MercoPress. South Atlantic News Agency

Repsol cutting EP investment plans to reduce costs

The Spanish oil company has announced important oil and gas finds this year

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 8.76 billion Euros in E&P from 2008 through 2012, down from an earlier plan to spend 9.3 billion Euros, the Madrid-based company announced Monday.

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 November 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 4.1 billion Euros, 600 million Euros less than the initial forecast, said Chief Operating Officer Migule Martinez. The company has delayed projects at refineries to save costs as the economic decline cuts fuel consumption.

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.

Repsol has advanced 25% in Madrid trading this year, valuing the company at 23 billion Euros.

Repsol plans to spend 10 billion to 15 billion in Brazil by 2020, Claudia Dantas, a local spokeswoman for Repsol. The company will invest as much as 400 million in Brazil next year, Chief Executive Officer Antonio Brufau said the same day in Rio de Janeiro.

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. In 2008 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 trillion cubic feet of the fuel, one of the world’s largest finds.

Since 2007, Repsol and partners British Gas and Petrobras 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 estimated in November 2007 that the Santos Basin’s pre- salt Tupi field may hold as many as 8 billion 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.