The start-up of new offshore production platforms associated with the large oil and natural gas exploration and production projects in Brazil boosted Galp's 2018 earnings to a level in which international activities accounted for more than 80% of operating results.
Earnings before interest, taxes, depreciation and amortization (Ebitda) for the 12 months of 2018 increased 24% from 2017, to €2.2 billion, of which almost two-thirds came from Exploration & Production (E&P), which in the previous year accounted for less than half of the group's total Ebitda.
This growth stemmed from a 15% increase in total oil and gas production (working interest), which reached a daily average of 107.3 thousand barrels (kboepd). Net entitlement production increased 16% to 105.9 kboepd, with positive contributions from both Brazil and Angola.
This progression reflects the start-up and consequent increase in production of the FPSO-type units installed in the ultra-deepwater pre-salt fields of the Santos Basin in Brazil, in which Galp participates, and where there are currently nine units in production. The entry of a new unit of the same type in Block 32’s Kaombo North project, allowed Angola's contribution to Galp's total production to increase once again, making up for the decline in block 14.
The average sale price of each barrel in 2018 was $62.6, against $47.6 in 2017, which also contributed to the positive evolution of E&P's Ebitda.
Refining & Marketing (R&M) full-year Ebitda decreased 21% to €610 million, in a year marked by scheduled stoppages at both refineries, for maintenance and equipment upgrades, involving a total investment that, combined with the amount invested in the renewal of the retail network, totaled €258 million. That compares with €145 million in 2017. The European macroeconomic environment effected a decrease in the refining margin of each processed barrel, to $5.0 from $5.8.
Sales of natural gas increased 4%, as sales to industrial customers made up for the decline in trading in international markets. Sales of electricity remained stable. The Gas & Power (G&P) business unit thus, recorded a 4% increase in adjusted Ebitda, which stood at €137 million.
4th-quarter adjusted Ebitda increased 4% compared with the same quarter of 2017, to €493 million, driven by the increase in oil and gas production, which stood at an average daily 113.1 kboepd in the three months. Quarterly adjusted Ebitda of the E&P division increased €44 million to €339 million. R&M Ebitda decreased €26 million to €118 million, while G&P closed the quarter with an adjusted Ebitda of €25 million, or €2 million less than on the same period last year.
Adjusted net income for the year totalled €707 million, 23% more than in 2017. In international accounting standards (IFRS), yearly net income increased 24% to €741 million. Net income for the 4th quarter decreased by €80 million year-on-year, to €109 million. Net income for the quarter under IFRS was €44 million.
Other financial indicators
Cash flow from operating activities (CFFO) was €1.6 billion, with the contribution of the upstream business more than offsetting the weaker international refining margins and the €230 million working capital build. Free cash flow (FCF) totaled €619 million in 2018, an 11% year-on-year increase, and €142 m after dividends.
Net debt was €1.7 billion at the end of 2018, €162 million less than at the end of September, with the net debt to Ebitda ratio standing at 0.8x. The proposed dividend for fiscal year 2018 is €0.63 per share, a 15% increase from the year before.
Capex in 2018 totaled €899 million, including payments of €103 million related to the acquisition of new assets in Brazil during the period. E&P accounted for about 70% of total investment, of which 65% were allocated to development and production activities, mainly in Brazil and in block 32 in Angola. Investment in downstream activities (R&M and G&P) amounted to €267 million.
According to the macro and operational update, the Company’s financial update for 2019 and 2020 is as follows:
Working interest production will grow between an estimated 8% and 12% in 2019, while CAGR from 2018 to 2020 is expected to rise at 12% to 16%.
Organic CFFO 2018-20 CAGR is expected to increase between 10% and 15%, with downstream CFFO estimated at between €800 million and €900 million per year and upstream CFFO CAGR 2018-20 expected at above 10%.
Ebitda is set to reach €2.1 to €2.2 billion in 2019 and to rise above €3.0 billion from 2020 onwards, as international activities continue to drive growth. Organic yearly capex will expectedly stand at about €1 billion.