Good day, ladies and gentlemen. This is Maria Victoria Singoni, the Head of Investor Relations in Repsol. On behalf of our company, I would like to thank you for taking the time to attend this conference on Repsol's 3rd quarter results. This presentation will be conducted by Miguel Martinez, our COO. Before we start, I invite you to read our disclaimer note.
We may make forward looking statements, which are identified by the use of words such as will, expect and similar phrases. Actual results may differ materially depending on a number of factors as indicated on the slides. I now hand the conference over to Migros.
Thanks, Mavi, and good afternoon and thanks for attending our 3rd quarter results conference call. This quarter, we obtained a CCS adjusted net income of EUR 502,000,000 70% higher than same quarter last year. The improvement in all variables explained the good performance in the quarter compared to last year. With higher international oil and gas references, stronger dollar against the euro, superior integrated refining and marketing margins, better results in the Chemical segment and the general improvement in Argentina. Going in further detail on the above mentioned factors, which have influenced results in the quarter, our oil realization prices increased 12% compared to same quarter last year, in line with international crude oil price variance.
Consolidating the correlation of our realization prices with international references. Our gas realization price is 29% higher year on year and was in line with increases in Henry Hub and electricity pool price in Spain. In the refining business, the margin increased from a low $0.3 per barrel in Q3 2019 to $1.5 per barrel this quarter. Our $5.6 per barrel integrated refining and marketing margin remains among the strongest in the peer group in the 1st 9 months of 2010. Our chemical business has also improved with both better margins and volumes, and we have continued optimizing this business, making important efforts on cost controlling measures.
In YPF, we keep posting strong results supported by prices at the pump, 16% 21% higher year on year in dollars for gasoline and diesel, respectively, better international price and the petroleum plus incentive. Let me go through main issues in the quarter. We signed in October an agreement with Sinopec to create one of the biggest energy companies in Latin America with an equity value of $17,800,000,000 where Repsol will hold 60%. Repsol Brazil will carry forward a capital increase for $7,100,000,000 which will be subscribed entirely by Sinopec. This operation values the asset of Repsol Brazil of Repsol in Brazil, sorry, at $10,700,000,000 The transaction is pending of the approval from the government of the People's Republic of China.
With this transaction, we comply with our strategic objectives, balancing our portfolio due to lower concentration of risk in a single region, putting in value our Brazilian assets and securing the funds to develop the assets in Brazil. Regarding our activity in Brazil, we had good news in Creality in the result of the Albacore Aleste field. Even though more work is needed for better assessment, preliminary results are promising and the existence of the infrastructure could facilitate an early development. Last on Brazil, the consortiums led by Petrobras and the Brazilian company Engievix signed an agreement today for the construction of 8 House to be used in the development phase of the Blocks 11 and 9. 2 of these holes will be used at the Block 9 for the development of the Carioca and Guarra fields, as reported by Petrobras in its press release.
These two hulls are additional to the one already contracted with MODEC for Huarra. This stressed the priority of the development of these two fields. In Bolivia, we had a 1 Tcf gas discovery in the location called Rio Grande. The resources could be very easily developed since it's a new layer in a producing field. In Venezuela, we finished last production test on the appraisal well Perla 3 with most encouraging results.
Pursuing our objective of continuously renovating our mining acreage, we have been awarded new blocks in Colombia and Peru, and we have farmed in a block in Oman. During the quarter, production in the upstream business was 346,000 barrels per day, 6% higher than the same period a year ago. This increase is explained by the new production coming from the gas fields in Peru, good operational performance of the Trinidad tobacco trains, the Varua Motatam fill in Venezuela and higher production in Libya. The cumulative production at September is 5.2% higher than last year. In the LNG business, as we announced in the Q2 conference call, the Peru LNG project start operations by the end of June.
This has had a positive impact in our Q3 results. Liquids production in YPF has increased 2% year on year as a result of the incentive programs for oil production. Total production reached 551,000 barrels per day, a decline of 3% on a yearly basis, but constant on a sequential basis. Last, on Gas Naturale, concerning their with Sunnatrac has stayed in the company's 3 quarter results conference call. The arbitration is not certain and not final.
Moreover, Gas Naturale announced yesterday that the Federal Tribunal of Switzerland has granted Gas Naturale Finosa's petition that the arbitration award be suspended until such tribunal can rule on the appeal submitted by Gas Natural Finosa against it. Accordingly, the award has been already suspended. Let's go now into the 3rd quarter results. This quarter, we obtained a CCS adjusted net income of EUR 502,000,000, 70% higher than same quarter last year. The CCS adjusted operating income was EUR 1,000,000,000 137,000,000, 48% higher year on year.
Let me quickly review the variations business by business. In the upstream, the adjusted operating income was EUR 3 10,000,000, 2.6 higher than 3 quarter 2009. The year on year variation is mainly the result of the following factors. Oil realization prices, net of royalties, had a positive impact of EUR 76,000,000 Higher exploration expenses resulting from greater activity and amortization of Malbec and Aesthetics Wealth decreased results by €66,000,000 The appreciation of the dollar against the euro increased the operating result by €26,000,000 Lastly, other minor items explain the remaining difference. In the LNG division, adjusted operating income reached EUR 47,000,000.
The results increase is mainly explained by higher LNG margins and volumes. The increased volumes have been mainly a consequence of the startup of Peru LNG. In Dansim, we doubled results compared with Q3 last year with a CCS adjusted operating income of €258,000,000 The €143,000,000 year on year increase is mainly the result of the following factors. In refining, the margin of the quarter was $1.5 per barrel compared to a 0.3 dollars per barrel a year ago. The utilization rate of our refining system in Spain improved both year on year and quarter on quarter, reaching 82% compared to 73% in Q2 2010 and 72% in Q3 2019.
Both factors have increased results by €89,000,000 In marketing, the margins remain solid. The result in the quarter is very similar, both year on year and quarter on quarter. In the year comparison, the result is €11,000,000 lower. In Chemicals, the trend of improvement that started this year continues its consolidation in the quarter, reaching again a positive result, thanks to the increase in both margins and volumes. The impact in result is positive by €82,000,000 Last, the dollar appreciation and other minor FX account for the rest of the difference.
YPF reached an adjusted operating income of EUR 393,000,000, 86% higher than the same period a year ago. The most significant year on year variation are explained as follows: Higher dollar prices for liquids at the pump in the domestic market had a positive impact of EUR 203,000,000 on operating income. Year on year prices at the pump in dollars have increased 16% 21% for gasoline and diesel, respectively. Higher revenues from exports and from products sold domestically, but linked to international prices had a positive impact of EUR 50,000,000 Higher liquid shale volumes had a positive effect of EUR 55,000,000 In relation to gas, the higher price to industrial clients could not offset lower volumes in the quarter. This business suffered a negative impact on income of €28,000,000 The 18% year on year increase in the operating expenses had a negative impact on income of EUR 100,000,000 The main driver of the rise was external services expenses due to both higher activity and prices.
Other FX explain the remaining variations. Regarding Gas Naturale, the adjusted operating income for the period was €188,000,000 lower by 12% to the same period last year. The lower result is mainly due to divestments in Madrid and in Latin America, which do not add to results anymore. On a like for like basis, earnings were similar because business improvement in Latin America, greater gas and power distribution volumes, the appreciation of local currencies and the startup of the combined cycle plant in North Durango, Mexico was offset by lower operating income in the power business in Spain. Going into our financial position, the EBITDA generated during the period covered investments, taxes, financial expenses and the payment of the dividend in July.
The increase in the quarter on quarter net debt is mainly due to higher working capital. However, our financial position remained robust with liquidity of almost EUR 7,000,000,000 and EBITDA net debt ratio of 1.4. As a conclusion, this has been a quarter where at an operating level, the improvement of all market and business variables positively affect our results. And at an organic level was determined by the transaction on our Brazilian assets. I'm now pleased to answer any questions you may wish to ask.
Thank you.
Okay. We have 3rd question. Yes, Mark Bloomfield from Deutsche Bank. Mark?
Good afternoon. Yes, just one question, please. You've already alluded to the fact that the EPC contract has been awarded for 8 new FPSOs, 2 of which are destined for BMS-nine. Just wondered, therefore, if you can give us any more context on the impact of those FPSO awards relating to time line on the Guara and the Carioca developments, please?
Marc? Our estimate today is that the first FPCO would be on working 1st month of 2013. So in the Q1 of 2013, where I should be starting the work. If we look farther ahead and regarding these 2 new FPSOs, by the end of 2014, they would be on track.
Both of them by the end of 2014?
I mean, the second one will arrive by 2014, the end of 2014. And 2015 is the estimate for the 3rd one. And on the 3 of these sorry.
Sorry, I was going to ask, would they both be on the Guara field or would it be one for Guara and one for Carioca, please?
The first one, which is contracted with MODEC, will go straight to Guara by 2013. The other 2, one of them will go to Huarra and the other one to Carioca. So at the end, you will have 2 FPCOs working in Huara and one in Carioca.
Thank you very much.
You're welcome, Marc.
Thank you, Marc. We have next question from Uniquel Stefano Vitale. Stefano, please go ahead with your questions.
Hi, good afternoon, everyone. Two questions, if I may. The first one is on Gulf of Mexico. When do you expect to resume the drilling there in the Bakken well? And the second question will be on YPF.
You mentioned an 18% OpEx increase. This is due to higher probably higher volumes sold, etcetera, but it looks to me a bit high. Can you give us some more color on that and your expectations for the future?
Okay. Regarding back skiing, we expect to re assume and to start the appraisal well next March. So it would be a delay over the initial estimates of about 6 months, okay? And regarding the increase in OpEx in Argentina, I will say that probably from this 18%, more than a 15% is due or perhaps between 12% and half 15% is due to price increases. I think that salaries are really going up between 25% 30% in Argentina and all cost related are going really up.
And about the 5%, 10% would be increased due to additional works. My expectations for the future is that I think that this 25% is what we can expect for next year OpEx in all the areas in Argentina. So talking in pesos term, okay? So at the end, we'll have to see whether the peso behaves against the dollar and the dollar against the euro. But peso stocking, 25% could be a good figure.
Thanks a lot.
Thank you, Stefano. We have now James Haba from Morgan Stanley. James, good afternoon.
Hi, good afternoon. Two questions, please, both on Argentina. Firstly, I guess the liquids increase year on year is partly down to the incentives provided by Petroleum Plus. And I'm wondering in the context of gas volume still declining, is there any sign of the government or administration looking at a petroleum gas or equivalent plan, something that would provide more incentive for people to invest in the ample gas resources in the country? And then secondly, obviously very strong momentum on your chart for local gasoline and diesel prices still continuing.
I'm wondering, do you are you confident that, that momentum can be continued as we enter and go through an election year in 2011?
Great. Thanks, James. Well, in relation with the gas, the government really already has approved a plan for it. We call it gas plus and it's based on the fact that you can reach agreement with industries with a total free price. And we have been doing that in the I would say in the last year.
The problem is that especially during the Q3, which is the Argentine winter, all the volumes moved back to the retail sector and domestic consumption. This in one hand. In the other, all these agreements with industries imply the development of new fields, which take some time to put in work. So it already exists, it's a gas close, but it's moving slower than the liquid area. The second question, I think that in the last 2 years, we have been able to move around a 20% in dollar terms, and we hope we will be able to continue the trend.
Right now, we are more or less about 73% of the international price in Argentina. So I think there's room enough to improve there. And did I answer both of your questions, James? Yes. Could I ask a
follow-up on the Gas Plus please?
Yes, yes, sure. And that's simply that it doesn't I mean, I
know there's Gas Plus there and it's been there for, I don't know, 18 months or so, but it doesn't seem to be very effective if we just look at the country's volume of gas production and what they're having to do on the import side of things. So is there any move or any discussion about perhaps looking at that plan and improving upon it or even replacing it?
Not in short term. But if we look at the long term, I think that the gas boost will start to show, but probably taking 2 or 3 years. For example, we have signed with Vale do Rio DOFE an agreement to develop a tight gas area. And for sure, this will increase the gas presence. We will obtain there a very good price, but it will take time for this gas to jump into the market.
But I agree with you. Short term, I don't expect an improvement in the gas area. Okay. Thank you.
We now have from Barclays Capital, Lydia Rainforth. Lydia, good afternoon. Please go ahead with your questions.
Hi, good afternoon. I actually have three questions, if I could. The first one on YPF. Can you just update us on the sale process there and you are still looking at bringing in a 3rd industrial partner there? And then secondly, on Gas Natural, I know you've always said that in the past that you've seen it as a store of cash.
And obviously, when I look at the returns that you've achieved in Brazil and the reinvestment in the upstream, would you consider looking what are your plans for Gas Natural in terms of that store of value? And then just finally, could you take us through the exploration and appraisal wells that you're drilling for the rest of this year and the 1st part of next year?
Thanks, Lydia. Regarding the first two questions, I have to refer to our strategic plan that was launched 6 months ago, and we continue in both YPF and Gas Natural exactly in the same position we were 6 months ago. There has not been any movement in the last 2 months regarding YPF, but our will is to shrink our presence there, dilute our shareholding in the company down to 50 something percent. So we want keep the majority of the company, but we also I mean, it's not easy to obtain that goal, okay? So but our will is there and I will keep working on that.
And if there is any new, believe me, I would be the first one to let you know, okay? And referring to the natural, I also have to refer to our strategic plan. I mean, we have not changed our mind in the last 6 months. So basically, we will continue with the optionality that was mentioned in our strategic plan and is what we keep thinking, okay? And regarding drilling, we are drilling right now in Carioca Northeast.
We haven't reached yet the objective. We are also drilling in Mercury in Sierra Leone, which we are almost finishing, and we are drilling also in Garupa, in Angola. And this is what we I mean, by the year end, we'll be finishing these three wells, okay?
Okay, perfect. Thank you very much.
You're welcome.
Thank you, Lydia. We now have Barry McCarthy from Royal Bank of Scotland. Barry, please.
Good afternoon. Thank you for the presentation. Can I please ask about the Rio Grande discovery that you mentioned, 1 TCF, I think you said? Is that the recoverable resource? And what is your net share of that?
And then you immediately went on to Perla 3. Do your positive comments mean that there might be another uplift to the contingent resource there beyond the 15 Tcf that we heard about in September in Peru? Okay. Rio Grande, it's one of the assets of Andina. We own there a 49% with YPFB, which is the national company.
And the development of this field, it's going to be pretty easy, okay? And the TCF is recoverable. I mean, we are not talking in place. We are talking recoverable. And in relation with HERLA, both the Ministry of Oil in Venezuela, Mr.
Ramirez and our partner there, he and I give a very close figure to the 15 Tcf. And our technicians agree. I mean, we are quite positive about Pirla 3, and we think that a minimum of gas in place, it's 15 Tcf. So gas in place equal 15? Yes.
That's our perception, which you can account for 10 Tcf minimum of recoverable. So 10 Tcf recoverable? Minimum. I mean, because the last test in INTELLA-three was really positive with more than 6 70 feet of net pay. So we keep thinking positive about Perla.
Okay. Just on the Rio Grande, would that gas be earmarked for export to Argentina? It would be dedicated to export, but it will depend whether it will go to Brazil or Argentina, but it will be to export. Okay. Many thanks.
We have next question from BPI, Gonzalo Sanchez, please.
Yes. Hi, good afternoon. Just have a couple of questions on Sinopec transaction and then another one on refining. And on Sanopec, I just wanted to know if you have considered distributing to shareholders an extraordinary dividend on these funds received Or you are thinking of keeping all the funds in there? And also on the agreement you have reached with Sinopec, this agreement what I wanted to know if this agreement was reached with prior consent from your partners in the consortia or if it was not the case, if this could have any impact on your relationship with your partners?
And then on Refining and Marketing, I just wanted to know if you have any you could update us on the status of the upgrades process in the refineries and if you have any changes in your estimated improvement in the margins? Thank you very much.
Well, in relation with the first question, I mean, the dividend issue is something that at least as a first phase would be decided by the Repsol Board. But our main idea is that these funds will go straight to finance the future investments we have to make in Brazil, which are not short. I mean, we are talking there about between $15,000,000,000 $20,000,000,000 in the next 6, 7 years. So basically, these funds will go to finance our activities in Brazil. In relation with our partners, we obtained a waiver from them.
So they knew the transaction and they have accepted it. So and the relation with both Petrobras and BG, I can say they are excellent. In the refining business, both Cartagena and Bilbo will be on time and on budget. EUR 3,200,000,000 for Cartagena, EUR 150,000,000 for Bilbao, and both would be operating in the 2nd part of next year. And Gonzalo, I think this is what I can answer you.
Thank you very much. Thank you.
Okay. I think that that there are no more questions. Well, we have an additional question, last minute question from Credit Suisse. This is Tim Fuschier. Please go ahead.
Yes. Hi. It's Kim Fusse from Credit Suisse. Just wanted to ask a couple of questions, please. Firstly, coming back to Perla.
After you've upgraded reserves in place to 15 Tcf, do you think there will be any changes to the field development plans in any way? And possibly could you make an LNG export option more likely than previously? Or is it too early to tell? Secondly, on the crude pricing situation in Argentina, I think the $42 per barrel cap on crude prices has been in place for something like 3 years now. Do you see any willingness from the government to raise that cap like it did, I think, in 2,008 for one field?
Thank you.
Thanks, Kim. I mean, in parallel, we keep thinking positive and the results are improving our perspective there. But the figures are the ones that I gave you. I mean, right now, we think that for sure we have a minimum of 15 Tcf gas in place. LNG is way too early to think of it.
First, we have to keep working on the field to know exactly what we have with that. And we also have to look for the needs in the area. I think that by 2012, Venezuela will be exporting gas to Colombia under the existing agreement between the two countries. So we'll have to wait and keep working on the field, but we are optimistic about the results we're obtaining there. And the question about the oil price in Argentina, in our case, we look at the business in an integrated way.
So basically, we have costs all throughout the process from the upstream part of it to the refining, to the logistics, to the process of commercialization. And then we obtain a price at the pump. So basically, the internal price for us is a reference that we do not use it too much because for us it's simply an internal price. But one thing is clear, thinking midterm and long term, the prices should reach the international level, both in gas and oil. Did I answer you, Kim?
Yes. Thank you.
Okay. Thank you, Kim. We have another question from UBS, John Rigby. John, good afternoon. Please go ahead with your question.
Yes. Just a quickie on exploration really. I mean, you referenced positive results on the Albacore Oleste deep, but obviously this year has been marred somewhat by some quite high dry hole costs as well. I just wondered whether there's sort of a rethink or some change coming or likely to come in the strategy for how you spend your exploration dollars in Brazil into 2011? Thanks.
Well, regarding Creality, we'll be drilling next year, and we'll have a better knowledge of the field, and then we'll be able to give you a better opinion. And in relation with our exploration program for next year, it will not modify what we have in front of us. As I mentioned, there would be another exploration field in Albacora next year, but that's it. The rest would be basically the initial schedule. And we have been right now estimating that the Q2 would be the moment in which we will initiate this drilling in Alba Corrales.
Okay, thanks. Thank you, John. I think that we don't have more questions. So we'd like to thank you for joining us in this 3rd quarter conference results conference call. If you have further questions, please do not hesitate to contact the Investor Relations area.
Thank you.