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Optimism: Update on European integrated Oil cos

05 May 2020 by jbchevrel

Repsol (REPSM) reported decent Q1 #s, given the circumstances with Adj. Net Income €447m (-28%) higher than consensus €334m. CCS EBITDA €1.5b (-19%). Net debt increased +€258m in Q1 to €4,478m and €8364m when including leases. This was mainly due to the purchase of treasury shares, while REPSM keeps €8b of liquidity that covers short term debt by a factor of 1.6x. REPSM confirmed their Resilience Plan for a $35/b crude px environment. This assumes average $35/b price for the rest of the year. It consists in €350m OpEx cuts, €1b CapEx cuts and €800m WACC optimization. This would hypothetically take Net Debt at the end of 2020 at its end of 2019 level. The July dividend was confirmed in scrip from and the share buyback plans have been pulled. REPSM has been relatively resilient to covid. All is relative. The CDS was just below 50bp pre-Covid. It is now 158bp. The French comparable Total was also reporting #s today. Q1 Adj. Net Income $1.78b (-35%) vs consensus $1.6b. Cashflow $1.3b (-64%). Net Debt increased +$7.1b in Q1 to $38.2bn due to high CapEx and WACC outflows. TOTAL announced that they are cutting CapEx but keep a stable dividend, with a scrip option. While TOTAL debt is rightly perceived as manageable, they stand out by their less credit friendly announcements than some other majors. TOTAL CDS is 79bp. it was 27bp pre-Covid. Adding to decent #s, crude has performed strongly recently. In an effort to talk his book, Gazprom Neft CEO Dyukov said prices will top $30/b in summer and approach $40-45/b by EOY. However, he noted that demand recovery would not be V-shaped, and there would not be a further jump in prices this month, despite this is the month in which the new OPEC+ cuts are implemented. President Trump noted on Twiter ‘Oil prices moving up nicely as demand begins again!’. As we can see on this daily delta chart, European energy names perform strongly, with not just TOTAL and REPSM, but also BPLN, and to a lesser extent, RDSALN and STLNO.