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Repsol-YPF earnings hit by civil war in Libya and labour strikes in Argentina

Friday, July 29th 2011 - 07:08 UTC
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The Spanish company is divesting from Argentina and increasing exploration off-shore Brazil The Spanish company is divesting from Argentina and increasing exploration off-shore Brazil

Repsol-YPF, Spain’s largest oil company, said second-quarter earnings fell 7.3% 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 from 523 million Euros a year earlier, the Madrid-based company reported Thursday in a statement.

“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 against Muammar Gaddafi in Africa’s third-biggest oil-producing country.

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

In February, Repsol, which has been present in Libya since the 1970s, halved its oil production in the country and evacuated all of its expatriate workers there because of escalating protests against Gaddafi’s 42-year rule.

Before the crisis, Repsol produced 340,000 barrels per day in the country, or a net production of 40,000 barrels after paying back some of them to Libya as taxes.

That is “14% of our global production, which is 345,000 barrels per day”, said Martinez who added that “obviously, if we cannot count on Libyan production, (Repsol) accounts will be affected, but it all depends on how long the conflict lasts” the group said.

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% higher in the quarter, Repsol said.

Oil and gas production at the upstream division, which doesn’t include the Argentine YPF unit, declined 13% from a year earlier to 296,000 barrels of oil equivalent a day. The producer’s reserve replacement ratio rose to 131% last year from 94% in 2009. Repsol has forecast a ratio of more than 110% in the next five years.

Argentina billionaire Eskenazi family this year said it was paying 1.3 billion dollars to boost its stake in YPF to about 25%. The 1.3 billion dollars price was set when the family’s closely held Petersen Group bought about 15% of YPF in 2008. Repsol now holds 57.4% of YPF. The company isn’t studying more sales of shares in the short term, but plans to retain 51% of the stock, Martinez said.

The Spanish company will consider investing in other upstream assets after reducing its holding in the Argentine unit Miguel Martinez was quoted in May.

Repsol forecasts annual production growth of as much as 4% 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.

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