Release Date: July 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Galp Energia SGPS SA (GLPEF, Financial) reported a strong Q2 2024 with solid execution from teams and assets.
- The company completed the Angolan farm-down and announced the divestment from Area Four in Mozambique, reinforcing its financial position.
- Upstream Opex was lower than expected, with production costs expected to be below $3 per barrel.
- Strong contribution from industrial and midstream sectors, particularly in refining and trading.
- Galp Energia SGPS SA (GLPEF) has unprecedented financial muscle to deliver long-term growth from high-return projects.
Negative Points
- CapEx guidance of EUR1 billion is challenging to meet, with uncertainties around Namibia and Mozambique divestments.
- The pace of decarbonization through renewables has been slower than expected, leading to a suspension of short-term guidance.
- Refining margins have been impacted by lower demand and additional refinery capacities coming online.
- Solar investment has slowed due to permitting challenges and lower-than-expected returns.
- The company faces uncertainties in the timing and execution of the Namibia exploration campaign and potential farm-down.
Q & A Highlights
Highlights of Galp Energia SGPS SA (GLPEF) Q2 2024 Earnings Call
Q: Can you provide more color on your CapEx guidance and the sustainability of lower upstream OpEx?
A: Yes, it's challenging to meet our CapEx guidance. We are comfortable with our current guidance due to contingent payments. For upstream OpEx, we maintain production costs around $3 per barrel, excluding Coral South, which should reduce costs by $0.5 per barrel.
Q: What is driving the improvement in OCF and EBITDA guidance, and can you elaborate on the Namibia farm-down strategy?
A: Strong contributions from industrial and midstream sectors, along with solid performance in Brazil, are driving improvements. For Namibia, we aim to de-risk the project and seek a partner keen on quick development and CapEx funding.
Q: Can you provide details on the upcoming exploration and appraisal campaign and the reassessment of decarbonization targets?
A: We have selected the location for the first well in the Mopane complex. On decarbonization, we plan to retain a large stake in Namibia, which affects our targets. We will reassess our 2030 targets but remain committed to net zero by 2050.
Q: What are your expectations for the refining market and current refining margins?
A: Refining margins are influenced by supply and demand dynamics. We expect margins to be slightly above $6 per barrel, with no significant maintenance planned for the rest of the year.
Q: Can you discuss the outlook for renewables and the economics of your biofuels project?
A: We expect power prices to recover in Q3 and Q4. The biofuels project is progressing well, with expected returns above our 12% hurdle rate.
Q: What are the updates on São Tomé exploration and the strong performance of non-fuel businesses?
A: We plan to drill in São Tomé by late 2025. Non-fuel businesses are performing well, with 60% of transactions including non-fuel items and strong growth in electric mobility.
Q: Can you clarify the Namibia farm-down proceeds and the low depreciation charge in downstream?
A: The main contribution from our partner will be development CapEx, with some past costs potentially included. The low depreciation charge is a return to normal levels after higher impairments in 2023.
Q: What are your plans for shareholder distributions and renewables investment?
A: We are executing a EUR350 million buyback program and maintaining stable dividend payments. We expect to start construction on several renewable projects by the end of this year, despite licensing delays in Iberia.
Q: Can you elaborate on the growth levels you envision and the Mozambique transaction structure?
A: We have more great projects than we can handle alone, leading to significant growth. The Mozambique transaction includes upfront and contingent payments based on project milestones.
Q: What are your expectations for the Tupi field decline rates and Bacalhau project developments?
A: Tupi field decline rates are below 5%, with ongoing investments. Bacalhau Phase 1 is progressing well, with first oil expected by mid-2025 and significant production improvements.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
