Repsol to ramp up renewable capacity, cut 2021 dividend
Spanish oil major refocuses efforts toward higher-value production
Repsol SA will reduce its dividend next year after outlining plans to wind down the search for oil and expand its renewable capacity fivefold during the next decade.
The Spanish company, which was the first oil major to set a net-zero emissions target a year ago, will put its projects into “harvest mode” as it refocuses on higher-value oil production in fewer countries. While the dividend will be lower in 2021, it will be paid out entirely in cash, unlike the current distribution, which is mostly given as new shares. Repsol expects to start growing the payment again from 2023.
Repsol's decision last December to write down the value of its oil assets by 4.8 billion euros (US$5.7 billion) and promise to eliminate net emissions of greenhouse gases from its operations by 2050 was the first step in a dramatic shift for the oil industry. It plans to funnel cash from the petroleum business into an expansion of renewable capacity to 15 gigawatts — including wind and solar — from the current 2.95 gigawatts.
The “new strategic plan highlights the continued shift in focus to renewables from oil,” said Salih Yilmaz, an energy analyst at Bloomberg Intelligence. “The move is expected to be self-financing with Brent at US$50 a barrel.”
Repsol's new strategy also includes a concrete target for green-hydrogen production, setting it apart from other oil producers.
Most companies argue this fuel is not yet cost-effective, but Repsol chief executive officer Jon Josu Imaz said the company could produce renewable hydrogen 30-per-cent cheaper than others in Spain. The company is seeking to align itself with the government's aim of transforming the country into a key European hub for hydrogen shipments, and Repsol aims to produce more than 1.2 gigawatts in 2030.
Repsol plans to use three types of technology to produce green hydrogen: electrolysis, using renewable electricity to make hydrogen from water; biomethane in steam reformers, which extracts hydrogen from gas produced from biological sources; and photo-electrolysis, where sunlight is used to extract hydrogen from water. Hydrogen made from biomethane will become competitive in the short-term, Imaz said in an analyst call.
The shares fell 3.5 per cent to 8.44 euros in Madrid, taking this year's decline to about 40 per cent. The Stoxx Europe 600 Oil & Gas index was trading flat.
Repsol's early move on emissions cuts has been followed, or bettered, by larger European rivals, including Total SE, Royal Dutch Shell Plc and BP Plc, although the U.S. majors remain committed to fossil fuels. But Repsol is now spending the most on renewables among the majors, according to analysts at Redburn. Some of the biggest oil companies have also reduced their dividend payouts as they reset in the face of the coronavirus-induced slump and the pressure to move more decisively in the energy transition.
Repsol will reduce the dividend to 60 euro cents a share next year from one euro in 2020, the company said in a presentation on Thursday. It plans to boost it by five cents annually from 2023 to 2025. If Brent prices fall to below US$40 a barrel on average for a year, which the company does not expect, “we have a capex flexibility to be debt-neutral paying our dividend of 60 euro cents a share,” Imaz said.