Repsol S.A

Repsol is a multi-energy company based in Madrid, Spain, operating across four key business verticals: upstream, industrial, customer, and low-carbon generation. The upstream segment produced 600,000 barrels of oil equivalent per day in 2023, with a focus on natural gas and crude oil. Industrial operations include six refineries—five in Spain and one in Peru—with a combined refining capacity of 1 million barrels per day.

The business serves a diverse energy portfolio to over 24 million customers, including 7.9 million digital clients. In addition, Repsol is moving towards an exciting and growing low-carbon power generation generation business with capacity of 5 GW today, 3.3 GW under construction and a pipeline of over 60 GW in renewable energy projects.

“At the end of 2023, of course, we had 5 gigawatts in total installed capacity, 2.8 of which were renewable. On top of that, 3.3 gigawatts of renewable under construction, and our pipeline of in excess of 60 gigawatts.” - Álvaro Visús Andreu, Senior Investor Relations Officer of Repsol

As we move forward, the low carbon generation business is most attractive with 35% of CapEx deployed towards renewables, renewable fuels such as biodiesel, hydrogen and e-mobility facilities at service stations. Utilities generally operate in a non-cyclical industry and thus market multiples tend to be significantly higher than the current marked to market valuation for Respol as an integrated oil & gas play.

Despite production hitting 600,000 barrels per day in 2023 the company guide towards 550,000 by 2027 is an indication that they are slowly moving away from their legacy operations while increasing their GW to 9-10 simultaneously by 2027. This investment into low carbon generation is expected to deliver an equity IRR of 10%, at the higher end of industry norms which range between 7% - 10% and quite a margin above their 5.66% WACC. Over time, the enterprise should generate significant shareholder value through this transition.