Repsol Profit Falls After Output Slides in Libya, Argentina

Repsol YPF SA (REP), Spain’s biggest oil company, said second-quarter earnings fell 7.3 percent after refining margins narrowed and output declined because of the civil war in Libya and strikes in Argentina.

Profit adjusted to exclude inventories and one-time items fell to 485 million euros ($694 million) from 523 million euros a year earlier, the Madrid-based company reported today in a statement. The result beat the 418 million-euro mean estimate in a Bloomberg survey of analysts.

“The main factors explaining the decline in earnings from the year-earlier quarter were the output decline in Argentina due to social conflicts, and the suspension of production in Libya,” the company said in the statement.

Repsol is investing in exploration in Brazil’s offshore Santos Basin and elsewhere to raise output and reduce dependence on mature Argentine fields. Repsol this year suspended its exploration and production operations in Libya after the uprising in Africa’s third-biggest oil-producing country.

Short-term, Libya is still “uncertain,” Chief Financial Officer Miguel Martinez said on a conference call today. The company’s facilities in the country are undamaged, he said.

Repsol rose 1.9 percent to close at 22.085 euros in Madrid trading, bringing the gain this year to 5.9 percent.

Refining Margins

The company is investing to improve refining margins, while new units at refineries in Bilbao and Cartagena begin operating at the end of 2011. The refining margin indicator for Spain, a measurement of the profit from turning crude into fuel, fell to $2.10 a barrel in the quarter from $3.30 a year earlier. Brent oil prices were 50 percent higher in the quarter, Repsol said.

Oil and gas production at the upstream division, which doesn’t include the Argentine YPF unit, declined 13 percent from a year earlier to 296,000 barrels of oil equivalent a day.

Output from Buenos Aires-based YPF dropped 20 percent to 446,000 barrels a day, hurt by labor strikes. While Repsol has been selling part of its stake, it aims to keep at least 51 percent. In 2008, Repsol delayed a public offering for YPF.

Argentina’s billionaire Eskenazi family this year said it was paying $1.3 billion to boost its stake in YPF to about 25 percent. The $1.3 billion price was set when the family’s closely held Petersen Group bought about 15 percent of YPF in 2008. Repsol now holds 57.4 percent of YPF. The company isn’t studying more sales of shares in the short term, Martinez said.

Investing Upstream

The Spanish company will consider investing in other upstream assets after reducing its holding in the Argentine unit, Chief Operating Officer Miguel Martinez said in May.

Repsol forecasts annual production growth of as much as 4 percent through 2014 as projects in Brazil and Peru start up. It plans to invest 28 billion euros from 2010 to 2014, developing fields in Venezuela, Bolivia and Algeria.

The company will invest about 6 billion euros this year and its drilling plan for 2011 includes 25 to 30 exploration and evaluation wells, Repsol said in a Feb. 24 presentation. A platform in Cuba should be drilling in November, Martinez said.

The producer’s reserve replacement ratio rose to 131 percent last year from 94 percent in 2009. Repsol has forecast a ratio of more than 110 percent in the next five years.

To contact the reporter on this story: Joao Lima in Lisbon at jlima1@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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