Galp Energia, SGPS, S.A. (GALP) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to Galp's Second Quarter 2026 Results Presentation. I will now pass the floor to Joao Goncalves Pereira, Head of Investor Relations.

Good morning, everyone, and welcome to Galp's Second Quarter 2026 Q&A session. I'm joined today by our co-CEOs, Maria Joao Carioca and Joao Marques da Silva as well as the full executive team. But before I pass the mic for some quick opening remarks, let me start with our usual disclaimer. During today's session, we will be making forward-looking statements that are based on our current estimates. Actual results could differ due to factors outlined in our cautionary statements within the published materials. With this, Maria Joao, would you like to say a few words?

Thank you, Joao. Good morning, everyone. During the second quarter, Galp continued to operate in what we know it was a very highly volatile market environment. It is, therefore, rather reassuring to have a high-quality asset base that allows us to capture more tailwinds sustain our financial performance and maintain net debt rather stable despite relevant cash outflows during the quarter. . Acknowledging this continued market uncertainty, but also the strong operating performance in the first half of the year, we are updating our full year full year EBITDA guidance to circa EUR 4 billion and our operating cash flow guidance to EUR 3 billion. This guidance is based on an average Brent price of $70 per barrel and a refining margin of $10 for the second half of the year. Furthermore, the Board will propose a 10% increase to the 2026 dividend per share. This brings us to $0.70, with the first advancement on this payment to take place in August. This reflects not only the strong results delivered so far in 2026, but also the Board's confidence in the resilience and quality of Galp's portfolio across the cycle. Testimony to this quality, our upstream portfolio continued to demonstrate outstanding performance. Legacy assets maintained very strong uptime levels while the 3 producer wells in Pacala are successfully delivering on the expected ramp-up path and delivering also excellent productivity results. Looking at Namibia, our strategic partnership with Total Energy should be soon completed. More importantly, we remain on track to drill a new well in the Mopin complex during the fourth quarter. Overall, we're making steady progress across all key milestones and further strengthening the visibility of Galp's rather unique upstream growth profile for the next decade. Joao, would you like to complement?

Thank you, Maria as well. Indeed, this quarter demonstrates that GAP is executing with consistency across multiple fronts while continuing to deliver strong financial performance, we are also making disciplined strategic decisions that are strengthening the quality of our portal and positioning the company for long-term value creation. Earlier today, we announced the acquisition of a new wind portfolio. This is a final step in relating our renewables business into a stronger and higher-quality platform. The 361-megawatt fully operational portfolio in Spain, builds on the acquisition we announced back in April. This takes our total renewable capacity to 2.7 gigawatts with win now at about 30% of the mix. and lifts our pro forma renewables EBITDA to roughly $110 million for 2026. With this acquisition, our renewable portfolio gains greater scale a better balance across technologies and increased resilience. It also gives us more flexibility and optionality as we evaluate future partnership opportunities and alternative ownership structure. In parallel, we are also making progress in downstream. Discussions with the shareholders of Move continue to move forward in a constructive way. All parties remain aligned on the strategic rationale and potential benefits of the transaction. By bringing our downstream activities together, we believe the combined business will be better positioned to unlock value, increase scale, strengthen its competitiveness and reinforce their strategic position. Our focus remains unchanged, ensuring that any transaction is the right 1 for Galp and its share delivering sustainable long-term value. To conclude, Galp delivered both strong financial results and strong strategic execution this quarter, a result of the continued commitment of our people and our partners. Together, we are building a stronger company, reshaping our portfolio and reinforcing got distinctive investment case for the years ahead. We are now happy to take your questions. Operator, we can start the Q&A.

[Operator Instructions] And your first question today comes from the line of Biraj Borkhataria from RBC.

First one is just on the renewable portfolio. You've obviously made a move to hybridize that. So just a broad question of whether you see yourselves as owners of that portfolio longer term? Because it feels like this is the sort of final step to looking to sell down as you make it more robust? And then second question is on distribution. Raised the dividend, but no change in the buyback today. Even if I look at your macro assumptions, which look conservative, it looks like the buyback should be much higher. So I was just wondering how you're thinking about the cadence of updating that guidance or whether you're just going to look to 2027 to top it up or that will be a 3-year then.

Thank you, Biraj. On your first one, I will leave the second 1 to Maria as well. you know it quite well. So we've been managing actively our portfolio across upstream, downstream and now renewables. So allow me to underline the strategic rationale on the wind transactions and the quality also of the acquired portfolios. For us, maintaining and diversifying the power generation is aligned with the strategy of maximizing the value of the volumes under management across the energy value chain. The recent acquisition just reinforces gout portfolio, building a more -- a much more diversified and resilient portfolio with multi-technology, rebalancing the risk written profile. Let me also emphasize on the energy management commercial angle it will provide us access to a more stable generation source. It will unlock additional value in ancillary services and reduces the unitary imbalance cost for the entire portfolio. With the second wind acquisition, we have reached sufficient scale, as you say, the final step and diversification with no further acquisition target at this point. So we are focused, as you also say, on the best options to optimize capital structure of such position in our power portfolio. Increasing scale and diversification will enhance us to be ready to pursue the partnership structure and increase the reviewing of its cash flow of its cash flow generation. So in summary, the recent win transactions, strengthened Golpintegrated power strategic positioning and increase its flexibility to evaluate the strategic partnership opportunities towards ownership, financial structures, alternatives, while retaining optionality in its exposure to the long-term growth of the Iberian power market.

Let me then follow up and pick up on your question on share buyback, Biraj. As Joao just signaled, we have a number of pieces moving in our portfolio. So touching upon the share buyback would actually go to a discussion on the distribution policy that we see is something that we would like to engage as we get more visibility on some of those moving parts. And of course, in particular, more visibility on what will be the final terms on weather. So we acknowledge that there may be potential adjustments to the policy. But for now, what we wanted to do was to make sure that we could signal the merits of what we see in our portfolio right now. So continued growth ahead of us but Kala is ramping up nicely. Upstream continues to perform rather well. So what we see in the dividend component, and that's why we opted for the 10% increase. So let me remind you that normally, we will be increasing at 4%. This is us putting forward a 10% increase that actually raises the floor of our dividend. And with that, we believe that we're signaling trust and believe that we will be able to sustain growth throughout the cycle as we're raising this floor for our overall distributions. So overall, this is a signal on trust. It's sort of acknowledgment that the first half of the year was a really positive one. It does not take us to the distribution policy discussion. We believe that one is to be had once we have more visibility in particular of the Move deal. Thank you.

Our next question today comes from the line of Alejandro Vigil from Santander.

The first one is about the new guidance of EUR 4 billion EBITDA and EUR 3 billion operating cash flow. If you can go through these different levels to reach such a high level of operating cash flow in comparison with the EBITDA, so the high conversion of this EBITDA into cash. And the second question is about Brazil. And the oil export taxes, if you can provide an update on the situation in the country and your impair company.

Thank you, Alejandro. So we're updating the guidance fundamentally on the back of what is our continued good performance. So you see there that we revised our upstream guidance also in tandem. And this is bringing us fundamentally to the upper part of the interval we have guided to before. And remaining businesses, we're also seeing good indications. So we know that the context has been one of considerable volatility, but still as that volatility flows through the balance sheet and our accounts, we see continued strong operational performance. Hence, the revision of the overall EBITDA to EUR 4 billion, OCF now at EUR 3 billion. We do see that refining margin incorporated in these guidance is one that it has been probably the variable with the most volatility in recent weeks and times. So we're seeing spot prices well above what we included in our guidance. So we are guiding numbers that are, you may say, relatively conservative. So $13 per barrel at refining margin, $80 on the Brent. So all in all, what we believe we can speak to here is -- maybe a little bit in terms of cash taxes. There's an element that can be further incorporated into the guidance as we normally see cash taxes on upstream being treated, and we have them treated differently from taxes on downstream. So the high cash result is, to a large extent, reflecting the fact that cash taxes on downstream will be coming into our accounts in 2027, whilst the upstream are already flowing through. So that informs a lot of the relationship you see between the cash result and the EBITDA. But overall, very strong operational performance over 25% of our revised uptick on guidance is coming from operational performance. Of course, in this context and with all the volatility, the remaining $75 million of the uptick in guidance is coming indeed from the macro. On Brazil, I think that was the second part of your -- of your question, sorry. So what we're seeing in Brazil is a continued concern about how to capture with fiscal policies at the current context. So we do see a continuation of the export tax. We have been seeking to optimize and make sure that our operational management of circumstances delivers the best possible results. We have guided you for a total possible income that even though the time line for the tax has now been revised by the Brazilian government, we still expect overall impact to be around that order of magnitude. We had initially guided for EUR 70 million so far for EUR 100 million, I'm sorry. So far, we are at -- in our accounts, you will find a little under EUR 20 million in cash. So you see that the impacts are actually being actively managed. And overall, we expect our initial estimates to remain. We do see this as something to watch attentively. We do hope that the Brazilian government will continue to understand that these are taxes that weigh down on our ability to continue future investments. We will be assessing all our options to protect value. And we will, of course, continue to do so in close association with other operators in the country. We continue to engage with the Brazilian oil and gas association, I see this as an industry topic, not account-specific topic. So overall, something to watch out closely. Impacts remain contained, and we continue to manage this very actively. Thank you.

Next question today comes from the line of Joshua Eliot Stone from UBS.

Two questions, please. Firstly, I wanted a clarification on the distributions. Is it your intention that you will still return at least 1/3 of your CFFO to shareholders. So regardless of the merger, we should expect distributions more than EUR 1 billion this year if you hit your targets. Just a clarification on that one. And then second, on the renewables side of the business, are there any synergies connected with these wind assets into integration into your retail portfolio commercial portfolio? And if so, could you walk us through, is there any impact with the Maeve merger on that part of the transaction?

Thanks, Josh. Let me start with the distribution questions. So as you know, our current policy is for 1/3. We have the dividend component growing at a preannounced rate. So that rate we revised it this year from 4% to 10%. So we do expect that value to be well known already and in advance. The remainder of our distribution is only communicated upon the publication of the results. So that is a number that we will be guiding on or that we'll be presenting only upon closing the results. All in all, we haven't touched on our distribution policy thus far, precisely because, as I mentioned before, we do see that with the relative size of the Moapa transaction and with everything that's moving in our portfolio, we may need to discuss our distribution policy. But for now, we find that, that is soon, and we are remaining within that overall distribution policy. Thank you.

On your second one, I'll go back to my previous comments on the energy management and commercial angles. As this portfolio will give us additional access to a stable generation source. We will be converging in terms of prices, unlocking additional value. And well, the power market, apart from the significant growth that we have -- we can see in Iberia with further potential for sure, from AI technology, but also from increasing ancillary services sophistication. And let me state that ourselves, we are now a top-tier company in Intesa Trading in 2025 in Iberia. We are the #1 in solar and the #2 in wins. And finally, let me also emphasize the connection between gas and power, what we represent in Iberia today and how this can make all the sense within the decisions that we've just taken. Thank you.

Your next question comes from the line of Katherine O’Sullivan from Citi.

So just again, coming back on this morning's Wind acquisition and implied valuation around EUR 1.2 million per megawatt. So a bit above what you paid back in April for a slightly younger portfolio. So can you help us to understand the expected equity IRR there? I know you just talked a bit about value creation. And a follow-up on that, the average age of the assets around 20 years. So how about the value creation case is linked to repowering rather than the cash flows from the existing assets? And if you could discuss any repowering opportunity within these portfolios, any level of FX, that would be associated.

Kate, so to your question, on both portfolios, we are on those cases below 1.2x per megawatt. We will have on the second portfolio, we will have no CapEx, no relevant CapEx in the short term. So this will be our short term -- our short-term focus will be on the cash generation. Of course, we will we will not leave aside any repowering opportunity, but that will come further ahead on the cycle. And that's -- well, on the on the high single-digit returns, that's where we are today. Thank you.

Your next question today comes from the line of Sasikanth Chilukuru Jefferies.

I had 2, please. The first was regarding the agreement and the discussions with Move, the macro conditions, especially in refining have changed materially since your announcement back in January. I was wondering if this has changed your discussions regarding valuations or the indicative shares that you've kind of highlighted previously in any form. The second question was related to the dividends to minority shareholders to sign up back. First half dividends 9 million, very low compared to the $240 million paid last year. And this comes as cash flows from the upstream are increased or are increasing materially. Just wanted to understand why these dividends to minorities are low? And how should we think about these dividends as we look into the second half and also into 2027.

Thank you, Sasi. And on your -- I will take the first one. Well, the Goldwater transaction, it's a long-term value creation infection. It will not be affected on the short term by the refining management. All the discussions we are having are progressing well. Of course, the due diligence process, it's a complex one. But to your point, no interference, no discussions regarding the recent short-term refining margins. They were supported on both sides, but not really impacting the decision.

Sasi, thank you for your questions. On the dividends to minority shareholders is in Brazil, of course, what we -- if you look at our numbers last year, you'll see that that same line had a higher volume to an extent we looked at profile, and we also looked at current taxation bill. So we manage actively, and we put forward some of the dividend payments to make sure that we enjoyed coats to those payments. And that is the fundamental driver behind this. There's no operational performance issues at all impacting this line. Thank you.

Your next question today on the line of Guilherme Levy from Morgan Stanley.

Firstly, just going back to the shareholder remuneration discussion. Could I picture brain about ways to remunerate the shareholder from here? How do you feel about specialty at this point to complete the 1/3 of CFFO policy vis-a-vis pure buybacks on top of the normal dividends? And then secondly, could you provide us an update on gas monetization and gas train. Perhaps an update on venture global volumes? How much of it is hedged at this at this point. But also in Brazil, could you talk a bit about how much of your production is currently being sold better but how much is being sold to third parties, that would be great.

Guilherme, I'll start with the distributions and then I think Joao will pick up on the gas trading. So what I've been mentioning today on the distributions is to a large extent on the way we've been thinking about this. So we look at our distribution policy very much through the cycle. And thus far, the 1/3 distribution rule has been a steady base on which we've been able to reflect our profile. So we are clearly a growth stock, not necessarily 1 that goes for the dividend yield alone. So thus far, this combination of having a 1/3 commitment on OCF, and I'll remind you that we have a distribution index to OCF, not free cash flow. So that also helps having visibility on how it is that we are connecting our distributions to our operational performance. But on this basis, so what we see right now is -- we do have a number of changes coming up in terms of how our profile and our results and EBITDA generation will evolve over the coming months. visibility on those specific terms will be critical for us to then have a sound discussion on how we see this distribution policy moving forward. but the priorities remain the same, right? So we continue to aim to have a distribution policy that is, first and foremost, very reflective of our performance on our equity story. We, of course, keep track of how the industry is adjusting and we aim to become -- to continue to be competitive in terms of overall distributions. We also expect those distributions to be sustainable in the sense that we want to have a dividend floor that is stable, that is clear to all our shareholders through the cycle. And then we use share buybacks as the adjustment factor, if you'd like, whenever there is indeed a tailwind that allows us to have an additional distribution going on. So overall, we do expect our distribution policy to retain these aspects. We do see the portfolio as having continued performance to sustain a very competitive distribution policy. We will be looking into as to whether the current design of that distribution policy is the best to continue to deliver on these objectives as we see fundamental movements in portfolio. So no fundamental changes in the goals willingness to adjust if moving portfolio requires a moving distribution policy, but not now only once we have sufficient visibility. Thank you.

On your second one, related with the gas. So first, just to highlight, we have no changes in our adding Menergi. We have 2026, 70% add. Venture Global is delivering according to plan. and Brazil, it's a regional play. We are acting on the wholesale side, increasing volumes, taking the benefit from our equity position, and that's all.

Your next question comes from the line of Ignacio Doménech from JB Capital.

My first question is on the gas sourcing, if I'm not mistaken. Significant volumes from Algeria and Nigeria expire next year. I was wondering what is your strategy and your ongoing conversations in terms of gas sourcing for the next year? And how we should think on this going forward, you better have more exposure to spot prices through long-term contracts? And my second question is regarding your strategy given the significant changes and optimization of the portfolio. I was wondering when would you be able to update the market on your longer-term strategy. We could expect Capital Markets Day I would assume this is continuing to -- some of the ongoing partnerships. Maybe you could give us a time line, that would be helpful.

Ignacio, on your first one, so we enjoy our gas portfolio as a diversified portfolio and highly competitive. So on your point, of course, we are interested on the on the North African contracts that we have. It's true that some of them will expire soon. We are having conversations on that, but no further rate to give you. So that's -- so only to reemphasize, we really enjoy our position in gas, in LNG trading and diversification and competitiveness are key for us, and we will try to keep those as a key factor to our position in the world markets. Thank you.