Repsol cuts dividend ahead of renewables push


Repsol slashed its dividend by 40 per cent, the latest big energy company to strip back shareholder payments amid lower oil prices and the need to fund new investments in renewable energy projects.

The Spanish group’s move came as it unveiled a five-year plan to adapt to the drop in oil prices that has roiled the industry during the pandemic just as expectations that oil demand could peak within the next decade have intensified. The dividend will fall to €0.60 a share from €1.

“Repsol’s overall strategic plans echo many peers’ announcements recently,” said Biraj Borkhataria at RBC Capital Markets. “The company will look to reduce capital employed in the upstream, focusing its business, while growing its low-carbon and customer-centric businesses.”

Shares in the company fell 4 per cent despite the dividend cut being broadly anticipated. Oil prices have recovered in November as vaccine hopes raise the prospect of higher demand, sending shares in the sector sharply higher.

Repsol stock has risen to €8.39 from €5.50 this month, as Brent crude oil, the international benchmark, jumped to an eight-month high of $49 a barrel from $35 over the same period.

The company plans to reinstate part of the dividend over time, with chief executive Josu Jon Imaz arguing that the strategic plan was “a significant step towards becoming a net zero emissions company”.

But he indicated the company would seek to sell a stake in its lower-carbon businesses in the next two years, either to a partner or in a public listing. The company is planning a fivefold increase in renewable generation capacity by 2025, with low-carbon ventures receiving almost a third of its planned €18.5bn investment over the period.

Analysts at Barclays said Repsol’s free cash flow break-even level would be below $45 a barrel between 2021 and 2025, or $50 a barrel if higher prices allow for share buybacks.

But Repsol is banking, in part, on refinery margins improving along with the oil price over that time given its greater exposure to the sector than its peers. Repsol expects a refining margin of $3.50 a barrel in 2021, rising to $5.80 in 2025

Analysts have said they expect the closure of older refineries in the coming years to boost margins but there remains a high degree of uncertainty in a heavily oversupplied sector. Barclays said it expected investors to “look through” the forecast margin recovery.




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