MercoPress. South Atlantic News Agency

Repsol-YPF: high profits, low reserves

Spanish oil company Repsol-YPF revealed Thursday earnings of 1,65 billion Euros in the first half of 2005. Profits were in line with market expectations reported the company.

Operational profits actually surged 31,7% to 2,923 billion Euros, above analysts expectations of 2,891 billion Euros.

However the company admitted that in spite of surging crude prices, oil production actually dropped and overall production was flat due to a 5,7% increase in natural gas output.

The company forecasts oil production in Argentina, its main source of crude, could continue to fall at a rate of 6% this year and 4% in 2006. A more optimistic outlook anticipates 2005 production will be flat and resume growth next year.

Actually oil production in Argentina, which accounts for most output, plus Bolivia and Brazil dropped 5,8% to 490,000 barrels per day in the first half of the year.

Drilling is also behind schedule worldwide partly because of problems with equipment availability. Overall production in the second quarter was up 0,1% at 1,179,700 bpd.

"We plan to step up our drilling campaign in the second half. You should see more exploration activity during the rest of the year", said Chief Financial Officer Luis Manas.

The issue is highly sensitive for Repsol-YPF since the company reported a disappointing reserve replacement ratio of 32,5% at the end of 2004 and investors like to see the ratio over 100%.

Repsol YPF net debt at the end of first half 2005 stood at 5,108 billion Euros, 758 million lower than in June 2004. The majority of this reduction came from the strong cash flow generated in the period, which was sufficient to finance investments and the dividend payout in January, while offsetting the effect of dollar revaluation.

The net debt to capitalisation ratio fell to 21.5%, posting a near 5 percentage point drop with respect to June 2004.

Investments in first half 2005 were 1,363 billion Euros, down 10.3% from the same period in 2004, and were mostly spent in exploration & production 555 million Euro and refining & marketing 459 million Euro.

Income from operations in the refining and marketing area was up 77,5% year-on-year at 1,354 billion Euros. This performance is mainly attributable to a 76,4% improvement in the company's refining margin. Marketing margins in Spain were slightly down against the first half 2004, and were lower still in Argentina because it was not possible to pass the full rise in international feedstock prices through to the end customer.

Total oil product sales increased 7,5% to 28.4 million tons. Sales in Spain, at over 16.7 million tons, were 4.5% higher year-on-year, and in Argentina, Brazil, and Bolivia (ABB) rose 4.2% to nearly 7.6 million tons. In the rest of the world, sales showed 30.6% growth, reaching 4.1 million tons, primarily due to the purchase of Shell's assets in Portugal.

Turning to the LPG business, total sales reached 1,739 million tons. In Latin America, sales were 1.3% higher year-on-year thanks to strong growth in Ecuador and good performance in Chile. Sales in Spain dropped 4% because of warmer weather, the development of other energies (mainly electricity and natural gas), and competition within the sector. First half-year 2005 investments in refining & marketing amounted to 459 million Euros against 386 million Euros in the same period a year earlier, and were mainly allotted to current refining projects and the acquisition of Shell's LPG assets in Portugal