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The Globe and Mail

Solid Repsol earnings report reassures investors

A Repsol logo is seen in front of Torre Espacio building in Madrid April 13, 2012.


Spain's Repsol YPF SA, which was stripped of a 51 per cent stake in Argentine oil company YPF last month by the government in Buenos Aires, posted stronger-than-expected results for the first quarter on higher oil and gas prices.

Net profit rose to €792-million ($1.02-billion U.S.) a 3.5 per cent increase on the previous year and Repsol's shares increased 8.3 per cent to €14.22 in afternoon trading.

The results should reassure investors about Repsol's future, despite the loss of YPF. The company has much greater exposure than other western oil majors to Brazil's huge pre-salt fields, has a strong presence in the lucrative deepwater Gulf of Mexico and is drilling exploration wells in other highly prospective parts of the world, such as Cuba and Guyana. Analysts at Bernstein Research said it had the "best exploration pipeline of the peer group relative to market cap".

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Repsol said it benefited from the gradual return of its Libyan fields to prewar levels of production. It was also boosted by the effects of the Fukushima disaster, which led to a big increase in demand for liquefied natural gas in Japan as it shut down its nuclear power plants.

Repsol said operating income at its LNG business was €158-million, compared with €115-million a year earlier - an increase of 37.4 per cent. It said the price it commanded for its gas rose 12 per cent in the quarter.

However, operating income in its refining and marketing division fell 24.6 per cent as the recession damped product demand.

Production for the quarter was flat at 323,000 barrels of oil equivalent a day. The company said it made a significant oil discovery at the deepwater Pão de Açúcar well offshore Brazil - one of the world's three largest oil finds so far this year.

Repsol has promised a long legal battle to win compensation from the Argentine government over its seizure of YPF, which accounted for nearly a fifth of Repsol's earnings in the first quarter. The Argentine Congress approved the nationalization on May 3 and shortly afterwards, Repsol wrote to oil majors including Exxon Mobil , Chevron Corp. and ConocoPhillips warning it would sue if they tried to invest in YPF or its assets.

RBC Capital Markets analyst Peter Hutton said the results announced on Thursday was a reminder that the "heavily negative sentiment overhanging [Repsol's]stock looks overdone".

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