Bloomberg News

Galp Third-Quarter Profit Falls 34% on Refining Margins

October 28, 2011

(Updates with chief executive’s comment in eighth paragraph.)

Oct. 28 (Bloomberg) -- Galp Energia SGPS SA, Portugal’s biggest oil company, said third-quarter profit fell 34 percent as its refining margins narrowed and it processed less crude after some refinery units were shut.

Adjusted net income fell to 61 million euros ($86 million) from 93 million euros a year earlier, the Lisbon-based company said today in a regulatory filing. That compares with the 64 million-euro mean estimate in a Bloomberg survey. Profit on this basis excludes one-time items and inventory changes.

Galp is expanding exploration in regions such as Brazil’s offshore Santos Basin, where the Lula project is located, and Angola to improve access to crude supplies and lessen dependence on refining and sales of fuel in Portugal and Spain.

The producer used its refineries at 68 percent of capacity in the third quarter and processed 9.7 percent less crude, while the volume of its refined-product sales fell 2.6 percent. The refining margin, a measure of profit from converting oil into fuels, narrowed to $0.90 a barrel in the quarter from $2.10 a year earlier.

The Portuguese oil company this year is completing an investment of 1.4 billion euros on upgrading its refineries in Oporto and Sines, a project that will allow Galp to increase diesel production. 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.

Profit Forecast

Adjusted earnings before interest, taxes, depreciation and amortization fell 1 percent to 221 million euros in the third quarter. Galp forecasts average annual growth in Ebitda of about 15 percent from 2010 to 2015.

Galp plans to carry out a capital increase at the Brazilian unit to raise at least 2 billion euros as it seeks to fund offshore projects in the South American country. In April, it said it wanted to carry out the share sale through a private placement rather than a public offering in the stock market.

Galp expects to select the buyer in November, Chief Executive Officer Manuel Ferreira de Oliveira told reporters in Lisbon today.

“Negotiations are ongoing with a shortlist of bidders,” Galp said in a presentation today. The company said it has already received binding offers.

‘Exceptional’ Progress

Galp has stakes in four offshore blocks in the Santos Basin, including the Lula and Jupiter finds. 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 on July 29 raised its 2020 output target in light of “exceptional” progress in Brazil. The company expects working interest production of more than 300,000 barrels of oil equivalent a day by the end of the decade.

Average net entitlement production increased 28 percent to 12,200 barrels a day in the third quarter, helped by higher output in Brazil. Galp said today it aims to have working interest production of 23,000 barrels a day in the fourth quarter.

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.

The oil company’s stock has climbed 5 percent this year, giving Galp a market value of 12.5 billion euros. Eni SpA, Italy’s biggest oil company, and Portuguese holding company Amorim Energia BV each control a third of Galp.

--Editors: Alex Devine, Todd White

To contact the reporter on this story: Joao Lima in Lisbon at jlima1@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net


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