Galp Delivers Strong Q3 Report Despite Significant Refinery Challenges
Lisbon-based energy company Galp Energia SGPS SA (GALP.LS) reported strong performance for the third quarter of 2024 despite challenges in the refining and commodity markets. The company remains optimistic about its strategic projects, including green hydrogen and sustainable aviation fuel. Galp expects to exceed its full-year guidance, although it faces challenges in meeting its capital expenditure (CapEx) targets.
Key Highlights: Galp’s upstream projects, including the Bacalhau project and drilling in Namibia, are progressing well. Otelo Ruivo is transitioning from the Investor Relations presidency to CFO of the Renewable Energy division. The company anticipates exceeding its full-year guidance due to its strong project portfolio. Challenges in meeting the €1 billion CapEx goal are acknowledged, particularly due to delays in divestments in Mozambique. Delays in the lithium joint venture with Aurora are attributed to market and regulatory challenges. An extension of the Tupi field’s lifespan is pending feedback from the ANP. Non-fuel sales have made a significant contribution to EBITDA, with 65% of service stations having been upgraded.
Company Outlook: Galp’s strategic partnership with Custos is expected to expedite project development. Refinery margins are recovering slightly, although future pressure is anticipated due to the increase in Dangote refinery. A final investment decision (FID) for green hydrogen initiatives in Sines is expected in Q4 2023, with operations anticipated to begin by 2026. The transposition of Portugal’s RED III directive is expected to occur by mid-2025.
Negative Factors Impacting Outlook: Delays in the divestment process, particularly in Mozambique, affect the CapEx objectives. Regulatory concerns and market conditions have led to delays in the lithium joint venture with Aurora. Increased gasoline exports from China may pressure refinery margins.
Positive Factors Impacting Outlook: The Bacalhau project is progressing towards operational status, with a sale planned for December. Galp maintains a substantial resource estimate of 10 billion BOE for its Mopane project. Non-fuel sales now account for 35% of EBITDA.
Underperformance Against Targets: The company is encountering difficulties in meeting its €1 billion annual CapEx target. There is no set date for an update on forward guidance.
Q&A Highlights: Galp is making significant investments in Mozambique, including the Coral North FLNG project, with an FID expected by the end of 2023. The Rovuma LNG project is progressing, with FEED studies underway. Operations in Namibia are advancing faster than expected, with no concerns regarding gas content. Discussions with Brazil's ANP regarding the extension of the Tupi project field life are ongoing.
Galp continues to maintain an optimistic stance regarding its position in the energy market, backed by a diversified project portfolio and strategic initiatives. The company balances immediate challenges in both hydrocarbon and renewable sectors with long-term expectations. Otelo Ruivo's transition to the Renewable Energy division signifies a strategic shift showcasing Galp's continued focus on sustainable energy solutions. Despite some delays and anticipated margin pressures, Galp's commitment to maintaining financial discipline and advancing key projects reflects cautious optimism for the future.