Investing.com -- Repsol (ETR:REP) (OTC:REPYY) is under scrutiny following its third-quarter 2024 trading update, with a weaker refining environment and lower production figures weighing heavily on the company’s performance.
The Spanish energy giant issued its update late on Wednesday, giving investors a preview ahead of the full results expected later this month.
One of the most important points from the report was the sharp drop in refining margins, a crucial driver of profitability for Repsol. The company’s refining margin indicator fell to $4 per barrel, down from $6.3 in the second quarter.
This was slightly below the consensus of $4.4 per barrel, as per analysts at RBC (TSX:RY) Capital Markets, but largely aligned with what the market had anticipated.
“Given the trading update, we think consensus estimates may prove somewhat optimistic,” said analysts at RBC.
Despite the fall in margins, utilization rates at Repsol’s refineries held steady at 87.7%, signaling that the company continues to operate efficiently.
However, the outlook remains cautious as early signs from October suggest that refining margins have not improved, hovering around $4 per barrel.
Production also took a hit, with Repsol reporting volumes of 553,000 barrels of oil equivalent per day, below consensus estimates of 568,000 kboe/d.
This represents a decline from the previous quarter’s figure of 589,000 kboe/d. Much of this drop can be attributed to an outage in Libya, where production was offline from August 30 to October 4, as well as declines in the U.S. onshore operations, particularly in the Marcellus and Eagleford areas where Repsol has halted rig activity.
Analysts noted that while the Libya outage had a major impact on overall production, its effect on earnings may be more muted due to the region’s higher tax rate.
On the financial front, Repsol was hit with €170 million in windfall taxes during the quarter, adding pressure to the bottom line.
However, the company could see some relief from a likely working capital release, driven by the ongoing drop in commodity prices.
Additionally, asset sales totaling around €140 million were announced, potentially providing a cushion as Repsol navigates a challenging economic landscape.