Bloomberg News

Galp Raises Output Goal on ‘Exceptional’ Progress in Brazil

July 29, 2011

(Updates with closing stock price in seventh paragraph.)

July 29 (Bloomberg) -- Galp Energia SGPS SA, Portugal’s biggest oil company, raised its 2020 output target in light of “exceptional” progress in Brazil and said “several parties” had shown an interest in buying shares in its Brazilian unit.

The company expects working interest production of more than 300,000 barrels of oil equivalent a day by the end of the decade, Lisbon-based Galp said today in a filing. That’s up from a previous forecast of 200,000 barrels a day.

“The exceptional progress in Brazil drives the new production targets,” the company said. “Better reservoir characteristics reduce the time-to-market of resources.”

Galp has stakes in four offshore blocks in Brazil’s Santos Basin, including the Lula and Jupiter finds. The process to sell shares in its Brazilian unit is “ongoing” and a final decision will be made by the end of the third quarter.

“The company’s solid confidence in announcing new production targets indicates that the exploration and production asset portfolio has a significant growth profile,” Sofia Cordeiro, an analyst at Banif Banco de Investimento SA said today in a note. She has a “neutral” rating on the stock.

Galp earlier reported a 36 percent drop in adjusted second- quarter net income to 70 million euros ($100 million) from a year earlier as refining margins narrowed. That compared with the 71.7 million-euro mean estimate in a Bloomberg survey. Earnings on this basis exclude one-time items and inventory changes.

Angola, Brazil

Galp rose 0.4 percent to close at 15.745 euros in Lisbon. The stock has climbed 9.8 percent this year, giving the company a market value of 12 billion euros. Eni SpA, Italy’s biggest oil company, and Portuguese holding company Amorim Energia BV each control a third of Galp.

Galp is expanding exploration in regions such as the Santos Basin and Angola to improve access to crude and lessen dependence on refining and fuel sales in Portugal and Spain.

The Lula field, formerly known as Tupi, holds an estimated 6.5 billion barrels of recoverable oil and equivalents. Galp is also a partner with Petroleo Brasileiro SA, Brazil’s state- controlled oil company, in Cernambi, which holds 1.8 billion barrels of estimated reserves.

Galp plans to carry out a capital increase at the Brazilian unit to raise at least 2 billion euros. In April, it said it wants to carry out the planned sale of shares through a private placement rather than a public offering in the stock market. Chief Executive Officer Manuel Ferreira de Oliveira on May 23 said that the companies looking to become partners in its Brazilian unit are mostly from Asia.

‘High-Quality Bidders’

“We already have a short list of high-quality bidders, which are working very hard to prepare their binding offers,” Ferreira de Oliveira said today in a Bloomberg Television interview with Francine Lacqua.

Galp also said today it’s still receiving binding offers for the possible sale of as much as 49 percent in its natural- gas infrastructure unit.

The producer used its refineries at about 70 percent of capacity in the latest quarter and processed 3.1 percent less crude. The refining margin, a measure of profit from converting oil into fuels, narrowed to 60 cents a barrel in the quarter from $3.40 a year earlier.

Benchmark refining margins will remain “under pressure” in the third quarter, Galp said.

Refinery Upgrades

Galp’s refinery in Oporto can process about 90,000 barrels a day, while the Sines plant has a 220,000-barrel-a-day capacity. Galp said an upgrade project at the Sines refinery will be completed before the end of 2011.

Working interest production rose 10 percent in the second quarter to 21,800 barrels a day. Average net entitlement production increased 26 percent to 13,800 barrels a day, helped by higher output from Angola’s Tombua-Landana and Kuito fields, and at Lula. Galp targets working interest production of about 19,000 barrels a day in the third quarter.

Adjusted earnings before interest, taxes, depreciation and amortization fell 17 percent to 230 million euros in the second quarter. Galp forecasts average annual growth in Ebitda of about 15 percent from 2010 to 2015.

Galp plans to invest 1.2 billion euros to 1.5 billion euros this year in Portugal and elsewhere. It plans about 3.5 billion euros in spending from 2012 to 2015, with exploration and production representing 70 percent of the total.

--Editors: Alex Devine, Stephen Cunningham

To contact the reporter on this story: Joao Lima in Lisbon at

To contact the editor responsible for this story: Will Kennedy at

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