Jose Jon Imaz told analysts after presenting a new 2016-2020 strategic plan.

"We can't be everywhere doing everything. We have to focus where we are better than others or where we can compete with others."

Repsol said it would sell assets worth EU 6.2 Blnby 2020, starting with the most Capex intensive ones and those that present higher profitability risks.

Imaz said any potential sale of part or all of the 30% stake in Gas Natural, currently not under consideration, would come on top of that.

Repsol also committed to cut Capex by around 40% in the next 4 years while the company would deliver annual synergies and efficiency savings of EU2.1 Bln by 2018.

That would enable the group to generate EU10 Bln of cash by 2020 that would be used to almost halve its EU14 Bln debt and return around EU3.6 Bln to shareholders.

Imaz said Repsol would consider increasing the dividend or paying more of it in cash if energy prices recovered.

DELIVERY

Yet, the announcements were received cautiously by investors. Repsol shares dropped 2% by 1215 GMT, extending losses of 27% over the last three months and 20% year to date.

Analysts welcomed the steps taken by the management to ease the financial pressure on the group's balance sheet but said delivering some of the targets will be tough to achieve.

They also said the refining margin target of $6.4 per barrel contained in the plan looked ambitious given the $3.8 per barrel average margin achieved since 2010.

The refining margin, which was close to record highs at $8.9 per barrel in the third quarter, has helped shore up the balance sheet so far this year and any reduction would hit profits.

Repsol had said on Wednesday its net profit could fall by up to 22% in 2015, hit by low oil prices and a loss of value of some of its North American assets that will trigger a EU450 Mln impairment charge in Q3.

The group said it was still aiming for a full-year increase in earnings before interest, tax, depreciation and amortisation (EBITDA) but it switched to a target cleaned of inventory effects (CCS), which is deemed easier to achieve.

The firm previously saw its 2015 EBITDA at between EU5 - EU5.5 Bln, or an increase of up to 45% from 2014. It now sees its CCS EBITDA at between EU5.2 - EU5.45 Bln, or an increase of up to 15% from 2014.

Repsol targets a CCS EBITDA of EU7.9 Bln by 2020.

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