Repsol-YPF Announces Results and New Strategic Plan

Repsol-YPF's Profit Rises, But Declining Production Remains Point of Weakness

The Spanish-Argentine oil group Repsol-YPF saw its adjusted net income rise by 19% for the fourth quarter of 2007 to 650 million euro, despite falling production and a weaker U.S. dollar. Net income reached 740 million euro for the last three months of 2007 up by 56% compared with 473 million euro in the fourth quarter of 2006. For 2007 as a whole, Repsol-YPF reported net income of 3.188 billion euro, up by 2% from the previous year.

Highlights of the fourth quarter included the reaching of a deal with the Petersen Group to sell 14.9% of Repsol's stake in the former Argentine state oil company YPF. The sale was completed earlier this month and will be included in its first quarter results (see Argentina: 22 February 2008: Repsol Formalises Sale of Stake in Argentine Unit, Bolivian Affiliate Fined).Other highlights included the start of production at the Genghis Khan field in deepwaters of the U.S. Gulf of Mexico (GOM), divestments in the fourth quarter worth 544 million euro, and a 20.5% reduction in the company's debt over the full year.

However, the company's diminishing upstream performance continues to be a cause of concern. Oil and gas production contined to fall during the fourth quarter, resulting in a 7.9% overall decline for the full year, to 1.039 million barrels of oil equivalent per day. Increased production in Brazil, Trinidad and Tobago, and Libya failed to offset a decline in certain fields in Argentina and lower production in Venezuela and Bolivia as a result of contractual changes.

Company Unveils 2008-12 Strategic Plan

In an attempt to address the problem of declining production, Repsol-YPF's 2008-12 strategic plan unveiled yesterday has identified 10 large "key" projects that the company is relying upon to guarantee its organic growth. These projects include five large upstream projects: the Carioca Block in deepwaters off the coast of Brazil; the Shenzi and Genghis Khan fields in the GOM; the I/R field in Libya; the Reganne Block in Algeria; and Block 39 in Peru. Under the plan, the company has set itself an oil and gas production target of 400,000 barrels per day by 2012 from areas excluding YPF. The key projects also include three large downstream projects in the Iberian Peninsula that will together absorb 4.8-billion-euro-worth of investment.

The 2008-12 strategic plan anticipates 32.8 billion euro of investment, 11.7-billion-euro more than the total intended investment under its previous strategic plan (see Latin America: 1 June 2005: Repsol-YPF's Latin American Operations to Receive Largest Share of Investment under 2005-09 Plan). Under the plan, the company has set itself a target of multiplying its net income by 2.8 and its earnings before interest, tax, depreciation, and amortisation by 1.8 by 2012. It also sees a reduction of its exposure to Latin America, with a view to 55% of Repsol's assets being located in Organisation for Economic Co-operation and Development countries in 2012 and 31% in Latin America.

Outlook and Implications

Investors will be reassured to see that Repsol-YPF is seeking to reduce its exposure to Latin America where its operations have in recent years been negatively impacted by increased regulatory uncertainty and/or contract changes in Argentina, Ecuador, Venezuela, and Bolivia.

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