Following the sharp drop in global energy demand, Galp is targeting investment and spending reductions of more than €500 million a year in both 2020 and 2021 from the previously announced investment plan. During this period, Galp’s Capex and Opex is now set between €500 million and €700 million, subject to adjustments as required by market conditions.
The flexibility of Galp’s asset and project portfolio allowed the company to move swiftly to safeguard its resilience to the current market environment mostly by rescheduling expansion projects. Some of the initiatives are already in place, others will be taken as necessary.
Galp is facing this high-complexity period committed with the safety of its people and customers, the continuity of its business and focused in supporting the communities where it operates.
In light of the current situation and macro volatility, all other operational and financial guidance provided at Galp’s Company’s Capital Markets Day, in February, are no longer applicable and will be updated in due course.
Galp's earnings in the first quarter of 2020 slipped 5% from the same period a year earlier, as the contraction brought about by the COVID-19 pandemic took its toll on oil prices and lockdowns in Iberia led to sharp declines in demand for energy products by businesses and consumers.
Adjusted earnings before interest, taxes, depreciation and amortization (Ebitda) in the three months declined to €469 million from the same period a year earlier. The largest contributor for this decline was the Upstream division which, in spite of a 17% increase in total oil and natural gas production, was hurt by the sharp drop in oil prices. Upstream Ebitda declined 24% to €286 million.
Total production of oil and natural gas totaled 131.4 thousand barrels a day, boosted by the continued development of the Lula and Iracema and the Berbigão/Sururu projects, as well as the higher contribution from the Kaombo project, in Angola.
The Refining and Midstream business Ebitda improved to €90 million from the first quarter of 2019, which had been marred by operational restrictions in Galp’s refining system. As a result, processed raw materials rose 18% and supply of oil products increased 13%, benefiting from higher exports.
Refining margins declined 19% from a year before, partly because of planned maintenance works at the Sines refinery hydrocracker.
Natural gas sales also declined, as trading activity reflected the weaker market conditions, while electricity sales remained stable.
Ebitda at the new Commercial division held its ground, at €90 million, even in the face of lower volumes, helped by a stronger contribution from activity in Spain. Sales of oil products to direct customers fell 13%, reflecting the effect of circulation limits imposed in the Iberian market from March. Natural gas sales dropped 24%.
The newly-formed Renewables and News Business unit had a marginally negative result, as it sets-up the foundations for future growth.
Adjusted net income (RCA) in the first quarter fell 72% to 29 million, reflecting the adverse market conditions. These led to a €257 million loss according to international financial reporting standards (IFRS), as Galp devalued its inventory by €278 million because of lower oil product prices.
Capex in the first quarter totaled €144 million, in line with the same period from a year before, and was mostly allocated to the Upstream business. The remainder was directed to the refining system, as well as to logistic assets in Mozambique. Cash flow from operations decreased to €244 million, impacted by the weaker operational performance and free cash flow dropped to €63 million.
At the end of March, net debt stood at €1,496 million, €61 million more than at the end of 2019, impacted by the weaker cash generation during the period. Net debt to RCA Ebitda remained at 0.7x.