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Repsol Cuts Dividend, Raises Production Goal After YPF Loss

CEO of Repsol YPF SA Antonio Brufau Niuo
Antonio Brufau Niuo, chief executive officer of Repsol YPF SA. Photographer: Santi Burgos/Bloomberg News

Repsol YPF SA will cut its dividend payout ratio, the highest among major oil producers, to increase production outside Argentina after its YPF SA unit was seized. The stock fell to a three-year low.

Spain’s biggest oil company will pay 40 percent to 55 percent of this year’s profit in dividends, the company said today in a regulatory filing. That implies cutting the dividend as much as 40 percent, based on analyst estimates for profit. Repsol plans to increase the production of crude and natural gas from its remaining assets by 7 percent a year through 2016 and add new reserves covering 120 percent of the oil pumped.

Chairman Antonio Brufau is meeting investors today to explain his plans to reshape the Madrid-based company after Argentine President Cristina Fernandez de Kirchner in April nationalized its YPF unit, her country’s largest oil company. Analysts’ concerns have focused on how Repsol will finance its expansion after the loss. Standard & Poor’s last month reduced the credit rating to BBB-, saying it may cut the company’s debt one more step to junk unless borrowings are lowered.

“They’ve partially sated the ratings agencies but at a big cost,” said Stuart Joyner, an analyst at Investec Securities in London who has a “sell” rating on the stock. “Repairing the damage done by YPF was always going to take years and not months.”

YPF contributed 26 percent of 2011 operating profit and had 45 percent of Repsol’s 2.2 billion barrels of proven reserves.

Share Performance

Repsol dropped 7.2 percent, its biggest decline since November 2008, to 12.83 euros in Madrid. That confirmed its place as the worst performer on the 23-member Bloomberg Integrated Oils Index this year.

“For sure, the dividend per share will be lower,” Brufau said today at a press conference in Madrid.

He said existing shareholders will see their stakes diluted by about 6 percent by 2016 as the company issues new stock to pay dividends and offers the holders of 3 billion euros of preference shares the option to swap those for mandatory convertible bonds.

The company paid 64 percent of profit last year. The new payout range implies cutting the dividend 17 percent to 40 percent this year, based on Repsol earning 1.741 euros a share, the average of 25 analyst estimates compiled by Bloomberg.


Repsol’s expansion will be self-financing, the chairman said. The group will generate more than 8 billion euros ($10 billion) of free cash flow over the next four years for paying investors and reducing its debt. The forecast assumes the price of crude will remain at about $100 a barrel over the period. The cash pile would be cut by 1.5 billion euros if oil was $80.

Benchmark Brent crude has averaged about $118 a barrel in London this year. Brufau said he’s convinced the price of crude will rise.

Other measures that may be considered to lower debt by 7 billion euros to 9 billion euros include disposing of its 5 percent of treasury stock and as much as 4.5 billion euros of asset sales, it said in the presentation.

Repsol will spend $1 billion a year hunting for new oil deposits and drill 25 to 30 wells annually. That amounts to $6.50 for each barrel of oil produced, more than twice the average investment rate for the industry, Brufau said. He aims to find as much as 250 million barrels of new reserves each year.

“The upstream business will be the motor of growth,” he said.

Production Target

The company will reach its production target pumping oil and gas from 10 new projects in the U.S., Europe, Latin America and North Africa. Those 10 sites, costing 6.3 billion euros to set up, will add 200,000 barrels a day to output by 2016.

“When a company comes out and says it will grow at 7 percent a year there are risks around that,” Joyner said. “What they have presented today is a little bit of a rosy picture.”

Repsol’s payout ratio of was the highest among the 23 members of the Bloomberg Industries Integrated Oil Producers Index. Eni SpA ranked second with 53 percent while Exxon Mobil Corp., the world’s biggest oil producer, paid out 23 percent.

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