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Repsol FY profit caution; confident on reserves

Spanish oil major Repsol YPF expressed caution on 2009 earnings but confidence about reaching a 100% oil and gas reserve replacement ratio.

“If you ask me if we are going to achieve 100% reserve replacement ratio, I will say we will, because we have the resources to do it,” Chairman Antonio Brufau told journalists ahead of Repsol's annual shareholder meeting.

Repsol's reserve replacement ratio, which measures the new oil and gas reserves registered as a percentage of reserves used, increased to 65% in 2008 from 35% in 2007.

The company has stakes in two of the world's five largest oil and gas strikes in 2009 to date, at Buckskin, Gulf of Mexico where it operated the block, and in Brazil's Santos Basin.

Repsol also has stakes in three of the five largest strikes reported in 2008, two large gas fields in Peru and Bolivia and the Guara field in Brazil's Santos Basin.

Repsol's recent exploration success will take at least three years to register in the company's reserves while the company navigates through a difficult operating scenario. Brufau said he expected 2009 results to be in line with the first quarter at least.

“We have had a tough first quarter. Now we are seeing oil prices recover but refining margins are still weak and the chemical business is depressing,” he said.

Repsol's adjusted net profit fell to €421 million ($570 million) in the first quarter from €811 million a year ago.

The International Energy Agency (IEA) said world oil demand will post the sharpest annual decline since 1981 as the economy struggles to bounce back.

Oil market fundamentals remained weak and a rise in oil prices, which hit $60 a barrel for the first time in six months on Tuesday, was due to sentiment rather than evidence of higher consumption, the agency said.

Repsol's cost savings drive and its pressure on suppliers to lower the price of contracts will give cost savings of €500 million per year on top of the 1.5 billion targeted for 2009, Brufau said.

“We are seeing substantial savings in our contracts with providers...the providers who don't want to cut their costs, won't be providers of Repsol,” the chairman said.

Repsol's chairman played down Iran's recent ultimatum to its joint venture with Shell to come to a final investment decision on their planned Persian LNG project.

“I don't think this is really an ultimatum, Iran knows the current situation,” Brufau said noting that Repsol is watching closely the beginnings of a thaw in relations between Iran and the United States. (Reuters)