Repsol cuts 5-year E&P spending

Nov 16, 2009 01:00 AM

Repsol-YPF, Spain's biggest oil company, cut its five-year exploration and production investment plan to reduce costs as the economic slowdown saps earnings. Repsol will invest an estimated EUR 8.76 bn ($ 13.1 bn) in E&P from 2008 through 2012, down from an earlier plan to spend EUR 9.3 bn, the Madrid-based company said. The program totals EUR 12.3 bn when projects such as refinery work are included.
The global recession has eroded demand for oil and gas, dragging down prices and squeezing profit margins for producers. Repsol reported a 61 % slump in third-quarter earnings on Nov. 12, after crude futures fell 42 % from a year earlier and gas prices tumbled 62 %.

Repsol is investing in exploration in Brazil's offshore Santos Basin to reverse four years of declining production. Oil and gas output from the upstream business, excluding Argentine unit YPF, fell 1.2 % last quarter from a year earlier, while production from YPF sank 12 %.
Total investment this year will drop to an estimated EUR4.1 bn, EUR 600 mm less than the initial forecast, Chief Operating Officer Miguel Martinez said Nov. 12. The company has delayed projects at refineries to save costs as the economic decline cuts fuel consumption.

Replacement ratio expands
Repsol's exploration and production investments will include spending on the Shenzi field in the Gulf of Mexico and discoveries in Brazil's offshore BM-S-9 block. Repsol has said its reserves replacement ratio will increase to an estimated 90 % at the end of the year from 65 % in 2008.
"In a long-term business like upstream, the incorporation of reserves, the start of production and the impact on earnings will be seen from 2012 and 2013," Repsol said. The oil producer plans to spend $ 10 bn (EUR 700 mm) to $ 15 bn (EUR 10.5 bn) in Brazil by 2020, Claudia Dantas, a local spokeswoman for Repsol, said Nov. 14. The company will invest as much as $ 400 mm (EUR 280 mm) in Brazil next year, Chief Executive Officer Antonio Brufau said the same day in Rio de Janeiro.

Brazil stock sale
Repsol may consider selling shares in its Brazilian unit to meet investment needs in that country, Brufau said, adding that the company was studying a range of options. A Madrid-based official at Repsol confirmed the CEO's comments.
Last year, the company delayed a public offering of a stake in its 84 %-owned YPF unit. It had intended to use the proceeds to expand operations in other regions. Repsol has announced 15 finds in Brazil, Venezuela, the Gulf of Mexico and northern Africa this year. In September, it discovered a Venezuelan gas field holding as much as 8 tcf of the fuel, one of the world's largest finds.

Since 2007, Repsol and partners BG Group and Petroleo Brasileiro have discovered the Carioca, Guara and Iguacu fields in the Santos Basin's BM-S-9 block. Repsol also has stakes in blocks in Brazil's offshore Campos and Espirito Santo basins.
Petrobras, as Brazil's state-controlled oil company is known, estimated in November 2007 that the Santos Basin's pre-salt Tupi field may hold as many as 8 bn barrels of oil, making it the largest find in the Americas since Mexico's Cantarell field in 1976. Repsol doesn't own a stake in Tupi.

These oil finds lie in an area known as the pre-salt, which runs 800 km (500 miles) along Brazil's coast from Espirito Santo to Santa Catarina states.
It has oil deposits beneath a layer of salt resting as much as 3,000 meters beneath the ocean surface and another 3,000 to 5,000 meters below the seabed.

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