Last June, Repsol presented an update of its Strategic Plan for the 2018-2020 period geared toward growth and value creation in any scenario, and based on a reference price of 50 dollars per barrel of Brent for the entire period. This update took place after achieving all the objectives of the 2016-2020 plan two years ahead of schedule, despite low oil and gas prices.
The strategy is based on three pillars: an increase in shareholder return, profitable business growth (Upstream and Downstream), and making progress toward the energy transition through new initiatives.
The company has two growth engines, its Upstream and Downstream business units, which will provide strong cash flow. The former will be focused on higher returns and improvements to its asset portfolio, while the latter will consolidate the excellent performance seen in recent years and create new drivers for growth and value creation.
The update to the Strategic Plan sets even more ambitious goals and will allow the company to take advantage of growth opportunities until the year 2020 amid the volatility of oil prices expected in the medium term.
and value creation
in any scenario
The three pillars of the strategic update
8% increase in shareholder return thanks to the scrip dividend formula and share buyback.
Dividing payout fully covered at $50/barrel.
Operating cash flow improves dividend yield from 3.9x in 2017 to 4.3x in 2020.
Long-term sustainable payout.
Improvement in all value-add figures, in any price scenario.
Downstream, growth driver that does not require big investments in assets.
Upstream improves performance and asset portfolio.
Sturdy portfolio in growth projects for both businesses.
New long-term opportunities under development.
Competitive advantages are being promoted.
Carbon footprint reduced.
New capacities are being developed.
One of the key aspects of the Plan is to continue increasing shareholder return, specifically by an annual average of 8% and raising it to 0.95 euros per share in 2019 and one euro per share in 2020, using the scrip dividend formula; this approach is completed with a share repurchase program that, along with amortization, will prevent the dilution of those who prefer to be paid in cash in scrip dividends, increasing earnings per share.
Currently, Repsol’s dividend yield is one of the highest of the Ibex 35 and of the top companies in the sector. With this dividend increase, Repsol will become an industry leader in terms of shareholder return.
Repsol will meet all its financial targets, assuming a conservative Brent oil price of 50 dollars per barrel. The expected investments rise to 1.5 billion euros, 53% for the Upstream business and 45% in Downstream and low-emission assets.
Of these 15 billion euros, a total of 4 billion will be allocated to new initiatives, especially in Downstream for Oil and Gas business expansion, Service Stations, Lubricants and Trading (1.5 billion euros), as well as for low-CO2 emission projects (2.5 billion euros).
Repsol has established a roadmap for the energy transition with ambitious targets regarding its participation in the market, based on gas development and low-emission generation. The first milestone occurred in November with the acquisition of Viesgo's unregulated low-emission generation assets and its electricity and gas retailer.
Furthermore, Repsol will reduce CO2 emissions by 2.1 million metric tons by 2020 compared to 2014, even through its upcoming growth phase. For the 2018-2025 period, a more ambitious target has been set: a reduction of three million tons of CO2 per year with respect to 2017.
After integrating Talisman and doubling the size of its Upstream unit, Repsol is set to increase its production of hydrocarbons (+8% by 2020), achieve greater returns, and optimize its asset portfolio.
The Upstream business will invest 8 billion euros by 2020. Around 60% will go towards growth and exploration projects in order to increase production and guarantee an optimal level of reserves in the medium and long term. Furthermore, Repsol will prioritize onshore and shallow-water projects, areas where Repsol can benefit from its competitive advantage.
The main investments will concentrate on organic growth: existing assets that do not require significant development, which are large cash flow generators which will enable increased short-term production: Sagari (Peru); Marcellus, Eagle Ford, and Buckskin (United States); Yme (Norway); Bunga Pakma and Kinabalu (Malaysia); Corridor (Indonesia); NC-115 and NC-186 (Libya); and Reggane (Algeria).
An increase in production to 750,000 barrels of oil equivalent per day by 2020 will be complemented by active portfolio management, with the goal of replacing the production of some barrels with the production of others with a greater profit margin.
Beyond 2020, the five hydrocarbon development projects identified –Alaska (United States), Duvernay (Canada), Akacias (Colombia), Sagitario, and Campos 33 (Brazil)– have a joint breakeven of 42 dollars, one of the lowest in the sector in this type of Upstream developments.
The Strategic Plan includes a 50% increase in organic operating cash flow in Upstream, up to 3 billion euros, in a flat Brent price scenario of 50 dollars per barrel. Furthermore, the Upstream area continues to work on its efficiency and digitalization program, which already boasts 1,200 initiatives of which 110 are part of the digitalization plan; the aim of this program is to achieve 1 billion dollars free cash flow per year by 2020.
The initiatives identified to date, which should materialize over the next few years, already exceed 700 million dollars, according to the reference price in the Strategic Plan. The initiatives implemented in 2018 will generate around 250 million dollars of positive impact on cash flow from operations in 2020. Initiatives such as improvements in the management of logistics, maintenance, decommissioning costs, and marketing of gas.
The 2018-2020 Strategic Plan will allow the business to reinforce its leadership in the Refining and Marketing areas, and take advantage of increased demand and new growth opportunities. Of the company’s planned investments of 15 billion euros by 2020, a total of 4.2 billion will be allocated to Downstream projects and divided between the international expansion of some of its businesses and the maintenance and improvement of key assets that guarantee excellent performance.
The planned international expansion includes the service station business in markets such as Mexico, where, by February 2019, Repsol has already opened its first 180 stations; and Peru, a country where the company acquired 23 new stations in 2018, totaling 560.
In other businesses, such as Lubricants and Liquefied Petroleum Gases (LPG) –where Repsol is the top operator in Spain– growth will be propelled in Asia and South America for the former, and in Morocco and the South of France in the case of the latter. The Downstream Trading area will also experience growth between 2018 and 2020, particularly through the development of a global crude oil business and the optimization of freight operations.
Chemicals will be significantly bolstered, with a focus on high-value products such as polyols, aimed at making Repsol one of the leading companies in the industry around the world. With all these initiatives, Repsol estimates that operating cash flow for Downstream will increase by 700 million euros by 2020 compared to 2017, a 27% increase.
New initiatives in the energy transition
In addition, new long-term opportunities will be created in low-emission initiatives. The goal is to keep making progress with the energy transition and reduce Repsol’s emissions from operations and products, in line with the company's commitment to the fight against climate change as adopted at the Paris Summit (COP21) in 2015.
2.5 billion euros will be invested in the field between 2018 and 2020 to reach the goal of 2.5 million retail gas and electricity customers in Spain by 2025, with a market share above 5% and a low-carbon generation capacity of approximately 4,500 MW.
Following the last acquisitions, the company will reach more than 70% of its strategic low-emission generation capacity objective.