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Spanish Energy Giant Repsol Writes Down Oil, Gas Assets -- Update

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12/03/2019 | 05:29 pm

By Sarah McFarlane

Spanish energy company Repsol SA said it is cutting the value of its assets by billions of dollars because the global transition to a lower carbon economy is weakening the outlook for oil and gas prices.

Repsol's move is the first by a major oil and gas player acknowledging a lower value of its assets was linked to a long-term view that a transition to less carbon-intensive energy will make oil and natural gas less valuable.

The impairment charge won't impact cash payments to shareholders, the company said, but it is likely to increase the company's market cap-to-debt ratio, known as gearing. The charge, totaling more than $5 billion, is set to show up in the company's fourth-quarter results due in February.

"This valuation adjustment will mainly affect exploration and production assets located in the United States of America and Canada due to the reduction in the expectations of future gas prices," said the company in a statement.

Energy companies have been reassessing the value of their assets, particularly in the U.S., where natural gas prices have been historically low, for the past couple of years. BP PLC's last set of results included a $2.6 billion impairment charge, mostly from selling U.S. assets at lower prices than it had on its balance sheet.

Repsol, which controls around 8% of Europe's oil refining capacity, also said it aims to achieve net-zero carbon emissions by 2050. That includes reducing greenhouse-gas emissions from the oil products they sell, such as gasoline, which is similar to commitments made by Royal Dutch Shell PLC. Many other energy companies have resisted such moves.

The Madrid-based company's announcement coincided with the United Nations' climate change meeting in the Spanish capital, known as COP25, where governments are expected to negotiate ways to limit the global temperature rise to less than 2 degrees Celsius.

Some analysts said it was a coincidence that Repsol needed to change its oil and gas price assumptions, and therefore asset values, at the same time as the company is changing its strategy to align with the energy transition.

Repsol bought Canada's Talisman Energy in 2015 in a deal which included U.S. shale assets.

"They've got a significant North American asset base which had quite aggressive oil and gas price assumptions, gas in particular," said Jason Kenney, an analyst at Spanish bank Santander, adding that it had to be written down at some point.

Repsol has committed to invest a larger proportion of its budget to zero carbon energy than its peers. It plans to more than double its low-carbon electricity generation capacity to 7,500 megawatts by 2025, mostly from renewable energy, with solar and wind projects planned.

"Repsol's push into new energy is unique for a company of this size; 17% of its overall budget is allocated to zero-carbon energy over its three-year plan, way ahead of the majors," said consulting firm Wood Mackenzie in a report.

--Max Bernhard contributed to this article

Write to Sarah McFarlane at

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