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We have adjusted our estimates for 1Q24 results. We do not consider the changes to be material; our rating is unchanged.
Repsol Repsol SA
We prefer for diesel over gas exposure following structural changes in both commodities. We also continue to favour disciplined return of cash to shareholder. Subsequently, we raise Repsol to OUTPERFORM after it committed to a peer leading payout and downgrade ENI to UNDERPERFORM as we see little possibility of upside to distributions at its CMD in March. Gas markets weaken, refining margin normalisation will need to wait Since the beginning of the year European diesel cracks and gas prices have moved in opposite directions. Diesel cracks are above their 5-year range whilst European gas prices have returned to pre-war levels. We expect diesel to remain tight (Red Sea, Russia, maintenance) and gas prices weak (storage, weather, demand). Subsequently, consensus outlooks on both will need to adjust accordingly, weighing on ENI''s gas exposure and benefitting Repsol middle distillate exposure. Repsol becomes cash return leader, ENI lags At Repsol''s CMD it guided to a EUR10bn 2024-27 distribution policy, with a 6-7% dividend yield in 2024/25. We expect this to grow through its +3% p.a. total cash dividend commitment (''27 DPS EUR1.2). Additional flex through buybacks to a 25-35% CFFO payout drives a sector leading cash return yield, 14.9% and 13.7% in 2024 and 2025 respectfully. Eni will host its CMD on 14 March. However, with leverage already at the top end of its guided range and gross capex expected to EUR9bn we see little room for a raise to its CFFO payout rate, making it a cash returns sector laggard. We prefer Repsol''s weighting to diesel over ENI''s to gas... but is there more to it Following Repsol''s commitment to growing shareholder returns and our more positive outlook on refining margins (notably diesel) we lower Repsol''s discount rate and raise to Outperform (Neutral). Downside to consensus GGP earnings, a lack of upside to shareholder distributions due to current debt levels, the approaching cessation of buybacks pre-AGM approval and the overhang of...
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AUCTUS PUBLICATIONS ________________________________________ ADX Energy (ADX AU)C; target price of £A$0.65 per share: Drilling update in Austria - Drilling operations at the high impact Welchau prospect are now expected to commence on 24 February with a duration of ~39 days. ADX will now use the RED E200 rig instead of RED E202. Arrow Exploration (AXL LN/CN)C; target price of £0.60 per share: Successful appraisal drilling expected to boost reserves – The CN-5 well encountered 45 feet of Ubaque pay to base of sand with 25% porosity and 5 Darcy permeability. The well targeted the Carrizales Noroeste prospect, west of the Carrizales Norte known pool boundary. The boundary fault was not encountered in the Ubaque, which suggests that the Ubaque at Carrizales Norte and Carrizales Noroeste consists of a continuous larger pool that extends to the West. CN-5 confirms that there is a stratigraphic component to the trapping mechanism in the Ubaque which implies greater recoverable reserves. Arrow plans to complete the well for production over the coming weeks. The CN-5 well was very important as Carrizales Noroeste was estimated to hold 6.7 mmbbl gross prospective resources (3.35 mmbbl net to Arrow) with an unrisked NAV of £0.16 per share that will be partially be derisked by the results of the well. In addition, because the Ubaque is continuous across Carrizales Norte and Carrizales Noroeste, the number of wells required to develop the entire area could be lower. The CN-4 well encountered 29 feet of true vertical depth net oil pay in the Ubaque with 26% porosity and 5 Darcy permeability. In a 12 hour of production period, the water cut averaged 7%, and the well produced 758 bbl/d of 13 deg API oil (379 bbl/d net). The well has been put on production at a rate of 478 bbl/d (239 bbl/d net). This is in line with our assumptions of individual well production of 500 bbl/d (250 bbl/d net). The CN-4 well was targeting an area containing part of the 3P reserves and a portion of the associated reserves could be converted from the 3P to the 2P category. Arrow held US$13 mm in cash as at F15 February. This above our expectations. As we increase our chance of development of Carrizales Noroeste from 25% to 50%, we are increasing our target price from £0.55/sh to £0.60/sh. See website for full report GeoPark (GPRK US)C; target price of US$25 per share: 110% Reserve Replacement Ratio in 2023 – 2P YE23 reserves were estimated at 115.1 mmboe. Excluding 14.6 mmboe at YE22 in Chile (being sold), this compares to 113.8 mmboe at YE22. During 2023, GeoPark has added ~14 mmboe of 2P reserves. With 12.7 mmbope production in FY23, this represents a reserve replacement ratio of 110%. The largest contributors to reserve addition are Ecuador (2P increased by 5.3 mmboe to 7.1 mmboe) and the new 2023 discoveries in Colombia with YE23 2P reserves of 3 mmboe at Halcon/Perico (CPO-5) and 3 mmboe at Bisibita, Saltador and Toritos. No reserves were associated to these three new Llanos fields at YE22. We anticipate that the reserves at these fields could continue to grow as GeoPark drill 3-9 further wellsin these new Llanos areas in 2024. The Net debt-adjusted 1P NPV10 and 2P NPV10 (after Tax) were estimated at respectively ~US$14 per share and US$26 per share. The 2023 discoveries are estimated by the reserve auditor to have added US$175 mm NPV10 (after tax). As we incorporate the impact of the reserve additions, we have increased our target price from US$24 per share to US$25 per share in line with our new ReNAV. The key newsflow for 1Q24 includes testing of two exploration wells in Llanos basin in Colombia (Halcon-1 and Zorzal Este-2) and appraisal drilling in Ecuador (Perico Norte 5). See website for full report Panoro Energy (PEN NO)C; target price of NOK47 per share: Hibiscus South discovery potentially 50-100% larger than expected – The FY23 production of 8,471 bbl/d was in line with previous indications. YE23 cash, gross debt and cash advances had been previously reported. The FY24 production guidance is now 11-13 mbbl/d (11-14 mbbl/d previously) as Panoro has incorporated a pause in drilling offshore EG. The main factor driving the adjusted upper limit of guidance range is the timing to secure a new rig in EG and deferral of some associated production. Drilling is currently expected to start in late 2Q24 (based on management’s current estimates). We have left our production forecast of 12.2 mbbl/d for FY24 unchanged. The most important new information is the fact that the discovered resources at Hibiscus South are now expected to materially greater than initially expected (we estimate from 6-7 mmbbl previously to 9-14 mmbbl gross – Panoro holds 17.5% WI). Following the drilling of the development well, the structure appears to be larger than anticipated. Given that Hibiscus South is being developed as a tieback to the existing infrasctructure, the incremental capex and opex is minimal meaning the value of each discovered barrel very high. See website for full report Valeura Energy (VLE CN)C; target price of C$8.50 per share: Wassana: 219% reserve replacement ratio in 2023 – YE23 1P and 2P reserves are estimated at 29.9 mmbbl and 37.9 mmbbl respectively. This represents a reserve replacement ratio of 219%. The reserves addition is much greater than we expected. Valeura has booked 7 mmbbl at Wassana (we expected only 5 mmbbl) and has replaced 112-147% of the 2023 production at each of the other fields. While the YE23 Brent prices assumptions for 2024-2026 are now only ~US$78-80/bbl (US$81-82/bbl at YE22 for the same periods), the after tax NPV10 of the 1P reserves is now estimated at US$194 mm. This is well above the YE22 estimate of US$68 mm. Adding ~US$151 mm of net cash would imply that the company value based on its 1P reserves only is US$345 mm, which is greater than Valeura’s market cap. The after tax NPV10 of the company’s 2P reserves is US$428.5 mm, well above last year (US$261 mm). Adding the YE23 net cash implies C$7.56 per share for the company. These figures do not include the positive impact of the expected tax restructuring of the company to apply the tax losses at Wassana against Manora and Nong Yao profits. The YE23 reserves booking showcases the business model of Valeura with the postponing of the decommissioning of Nong Yao, Jasmine and Manora by 1-2 years to 2026-2028. The Thai assets were estimated to hold ~31.7 mmbbl of 2P reserves at YE18 and have produced ~41 mmbbl from 2019 to 2023. As we incorporate the new reserves and resources, we have increased our target price from C$6.40 per share to C$8.50 per share. See website for full report Tethys Oil (TETY SS)C; target price of SEK100 per share: Drilling permit of key well received – Tethys has contracted a rig to drill the high impact Kunooz-1 prospect. Drilling is expected to start by mid April. Our unrisked NAV for the well is ~SEK200 per share. IN OTHER NEWS ________________________________________ AMERICAS Atome (ATOM LN): Raising new equity for Paraguay – Atome has raised £1.8 mm of new equity priced at £0.50 per share to progress the engineering of its green fertiliser Villeta Project in Paraguay. Gran Tierra Energy (GTE LN/CN.US): Reserves update in Colombia – FY23 production in Colombia was 32,647 bbl/d. YE23 1P and 2P and 3P reserves were estimated at 90 mmboe, 147 mmboe and 207 mmboe respectively. This represents reserves replacement ratios of 154% for the 1P case, 242% for the 2P case and 303% for the 3P case. Net cash at YE23 was US$511 mm. EUROPE Blue Nord (BNOR NO): 4Q23 results – 4Q23 production in Norway was 24.9 mboe/d. YE23 net debt was ~US$1.1 bn. 4Q24 production is expected to be 50-54 mboe/d. Kistos (KIST LN): Buying UK gas storage assets – Kistos is acquiring two gas storage facilities onshore UK, Hill Top Farm and Hole House Farm, from EDF Energy for £25 mm. Hill Top's gas capacity is 17.8 million therms, with an ongoing programme to increase this working volume to 21.2 million therms in the short term. The Hole House facility is currently non-operational. Repsol (REP SM): Strategy update – Upstream conventional production is expected to grow by 95 mboe/d in 2027 and by 135 mboe/d in 2030. Unconventionals in the USA is becoming a core area with plan to deploy EUR2.2 bn capex in 2024-2027 with average production over 2024-2027 to reach 180-200 mboe/d. Net capex over 2024-2027 is forecasted at EUR16-19 bn including EUR6-7 bn for upstream. The 2024 dividend will be EUR0.90 per share (+30% vs 2023). The company plans to return up to EUR10 bn to shareholders over 2024-2027 including EUR4.6 bn in dividends. Wintershall Dea: FY23 results – FY23 production was 323 mboe/d. YE23 net debt was EUR2.4 bn. MIDDLE EAST AND NORTH AFRICA Predator Oil & Gas (PRD LN): Well test update in Morocco – The phase 1 of the testing programme has highlighted that the formation is damaged. The company will now move to sandjet testing to intent to establish a gas flow. EVENTS TO WATCH NEXT WEEK ________________________________________ 26/02/2024: Kosmos Energy (KOS US) – FY23 results 27/02/2024: Africa Oil (AOI SS/CN) – FY23 results 27/02/2024: Woodside Energy (WDS AU/LN) – FY23 results 27/02/2024: Africa Oil (AOI SS/CN) – FY23 results 27/02/2024: Seacrest Petroleo (SEAPT NO) – FY23 results 29/02/2024: Seplat Emergy (SEPL LN) – FY23 results 01/03/2023: Parex Resources (PXT CN) – FY23 results
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We have adjusted our estimates mark to market for 4Q23 macro. We do not consider the changes to be material; our rating is unchanged.
Normalised refining margins is unsupportive for Repsol''s price performance in 2024 Being one of the most sensitive peers to changes in European downstream margins, we expect margin loosening to weigh on both earnings and share price performance next year. Growth in biorefining volumes and Venezuelan feedstock will support its margin premium but will not be enough to offset the macro. Additionally, little cash flow growth will come from the Upstream as production plateaus and its strong Henry Hub weighting will not support an earnings inflection until US LNG growth ramps in 2025. A US IPO of the upstream business as early as 2025 would be a positive. De-risked renewable inorganic spend - room for more to shareholders? So where is the upside? The acquisition of renewable developers Asterion and Connect Gen have de-risked inorganic outflows as GW targets are underpinned. The monetisation of a 49% stake in several Iberian solar and wind assets will support debt reduction. In 2023 Repsol will pay-out 35% of CFFO to shareholders. Therefore, we look to its strategic update in February to see if this can continue. However, we do go into the event cautious. Repsol has a history of under-promising and over-delivering on distribution guidance. Whilst the eventual outcome is often a positive, it can lead to initial market disappointment at an event which is expected to be a catalyst for price. Downgrade to Neutral - Focus is margins and distributions Repsol is cheap, at $50/bbl Repsol trades at a 40% discount to its underlying SoTP, ~60% at $70/bbl, break-out the valuation and you get the industrial business for free! However, despite this refining margin normalisation will weigh on investor sentiment and continued litigation and fiscal risk (Peru and windfall taxes) means that we place a higher discount rate than peer average on Repsol''s cash flows. We downgrade the stock to Neutral (from Outperform) with a FCFY-derived TP of EUR15, down from EUR18 as we...
Interim dividend raised beyond guidance; we look to the CMD for further updates Repsol announced that its Jan-24 dividend payment will be EUR0.4 per share. Josu Jon (CEO) emphasized that Repsol''s complimentary dividend (paid later in the year) has never been lower than the interim. Therefore, we expect that Repsol will pay at least a EUR0.8 per share dividend in 2024, higher than the EUR0.75 it had guided to in its 5-year plan. In recent conversations with the CFO he had underlined that he was aware Repsol''s dividend growth has lagged the percentage of shares it has cancelled. This latest announcement will go some way to addressing that lag. For 2023 Repsol has guided to total shareholder distributions of 30% of CFFO, we look to its CMD in 1Q24 to see if this level of pay-out continues and for any further increase to next year''s dividend payment. Windfall taxes, Venezuela and an Upstream IPO were focus of the call Josu Jon was keen to highlight his objections to an extension of Spanish windfall taxes following recent news reports that this is something the potential Spanish coalition government is considering. Repsol believes that the taxes are unconstitutional and further destabilises Spain''s fiscal framework possibly restricting future investment plans. Whilst this is less of a concern for the Upstream, we believe that the comments further support the expectation that an IPO of the business will happen in the US as early as 2025. Additionally, Repsol were positive about the latest sanction easing in Venezuela, highlighting that it will benefit both in the upstream and from the additional heavy oil feedstock elevating its refining margin premium. Model updated for MandA; we reiterate OUTPERFORM We have updated our model to reflect the divestment of Repsol''s Canadian upstream position and the acquisition of the remaining 49% of Repsol Sinopec''s UK assets. This has increased the oil weighting of the portfolio. Despite an expected normalisation of...
Despite the significant drop in net income, Repsol still beat the street consensus by 17% thanks to a strong upstream performance. Refining is coming back and, without any maintenance scheduled, Repsol will benefit from its strong refining system. Capital allocation is now receiving more attractive with the announcement of an additional share buyback program with 60 million shares and achieving its strategic plan well ahead of the deadline. The management will announce the new strategy plan in Q1 FY24.
Since we downgraded Repsol from Outperform to Neutral in April, the stock has traded broadly in-line with the sector. Today we reverse the downgrade, increasing our TP to EUR17 p/s. The upgrade reflects strengthening refining margins plus an improved per barrel premium QoQ, material share buybacks to continue and Repsol''s lack of exposure to lower European gas prices as storage fills. Just looking at its sum-of-the-parts... we believe it is cheap with the industrial business for free. Margin strength and low European gas exposure Planned maintenance in 2Q23 reduced Repsol''s ability to optimise its refinery portfolio and this was reflected in the $0.2/bbl refining margin premium it achieved in the quarter. As margins tighten this quarter due to low Mediterranean inventories, European refinery outages from extreme heat and a possible acceleration of the hurricane season on the US East Coast we expect Repsol to be able to capture margin upside as its maintenance season has come to an end. Additionally, improved utilisation and optimisation at its refineries will support a return of its $2/bbl margin premium. Beyond 2023, the start-up of biorefining capacity at its Cartagena refinery is expected to provide an additional ~$0.7/bbl to next year''s refining margin premium. Buyback upgraded - Share count returns to pre-scrip level After cancelling 22% of its shares over the past three years, Repsol''s share count will return to its pre-scrip (2012) level by the end of this year. We forecast Repsol to continue to reduce its share count with a further cancellation of 13% of its shares through 2024-25. Further decrease is possible if it reaches the top end of its 20-30% CFFO distribution guidance. Additionally, we expect Repsol to announce a EUR0.75/s dividend next year, completing its growth programme a year early. Upgrade to Outperform - TP raised to EUR17p/s At $60/bbl Repsol trades at a 50% discount to its underlying SoTP, 60% at $80/bbl. At the...
2023 CFFO guided down EUR1bn on new scenario outlook and court settlement Repsol reported a 15% adjusted net income beat versus consensus for the quarter largely driven by a lower tax-rate reflecting tax true ups in North Africa and Indonesia. Despite the beat, its 2023 CFFO guidance was downgraded to ~EUR7bn (previously EUR8bn). The main components of the downgrade are 1) lower Henry Hub outlook ($3mbtu vs $4) 2) Maxus court settlement and 3) strengthening of the EUR/$ rate which each lowered CFFO by ~EUR300m respectively. The remaining balance was a weaker outlook on Chemicals which is now expected to generate close to zero EBITDA this year. Share cancellation programme increased 10% in 2023 Despite the weaker CFFO outlook, Repsol announced a10% increase to the 2023 share cancellation programme following 50m shares being cancelled in 1H23. Repsol will cancel another 60m shares in 2H23 with 50m shares to be acquired from the market and the remaining 10m to come from treasury. Post- cancellation Repsol''s share count will be 1.2bn and it will have bought back ~10% of its equity in the year returning the share count to its pre-scrip levels. We expect Repsol to continue to buy back shares in 2024 and 2025, cancelling another 12% of its equity by 2025, with further upside possible if it reaches the top end of its 20-30% CFFO distribution guidance. Biorefining will support continued refining premium, additional $1/bbl by 2025 In the quarter Repsol''s refining margin indicator averaged $6.4/bbl with only a $0.2/bbl premium which was negatively impacted by turnarounds at Cartagena and A Corunain. The planned turnaround schedule for 2023 is now completed and the annual average premium of ~$2 per barrel was re-affirmed. Additionally, margins so-far in 3Q are higher than 2Q23. No guidance was provided on the premium beyond 2024, but the new biofuel capacity at Cartagena is expected to generate EUR175m EBITDA in 2024, adding ~$0.7/bbl to next year''s...
Repsol adjusted net income beat estimates by 25% thanks to the support from the Industrial segment where the 29.5% beat compensated for a lower contribution from the upstream segment due to lower prices. A refining margin of above $15/bbl maintained the downstream profitability, yet the downside risk for cash flow persists due to lower gas prices in the US and narrowing product margins
AUCTUS PUBLICATIONS ________________________________________ ADX Energy (ADX AU)C: Target price of A$0.100 per share: 1Q23 in line with expectations. Growing production at Anshof – 1Q23 production was 299 boe/d including 88 bbl/d for Anshof. In March net production from Anshof has increased to 94 bbl/d. Overall net production in March including the Zistersdorf & Gaiselberg fields (Z&G) was 336 boe/d. Additional site storage is planned to be installed at the Anshof-3 well location in June which will enable the production rate to be increased to ~ 150 bbl/d (120 bbl/d net to ADX). A second 50 m³ oil storage tank is expected to be installed and commissioned on the well site by end 3Q23 to facilitate the increased field production after drilling of the Anshof-2 well. ADX held A$3.4 mm in cash at the end of March. ADX has identified a number of shallow gas opportunities in the KTZ area in Upper Austria (ADX-AT-I licence). Many identified leads are supported by amplitude versus offset (AVO) anomalies. A typical discovery is anticipated to be able to deliver initial flow rates of 5-10 mmcf/d. Further visibility on prospective resources volumes for leads to be matured into prospects is expected in May. Further details on the GRB oil prospect and other Anshof satellite prospects are also expected to be provided in May. ADX continues to offer a combination of strong underlying value, increasing cashflow and reserves growth with very material exploration upside from an expanded near-term drilling programme. See website for full report Arrow Exploration (AXL LN)C; target price of £0.45 per share: Good 4Q22 results. First Carrizales Norte well spudded– 4Q22 production was 1,736 boe/d with cash of US$13 mm at YE22. This is broadly in line with expectations. Production at the new wells on the Rio Cravo Este field continues to ramp-up slowly to prevent early water breakthrough. The company continues to expect to drill at least 10 wells in 2023 (of which three have been already drilled). Arrow has spudded the first well on the Carrizales Norte field . Two further wells will be drilled on the field. At least two Gacheta wells will then be drilled on the Rio Cravo Este field. Two wells at Oso Pardo will also be drilled. The total FY23 capex of US$32 mm is in line with previous guidance. The 130 square kilometre 3D seismic at West Tapir has now been completed. This is one of the larger 3D surveys undertaken in the last few years in the Llanos Basin. The results of the campaign are expected to provide drilling running room for the next one to two years. Arrow had previously reported its reserves at YE22. We continue to forecast YE23 production at ~5 mboe/d. See website for full report Calima Energy (CE1 AU)C; target price of A$0.50 per share: Better than expected performance. A$3 mm dividend distribution. High free cashflow expected in 2Q23 – 1Q23 production was 4,532 boe/d slightly higher than previous indications (~4,500 boe/d) and our initial expectations (4,378 boe/d) given the strong performance of recent wells. The 1Q23 financials were in line with the latest guidance. 2Q23 production is expected to be ~4,200 boe/d. This is higher than we anticipated (3,935 boe/d) given the better-than-expected performance of the recently completed Pisces #8 and #9 wells. These wells were tied-in late in 1Q23 and were ~22% longer and had 15 additional fracs each, compared to the 12-23 well, resulting in anticipated higher production and reserves. The production from these two wells will primarily contribute to production levels in 2Q23. With minimal capex during the break-up period in 2Q23 (A$3 mm), and much lower WCS/WTI price differentials (below US$20/bbl so far in 2Q23 vs US$24.77/bbl in 1Q23), we forecast free cash flow >A$6 mm in 2Q23. See website for full report Chariot (CHAR LN)C; target price of £0.55 per share: Forming a JV with Vitol subsidiary to target the highly profitable industrial gas market in Morocco – Chariot has entered into a partnership agreement with Vivo Energy to develop the industrial gas market in Morocco. The industrial domestic market is one of the three routes to market targeted by Chariot, alongside sales to ONEE and to Europe through the Maghreb Europe Gas Pipeline. As illustrated by the prices achieved by SDX (~US$12/mcf), the domestic industrial market can be very lucrative. The 50/50 JV will market and commercialize the gas produced from Anchois and build the distribution infrastructure (pipeline, CNG, etc) necessary to develop the industrial market. The partnering with Vivo provides access to an established energy distribution network in Morocco. Securing a farm-in partner for the development of Anchois continues to be expected in 2Q23. See website for full report Hartshead Resources (HHR AU)C: Target price of A$0.17 per share: Operational update – Harshead has completed the Geophysical Survey across the Anning and Somerville fields and interfiled pipeline locations. The company continues to target FID in 3Q23. Longboat Energy (LBE LN)C; target price of £0.90 per share: US$1.8 bn oil producer joins Longboat in Norway – JAPEX (Japan Petroleum Exploration) is acquiring 49.9% of Longboat Energy Norge in return for an initial cash injection of US$16 mm in Longboat Norge with an additional contingent cash consideration of US$4 mm linked to a production acquisition in Norway. Longboat Energy will keep the remaining 50.1% in Longboat Norge. JAPEX could inject up to a further US$30 mm in cash in case of a discovery at Velocette. The exact amount depends on the discovered volume with a sliding scale of US$/boe values applied to the gross resources approved for development by the Norwegian authorities. The scale has a minimum of 85 mmboe and maximum of 200 mmboe. The mid case prospective resources for Velocette is 177 mmboe. JAPEX will also provide Longboat Norge with a 5-year US$100 mm financing facility to finance acquisitions and development costs. The interest cost for the facility begins at 6% with all-in cost of
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Refining margin squeeze is already here! A 20% beat on earnings expectations in a quarter that was already expected to be strong, we felt was a positive for the company. However, the share price reaction on the day (down 2% relative to the Oil and Gas peer group) clearly highlighted what the market was focused on... forward looking refining margins. Repsol commented that April''s refining margins were 50% lower than the average for 1Q23 at only $6-7bbl. Josu Jon Imaz (Repsol CEO) tried to reassure investors. He expects increased jet and Chinese demand should provide some price support. Additionally, Repsol are frustrated that they are still seeing Russian refined products being sold across Europe, it is pushing the EU to address the issue. However, as concerns around demand continue and 1.7mb/d of new refined capacity is bought online in 2023, we believe that Refining margins will remain at normalised levels materially reducing Repsol''s cash generation. At least 100m shares to be redeemed in 2023 - total distributions likely to be 30% of CFFO During the call, Repsol confirmed that it expects to redeem 100m shares by the end of 2023 for a total shareholder remuneration (dividend plus buyback) of EUR2.4bn. This reflects a 30% pay-out ratio on the EUR8bn CFFO it guided to in February. Of the total, 50m will be redeemed by the end of July and the remainder by the end of the year. Not all shares will need to be acquired from the market as Repsol has 29m shares on its balance sheet, 15m will be cancelled as part of the first buyback tranche. The positive was that CEO Josu Jon Imaz confirmed that the 100m shares are expected to be redeemed even if CFFO deteriorates from the guided $8bn, this would subsequently push distributions above the 30% CFFO guidance. Reiterate Neutral with a TP of EUR17 - time to reassess Looking to valuation, we forecast weak 2024 cash outlook due to normalised refining margins, a low Henry Hub price, EUR5bn of capex spend and...
Levers for value are fading - Refining Margins and Hub Despite early 2023 refining margins remaining robust, especially when compared to historical levels, concerns around financial markets and recession naturally lead investors to think about OECD mobility growth and the impact on refining margins. We expect that refining margins will normalise towards the end of year driven by~2.4mb/d of refining capacity expected online globally in 2023 and higher crude feedstock prices which have been further supported by the recent production cuts from OPEC. Repsol''s refining windfall cash generation of 2022, we expect, will show significant fade through the year. Additionally, with its upstream portfolio significantly weighted towards Henry Hub prices, our medium-term outlook of $3mcf removes another value lever for Repsol. Cash flow challenged in 2024 - what of the EIG cash As we move in to 2024, a normalised refining margin, a lower Henry Hub price, continued Spanish Windfall tax payments and organic capex of ~EUR5bn should prove a drag on FCF generation. Subsequently, we forecast Repsol''s 2024 FCFY will be the lowest of the peer group. Consequently, shareholders are unlikely to receive a windfall from the 25% sale of Repsol''s Upstream business despite Repsol''s CEO commenting that if debt remains low then he will approach the board for a third buyback tranche in 2023. Repsol has always maintained that the EIG cash would be allocated to accelerating its energy transition and with our latest outlook on the macro stalling further balance sheet de-gearing, outside of the EIG proceeds, we think this is now the base case. Downgrade to Neutral with a TP of EUR17 - time to reassess Looking to valuation, a weak 2024 outlook and lower conviction on increased cash allocation to shareholder later in the year has led to us downgrading Repsol to Neutral with a EUR17ps TP... we see more value elsewhere. We look to the quarterly results for continued strength on...
The strong refining margins in the last quarter supported the group’s results, yet profits are set to remain this year on the back of subdued energy prices. The 64% jump in annual operating cash flow to €9bn allowed Repsol to increase its dividend by 11% and continue its share buy-back programme of 35 million shares with a possibility to launch a second programme in H2 FY23. The outlook is also supportive of sustainable returns to shareholders
We expected more... maybe we need to be more patient The focus for this quarter was whether Repsol would increase shareholder distributions above its current 25-30% CFFO range. The answer, disappointingly, was no! However, during the QandA, Repsol''s CEO commented that towards the end of the year if debt remains low then he will approach the board for a third buyback tranche. This gives us confidence that an increased pay-out will be announced in October. Following the completion of the EIG deal, expected 1Q23 and not currently modelled, we anticipate Repsol will receive ~EUR2.5bn in cash proceeds in 2023, making an already healthy balance sheet look markedly lazy and ripe for further buybacks. Capex guidance goes beyond our expectations In our pre-results note we highlighted our expectation that Repsol would raise capex guidance to EUR5bn for 2023, and it did! We had expected the Asterion deal (~EUR0.5bn) to be included, it wasn''t! The latest capex guidance is on an organic basis. The budget has some flex largely through a possible delay to the Marcellus build-out if Henry Hub prices go significantly lower, break even for the basin is $2-2.5mmbtu. Of some comfort Josu Jon commented that he plans to be ''a boring CEO'' by not making large acquisitions, rather focusing on smaller opportunities. Refining margins to remain robust - margin capture is strong A 12% beat on earnings was largely driven by interest rate and other treasury movements. Upstream earnings missed due to higher taxes and strong margin capture supported the industrial beat. Repsol''s highly complex refineries enabled it to maximise margin capture in 2022 using low-cost heavy crude (notably Maya). An expected utilisation rate of 90% in 2023, supported by lower turnarounds YoY, will enable continued strong cash delivery from the segment. TP lowered (EUR19ps) reflecting higher capex, we await more distributions We have lowered our target price to EUR19 (Upside 23%) reflecting the...
Well positioned to give more back Repsol''s balance sheet has materially de-levered in 2022. Exclude leases and hybrids from its reported net debt and it will exit 2022 in a cash positive position. Additionally, the EIG deal should bring in a further EUR2.5bn of cash in 2023. While we expect some headwind updates when Repsol report its 4Q22 results next week, notably a capex increase, we believe Repsol is well placed to give more cash back to shareholders, considering its comfortable balance sheet. This we feel is especially important following investors'' disappointment around the messaging that the Renewable and Upstream deals cash to be allocated to accelerating the energy transition. But how far can it go? Continued dividend growth underpinned at $60/bbl Following the announcement that it will accelerate its dividend growth programme by one year, we look to see if Repsol can continue to grow the dividend to the middle of the decade. Oil and Gas companies set dividend policies using a prudent commodity planning price, not based on where commodity prices trade today. We think that a prudent price outlook is $60/bbl Brent and $3/MMcf Henry Hub. At these prices we estimate that Repsol will be able to continue to grow its dividend at ~7% YoY reaching EUR0.8 per share by FY24 (distributed in 2025). So why can''t Repsol get back to 2020''s EUR1 DPS? Three main reasons 1) No Scrip option (equivalent cash dividend back then was ~EUR400m) 2) Production decline 3) Capex growth. However, we think it will use buyback to give incremental cash back to share holder. Can the shareholder distribution reach 40% of CFFO - we think yes With the completion of its buyback programme, Repsol enters 2023 well positioned to update the policy. How much further can it go? We believe a 40% CFFO distribution frame is achievable and would keep gearing below Repsol''s tolerance level. At this rate, we would see Repsol go well below its own target of pre-scrip share count of 1,221...
Confidently positioned - strategy advancing Last week we hosted Antonio Lorenzo, Repsol''s CFO, at the 13th BNP Paribas Spanish Investor Day. Following a year of exceptional commodity prices and exceptional cash generation, investor questions focused on how Repsol will springboard into the middle of the decade off the back of 2022. Repsol is confident in both its current strategic and financial position with debt (excluding leases) in a cash positive position, the Upstream sale to EIG expected to complete by the end of Q1 and the acquisition of Asterion having underpinned its GW targets to 2025 and secured a pipeline to 2030. Inflation is being seen on capex across the whole business Repsol is seeing inflation of 40% across its US onshore portfolio, with some products having doubled in price over the past 18 months. The Marcellus and Eagle Ford positions make up 20% of Repsol''s upstream guided capex to 2025 so inflation, we expect, could apply pressure to the capital frame. Additionally, following five FID''s in 2022, BMC-33 (Brazil) expected to FID in 2023 and continued acceleration of its renewable build-out programme (in which it is also seeing 10-15% inflation) we expect Repsol''s capex activity will materially tick up in 2023 increasing its sensitivity to cost inflation. Buyback will reduce share count to pre-scrip levels Repsol''s ambition is to return its share count to its 2011 pre-scrip level. This requires Repsol to buy-back 106m shares, which we estimate it will be able to complete in 2023 within its guided 25-30% CFFO distribution range. We will wait on the February results call to see if there is any update to the distribution programme going beyond the 30% ceiling. Repsol also has a strong case to challenge the Spanish windfall tax, a positive outcome here would further de-risk shareholder cash allocation. Model updated following Trading Statement Repsol''s 4Q22 trading statement read as an overall positive with strong margins in...
Increased cash flow from operations allowed Repsol to increase its 2023 dividend and expand the buyback program by another 50 million shares. By the 2022 year end, 13% of Repsol’s share capital will have been cancelled. Despite the decline in refining margins during the Q3 2022, the industrial segment still accounted for 32% of operating income, 10% lower than in Q2. The management retained its positive outlook on refining margins as middle distillate cracks are still strong although margins are lower than their October highs.
Debt cleared and EandP proceeds expected in 2023... hard not to see an acquisition pending Repsol reported a EUR1.8bn cash surplus (excluding leases) in 3Q22, the first time since our modelling began at the beginning of the millennium. Debt reduction QoQ was supported by continued strong cash delivery from the segments plus divestment completions, 25% of its renewable business (~EUR900m) and of three Canadian assets (~EUR500m). We expect Repsol to remain in a cash surplus position out to at least the middle of the decade supported by continued tight commodity prices. Completion of the 25% Upstream sale to EIG will supply an additional EUR3.4bn of proceeds, strengthening the balance sheet further. With clear guidance that Repsol will use the disposal proceeds to accelerate the transition, it is hard not to assume that it may be preparing for a material acquisition. It is currently looking in the market for ''value accretive options'' which we expect to be green opportunities and most likely in the US after comments supporting the introduction of the IRA. More to you - Dividend growth accelerated one year; 2022 buyback increased Strong cash generation supported Repsol''s announcement to accelerate its dividend growth programme by one year. 2023 dividend will now be EUR0.7 per share, and we would expect 2024 to reflect the previous guidance for 2025, EUR0.75 per share. Furthermore, the buyback programme for 2021-25 will be completed in 2022 after it cancels 50m shares in 4Q22, totalling 200m for the year. Guidance for total distributions 2023+ remains 25-30% of CFFO post working capital. We have updated our models to reflect this guidance and see the share count falling to 1.2bn by the end of 2023, returning the company to pre-scrips levels over a decade ago. Repsol now sits towards the top of the peer group with a cash return yield in 2023 of 13.5% with room, we believe, to go further. De-risked balance sheet, distributions accelerated, divestments on...
AUCTUS PUBLICATIONS ________________________________________ ADX Energy (ADX AU)C; Target price of A$0.060 per share: Anshof production to start early October – Production from Anshof-3 is expected to start in mid-October. A sustained rate of approximately 100 bbl/d is expected during long term production testing. The processing, storage and transportation charge for Anshof crude will be ~US$11/bbl. Arrow Exploration (AXL LN/CN)C; Target price of £0.45 per share: Well test result at East Pepper exceeds expectations - The East Pepper horizontal multi-stage fractured well on the Pepper block (Montney zone) has been tested at a peak rate of 21,206 mcf/d (3,534 boe/d), a stabilized rate of 9,220 mcf/d (1,537 boe/d) and an average rate of 10,921 mcf/d (1,820 boe/d). Arrow holds 100% of the well. This is a very good flow rate (we estimated half that amount) and is much higher than the stabilized flow rate of West Pepper (6.2 mmcf/d) put in production in December 2021. The company is sizing the tie-in equipment for East Pepper to 7 mmcf/d. The well will be put on production at the end of October. We are increasing our assumption of incremental production from East Pepper over 4Q22 from 400 boe/d to 600 boe/d. Total production in Canada could now be ~1,000 boe/d (net to Arrow) by YE22. At C$7/mcf AECO, the Canadian asset would generate ~US$3.5 mm of operating cash flow per quarter at 1,000 boe/d. With a continued busy programme over the coming 6-9 months, the target of reaching 3 mboe/d by 1Q23 looks increasingly close. See website for full report Calima Energy (CE1 AU)C; Target price of A$0.70 per share: Good overall performance from new wells - Gross production from the Gemini #8/9, Pisces #4/5 and Leo #4 is currently ~900 boe/d (~600 boe/d net to Calima). This compares with 185 boe/d from the Gemini #8/9 wells announced in late July. Given that (1) the IP90 rates for Sunburst (Gemini #8/9) and Glauconitic (Pisces #4/5) are only 117-170 boe/d (including 23-33% of natural gas), (2) Leo#4 is an appraisal well still cleaning-up and (3) Pisces #4 has only recovered 20% of frac fluid, we view the performance of the wells so far as a good result. Pisces #4 was placed on production on August 17. Current expectations indicate the well should produce within or above the type curve. Production is still increasing at this well. Production at the Pisces #5 well is very high and the well is expected to outperform the 04-05 well that recovered ~215 mboe (typical type curve EUR: 153 mboe). Production to date from the Gemini #8 and #9 wells is marginally below the Sunburst type curve, however, overall production from the Gemini Program is above type curve. Further details on the 4Q22 programme are expected by mid September. We are now assuming a minimum work programme of four new wells (2x Pisces + 2 Gemini) with 4.2 mboe/d in 4Q22. The programme could also include some Thorsby wells that would have a material positive impact on production in 1Q23. For the time being we anticipate that drilling at Thorsby will only restart in 2023 and we have reduced our production forecast for 2023 from 5.0 mboe/d to 4.5 mboe/d, while we now carry 5.2 mboe/d in 2024 (5.0 mboe/d previously). See website for full report Chariot Limited (CHAR LN)C; Target price of £0.55 per share: Initiating Coverage – Chariot is a ~US$210 mm market cap African-focused low carbon energy company with 478 bcf net contingent resources offshore Morocco that is moving to development. Chariot also has a renewable power generation JV with Total Eren to reduce the cost of power and carbon emissions for mining operations. With the support of Chariot’s main shareholder, which has multiple mining interests, Chariot already has 3 projects in operation or in development with ~0.5 GW of capacity. This figure could double in the next 12 months. Finally, Chariot is progressing a 0.7 mmt/y green H2 or 4 mmt/y green ammonia project in Mauritania where it has exclusivity on 5,000 km2 of land with very high power density for solar (during the day) and wind (at night). This is key to reducing intermittency and producing low cost green ammonia/H2. At 100 mmcf/d, 50% WI in Anchois generates ~US$180 mm/y of EBITDA. Getting the project to FID unlocks £0.66/sh. 1 GW of gross power capacity generates ~US$35 mm/y of EBITDA net to Chariot’s 20% WI. At 11x EV/EBITDA and net of debt, this could be worth ~US$240 mm (~£0.20/sh). Taking FID on the S. Africa and Zambia projects would already add respectively £0.02/sh and £0.06/sh with each further MW adding 0.1p/sh. The H2 business is worth £0.03/sh with a major energy company potentially entering the project by YE22 which could x2 this valuation. Our sum of the parts valuation for the businesses is ~£0.55/sh. See website for full report Chariot Limited (CHAR LN)C; Target price of £0.55 per share: Total Eren joining Chariot’s green H2 project in Mauritania is testimony to its materiality – Total Eren is joining Chariot’s green H2 Nour project in Mauritania with a 50% stake in the consortium (Chariot holding the balance). The terms of the entry of Total Eren in the consortium have not been disclosed but we understand that there is a carried element (to the benefit of Chariot) within the agreement. The partners will now progress, at minimal cost to Chariot, an in-depth feasibility study and arrangements for the offtake for the green hydrogen. The entry of Total Eren adds credibility, financial strength and execution capabilities to the consortium. It also highlights its potential materiality. The involvement of Total Eren also somewhat derisks the project and takes the project to a similar stage as Province Resources’ wind/solar project in Australia (with Total Eren also as a partner). We are therefore eliminating the discount we previously applied to Nour relative to Province Resources EV. This adds ~2.5 p per share to our valuation for the company. We now value Nour at £0.05 per share. In a separate announcement, Chariot indicated that a pipeline tie-In agreement had been signed with ONHYM in Morocco to enable the gas produced from the Anchois Gas Project to be transported via the Maghreb Europe Gas Pipeline. See website for full report GeoPark (GPRK US)C; Target price of US$39 per share: Redeeming further bonds – GeoPark intends to fully redeem the aggregate principal amount of its 6.5% senior notes due 2024, which will equal US$67 mm. IN OTHER NEWS ________________________________________ AMERICAS Alvopetro Energy (ALV CN): Operating update in Brazil – Production in August was 2,727 boe/d. The Unit-C well at the Caburé Unit encountered a total of 52.6 m of potential net hydrocarbon pay at an average 37.2% water saturation and average porosity of 16.8% in multiple formations. This includes 19.9 m in the Pojuca, 3.9 m in the Marfim and 28.8 m in the Maracangalha. Echo Energy (ECHO LN): FY21 results – FY21 production in Argentina was 1,554 boe/d. The company had 3.15mmboe 2P reserves and 5 mmboe contingent resources at YE21. Maha Energy (MAHA-A SS): Reducing FY22 production guidance – The FY22 production guidance has been reduced to 3,500 - 4,000 boe/d from 4,000 - 5,000 boe/d due to delays in repairing production wells on the Tie Field in Brazil. EUROPE EnQuest (ENQ LN): 1H22 results – 1H22 production in the UK and Malaysia was 49.726 boe/d. Net debt at the end of August was US$818 mm. FY22 production is expected to be within the guidance range of 44-51 mboe/d. Kistos (KIST LN): 1H22 results – 1H22 net production from the Q10-A gas field in the Netherlands was 6.1 mboe/d. On a pro forma basis, including the acquisition of the GLA assets, production would be 12.4 mboe/d. The company had ~EUR29 mm in net cash at the end of June. Norwegian Energy (NOR NO): 3Q22 update – 3Q22 production in Norway is expected to be 24-25 mboe/d increasing to 25.5-27.5 mboe/d in 4Q22 Repsol (REP SM): Selling a minority stake in upstream business – Repsol is selling to EIG a 25% equity stake in its global Upstream business for US$4.8 billion, consisting of US$3.4 billion equity and US$1.4 billion net debt. The capital will be redeployed in energy transition initiatives. UK: Lifting Frakicng ban – The new UK government has announced the lifting of the effective moratorium on hydraulic fracturing in England onshore, where there is local support. MIDDLE-EAST AND NORTH AFRICA Capricorn Energy (CNE LN): 1H22 results – 1H22 production in Egypt was 35.5 mboe/d. Net cash at the end of June was US$631 mm. Cairn has received US$77 mm of earn out consideration in in relation to the sale of the UK North Sea producing assets. The FY22 production guidance has been reduced from 37-43 mboe/d to 33-37 mboe/d with US$175-195 mm capex. Energean (ENOG LN): 1H22 results – 1H22 production was 35.4 mboe/d with net debt at the end of June of US$2.2 bn. Energean has declared a maiden quarterly dividend of US$0.30 per share. The company is on track to deliver first gas from Karish this month. The company now expects YE22 net debt of US$2.4-2.5 bn (US$2.6-2.8 bn previously) with FY22 production (excluding Israel) of 34-37 mboe/d (35-40 mboe/d previously). Eni (ENI IM): Acquiring Algerian producing assets – Eni is acquiring BP business in Algeria, including the two gas-producing concessions “In Amenas” and “In Salah” (45.89% and 33.15% working interest respectively). EVENTS TO WATCH NEXT WEEK ________________________________________ 13/09/2022 – Africa Oil (AOI SS/CN): Operating update 14/09/2022 – Pharos Energy (PHAR LN): 1H22 results 15/09/2022 – IGas Energy (IGAS LN): 1H22 results
REP REP ADX ALV ALV AXL BP/ CNE CE1 CHAR ECHO ENOG ENI ENI ENQ GPRK GPRK MAHAA
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