17/1/2017 Investors Repsol file:///Volumes/WORKING/Repsol_inversores/2016/03.Newsletters/Investors/05.Septiembre/web/index.html 1/11 Dear, Please see the attached newsletter which contains a video in which I present an overview of the results for the second quarter of 2016. Additionally I also want to share with you a review of our Downstream business and how our net debt has evolved during the first half of the year. I encourage you to take a look at it. Enjoy our newsletter. [email protected]+34 917 536 309 Interview of the month Paul Ferneyhough provides an overview of Repsol´s results for the second quarter of 2016. Trending topic Downstream business review/ Net debt evolution. Figures of the period Repsol’s second quarterly figures for 2016. FAQs The latest Frequently Asked Questions to our IR team.
Please see the attached newsletter which contains a video in which I present anoverview of the results for the second quarter of 2016. Additionally I also wantto share with you a review of our Downstream business and how our net debthas evolved during the first half of the year.
Repsol guarantees that the information contained in this section is exactly thesame as the forwarded to the CNMV, CNV, SEC and OTCQX.
Paul Ferneyhough provides an overview of Repsol´s results for the second quarter of 2016.
Repsol’s integrated business model and the inclusion in 2015 ofacquired assets into our portfolio have allowed the company to deliver astrong set of results despite the continued challenging environment.
CCS Adjusted Net Income was 345 million Euros and 917 millionEuros for the quarter and the first half of 2016, respectively.
In the Upstream, adjusted Net Income for the second quarter was46 million Euros positive, 94 million euros higher than in the sameperiod of 2015. Lower commodity prices were offset by increasedproduction volumes, lower costs and lower exploration expenses.
In the Downstream the CCS Adjusted Net Income in the quarterwas 378 million Euros, 14 per cent lower than in the second quarter of2015 when we achieved record refining margins. In the second quarterof 2016 the planned turnarounds at the Cartagena and Tarragona
refineries have reduced, as expected, both our distillation andconversion capacity utilization. Nonetheless, the sustained strength ofthe Chemicals business and improved Commercial business resultsdelivered another good quarter from this division.
The consolidated net financial debt at the end of the second quarterof 2016 amounted to 11.7 billion Euros, a decrease of around 300million Euros compared to the end of the previous quarter.
We remain cautious on the short term recovery of commodities andcontinue to focus our efforts on achieving cash neutrality at around a 40dollar Brent price level.
Downstream business review
Repsol´s integrated downstream assets and its competitive position in theIberian peninsula are combining to deliver solid results despite a volatilemarket environment. The integrated nature of our downstream business –Refining, Chemicals, Marketing, GLP, Trading and Gas&Power – make fora robust model, especially in a low price crude cycle, and allow Repsol todeliver better performance than our main competitors.
During the first half of the year our refining business, despite a toughmarket environment and scheduled maintenance activities, once againdelivered strong cash flow. Additionally the combination of sustainedstrength in the chemical business and the stability of our commercialdivision has resulted in consistent delivery from our Downstream businessoverall. The following standout items are worth noting:
Our Refining business continues to show its resilience, obtaininghealthy refining margins during the first half of the year and continuingto be a principle source of cash flow for Repsol. Our refining system inSpain, spread across 5 refineries, remains at the top of first quartilewhen compared to our European competitor margins. The second quarter margin was impacted by planned maintenancestoppages in the Cartagena and Tarragona refineries, reducing bothour distillation and conversion capacity utilization. Following completionof these maintenance stoppages we have finished our plannedmaintenance program for 2016 and expect our actual margin to
recapture the full contribution of our industry leading facilities in thesecond half of the year.
The Chemical business continues to deliver outstandingperformance, increasing its adjusted net income in the first half of theyear by more than 50% YoY. This is primarily the result of our“Competitive Plan”, launched in September 2013 and focused onEfficiency, Differentiation and Globalization. The results of which arebeing realized in our income, along with steady sales and strongmargins. For the rest of the year, we expect margins to remain solid, supportedby a favorable international environment and strong demand. If theimprovement in Spanish and European market continues, ourChemical division may deliver an EBIT of around €600650 million bythe yearend.
The Marketing business continues its steady recovery. Spanish fueldemand continued to grow and the market has grown by 3.6% up tothe end of May.
Overall, Repsol´s downstream business is performing in line with ourStrategic plan as forecasted at the beginning of the year.
Net debt evolution
During the first half of the year, despite low oil and gas prices, plannedmaintenance stoppages in Cartagena and Tarragona refineries and afterpaying dividends in the first quarter, Repsol was able to reduce its netfinancial debt.
The outstanding operating cash flow generation of all our business incombination with the divestments we have made, has allowed us toreduce our net financial debt from € 11.9 B to € 11.7 B. Repsol maintainsits firm commitment to reduce its net financial debt in coming months andsignificantly over the strategic plan period.
Marcellus: The asset is performing well delivering solid resultsdespite the current tough environment. Production has remained
level yearonyear* whilst reducing drilling activity to just one rig in
2016. The asset is competitively positioned in the play and
incorporates extensive midstream gathering and egress facilities.
Additionally, significant cost efficiencies continue to be delivered. All
of these, result in a breakeven close to 2 dollars per MBtu, with this
asset becoming free cash flow generative at the gas price levels
observed since the end of the 2nd quarter. * Excludes the impact of acquisition date (8th May 2015) Eagle Ford: During the first quarter of the year, the transition to asingle operator was completed without any material interruptions.
With this change the JV has been able to significantly reduce its
administrative costs. In addition the JV has been successful in
reducing costs through several initiatives such as completion design
improvements, lower chemical usage cost and taking advantage of
lower drilling rates. All in all, synergies achieved in Eagle Ford are
delivering approximately 10 $/bbl of benefit. Duvernay: A material asset that could play a significant role inRepsol´s future growth. The company has around 280,000 high
graded net acres and the project is currently in the appraisal phase.
Repsol is not in a rush to develop the asset, and due to current
market volatility, the activity in the area will be minimal during
2016/2017.
Can you provide some color on Brexit impact inRepsol activity?
At the present time Repsol does not expect a material economic
impact from Brexit. In the short to medium term we don’t expect any
changes to our current operations framework. We will monitor the
situation closely and react should any unexpected circumstances
arise.
Are there refining maintenance activities expectedduring the second half of 2016?
During the second quarter of the year Repsol launched the scheduled
maintenance stops in Cartagena and Tarragona refineries. With these
stops Repsol has already finished the maintenance program planned
