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Galp profit drops but output posts big hike

Portuguese player sees weaker bottom line in third quarter but production increases

Portugal's Galp Energia reported another decline in net profit in the third quarter, while a broadly positive picture of rising output in Brazil was tarnished somewhat by the outcome of unitisation agreements in the South American country.

Galp’s net income retreated to €60 million ($66.87 million) in the three months to the end of September, down from €231 million in the second quarter and from €235 million in the third quarter 2018.

The result, which fell below analysts’ expectations, was mainly attributed to non-recurring items and inventory effects.

Galp’s consolidated earnings before interest, tax, depreciation and amortisation (Ebitda) were €619 million, down from €642 million a year earlier.

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Galp’s production from working interests advanced 21% to 125,500 barrels of oil equivalent per day on the quarter, boosted by the continuing ramp-up of production on Brazil’s Lula development and from Angola’s Kaomba project.

The Ebitda measure for the upstream division alone was more positive, with quarterly earning of €469 million up 18% on the year, helped by US dollar appreciation against the euro.

In Brazil, the FPSO to develop the Berbigao-Sururu areas is at its final location and production is expected to start before year-end, Galp said.

Natural gas amounted to 12% of Galp’s total production.

A decline in Ebitda performance in the downstream and gas and power divisions was attribute to maintenance activities and lower gas volumes following the termination of some structured contracts for LNG.

Capex of €188 million in the first quarter was mainly focused on Lula and the Coral South LNG project.

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Galp said its capital expenditure will average between €1 billion and €1.2 billion a year in the period from 2019 to 2021, while dividends are forecast to rise by 10% per share a year in the same period.

Analyst have been watching for the impact on Galp’s production curve of recent unitisation agreements, which became effective in Brazil on 1 September 2019.

The agreements adjusted partner’s equity shares on the Sepia and Atapu pre-salt oilfields, only parts of which are located on blocks BM-S-11A and BM-S-24, with larger reserves extending onto open acreage and on areas covered by a transfer of rights in favour of Petrobras.

Under the agreement, Galp’s 10% stake in BM-S-11A gave the company a stake of just 1.703% in the Atapu field, while the company’s 20% stake in BM-S-24 translated into a 2.414% interest in Sepia.

Galp has already reported a negative non-recurring impact from the unitisation process on Sepia, including a negative €4 million in non-recurring item in net income and increased investments of €17 million, but has not yet done for Atapu.

However, the company predicted that adjustments with associated partners will result in a net receivable of €110 million from the five unitisation processes, three of which are still in progress.

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