Repsol outlines strategy to 2020: UpdateOREANDA-NEWS. October 30, 2015. Spanish integrated oil company Repsol has released a conservative outlook for its oil and gas production growth and refining margins to 2020, and aims to cap its upstream investments sell €6.2bn (\\\$7.1bn) of assets during the period, after warning of a possible fall in 2015 profits compared with last year.

Repsol forecasts profit adjusted for one-off items and inventory effects (CCS) in 2015 of €1.6bn-1.8bn (\\\$1.8bn-2.1bn), compared with the €1.7bn reported in 2014, mainly as a result of oil price weakness after the acquisition of Canadian upstream company Talisman in May. The acquisition boosted Repsol's oil and gas production by 78pc in the third quarter to 651,000 b/d of oil equivalent (boe/d) from a year earlier.

The company's targets for the next five years are based on a "stress scenario" of Brent crude averaging \\\$50/bl and Henry Hub gas prices at \\\$3.5mn Btu in the 2016-20 period. Repsol forecasts a refining margin indicator of \\\$6.40/bl at its five Spanish refineries in 2016-2020 at these prices, down from the \\\$8.80/bl margin it achieved in the third quarter of 2015, but still strong thanks to high utilisation rates and solid growth in fuel demand, particularly in Spain.

The refining margin strength reported in the third quarter led Repsol to work its refining base as close to capacity as possible, achieving a utilisation factor for its distillation capacity of 94.5pc during the period, nearly 10 percentage points higher than in the third quarter of 2014.

Repsol's conversion units worked over their nameplate capacity during the third quarter, achieving a utilisation rate of 106.4pc, just 0.2 percentage points lower than a year earlier and in a situation where its 120,000 b/d Coruna refinery saw a significant maintenance stoppage mid-quarter.

Repsol wants its Spanish-based downstream business to provide it with financial stability for the next five years, and aims for it to generate €1.7bn/yr of free cash in its stress scenario. The company expects to achieve this thanks to continued high utilisation rates of its complex refineries because of the expected closure of older and more inefficient refineries in Europe, combined with an expected 1.2pc increase in demand for its refined products, particularly in its core market of Spain where it hopes that its estimated 4pc growth in fuels demand in country this year will continue into the next five years.

In the upstream sector, the group's stress scenario has led it to cap its development of certain projects. The company plans to increase its production by just 50,000-100,000 b/d of oil equivalent (boe/d) over the next five years to 700,000-750,000 boe/d from about 650,000 boe/d currently.

This compares with potential production from its current portfolio of upstream assets of 900,000 boe/d and gives an idea of the amount of upstream assets that the group plans to sell.

Repsol has been selling off parts of its downstream LPG businesses in Spain and Latin America, and recently agreed to farm down its controlling interest in its Alaskan North Slope exploration and development venture. But it is guarded about the upstream assets that could be included in its €6.2bn divestment plan.

Repsol's chief executive Josu Jon Imaz would only say the company will be looking at all of the €44bn of upstream and downstream assets it has under its control and identifying sub-scale assets, as well as those with a potential high exploration risk for possible sale.

Repsol hopes to gain 90pc of its forecast production during the next five years from three core regions, North America and Latin America, where Repsol has traditionally sourced much of its oil and gas, and southeast Asia, a region where the company has gained exposure through its \\\$13bn acquisition of Talisman.

Repsol is limiting its investment in its upstream business at about \\\$4bn per year, 40pc lower than the combined upstream capital expenditure of Repsol and Talisman last year, with the focus on cutting exploration and production costs.

Cost savings will come its from a focus on production from offshore shallow water, where it hopes to source 33pc of its oil and gas during the period, with unconventional oil production making up 23pc of its production and onshore fields in its core regions producing 35pc. Repsol plans for non-operated offshore deep water fields such as those where it has stakes in the Gulf of Mexico and Brazil to make up just 9pc of its production during the period.

Repsol is still planning to keep its Reserves Replacement Ratio (RRR) at about 100pc during the period, but will convert more unconventional oil and gas resources into proven reserves to give them a higher share in the group's reserve mix by 2020. It said that 80pc of its projected oil and gas production in 2020 is still covered by the reserves it has registered at the moment.

Repsol is also introducing an efficiency programme that it hopes will lead to cost savings of €2.1bn/yr from 2018.