Repsol, S.A. (REP.MC) Earnings Call Transcript & Summary

Hello, and welcome to the Deutsche Bank Virtual Investor Conference, dbVIC. This is Zafar Aziz from the Deutsche Bank team. I'm pleased to welcome our next presentation by Repsol from Spain. Before I introduce our speaker, a few points to note. Please click on the questions box to ask a question. All of today's presentations were recorded and can be accessed via the Deutsche Bank website, adr.db.com. I'm happy now to hand over to Repsol.

Thank you. Thank you, and welcome to everybody joining Repsol here today online. Let me begin by thanking our organizer, Deutsche Bank, for this virtual ADR conference, a milestone indeed for other companies that are in this market. My name is Álvaro Visús, and I work within the Investor Relations department at Repsol as the front office manager handling institutional investors communication. Today, I'm going to convey who Repsol is, what we are at this company and what we are going to become in the future following our latest strategic update. However, before we begin the slide deck per se, let me draw your attention to our disclaimer. During this presentation, I may make forward-looking statements based on estimates. Please take into consideration actual results may differ materially depending on a number of factors as indicated in this disclaimer. First, let's focus on who we are here at Repsol, our company overview. We are a multi-energy provider born, raised and headquartered in Madrid, Spain. But nowadays with a global spin that comprises 4 business verticals. We are integrated all along the energy value chain within the upstream, the industrial, the customer and the low carbon generation. Taking into consideration 2024 data as a template, our Upstream production stood at around 570,000 barrels of oil equivalent per day, 5-7-0, with around 2/3 being gas and 1/3 crude oil. We had 1.8 billion barrels of proved reserves, of which around 3/4 were gas and 1/4 or 25% were liquid. Industrial comprises several businesses, highlighting 6 refineries, 1 in Peru and 5 in Spain that operates as a single one in an integrated system with more than 1 billion barrels of capacity per day. 3 chemical complexes located in the Iberian Peninsula back to back to our industrial facilities and are growing thriving business. Customer, mainly located in the Iberian Peninsula, remember, where we were born, raised and headquartered. It offers a multi-energy approach and unique approach, and that is a strategic line and our key competitive advantage in this business to our more than 24 million clients in excess of which 9 million clients are digital. This business includes 4,500 service stations, a growing retail electricity and gas business with almost 3 million clients, LPG and lubricants. And finally, the Low Carbon generation business, 3.7 renewable generation capacity in operation at the end of 2024, right now in excess of 5 and with a pipeline of in excess of 30, 3-0, gigawatts. At this point, we have covered who Repsol is. Now we must look forward to the future to see what this company is going to become towards 2027. For the next 4 years, we maintain an approach towards an energy transition, convinced that this is the right strategy for us, embracing the decarbonization process for decarbonized world, of course, but also because we see a clear opportunity of profits and growth for this company in this new decarbonization scenarios, transition but a profitable one. Our road map to 2027 is based on the accomplishment of these strategic pillars within our 4 verticals, the Upstream, the Industrial, the Customer and the Low Carbon generation and our fundamental commitment being to shareholder distribution, providing certainty and predictability to our dividend, okay? Our enterprise capital allocation will be based on 3 main levers. The first, as I was mentioning before, the shareholder distribution, our first priority, our net CapEx and maintaining our current credit rate. All these figures under a central scenario with $80 per barrel, $3 per MMBtu and $8 of refining margin, respectively, for 2024 and $70 with Brent, $3.5 MMBtu and $6.0 per barrel for the period 2025, 2027. Of course, these figures are being adjusted as the quarters go by because situation is evolving, but this was our original estimates. As previously indicated, this is our first priority, the dividend, the cash dividend commitments. The umbrella under which our shareholder distribution operates is that Repsol is going to distribute between 25% and 35% of its cash flow from operations to its shareholders. Under that umbrella, the first commitment set in [ stone ] whatever happens is the cash dividend commitment that you have in the top part of the slide. To the unit, you may see the amount of euros that Repsol is going to pay to its shareholders to 2027. Let me put you an example. In this 2025, we have already paid to our shareholders EUR 1,128 million. Next year, 2026, we are going to distribute to our shareholders EUR 1,162 million. In this 4-year strategic plan, that means a cash -- total cash dividend of EUR 4.6 billion with our commitment to 3% growth. But that growth is higher. Why? Because complementing that cash dividend that -- remember, it's set in stone, whatever it happens, we are doing a share buyback program to reach that 25% to 35% of the operating cash flow, up to EUR 5.4 billion between 2024 and 2027, okay? In this 2025, for example, we are going to allocate EUR 1.8 billion in total, remember, EUR 1,128 million due to the cash dividend and the remaining EUR 700 million through share buybacks. This year, our dividend was EUR 0.975, an 8.3% increase over 2024. And in 2026, our dividend is going to jump over the euro and it's going to be around EUR 1.05 depending on the latest share buyback program that we are doing right now. Why is that? Because in this 2025, we have done a first capital reduction that was carried out in July for EUR 350 million for the redemption of shares acquired for an equivalent amount of EUR 350 million. And the second capital reduction for the same amount is going to be executed before year-end. For this new share buyback was launched this September 1 month ago for acquisition again for the Q1 of EUR 300 million with the remaining EUR 50 million coming from the settlement of existing derivatives. Ensuring a strong distributions to our shareholders remains the key priority in our story of value growth. We maintain a clear commitment to our robust balance sheet and our net CapEx objectives. Here, the second priority, the net CapEx, net CapEx between EUR 16 billion and EUR 19 billion, it plays a key role here at Repsol with a total gross CapEx of between EUR 24 billion to EUR 26 billion after portfolio management, after low carbon generation rotation, after project finance, the net CapEx figure is going to be EUR 16 billion to EUR 19 billion. That was original plan. What we have announced is that we are going to be closer to the lower part of that range at around EUR 16 billion of net CapEx for the full period 2024, 2027. It is worth noticing that in excess of 35% of that CapEx, net CapEx is going to be devoted to Low Carbon businesses, namely the biofuel, the hydrogen, electrifying, circular chemical and renewables per se, wind, solar, hydro. These are the sources and uses of cash that we are going to use in this strategic plan. As you may see, we offer 2 scenarios, central scenario and a lower more asset scenario. In those 2 scenarios, taking into consideration the financial flexibility that this company has had at the beginning of the plan, we are going to be able to fully fund our net CapEx, our financial commitments, our dividends and share buybacks even in this [ specific ] scenario that you may see on the right part of the slide. Lastly, Repsol was the first company within the oil and gas sector to commit to be a net 0 company in 2050, the first one with clear milestones and intermediate decarbonization targets for 2025, as you may see in the slide, 2030, 2040 and 2050. Our short-term and medium objectives were being successfully tightened. That you see the 2 lines there. The first one that we tied in those objectives was in October 2021 and the second in 2022. Going forward, we are maintaining these ambitious objectives. During this decade, the carbon intensity indicator reduction of 15% by 2025 28% by 2030. And that's going to be achieved using a wide range of technologies and businesses in some way in line with the vision that we have in Repsol about the energy transition. We are also displaying other objectives on the top -- on the right part of the page, regarding net 0 absolute emissions, methane emissions, [indiscernible] and so on. Now a fully -- a further breakdown of our business is needed to understand fully the integrated capabilities of a company such as Repsol, remember, integrated across the value chain. Let's start with [indiscernible], our first business [indiscernible]. Repsol owns an international portfolio with key position in Latin America, in the States and Europe and North Africa. In 2023, we incorporated EIG in our business with a 25% with a minority stake, Repsol maintaining 75%. With this agreement that we brought in, a reference investor in general sector that is fully aligned with our vision. Since 2021, we have transformed the business into a more profitable one, exceeding the key targets that we set in our previous strategic plan. With these components that you are seeing here, the ones that I mentioned before at the beginning of my presentation, we have defined 3 strategic priorities, the unconventionals, the conventionals and the low carbon solutions. We are going to focus right now on the 2 first ones. In the unconventionals, we have a position in the states in both the Eagle Ford and the Marcellus asset, the ones that you have on the left part of the slide, in which we want to continue to improving our operating model to reduce breakeven and targeting between 180,000 and 200,000 barrels of oil equivalent per day of production. In our conventional assets, we are going to prioritize higher-margin barrels with these projects that you have on your slide. If you see the cash flow from operations per barrel average, it's going to increase by 2.1 of those new projects be the legacy portfolio with a lower breakeven lower than $50 per barrel within these new projects. But on top of that, we have been upgrading and enhancing our portfolio, reducing the span of our portfolio to 10 producing countries and an exploration activity in Mexico. For example, this year in the United Kingdom, we have merged with Neo Energy operation that was completed this July. This new joint venture in which we own 45% is going to be projected to produce around 130,000, 150,000 barrels of oil equivalent per day in 2025, increasing after this joint venture, our net production from around 30,000 to 59,000 barrels per day. On an annual basis, this joint venture, high grade in our portfolio, is expected to contribute of around $700 million of EBITDA to Repsol this year -- sorry, in 2026. We have been divesting all part of our portfolio that didn't met our criteria in terms of operating efficiency [indiscernible] critical mass or lower breakevens, such as Colombia, such as Indonesia. We are consistent with our strategy in the Upstream business in which we want better barrels, lower breakeven barrels and concentrating our operations in geographies where we hold the strongest competitive advantages. In this regard, the U.S. continues to strengthen its position as a strategic growth region within our Upstream portfolio. With, for example, these 2 main projects, the Alaska Pikka and Leon-Castile. Leon-Castile started its production a couple of weeks ago. Alaska Pikka is going to start its production earlier next year. Together with the upcoming Lapa Southwest in Brazil, we are expected for these 3 projects, Alaska, Leon-Castile and Lapa Southwest to give us around 50 additional 1,000 barrels of oil equivalent per day of new low emissions, low breakeven production by 2027. In addition, and this is something to have in mind, these main assets have accounted for a substantial share of the Upstream investment for the last years. We have peaked our investor in the Upstream last year, EUR 3 billion; this year, around EUR 2.5 billion. Next year, it's going to be a normalized CapEx level in this division at around EUR 2 billion per year. Finally, within the EIG agreement, we stated that we were going to have everything ready for a potential listing event in the states of this vertical in 2026. Not an obligation, but just to have everything ready. And as part of the preparation for that, Repsol E&P completed last quarter a $2.5 billion bond offering, the largest in U.S. dollars in Repsol's history. The offering structured in 3 tranches attracted strong demand, underscoring the solid support for our Upstream strategy. Going now towards our second vertical, the Industrial business. First, we leverage on one of the most competitive and integrated refining systems in Western Europe. Our portfolio combined best-in-class assets with leading operational expertise and integration that is reflecting every benchmark published in Europe, compounding refining systems. The average cash flow from operations between 2021 and 2023 was 50% higher than the initial target for this division and almost 40% of that improvement was a consequence of increased competitiveness within our business. With this map of our assets, mainly Iberian Peninsula, remember, as you may see in the map, we have 5 refineries that operate as a single one system. For the Horizon 2027, we have identified 5 key lines of actions with a focus on maximizing the value of the conventional business. We aim to have lower breakevens with efficiency. We aim to decarbonize our operations in refining and petrochemicals, and we are also increasing the development of our trading business to optimize the value and capturing the refining of our low carbon assets. We are transforming our legacy sites, modifying the feedstock, producing new products, producing renewable fuels where we maintain our pace of decarbonization and always stepping up the pace of our trading in accordance with the rest of our businesses. For example, during the third quarter of this year, we have launched -- sorry, we have the FID of a hydrogen plant of our first large-scale electrolyzer to be constructed in Cartagena back to back with one of our refiners. We are finalizing the analysis for the approval of another 2 projects in Bilbao and Petronor. These electrolyzers will constitute the main part of our total capacity in operation by the end of the decade in hydrogen. And why is that? Because as you may see here, our industrial strategy is based on 2 things. The first one is our legacy assets and the second is to build up a new decarbonization of our legacy asset businesses, including the renewable fuels, the hydrogen, the biomethane, the [indiscernible]. For that, for example, within the fuels, renewable fuels we build up a new plant, C43 in Cartagena, 200,000, 250,000 barrels of capacity per year of production in our refinery in Cartagena. We are retrofitting our [indiscernible] located in our refinery in Puertollano that's expected to be in operation in the second quarter of 2026 that is going to increase the renewable fuels capacity. In Tarragona, we are developing Ecoplanta. It's going to produce biomethanol. And last week, we signed our first offtake contract to supply renewable methanol to the produce of this facility. 2 main lines in industrial, the legacy and the new businesses. Now the customer. Moving towards the customer, we have today more -- as I mentioned before, more than 24, 2-4, million clients in our customer division in excess of 9 million clients are digital. We possess in excess of 4,500 service stations worldwide, 3,800 in the Iberian Peninsula. We have other businesses here such as the retail electricity and gas clients. In this slide, you have 2. But right now, we are on the edge to reaching our 3 million clients in this business. We are the fourth largest operator in the Spanish electricity market. We have 4 million LPG customers, being the #1 energy brand in Spain. We are, as I mentioned, the leading energy retailer in Iberia with an attractive commercial business with a stable free cash flow generation, low capital intensity and a track record of new business built. In 2025, we expect the division to deliver an EBITDA of EUR 1.4 billion. That objective was the original objective to 2027. Thus, we are going to achieve the objective 2 years in advance. For 2024, 2027 in this growth business, we are going to strengthen our core, which are the backbone of this division and the source of cash flow that is expected to multiply as it's doing the cash flow generation operating -- the cash flow generation for [indiscernible] to maintain our market shares, to increase our margins by investing in differentiation and digitalization. We will invest in non-oil growth, accelerate efficiencies and deliver a unique offering of 100% renewable fuels produced in our refineries, 100% diesel, it's called [indiscernible] and 100% [indiscernible] renewable diesel. We expect by 2027 to have around 2,000 of our service stations to sell 100% renewable diesel in Iberia becoming also the [indiscernible] fleet. We also aim to build a multi-energy advantage based on our growing position in the retail power [indiscernible], we have a unique value proposition in this sense, combining different kinds of energy. our in-house developed app pilot is a market leading transportation app in this space, and it's also one of the most used ones in the country. We have as of today in excess of 9 million digital clients. As you may see here, the objective of operating cash flow to 2027, the objective of the EBITDA of 2027, the EBITDA is going to be achieved in 2025, 2 years in advance. Why is that? Because every single business within the customer is growing. In the results for Repsol's third quarter 2025, the customer vertical achieved its highest results in a quarter ever. That translates to a business that is growing, it's a backbone of this company and it is being strengthened every single day through oil margins, through non-oil, increasing its retail customers in adapting to a new LPG business. And that's with a really controlled net CapEx in the period 2024, 2027. Moving towards our latest vertical that's Low Carbon generation, where we have a clear success story of value generating business. We entered this business in 2018. And today, we operate in excess of 5 gigawatts. If you check in 2024 at the end of 2024, we were operating 3.7; right now, we are operating in excess of 5 gigawatts. And we expect another 500 megawatts to enter into stream by the end of this year. In 2023, we had 1.1 gigawatts. And then we are growing the number of megawatts put on stream every single year. Right now we have a pipeline of in excess of 30 gigawatts, meaning our core markets in Iberia and in the U.S. and a guarantee for maximum discipline of investment decision, we have combined business growth and capital discipline with a model of a double-digit equity IRR return in our projects. For the coming years, our business has an ambitious but [indiscernible] to deliver a growth that is profitable, that is concentrated geographically and technologically. We expect to reach around 9 gigawatts, as you can see at the top right part of the slide by 2027, with around 30% of allocated in the U.S. and a growing share of wind energy in the portfolio. We are focusing just on 3 technologies: solar, onshore wind and hydro and import markets, mainly Spain and the States and then Chile and Italy. Internationally, as I mentioned right now, we have a clear focus in the states. Our business is going to use project financing covering 60% to 70% of the capital needs and the sale of 50% of the project is going to be rotated every project, thus our total exposure to the country is going to be decreased. Our proposed strategy will allow us to optimize the net capital exposure in 2024, 2027 period from EUR 8 billion to EUR 9 billion gross CapEx to a net exposure of EUR 3 billion to EUR 4 billion of net CapEx, as you may see in the middle part of the slide, with always an equity IRR target of in excess of 10% of [indiscernible]. It has to be acknowledged. This is a growth business. It's a business that is going to be negative free cash flow in this 2024, 2027 period because it's a business that is really heavy intensive of capital at this moment. However, as you may check on Repsol's third quarter results, its results have been increasing in this year, okay? Now here at Repsol, we are extraordinarily confident that this strategic update for 2027 represents a compelling investment proposition. We want to develop our story of value growth, and we will deliver attractive and committed shareholder distribution with the cash dividend growth guaranteed in this scenario to 2027. In 2026, the same key strategic principles will guide our path. After the release of our full year 2025 results in February of next year and in light of the changes in the macroeconomic, regulatory and business landscape that our industry in the oil and gas sector has gone through, our Capital Markets Day will be held in March 2026, where we will provide updated projections to 2028. In this slide, you have the main metrics that sustain our cash and business growth for this strategic plan 2024 to 2027. Starting with the distribution, remember the first priority of this company, the strength of our balance sheet and maintaining our credit rating, the cash flow generation linked to the net CapEx, remember the sources of uses of cash, self-funded plan, of course, always taking into consideration our sustainability objectives, the returns that we are providing with our businesses and the Upstream production. On the right part of the slide, you have the outlook for 2025, and you may check that the figures are aligned with the original objectives to 2024, 2027. And to conclude, let me remind you that Repsol is a multi-energy integrated across the whole value chain, home-based, raised and headquartered in Madrid with 4 business verticals, the Upstream in which its motto is value over volume with better barrels coming on stream every day that has peaked its CapEx in the past years and with projects coming on stream that are going to increase our production, lower the breakeven and focus our geographical portfolio, mainly in the United States and Brazil. Second, with an Industrial business that is focusing on a double path, the legacy business increasing its efficiency, enhancing its margins, growing its trading and then a second path to decarbonize our industrial facilities to launch new businesses, new low-carbon businesses, hydrogen, renewable fuels, circular chemicals. A customer division that is a growth business, a story of success with a unique strategy, a competitive advantage in which Repsol offers every single molecule and electron that a citizen may need in Spain, a business that in the third quarter of 2025 achieved its highest quarterly results ever. And finally, a Low Carbon generation business, geographically concentrate, technology concentric and always looking for a double-digit equity IRR return going forward. We are a company that is integrated all along the value chains. We have a presence worldwide and a leading actor in the decarbonization process towards a profitable and decarbonized future. To conclude, I would like to thank you again for attending this session and to our host for making it possible. I hope you have a really nice day and good luck.