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Repsol signals $7bn asset sales and cost cuts

The Spanish company plans to sell off assets by 2020 and cut capital expenditure by 40% in order to reduce debt

Spain's Repsol has signalled plans to sell off €6.2bn ($7.1bn) of assets by 2020 and cut capital expenditure by 40% from 2014 levels, as it struggles to maintain dividends and reduce debt -- based on its oil price forecast of $50/barrel oil and US gas price forecast of $3.50/MMBtu, out to 2018.

Under its first strategic plan since finalising its $8.3bn takeover of Canada's Talisman this May, Repsol vowed to achieve cost savings of €2.1bn/year from 2018 through efficiencies based on a $60/b upstream price in 2018-20, applying "strong capital discipline".

"We are in too many countries," chief executive Josu Jon Imaz told a briefing on 15 October: "So we will try to reduce our exposure to high breakeven projects." Repsol could have expected production of 900,000 barrels of oil equivalent by 2020 post-Talisman, he said. Instead Repsol would now reduce its riskier portfolio and target production of between 0.7m and 0.75m boe/d by 2020, not much higher than the 0.65m boe/d five months ago when Repsol absorbed Talisman.

Alongside lower investment, there is to be €6.2bn of divestments occurring between 2016 and 2020 -- half of which are to be "executed in the next two years." These could include some refining assets, but would mainly be non-producing upstream assets. Exploration and production would be focused on three regions: North and South America plus southeast Asia, added Imaz, citing offshore Colombia and Sumatra as exciting prospects.

Overall staffing would be reduced by 1,500 from the current 27,000 headcount. Cash flow from Repsol's modernised refineries in Spain and its stake in Gas Natural would ease the transition. Even so, Repsol assumes a $6.40/b refining margin out to 2020, 27% less than its $8.80/b forecast for 2015 – which was a boom year downstream.

Imaz cited €1bn of sales since the May Talisman acquisition - including its LPG business, plus a stake in Spanish oil logistics firm CLH -- as a sign of how it means business. He said Repsol was comfortable keeping its 30% stake in Gas Natural, worth an estimated $6bn, because of its returns - but that it represented "optionality" going into the future.

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