Galp Third-Quarter Profit Drops 42% as Refining Margins Narrow

Galp Energia SGPS SA, Portugal (PTGDPQOQ)’s biggest oil company, said third-quarter profit fell 42 percent as refining margins narrowed and amortization costs increased.

Adjusted net income slid to 57 million euros ($79 million) from 98 million euros a year earlier, the Lisbon-based company said today in a statement. That missed the 75 million-euro mean estimate of 12 analysts surveyed by Bloomberg. Profit on that basis excludes one-time items and inventory changes.

“The refining and marketing business should continue to be impacted by the adverse refining environment,” Galp said in a presentation. Depreciation and amortization costs increased 47 percent to 145 million euros in the third quarter.

Galp is exploring in Brazil’s offshore Santos Basin, where its Lula project is located, to increase access to crude oil supplies and curb dependence on refining and fuel sales in Portugal and Spain. The oil products market in the two Iberian countries contracted by 2 percent in the third quarter.

The stock fell 1.3 percent to 12.335 euros by 9:29 a.m. in Lisbon. The shares have gained 4.9 percent this year, valuing the company at 10.2 billion euros.

The oil company today said it sees investment and earnings before interest, taxes, depreciation and amortization of 1.1 billion euros for 2013. Third-quarter adjusted Ebitda rose 0.8 percent to 312 million euros.

Production Target

Galp on March 5 said it would boost investment from next year to increase reserves and output. Annual investment will be 1.4 billion euros to 1.6 billion euros for 2014 to 2017.

On the same day, the company said it’s “on track” to meet its production target of 300,000 barrels of oil equivalent a day in 2020. It has stakes in four offshore blocks in the Santos Basin, including 10 percent of Lula, the largest find in the Americas since Mexico’s Cantarell field in 1976.

Average working-interest production fell 0.4 percent from a year earlier to 25,800 barrels a day, Galp said. Average net entitlement output, which includes the effect of production-sharing agreements, climbed 12.7 percent to 21,900 barrels a day. The oil producer said it targets working-interest output of about 27,000 barrels a day for the fourth quarter.

Galp has also invested in refinery upgrades to raise diesel output. The plant in Oporto can process about 110,000 barrels a day and the Sines refinery has a 220,000-barrel-a-day capacity.

They processed 4.8 percent more crude in the third quarter, with refined-product sales volumes increasing 2.9 percent. The refining margin, a measure of profit from turning oil to fuels, narrowed to $1.70 a barrel from $4.40 a year earlier.

Natural-gas sales climbed 34 percent to 1.97 billion cubic meters in the third quarter as trading doubled. Galp said it sold 13 cargoes of liquefied natural gas in the third quarter.

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

To contact the editor responsible for this story: Stephen Foxwell at sfoxwell@bloomberg.net

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