Repsol posted net income in 2014 of €1.612 billion, supported by the strength of its integrated business model. This result represents a 724% increase over the €195 million registered in 2013, a financial year in which the company booked one time cleanup charges related to the expropriation of YPF. Adjusted net income rose 27% to €1.707 billion. This result is especially significant considering the abrupt fall in international crude prices in the second half of the year, resulting in a €606 million negative effect on earnings for the financial year, and the interruption of activity in Libya.
Both factors were mitigated by the start of production in strategic projects in Peru and Brazil and by the excellent result of the downstream unit, which earned €1.012 billion, due mainly to the efficiency of the refining facilities and their technical capability to process heavy crudes.
In the upstream unit, the adjusted net income was €589 million compared to €980 million in 2013. This was due to suspended production in Libya and lower crude realisation prices, affected by the abrupt fall in international benchmark prices during the second half of the year.
In this context, Repsol was able to increase its average production during the year by 2.5% to 354 500 bpd, including 32 000 bpd of new production from projects in Bolivia, Brazil, Peru, Russia and the US.
With the launch of the Kinteroni project in Peru and the Sapinhoá oilfield in Brazil, the company has already started production from seven of the 10 key projects included in its ‘2012 - 2016 Strategic Plan.’
Furthermore, for the fifth consecutive year Repsol has incorporated more hydrocarbons to its reserves than it produced, with a replacement ratio of 118% for the financial year. The average replacement ratio for the last three years is around 200%, which is among the highest in the sector and which exceeds the targets set out in the ‘2012 - 2016 Strategic Plan.’
Repsol continued with its successful exploration campaign throughout the year. Of the 34 wells drilled, 12 discoveries were made; this is a 35% exploration success rate, higher than the industry average.
Among these, the company discovered hydrocarbons in Brazil, Russia, the US, Bolivia and Trinidad and Tobago, enabling it to continue adding to its resources. Two discoveries were made in Russia that will add some 240 million bbls of recoverable resources, according to the Ministry of Natural Resources and Environment of the Russian Federation.
In the US Gulf of Mexico, the most significant discovery was at León in ultra-deep water with a high-quality net oil deposit more than 150 m thick. In addition to this find, a second appraisal well was drilled in Buckskin, 50 km from León, which also had positive results. In Brazil, Repsol approved the development of one of the large offshore pre-salt exploration projects at the Lapa field. Production is expected to begin next year. Phase III of the Margarita-Huacaya gas project was launched in Bolivia and will increase total production to 18 million m3/d of gas from January 2016. This project includes the largest productive well in the history of the Sub-Andean Basin, drilled and operated by Repsol.
Net income at the downstream unit rose 111% to €1.012 billion (at current cost of supply), as a result of improved refining and chemicals margins, driven by the execution of the Competitiveness Plan, as well as the greater volumes commercialised and the increase in gas margins in North America.
The downstream results continue to show the quality of the group's assets following the launch of the large scale investment projects in Cartagena and Bilbao. These projects help Repsol maintain its position as a leader among its European competitors in terms of the integrated refining and marketing margin; US$4.1/bbl compared with US$3.3/bbl the previous financial year.
In the gas and power business, the greater volume commercialised in North America, along with the reduction of costs, drove a 44% rise in operating income during the year to €269 million.
Acquisition of Talisman Energy
In December 2014, Repsol made an offer to purchase Canadian oil company Talisman Energy, for US$8.3 billion plus debt. The acquisition will make Repsol a larger, more balanced group in terms of the composition and geographical location of its assets. The resulting group will be among the largest in the world and will be more competitive, better diversified and have increased geographical diversification, incorporating assets that will serve as a platform for future value creation.
North America will become a key region for the new company, concentrating 58% of the capital employed in the upstream business. For its part, Latin America will have less weight upstream: 22% of the capital employed compared to its current 50%.
After the approval of the operation by the Talisman Energy General Shareholder's Meeting held on 18 February, Repsol hopes to obtain the necessary permits and regulatory authorisations to close the transaction in 2Q15.
Adapted from press release by Rosalie Starling