Repsol S A : Transcripción del webcast de la presentación de resultados del tercer trimestre 2023 (solo disponible en inglés)

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REP.MC - Q3 2023 Repsol SA Earnings Call

EVENT DATE/TIME: OCTOBER 26, 2023 / 10:00AM GMT

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OCTOBER 26, 2023 / 10:00AM, REP.MC - Q3 2023 Repsol SA Earnings Call

C O R P O R A T E P A R T I C I P A N T S

Josu Jon Imaz San Miguel Repsol, S.A. - CEO & Executive Director

Ramón Álvarez-Pedrosa Repsol, S.A. - Head of IR

C O N F E R E N C E C A L L P A R T I C I P A N T S

Alastair Roderick Syme Citigroup Inc., Research Division - MD & Global Head of Oil and Gas Research

Alejandro Vigil Banco Santander, S.A., Research Division - European Equity Analyst

Alessandro Pozzi Mediobanca - Banca di credito finanziario S.p.A., Research Division - Equity Analyst

Biraj Borkhataria RBC Capital Markets, Research Division - Director, Co-Head of European Energy Research Team & Lead Analyst Henry Michael Tarr Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

Ignacio Doménech JB Capital Markets, Sociedad de Valores, S.A., Research Division - Associate

Irene Himona Societe Generale Cross Asset Research - Equity Analyst

Lydia Rose Emma Rainforth Barclays Bank PLC, Research Division - MD and Equity Analyst

Matthew Smith BofA Securities, Research Division - Research Analyst

Matthew Peter Charles Lofting JPMorgan Chase & Co, Research Division - VP

Michele Della Vigna Goldman Sachs Group, Inc., Research Division - Head of Natural Resources Research & MD Oswald C. Clint Sanford C. Bernstein & Co., LLC., Research Division - Senior Research Analyst

Paul Redman BNP Paribas Exane, Research Division - Research Analyst

Sasikanth Chilukuru Morgan Stanley, Research Division - Equity Analyst

P R E S E N T A T I O N

Operator

Hello, and welcome to the Repsol Third Quarter 2023 Results Conference Call. Today's conference will be conducted by Mr. Josu Jon Imaz, CEO. And a brief introduction will be given by Mr. Ramon Alvarez-Pedrosa, Head of Investor Relations.

I would now like to hand the call over to Mr. Alvarez-Pedrosa. Sir, you may begin.

Ramón Álvarez-Pedrosa - Repsol, S.A. - Head of IR

Thank you, operator. Good afternoon, and welcome to Repsol third quarter 2023 results conference call. Today's call will be hosted by Josu Jon Imaz, our Chief Executive Officer, with other members of the executive team joining us as well.

Before we start, let me draw your attention to our disclaimer. During this presentation, we may make forward looking statements based on estimates. Actual results may differ materially depending on a number of factors, as indicated in the disclaimer.

I will now hand the call over to Josu Jon.

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OCTOBER 26, 2023 / 10:00AM, REP.MC - Q3 2023 Repsol SA Earnings Call

Josu Jon Imaz San Miguel - Repsol, S.A. - CEO & Executive Director

Thank you very much, Ramon. Good afternoon to everyone, and thank you for joining us today. As usual, I'll start with a review of the key messages of the quarter, before moving to the business performance and results. At the end, I'll update our outlook to the end of the year. After the presentation, of course, we will be available to answer your questions.

Starting with the main messages, last quarter, Repsol continued to deliver solid results and strategic progress through the current commodity cycle. 2023 has been so far a year of great transformation for Repsol. The strong cash contribution of our businesses from the cashing of asset disposals have been used to increase our organic CapEx, to capture inorganic growth opportunities and to progress towards our strategic objectives.

We are in a very strong financial position, and this flexibility is being used to invest in our future. And we are doing that within the clear, disciplined capital allocation framework defined in our strategy. At the macro level, there is still uncertainty in the market, and the recent sad geopolitical events will probably increase volatility going forward.

The third quarter was characterized by higher oil and gas commodity prices, together with a stronger refining environment. In our previous call, we were optimistic on the outlook for the refining business and last quarter confirmed this view. Moreover, we announced 2 significant transactions in upstream and renewables that evidence our continued focus on transforming the business portfolio.

Firstly, in Canada, we divested our remaining oil and gas assets there, as part of the ongoing reorganization of our operations to concentrate E&P activity in core regions. Secondly, in the United States, the agreement reached for the acquisition of developer ConnectGen, reinforces our renewable portfolio, incorporating an important onshore wind platform in the country, and underpinning our ambition to deliver 20 gigawatts in 2030.

Looking at the results, third quarter adjusted income was EUR 1.1 billion, a 33% increase over the second quarter, mostly driven by the higher oil and gas realization of tighter market for middle distillates. Cash flow from operations reached EUR 1.3 billion, 23% lower than in the previous quarter. As anticipated, the operating cash generation was negatively impacted by the settlement of the Maxus litigation, and the payment of the second tranche of the Spanish windfall tax corresponding to 2022 activity.

Additionally, the higher prices during the quarter and inventory buildup resulted in a working capital outflow of EUR 0.9 billion. Net debt closed at EUR 1.9 billion, roughly EUR 1.1 billion higher compared to June, mainly due to elevated investment levels, the payment of July dividend and the purchase of treasury shares.

During the quarter, we acquired 20.5 -- 24.6, almost 25 million own shares through the buyback program in place since the end of July. In addition, we secured another 10 million shares through the settlement of derivatives. With that, we are more than halfway towards our commitment to cancel a further 60 million shares before year end for a total 110 million shares canceled in 2023. Adding to the EUR 0.70 dividend already paid in 2023, this means that we are on track to distribute the committed EUR 2.4 billion to our shareholders above the higher end of the cash distribution range defined at the beginning of the year.

Moreover, adjusting the -- for the operating cash flow corresponding to our minority partners in upstream and low carbon generation, shareholder distribution will be in the higher end of our peer group. Finally, looking into 2024, the supportive scenario ahead of us and the solid financial position built this year has allowed us to increase the dividend to be paid next January, so the interim dividend to EUR 0.4 per share as announced earlier this morning.

Let me now briefly review the evolution of the main macroeconomic indicators in the quarter. Brent crude averaged $87 per barrel a $9 increase quarter-on-quarter, and $14 below the same period a year ago. The Henry Hub averaged $2.5 per million Btu, 19% higher than in the previous quarter and 70% lower than a year ago. The refining margin indicator averaged $13.6 per barrel around $7 higher than in the second quarter, and $0.9 higher year-over-year, fundamentally due to the increase in the spreads of middle distillates. Lastly, the euro remain stable, exchanging for an average of $1.09 during the quarter.

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OCTOBER 26, 2023 / 10:00AM, REP.MC - Q3 2023 Repsol SA Earnings Call

Moving on now to the performance of our four verticals, starting with the upstream the solid operational performance of previous months continue through September. Aligned with our strategy, our business keeps emphasizing profitability and sustainability with a focus on the efficient delivery of growth projects and portfolio transformation.

The adjusted income was EUR 341 million, 17% lower quarter-over-quarter, mostly due to a normalization of the effective tax rate that in the second quarter included tax regularization in several countries. Year-over-year, the result was 55% lower than in the same period of 2022. As the contribution of higher volumes and lower exploration cost was more than offset by lower oil and gas prices, comparing with the same quarter of the last year.

Quarterly production averaged 596,000 net barrels of oil equivalent per day, in line with the second quarter, and 9% higher than a year ago. The accumulated production into September averaged 600,000 barrels a day, in line with our full year guidance. A year-over-year third quarter volumes benefit from the startup of new wells in Eagle Ford and Marcellus and a higher gas demand in Venezuela. These effects more than compensated the disposals of the Canadian assets executed in 2022. I mean, I'm talking about Duvernay, Chauvin, Montney and so and natural decline.

In Canada having disposed our oil production assets in 2022 in September we divested our remaining E&P position for $468 million. This transaction helps us continue with the streamlining of our portfolio, focusing growth on core regions, such as the United States and Brazil. Production in Canada has averaged around 23,000 net barrel equivalents a day in 2023, mostly gas, and the transaction has been complete by mid October.

In Venezuela, we welcome the latest developments with regard to the easing of the U.S. sanctions affecting the oil sector. This is, let me say, good news for us for Repsol, as it will translate into future development opportunities, increase the availability of heavy crude oil for our refineries, and also is improving the effectivity of that collection. We reiterated again our commitment to Venezuela, and we reiterated that we are going to work looking for any progress as an opportunity to create value in the country.

In the Gulf of Mexico, the Shenzi North project started up production in September ahead of its targeted first oil in 2024. The project is a 2 well subsea tieback that takes advantage of existing infrastructure in the area. The Shenzi field currently produces around 12,000 net barrels a day to Repsol, and the new development is going to add or will contribute with 4,000 net additional barrels per day.

In Brazil, the execution phase of Campos 33 is progressing according to expectation. After having taken the FID in May Last quarter, the consortium submitted the declaration of commerciality and plans of development for 2 of the areas in the concession. And the pending approval by the A&P, the regulator organization. The proposed name Raia Mantae for (inaudible) and Raia Pintada for (inaudible). The project is expected to start production in 2028.

In exploration and appraisal well of the Blacktip deepwater discovered in the Gulf of Mexico was declared positive. This result further proves the existence of a prolific Wilcox play that is in some way in geological terms, I'm not an expert on that, that is similar to Baskin or Leon-Castile in this prospect, supporting our growth plans in the area.

Let me wrap up by saying that since the release of our strategic plan back in 2020, we have made significant progress towards the strategic priorities that were defined for our upstream business. And this has allowed us to make our portfolio more resilient and predictable in any potential scenario. In addition to crystallizing value through the incorporation of a strategic partner, we have concentrated our geographical scope of span in 14 countries, and our focus on the development of 12 new projects with FIDs already, all of them taken. These projects contribute with low breakeven barrels that support future volumes and offset decline.

In parallel, we are evolving our business to develop geological low carbon solutions in CCS, geothermal energy and hydrogen storage. Continuing now with the industrial division, the adjusted income was EUR 550 million, around 60% higher than in the second quarter and 17% lower than in the same period a year ago.

Year-over-year the lower results in refining chemicals and trading more than offset the better results in wholesale and gas trading. In refining, third quarter margins benefit from a strong demand, low levels of inventories, the ban on Russian exports and expansion projects delays. The margin indicator more than doubled to $6.4 achieved in the second quarter and was above this $12.7 of a year ago. Up to September, the indicator has averaged close to $12 in the first 9 months of the year.

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OCTOBER 26, 2023 / 10:00AM, REP.MC - Q3 2023 Repsol SA Earnings Call

Compared to the previous quarter, margins reflected the higher middle distillate spreads as a result of Russian sanctions, lower availability of several crudes and delays. In the year-over-year comparison, the improvement was mostly driven by higher gasolines and naphtha spreads, partially offset by lower middle distillate differentials.

Let me underline that despite the favorable margin environment of the third quarter, the results of the refining business were partially held back by negative pricing lag effect in kerosene sales. This compares with an analog positive effect for this reason in third quarter of 2022. But again, I mean, that is a temporary effect. The premium generated in the CCS margin reached $2.9 over the indicator, positively impacted by a higher availability of heavy crudes, the contribution of biofuels and higher utilization rates.

The average utilization of distillation and conversion units was 87% and 102%, respectively. Plant availability was maximized during the quarter after having complete all planned refinery maintenance during the first half of the year. Finally, last quarter, our refineries continued to process Venezuelan crude, which accounted to around 4% of the total crude inputs. During the quarter, we received four new cargoes for a total 3 million barrels of oil.

In Chemicals, our margin indicator was 43% lower than in the previous quarter and 14% lower than in the same period a year ago, reflecting an ongoing weak demand situation for petrochemical products. The adverse economic situation for this business remain mostly unchanged as inflation and higher interest rates continue to restrain consumer spending. Low demand is affecting nearly all chemical sectors in Europe and the market expects roughly this situation to extend into the end of 2023.

With regards to the transformation of our industrial sites, the construction of the C43 biofuel projects in Cartagena is reaching its final stages with the startup of operations planned in the next few weeks, months. This new unit has an annual production capacity of up to 250,000 tons of HVO, 195,000 tons of sustainable aviation fuel, SAF, depending on market conditions.

Combined with the 240,000 tons a year capacity coming from the retrofitting of Puertollano, I mean, we talked about this project in our last conference in July, we expect to generate around EUR 350 to EUR 650 of EBITDA per ton of fixed stock processed from these two projects, I mean, a figure that could be close to EUR 250 million of annual EBITDA.

In sustainable aviation fuels, we keep working on strategic supply agreements with key airlines. Last quarter, our growth plans received a further regulatory support with the approval of the ReFuel Europe Aviation initiative by the European Union.

In renewable hydrogen, production began in the 2.5 megawatts pilot electrolyzer in Bilbao, a relevant milestone in our decarbonization route, where green hydrogen will play probably a pivotal role. The hydrogen produced through the pilot will be used in the industrial processes of the Petronor refinery in Bilbao.

Finally, as discussed, in our recent ESG day, we have increased our target for biomethane projects in the Galicia region through the northwest part of Spain, where we have Colonia's refinery in several plants that will use agricultural and livestock waste as feedstock.

In the customer vertical, the stability and resilience of this division keeps us on track to deliver records levels of EBITDA in 2023. The adjusted income reached EUR 190 million, 28% higher than in the previous quarter and 74% higher than in the same period a year ago. Quarter-over-quarter, the mobility business was the main driver of the improvement, partially offset by a lower result in LPG due to temperature and seasonality.

Third quarter performance reflected the shift from generic broad market discounts to customer-specific. The new multi-energy strategy launched in April, built around Waylet, is helping us capture new clients, retain the previous customer base and generate cross-selling opportunities through personalized discounts. Let me -- I mean, I'm proud of saying that the Waylet app reached another milestone this month, surpassing 7 million users, helping us to progress towards achieving 8 million digital clients in 2025.

Moving now to low carbon generation. The power generated by Repsol reached 2.7 terawatts hour, 43% higher than in the previous quarter. The adjusted income was EUR 13 million, 8% higher than the previous quarter and 78% lower than a year ago. Year-over-year, the higher production in wind and solar could then compensate for the lower pool price and lower production in combined cycles.

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OCTOBER 26, 2023 / 10:00AM, REP.MC - Q3 2023 Repsol SA Earnings Call

The development of our pipeline continued with the startup of the first 100 megawatts of Frye solar in Texas. The phase development of this project, which was acquire from Hecate Pipeline, I mean, in 2022, it's expected to reach 600 megawatts in 2024. The agreement reached last quarter to purchase renewable developer ConnectGen for $768 million, reinforces the United States as a core region for Repsol. The transaction, which is expected to be complete this quarter, allows us to incorporate a 20-gigawatts pipeline of wind, solar and energy storage projects.

In particular, we are adding an onshore wind platform in the US, that complements the solar and storage development capabilities acquired through our stake in Hecate. Repsol currently has 2.3 gigawatts of renewable capacity in operation including Spain, the U.S., Chile and Italy. We have a further 1.1 gigawatts under construction and remain confident on surpassing the 2.7 gigawatts of installed capacity targeted to the end of this year.

If the acquisition of Asterion closed at the beginning of the year, allow us to basically ensure the delivery of the 6 gigawatts targeted by 2025, the purchase of ConnectGen closes the gap to guarantee the delivery of the 20 gigawatts targeted to the end of 2030. Our team remains focused on the efficient delivery of our pipeline and generated the appropriate returns in this business.

Looking ahead, our deep project portfolio across different countries, technologies and stages of development will allow us to deliver the capacity targets defined in our strategy, while preserving profitability objectives.

Moving now briefly to the financial results. In this slide, you may have a summary of the figures that we have discussed when reviewing the performance of our businesses. For further details, I encourage you to refer to the complete documents that were released this morning.

Let me now review our updated outlook to the end of the year. Starting with refining. The consolidation of the margin recovery experienced since April is allowing us to revise our full year margin indicator assumption. The new figure is $11 per barrel, short and medium term, we remained positive on the outlook for this business as the resilience of demand can cope with the uncertainties coming from the supply side.

In the Upstream, the full year production guidance remains unchanged at around 600,000 barrels per day on an annual basis. This figure already factors since November for the disposal of our position in Canada. The expected cash flow from operations in 2023 remains above EUR 7 billion. In broad terms, the positive contribution of higher refining margins is expected to be partially offset by the negative evolution of gas prices, lower results in chemicals, and a weaker dollar. The estimated organic CapEx for the year is around EUR 5 billion. I mean, the guidance we had in July.

With regards to shareholder remuneration, we confirm our commitment to distribute this year EUR 2.4 billion to our shareholders, surpassing the higher end of our initial cash flow distribution guidance. This figure will be equivalent to 35% of the cash flow from operations of 2023. And as discussed earlier, if we adjusted for the minority stakes in upstream and low carbon generation, we will be in the higher end of our sector.

In addition, the performance of our businesses and expected cash flow generation has allowed us to increase the first dividend, so the interim dividend in technical terms to be paid in 2024. In this sense, this morning, we announced an increase of the dividend planned to be paid in January to EUR 0.4 per share. This is equivalent to a 14% increase compared to the dividend paid in January 2023.

Before moving to the conclusions, let me share some thoughts about the agreement announced last Tuesday between 2 of the political parties negotiating to form the future Spanish government to extend and reinforce the extraordinary tax currently imposed on banks and energy companies. First of all, let me say that this agreement is just part of the negotiation between 2 parties that intend to form a coalition government after the inconclusive elections held in July.

The announcement is not in any way based on any kind of law or draft to follow. The extraordinary tax currently enforced in Spain, I mean, that is unfair, it's illegal, it's unconstitutional, and is discriminatory, is impacting and punishing in a negative term energy companies that invest in industrial assets and that create industrial jobs in the country. Its extension will penalize this company even further with a clear repercussion on their investors and in their capacity to invest in the energy transition. Let me explain that in a crystal clear way. Today, businesses like our chemicals unit in Spain are paying this windfall tax based on its turnover figure when at the net level, they are incurring in losses and they are having difficulties to compete in the international market.

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OCTOBER 26, 2023 / 10:00AM, REP.MC - Q3 2023 Repsol SA Earnings Call

Looking ahead, Repsol plans large investment in our Spanish industrial complexes, focus on reducing the carbon footprint. But again, I will be crystal clear about that. The lack of stability in the regulatory and fiscal framework could condition future investments in our industrial projects in the country. So, before taking a new FID for any investment in Spain, we will analyze if the required conditions are stable and are attractive enough to guarantee the returns of those projects.

To conclude, our third quarter performance demonstrated once again the soundness of Repsol business model. We keep managing our legacy businesses in the most reliable and safer manner, ensuring that we capture the current favorable macro to accelerate the transformation of our portfolio and improve the remuneration to our shareholders. Our decarbonization pathway remains in place as we aim for a balanced approach to the energy transition. The solid financial position built in previous quarter allow us to tackle the future with great flexibility, allocating capital according to our priorities without major constraints.

In 2023, we have made significant advances towards building the multi-energy portfolio that is going to help us decarbonize our operations and support future cash generation. Capital discipline will remain at the center of our decision-making. We see volatility and uncertainty to persist in the current situation, increasing the importance of sanctioning new projects that can be profitable in any potential future scenario.

We keep committed to growing the distributions to our shareholders through a combination of dividend increases and additional share capital reductions. This year, despite somewhat weaker commodity price scenario comparing to last year and our initial expectations, we expect to surpass our targeted distribution range.

Finally, looking back to the 5-year strategic plan release in November 2020, with most of our strategic objectives already delivered. We expect to host you on -- I mean, next time, next conference call probably the 22nd of February to provide an strategic update along with our full-year results.

With this, I hand now the call over to Ramon. Thank you.

Ramón Álvarez-Pedrosa - Repsol, S.A. - Head of IR

Thank you very much, Josu john. Before moving on to the Q&A session, I'd like the operator to remind us of the process to ask a question. Please go ahead.

Q U E S T I O N S A N D A N S W E R S

Operator

(Operator Instructions)

Ramón Álvarez-Pedrosa - Repsol, S.A. - Head of IR

Thank you, operator. Our first question comes from Oswald Clint at Bernstein. Oswald?

Oswald C. Clint - Sanford C. Bernstein & Co., LLC., Research Division - Senior Research Analyst

Can you hear me?

Ramón Álvarez-Pedrosa - Repsol, S.A. - Head of IR

Yes.

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OCTOBER 26, 2023 / 10:00AM, REP.MC - Q3 2023 Repsol SA Earnings Call

Oswald C. Clint - Sanford C. Bernstein & Co., LLC., Research Division - Senior Research Analyst

I wanted to ask about the acquisition of the ConnectGen Wind portfolio in the U.S. I see the logic of matching that up against the Hecate solar portfolio. You said, it's now a core portfolio targeting, obviously, double-digit returns. But perhaps you could just walk through some of the assumptions in order to maybe provide a bit more clarity on securing that double-digit level of returns, how important tax credits are, or do they really bolster your view that you can reach that level comfortably? And, I mean, should we expect you to deepen in the U.S. now with the low carbon CapEx, given what you just said about the Spanish tax environment? That's the first question.

Secondly, I wanted to ask about the customer business and those discounts, which have doubled and they seem to be extended into 2024 the $0.40 per liter and the free electric vehicle charging, it seems quite generous. So I just wanted to make sure, I mean, overall, you still make money on these customers through the gas and power contract side of the equation. Could you just talk about that, please?

Josu Jon Imaz San Miguel - Repsol, S.A. - CEO & Executive Director

Thank you, Oswald. I mean, first of all, I always talk about double-digit. I see that and -- I know that some investors, they don't -- I mean, they have some concerns and some doubts about that. Let me say, I'm going to be very clear. Now we are in the midst of the process of the disposal the asset rotation of the 49% of the Ebro project, the Ebro project, we are talking about 600 megawatts in Spain, 400 megawatts of them more or less are green, 200 megawatts solar, and we are going to see in 2, 3 weeks the conclusion, the closing of this process.

Again, we are going to demonstrate through this portfolio rotation process that the double-digit return is there even in this financial environment. I know that there was -- let me say in the market a reasonable concern about we would be able to go on in this asset rotation process in this context. Okay, we are going ahead and we are going to see in 2, 3 weeks that the results are there.

We are taking, as you know, the whole risk of the project from the early pipeline. And on top of that, we are also taking all the construction, the operation, the maintenance of the asset. And after securing a significant part of this production for coming years, we are looking for an investor that could in some way have some appetite to take up the risk of project and is ready, of course, to pay a different multiple. That is happening even in this scenario.

Going to your question, let me say that today we have the advantage of being or entering at the right moment in the States, because we have the pipeline to accelerate these projects in the country. Of course, as you mentioned, these projects are eligible in terms of the tax energy investment, that could be at around 30% -- more or less 30% plus. In many cases, these projects are eligible because the geographical situation they have, in communities that they have suffered, let me say in the past, some decline coming from, I don't know, coal mines or projects linked to some other forms of energy and they have an eligible support of additional 10% of the local community.

So, in most of cases, we are talking about a total tax support coming from the IRA, something in between the 40% and the 50% of the total CapEx of the project. Of course, we have good placement for these projects in good regions. It's a good pipeline. We have the right team to push forward these projects, and we are, let me say, some -- with a clear expectation and some comfortable about the way to reproduce in the States to replicate, better set the same model of portfolio rotation we have developed in Spain. And that is going to allow us to get this double-digit return target we have. And again, in 2, 3 weeks we are going to see the results and we are comfortable about the project we are involved in.

Going to your second question about the customer business. First of all, it's clear that we are making money this year, I have to check the figure. But in the electricity and power business, we have in these 9 months a positive EBITDA of EUR 70 million. But I have to say that we are investing hard in an organic way, mainly organic, I mean, with some small inorganic transactions to increase the number of customers.

At the end of September, we have already 2.15 million customers in Spain. And this October, we have overcome the figure of 2.2 million customers. Remember that we have the target of 2 million customers by 2025 in our strategic plan, that means that we are already the fourth operator in the power business in Spain, and we are approaching the third one. And we are building this position, as I mentioned, with the figures I show in a profitable way. On top of that, you could see the result of our customer business, where year-after-year the EBITDA is growing. That means that

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OCTOBER 26, 2023 / 10:00AM, REP.MC - Q3 2023 Repsol SA Earnings Call

this multi-energy approach, focus on clients is working. Because it's true, last year we had discounts and so on, but we were in some way we had a general framework.

Now we are very focused on our customers, adding value to every customer of Repsol. And with more focus. Let me say, that the total figure of the discount is also less -- is lower than it was last year in terms of P&L but this focus on the customers of Repsol, we are interested in. So that's important, we are leveraging this position, the non-oil is also growing. It's also an important part of this business. And the proof of what I'm saying is that year-after-year, the EBITDA in the customer business in Repsol is growing. So, Oswald, going to your question. Yes, we are making money in this new business.

Ramón Álvarez-Pedrosa - Repsol, S.A. - Head of IR

Thank you, Oswald. Our next question comes from Biraj Borkhataria at RBC. Biraj?

Biraj Borkhataria - RBC Capital Markets, Research Division - Director, Co-Head of European Energy Research Team & Lead Analyst

The first one is just a follow-up on the windfall taxes. I hear you and it quite strange to be paying windfall taxes on a loss making business. But I wanted to think, looking forward, as you are thinking about 2024 CapEx and plans. Could you just talk a little bit about the projects that may or may not be at risk and how you're thinking about the sort of uncertain portion of your CapEx, if this was to be enacted?

And then the second question is on the dividend. You've said multiple times that you want to be the most boring CEO in the industry and you're going to host the strategic update in early '24. I suppose we'll get a more formal update on the distribution framework then. So I am just wondering why you felt the need to increase the dividend at this point.

And then finally, just on the corporate cost line, you're cash and now that's obviously starting to earn interest, and that seems to be making quite a material impact on that line. I was just wondering, on the debt side, could you comment on what proportion of your gross debt is on fixed rates and termed out?

Josu Jon Imaz San Miguel - Repsol, S.A. - CEO & Executive Director

Thank you. Biraj. I mean, first of all, why are we increasing the dividend at this point, because the good performance of our businesses. I mean, we have seen a good performance and cash generation in our businesses and we are comfortable with this figure that is the interim one. I'm not going to commit today, the complementary one that is going to be paid in July 2024. But let me say that never the complementary has been lower than the interim in our history. So, we will put more color on that in February because we are going to present our strategic plan. But -- I mean, you could expect complementary in July that is not going to be in any case lower than the interim dividend we are anticipating this January 2024 related to the interim dividend from the result from 2023.

So, we are today very comfortable with the cash generation, with the figures we have seen in terms of preparing the strategic plan, with the financial situation of the company to be comfortable with this dividend we are committing today, [waiting] for taxes. But again, I will be clear this year 45% of our CapEx has been invested in Spain. Spain is the main geography where we are investing and to go on developing this huge investment effort in our industrial assets, where we have to take sometimes even technological risk because we are entering new technologies to decarbonize our assets, we need to have a clear predictable and stable regulatory and fiscal framework.

Otherwise, I mean, we have other alternatives. Of course, we have industrial sites. Portugal, we could have international activity in our industrial business. But again, we are going to analyze carefully what is the regulatory and fiscal framework before taking new FIDs in the Spanish geography. Because we have to protect, first of all, our shareholders, our employees, but at the same time, we have to define the concept of industrial job. I mean, this unfair, this illegal and this discriminatory tax is [pulverizing] importers, people that is coming to Spanish market, not creating a single industrial job in Spain, and is punishing companies that we are investing in Spain. We are creating industry in Spain, we are developing and

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OCTOBER 26, 2023 / 10:00AM, REP.MC - Q3 2023 Repsol SA Earnings Call

increasing our jobs in Spain. And that is unfair. So, we have to analyze in a very carefully way, what is going to be the regulatory and tax framework. And in case of not seeing a clear, stable, unfair framework, we are going to take different decisions in the close future.

So, I think that, Biraj, I'm answering in a very crystal clear way to your question. When you say the net debt, good proportion of the debt is fixed. more or less -- I mean, first of all, let me say that our debt level is very low. If you reduce the impact of leases, today we have a negative debt. So that means that we have a positive cash position of the company in net terms saying that an 80% of the gross debt, we have 86% exactly, I'm checking the figure, sorry. I had in mind the figure of 80%, but now I'm checking the figure, this is actually the 86% of the debt has a fixed interest rate. More or less the average of this debt is something in between 2%, 2.5%. That is the range of these gross debt we have. But again, we have a strong liquidity position, but -- because I know that probably some of you are surprised because we have a positive corporate result this quarter.

A part of that comes from what is the market exposure to the shares we have and the evolution of the stock price. But a part come from the positive financial result for Repsol because we have a net liquidity position and the interest rate of this liquidity is above the 4%. So that is curious, but this

• let me say, financial environment today, this macro environment is pulverizing Repsol in terms of being a company with a net cash exposure company. So we have in real terms, a positive financial result. Thank you, Biraj.

Biraj Borkhataria - RBC Capital Markets, Research Division - Director, Co-Head of European Energy Research Team & Lead Analyst

Thank you very much.

Josu Jon Imaz San Miguel - Repsol, S.A. - CEO & Executive Director

And the dividend, why we are increasing now the dividend? Yes. I think that I mentioned that because we are seeing a cash flow from operation that is supporting that and we have to approve this dividend, the interim by next January. Thank you.

Ramón Álvarez-Pedrosa - Repsol, S.A. - Head of IR

Thank you, Biraj. Next question comes from Michele Della Vigna at Goldman Sachs. Michele?

Michele Della Vigna - Goldman Sachs Group, Inc., Research Division - Head of Natural Resources Research & MD

Congratulations on the dividend increase. I wanted to ask two questions. First, I wanted to come back to the comment you made on Venezuela. And just wondered, if you could give us perhaps a little bit more color on the opportunities you could see for Repsol if the sanctions are lifted, both in terms of further recovery of your receivables, but also in terms of future profitable growth opportunities?

And secondly, I wanted to come back to a more strategic issue, which is the opportunity to potentially list the E&P business in the U.S. Over the coming years, you're clearly recharging your project pipeline there. You're cleaning up the portfolio. I was wondering, what do you think still needs to be done or still can be done on the E&P business to really prepare it to be a very successful potential IPO?

Josu Jon Imaz San Miguel - Repsol, S.A. - CEO & Executive Director

Glad to you, Michele. So, going to Venezuela, you know that we have maintained in difficult times our position in the country. So we are a good operator in Venezuela. We are producing in a good way and with possibilities of increasing our production, gas that could be -- of course, could go on fulfilling the needs of the country, could be in the close future, even be exported. On top of that we have oil production, I mean, the total the gross production of Petroquiriquire and Petrocarabobo where we are -- could be at around 22,000, 23,000 barrels a day last year.

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