<article><p><i>Updates throughout</i></p><p class="lead">Spain's integrated Repsol is planning sharp cuts to investment in its core upstream oil and gas business over the next few years, while its budget for low-carbon energy projects is being increased. </p><p>The firm plans to invest around €1.6bn/yr ($1.9bn/yr) in its upstream business in 2021-25, compared with €2.4bn in 2019 and the €2.6bn/yr announced in its previous 2018-20 strategic update.</p><p>Upstream spending over the next five years will total €8bn, or around 44pc of the overall €18.3bn capital expenditure (capex) budget, while investment in the low-carbon business — including renewables and biofuels — will amount to €5.5bn, or 30pc of the total. </p><p>Repsol plans to cut upstream capex by reducing the number of countries it operates in to fewer than 14 in 2025, compared with over 25 at the moment. And it plans to streamline its exploration activity, with a focus on four areas — the Gulf of Mexico, Alaska's North Slope, the Llanos area of Colombia and Southern Sumatra in Indonesia. </p><p>"We are going to invest $800mn in exploration over the whole period compared to the $700mn/yr we were spending in 2017 and 2018," chief executive Josu Jon Imaz said.</p><p>The capex reduction, together with a focus on short-cycle projects with lower production costs, is expected to help the upstream business generate $5bn of free cash flow in 2021-25, assuming a $50/bl Brent oil price and a Henry Hub gas price of $2.5/mn Btu. </p><p>Despite the sharp cut in spending, Repsol is confident that it can maintain its upstream production at current levels of about 650,000 b/d of oil equivalent (boe/d), not only in 2021-25 but in the following five years as well. The firm said it has some 4bn boe of contingent oil and gas resources in the North American shale sector, which should help support a reserve replacement ratio (RRR) of about 85pc by the end of the decade, compared with an average of just 69pc over the last three years. </p><p>Repsol will continue to divest upstream assets in non-core countries, having already offloaded assets in Ecuador, Papua New Guinea and Vietnam this year.</p><p>Meanwhile, the increased spending on renewables and other low-carbon activities is designed to transform the company into "a global low-carbon generation operator", with capacity of 7.5GW by 2025 and 15GW by 2030. </p><p>"Repsol's seven large industrial sites in Spain, Portugal, and Peru will continue their transformation to become multi-energy hubs," the firm said.</p><p>Part of the planned transformation is for Repsol to become a leader in sustainable biofuels, with production capacity of 1.3mn t/yr in 2025 and more than 2.0mn t/yr in 2030.</p><p>To ensure it can finance its five-year plan, Repsol said it plans to cut its annual dividend by a third to €0.60/share in 2021, and could reduce it further if Brent averages below $40/bl in any given year of the 2021-25 plan. </p><p><i>By Jonathan Gleave</i></p></article>
