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Repsol to Slash 2020 Capex Amid Current Market Uncertainty

Zacks Equity Research

Repsol, S.A. REPYY recently announced plans to reduce 2020 investment by 26% from its original guidance in the wake of a weak commodity pricing scenario. With oil and gas prices now in the bearish territory since the coronavirus pandemic is hurting global energy demand, the outlook for exploration and production businesses seems gloomy. Thus, energy players are restricting operational activities and thereby reducing capital budget.

The Spanish energy giant intends to slash 2020 capital expenditure by more than €1 billion and operating expenses in excess of €350 million. For this year, the company expects net debt to not exceed the 2019-end figure of €4.2 billion. It originally expected a 16% decline in net debt through the year. With its available liquidity alone, the company can cover short-term debt maturities in the next four years.

Repsol intends to maintain July dividend payout of €0.55 per share. However, it might have to shelve the plan of share buyback of 5% of share capital. Notably, the company expects Brent Crude price to average $35 per barrel for the April-December period. It also assumes Henry Hub natural gas price to be around $1.8 per Mbtu during this period.

Repsol has postponed the 2020-2025 Strategic Plan presentation due to current market volatility. The company is on track to reduce carbon intensity by 3% in 2020 from 2016 levels and increase renewable power generation capacity, while decreasing carbon dioxide emissions from businesses. It expects the current environment to not affect its target of achieving net-zero carbon emissions by 2050.

With the capex reduction move, Repsol joins the bandwagon of other energy giants including Chevron Corporation CVX, Royal Dutch Shell plc RDS.A and TOTAL S.A. TOT that intend to navigate through this tough phase, while sustaining a solid financial footing and strong operational efficiency.

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