Repsol Under Surveillance Following Trading Update

Repsol is currently facing scrutiny following its trading update for the third quarter of 2024, where a weaker refining environment and lower production figures have significantly impacted the company’s performance.

The Spanish energy company released its update late on Wednesday, offering investors an early glimpse ahead of the complete results expected later this month.

A key highlight from the report was the substantial decline in refining margins, which are vital for Repsol’s profitability. The company’s refining margin indicator dropped to $4 per barrel, down from $6.3 in the previous quarter. This figure was slightly below the consensus estimate of $4.4 per barrel, according to analysts, but generally aligned with market expectations.

Analysts pointed out that, given the trading update, consensus estimates may be overly optimistic moving forward. Despite the decrease in margins, Repsol maintained steady utilization rates at its refineries, which were reported at 87.7%, indicating ongoing operational efficiency. However, the outlook appears cautious, as early indications from October suggest that refining margins remain around $4 per barrel without any signs of improvement.

Production levels also declined, with Repsol reporting an output of 553,000 barrels of oil equivalent per day, falling short of expectations of 568,000 kboe/d. This figure represents a decrease from the previous quarter’s 589,000 kboe/d, largely due to an outage in Libya that lasted from August 30 to October 4, along with declines in U.S. onshore operations, especially in the Marcellus and Eagleford regions, where Repsol has ceased rig activity.

Analysts noted that while the outage in Libya significantly affected overall production, its impact on earnings might be less pronounced due to the region’s higher tax rate.

On the financial side, Repsol faced €170 million in windfall taxes during the quarter, placing additional strain on its bottom line. However, the company could benefit from a potential release of working capital, spurred by the ongoing decrease in commodity prices. Furthermore, Repsol announced asset sales totaling approximately €140 million, which may provide a buffer as the company navigates a challenging economic environment.