Investor Presentation • Jun 2, 2021
Investor Presentation
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Thriving through the energy transition June 2021
This document may include forward-looking statements, including, without limitation, regarding future results, namely cash flows, dividends, and shareholder returns; liquidity; capital and operating expenditures; performance levels, operational or environmental goals, targets or commitments and project plans, timing, and outcomes; production rates; developments of Galp's markets; and impacts of the COVID-19 pandemic on Galp's businesses and results; any of which may significantly differ depending on a number of factors, including supply and demand for oil, gas, petroleum products, power and other market factors affecting them; the outcome of government policies and actions, including actions taken to address COVID-19 and to maintain the functioning of national and international economies and markets; the impacts of the COVID-19 pandemic on people and economies; the impact of Galp's actions to protect the health and safety of its employees, customers, suppliers and communities; actions of Galp's competitors and commercial counterparties; the ability to access short- and long-term debt markets on a timely and affordable basis; the actions of consumers; other legal and political factors, including changes in law and regulations and obtaining necessary permits; unexpected operating events or technical difficulties; the outcome of commercial negotiations, including negotiations with governments and private entities; and other factors discussed in Galp's Management Report & Accounts filed with the Portuguese Securities Market Commission (CMVM) for the year ended December 31, 2020 and available on our website at galp.com. This document may also contain statements regarding the perspectives, objectives, and goals of Galp, including with respect to energy transition, carbon intensity reduction or carbon neutrality. An ambition expresses an outcome desired or intended by Galp, it being specified that the means to be deployed may not depend solely on Galp. It is important to note that as of June 2, 2021, Galp's business plans and budgets do not fully reflect Galp's Net Zero Emissions target. Galp aims that, in the future, its business plans and budgets will progressively change to reflect in full this movement towards its Net Zero Emissions target. All statements other than statements of historical facts are, or may be deemed to be, forward-looking statements. Forward-looking statements express future expectations that are based on management's expectations and assumptions as of the date they are disclosed and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such those statements. Accordingly, neither Galp nor any other person can assure that its future results, performance or events will meet those expectations, nor assume any responsibility for the accuracy and completeness of the forward-looking statements. Forward-looking statements include, among other things, statements concerning the potential exposure of Galp to market risks and statements expressing management's expectations, beliefs, estimates, forecasts, projections, and assumptions. These forward-looking statements may generally be identified by the use of the future, gerund or conditional tense or the use of terms and phrases such as "aim", "ambition", "anticipate", "believe", "consider", "could", "develop", "envision", "estimate", "expect", "goals", "intend", "may'', "objectives", "outlook", "plan", "potential", "probably", "project", "pursue", "risks", "schedule", "seek", "should", "target", "think", "will" or the negative of these terms and similar terminology.
Financial information by business segment is reported in accordance with the Galp's management reporting policies and shows internal segment information that is used to manage and measure the Group's performance. In addition to IFRS measures, certain alternative performance measures are presented, such as performance measures adjusted for special items (adjusted operational cash flow, adjusted earnings before interest, taxes, depreciation and amortisation, adjusted earnings before interest and taxes, and adjusted net income), return on equity (ROE), return on average capital employed (ROACE), investment return rate (IRR), equity investment return rate (eIRR), gearing ratio, cash flow from operations and free cash flow. These indicators are meant to facilitate the analysis of the financial performance of Galp and comparison of results and cash flow among periods. In addition, the results are also measured in accordance with the replacement cost method, adjusted for special items. This method is used to assess the performance of each business segment and facilitate the comparability of the segments' performance with those of its competitors. This document also contains non-financial performance indicators, including a carbon intensity indicator for energy products sold by Galp, that measures the amount of greenhouse gas emissions of those products, from their production to their end use, per unit of energy delivered. This indicator covers the direct GHG emissions of production and processing facilities (scope 1) and their indirect emissions associated with energy purchased (scope 2), as well as the emissions associated with the use of products by Galp's costumers (scope 3). The same emissions are considered for products purchased from third parties and sold or transformed by Galp. For a complete definition of scopes 1, 2 and 3 and the methodology used by Galp for this indicator please refer to Galp's website at galp.com. This document may include data and information from sources that are publicly available. This document may also include data and information provided by third parties, including Wood Mackenzie, Rystad and market analysts, which are not publicly available. Such data and information should not be interpreted as advice and you should not rely on it for any purpose. You may not copy or use this data and information except as expressly permitted by those third parties in writing. To the fullest extent permitted by law, those third parties accept no responsibility for your use of such data and information except as specified in a written agreement you may have entered into with those third parties for the provision of such data and information.
Galp and its respective representatives, agents, employees or advisers do not intend to, and expressly disclaim any duty, undertaking or obligation to, make or disseminate any supplement, amendment, update or revision to any of the information, opinions or forward-looking statements contained in this document to reflect any change in events, conditions or circumstances. This document does not constitute investment advice nor forms part of and should not be construed as an offer to sell or issue or the solicitation of an offer to buy or otherwise acquire securities of Galp or any of its subsidiaries or affiliates in any jurisdiction or an inducement to engage in any investment activity in any jurisdiction.
02 | Upstream Growth | 11
03 | Downstream Transformation | 18
04 | Renewables Growth | 27
05 | New Energies | 32
08 | Concluding Remarks | 48
09 | Appendix | 51
01
accelerating towards a cleaner future
2021
Social and regulatory pressure accelerating the decarbonisation pace
Growing share of electricity with expected significant increase in EV sales
Solar and wind becoming a relevant energy source for power generation
Green/blue H2 gaining momentum with viable options emerging
EU setting the strategic ambition to build an integrated Li-ion battery value chain
Significant decrease in oil demand in Europe, leading to a wave of refinery rationalisation
2030
More electrified global energy mix, although Oil & Gas maintain a crucial role
Reshape Portfolio
Refresh Relations
Reenergise People
built upon solid foundations
Unique high-quality cash generative projects
Commercial | Industrial & Energy Management
Opportunity to transform and extract more value from strong asset base
Expand our portfolio to deliver continued growth
Develop future options & value pools leveraging on existing portfolio and skills
to thrive through the energy transition
8 Capital Markets Day 2021
1 Average IRRs for new developments. 2 Adjusted OCF = RCA Ebitda + Associates – Taxes. Considers all consolidated businesses and Renewables & New Energies
to support a value driven growth story
2021-25 average (2021 maintained at €0.5-0.7 bn)
-20% vs previous plan
Base dividend annual cash dividend
€0.5/share paid semi-annually Variable distributions subject to
<1.0x ND/Ebitda1
paid once a year
Total distributions up to 1/3 CFFO2
+
combining sustainable growth and value
+
Growth from established businesses
Growth from Renewables businesses
Competitive shareholder distribution
Upstream growth from low cost & carbon intensity assets
Expanding renewables portfolio
Robust baseline dividend
Transforming downstream businesses
Developing options in new energies
Variable component linked to cash delivery
c.35% 2021-25 OCF growth
>35% Current market value1 distributed 2021-25
Progressive decarbonisation towards Net Zero by 2050
10 Capital Markets Day 2021
Note: for macro assumptions, refer to slide 52 in the Appendix. 1 Galp's average market capitalisation during May-21.
+
02
from a low breakeven cash contributor
whilst developing further value options
WI Production from sanctioned projects (kboepd)
Net entitlement production
Production costs <\$3/boe
Further growth options
IRR new developments1
c.€6 bn
accumulated
13 Capital Markets Day 2021 1 Average IRRs for new developments during 2021-25. Note: for macro assumptions, refer to slide 52 at the Appendix. 2021-25 OCF
allowing top portfolio competitiveness and longevity
Source: Rystad1
; Galp's internal NPV10 portfolio breakeven Source: Wood Mackenzie companies benchmark; IOGP; Galp's 2020 internal carbon intensity assessment
with significant value still to be captured
2 bn boe produced, a small fraction of total recoverable resources
Further attractive development opportunities
New development plan to enhance value and pursue field life extension
Continue fields ramp-up Pursue in-field opportunities
Sépia (Brazil) Sépia first oil in 3Q21 High productivity project with further potential
Blocks 14 & 32 (Angola) Drive operational excellence Evaluate near-field leads
FLNG construction and drilling & completion ongoing First gas in 2022
one of the most attractive projects in the industry
Recent Final Investment Decision for Phase I
220 kbpd FPSO, one of the largest and most technologically advanced
c.\$8 bn
Total investment (100% basis – Galp's stake 20%)
First oil expected date 2024 (2H)
+40 kbpd
WI production at plateau (net to Galp)
Highly competitive <\$35/bbl
NPV10 breakeven
Recoverable volumes >1 bn bbl
c.9 kgCO2e/bbl Low carbon intensity
One of the most competitive LNG projects worldwide
Pre-FID activities focused on cost and concept optimisation
Exploring synergies with Area 1
Local security key to unlock development
First gas expected during 2H of the decade
Delivering selected high-potential wells
Prospective wildcat well to be spud in 2021
Pre-salt potential play Well to be spud in 2021/22
18 Capital Markets Day 2021
03
capturing more value from a differentiated client driven offer
focused on strong network, digitalisation and electrification
with business transformation to unlock more value
OCF generation
whilst adapting to market trends
improving energy efficiency and reducing carbon footprint 2017
through selective investments
through advanced biofuels
Developing 270 ktpa of renewable products
Products aligned with future regulation on road and aviation (RED II and CORSIA) Diversified waste feedstock base, with sourcing strategy under development
Pre-engineering works to consider reusage of Matosinhos equipment Industrial synergies to support project competitiveness
enabling additional value creation across the energy chain
Upstream equity production growth
NG/LNG contracts diversification
Industrial transformation and logistic assets
Renewable power business scale-up
Advanced biofuels integration
Carbon & derivatives management
Integrated margin & risk management
Capture supply & trading opportunities
Incorporating low carbon
Bundle multi-energy solutions
Support and develop new products and services
Optimise value chain leveraging 3rd parties assets
Extract value from existing asset base
Leverage Galp's growth
Open new markets & value chain opportunities
Support client offer expansion
27 Capital Markets Day 2021
capable to deliver long-term growth
Expand existing portfolio, diversifying geographies and technologies
Adjusting risk profile to market conditions
Maximising value Value pools and
synergies with other businesses
through a dynamic and flexible business model
>4 GW
2025
operating capacity1
Focus on Iberia and selective new markets entry
Solar PV as core whilst integrating other technologies
2030
operating capacity1
Geographical diversification: > 50% outside Iberia
Technology diversification: Solar PV + Wind + Storage
whilst delivering sustainable value
1
Predominantly PPA Balancing risk exposure
60-70% Levered capital structure Debt weight
Asset rotation and partnerships model
Project stakes at commercial operation date
1 Equity IRR based on full life cycle. Average portfolio returns considering renewables offtake sold predominantly under PPAs, with part of the Iberian portfolio under merchant conditions now reflecting an increasing discount to baseload prices.
with potential to further expand
OCF generation1
Portfolio development based on matured technologies, competitive at market conditions
Capturing enhanced returns from portfolio related value pools
before 2030 FCF Positive
31 Capital Markets Day 2021
1 Pro-forma Adj. OCF considering all Renewables' projects as if they were consolidated according to Galp's equity stakes. Considers 50% equity stakes on gross operating capacity (equivalent to 6 GW in 2030).
and value pools with scaling up potential
taking advantage of the energy hub's industrial skillset
capturing an early mover advantage on this high-potential business
EU committed to build a verticallyintegrated battery industry
Portugal competitive advantages in resources, infrastructure, green energy and skilled workforce
Galp positioned to expand into lithium chemical processing in Portugal
Securing feedstock and developing key partnerships
Exploring further business opportunities in the value chain
by 2025
LCE production capacity1
with potential to further expand throughout the decade
06
and continually improving transparency and performance
| Environment | Social | Governance |
|---|---|---|
| Defining measurable decarbonisation targets |
Safety as a core value |
Balanced BoD independence & diversity |
| Promoting eco-efficiency |
Developing talent and promoting diversity |
Active risk, audit and sustainability committees |
| Protection of water resources and biodiversity |
Positive impact on the communities |
Reinforcing climate and safety pay-for-performance |
supported by a reshaped portfolio
Industrial reconfiguration
Energy efficiency
Renewable electricity
Low carbon fuels
New energies
Absolute Emissions (Scopes 1 & 2)
-40%
From operations
Carbon Intensity (Scopes 1, 2 & 3)
-40%
-20%
Production-based approach
Downstream sales-based approach
(Scopes 1, 2 & 3)
Maintaining business units' structure unchanged
from a robust and resilient long-term portfolio
OCF generation1
Operational performance driven by Upstream growth and Downstream transformation Group 2021 Ebitda estimated at >€2 bn and increasing to >€3 bn by 2025 Renewables and New Energies gaining relevance by 2025
41 Capital Markets Day 2021
1 Adj. OCF considers all consolidated businesses and Renewables & New Energies assuming proforma figures as if they were consolidated according to Galp's equity stakes. Brent \$60/bbl RT2020, refining margin of \$3-4/boe and EUR:USD exchange rate of 1.20.
supporting portfolio reshape and growth
2021-25 average 2021 at €0.5-0.7 bn
c.20% reduction vs previous plan
Upstream Industrial & EM
Commercial Renewables & New Energies
Net capex Focus on high-quality / high-return developments and business transformation
c.50% of net capex allocated towards low carbon
Projects' realignment and cash preservation measures supporting plan adjustment
Asset rotation to control leverage, enhance returns and reshape portfolio
supported by investment discipline
supported by the ongoing transformation
Sources & Uses 2021-25 accumulated (€bn)
to increase resilience and offer low carbon products
whilst developing upcoming energies
1 Pro-forma Adj. OCF considers all Renewables & New Energies' projects as if they were consolidated according to Galp's equity stakes.
to drive sustainable growth throughout the decade
1 Group's Adj. OCF as reported, i.e. only considering consolidated businesses. Note: for macro assumptions, refer to slide 52 in the Appendix. 2 Leases include both interests and principal payments. 3 Others includes changes in working capital.4 Ratio excludes the effects from the application of IFRS 16 leases in both net debt and RCA Ebitda. 5 CFFO differs from Adj. OCF as the later excludes inventory effects, working capital changes and special items.
08
delivering growth and shareholder value whilst reshaping portfolio
superior growth from capital light asset base ensuring competitive distributions
and sensitivities
| Macro assumptions | 2021 - 2025E |
|---|---|
| Brent price | \$60/bbl |
| Galp refining margin |
€3.0 – 4.0/boe |
| EUR:USD | 1.20 |
| Sensitivities (€ m) |
Change | Ebitda 2021 – 25E |
OCF 2021 – 25E |
FCF1 2021 – 25E |
|---|---|---|---|---|
| Brent price | \$5/bbl | 160-180 | 80-100 | 60-80 |
| Galp refining margin |
\$1/boe | 65-75 | 50-70 | 50-70 |
| EUR:USD | 0.05 | 80-100 | 50-60 | 20-40 |
| Corporate | 2021 | 2021-25 |
|---|---|---|
| Ebitda | >€2.0 bn | >€3.0 bn by 2025 |
| OCF1 | >€1.7 bn | >€2.3 bn by 2025 c.35% growth |
| Net Capex | €0.5 – 0.7 bn |
€0.8-1.0 bn p.a. |
| Upstream | Commercial | Industrial & EM | Renewables | |
|---|---|---|---|---|
| Operational 2021 Production: 125-135 kboepd 2021-25 Production growth: c.25% Production costs: <\$3/boe |
Operational Convenience contribution: >2x (2025 vs 2021) 2025 Charging points: c.10 k Electricity sales: >2x (2025 vs 2021) NG sales: >1.5x (2025 vs 2021) |
Operational Target refining opex: \$1.7/boe |
Operational 2025 Gross oper. capacity: > 4GW 2030 Gross oper. capacity: 12 GW Average stake: c.50% |
|
| Financial | Financial | Financial | Financial | |
| Ebitda 2021-24: €1.7–1.8 bn p.a. |
Ebitda 2021: €300–350 m |
Ebitda 2021: c.€100 m |
Pro-forma Ebitda 2025: c.€120 m |
|
| Ebitda 2025: >€2.0 bn by 2025 |
Ebitda 2025: >€450 m |
Ebitda after 2021: c.€200 m |
Pro-forma OCF 2025: c.€100 m | |
| OCF 2021-24: €1.1–1.3 bn p.a. | OCF 2021: c.€300 m | Ebitda 2025: c.€400 m |
Pro-forma OCF 2030: €250-300 m | |
| OCF 2025: >€1.4 bn | OCF 2025: c.€400 m | OCF 2021: €100–150 m | ||
| 2021-25 OCF accumulated: c.€6 bn | OCF 2025: >€350 m, o.w. EM >€120 m |
| (€m) | 31 Dec., 2020 |
31 Mar., 2021 |
|---|---|---|
| Cash and cash equivalents | 1,678 | 1,739 |
| Undrawn credit facilities | 1,262 | 1,263 |
| Gross debt | 3,743 | 3,291 |
| Average funding cost | 1.7% | 1.5% |
| Net debt | 2,066 | 1,552 |
| Leases (IFRS 16) | 1,089 | 1,125 |
| Net debt to RCA Ebitda | 1.5x | 1.1x |
| % Debt at fixed rate | 48% | 40% |
@31 mar 2021 @31 dec 2020
| Brazil | Angola | |||
|---|---|---|---|---|
| BM-S-11 Tupi | 9.2% | Block 14 BBLT TL Kuito | 9% | |
| BM-S-11 Iracema | 10% | Block 14k Lianzi | 4.5% | |
| BM-S-11A Berbigão | 10%1 | Block 32 Kaombo | 5% | |
| BM-S-11A Sururu | 10%1 | Mozambique | ||
| BM-S-11A Atapu | 1.7% | Area 4 Coral I Rovuma LNG | 10% | |
| BM-S-8 Bacalhau | 20% | São Tomé and Príncipe | ||
| Bacalhau North |
20% | Block 6 | 45%2 | |
| BM-S-8 Guanxuma | 20% | Block 11 | 20% | |
| Sépia | 2.4% | Block 12 | 41.2% | |
| BM-S-24 Júpiter | 20% | Namibia | ||
| Uirapuru | 14% | PEL 82 | 40%2 | |
| C-M-791 | 20% | PEL 83 | 80%2 |
| 2020 | |
|---|---|
| Reserves 1P (mboe) | 385 |
| Reserves 2P (mboe) | 700 |
| Reserves 1C (mboe) | 525 |
| Reserves 2C (mboe) | 1,720 |
| Total 2P and 2C Resources (mboe) |
2,420 |
| (GW) | Operating | Under Construction / Development |
Total |
|---|---|---|---|
| Gross renewable capacity | 926 | 2,882 | 3,808 |
| Spain | 914 | 2,387 | 3,301 |
| Portugal | 12 | 495 | 507 |
| Equity to Galp | 692 | 2,250 | 2,941 |
| Spain | 686 | 1,899 | 2,584 |
| Portugal | 6 | 351 | 357 |
Metrics and methodology
| Metric | Methodology | 2017 | 2030 | 2050 |
|---|---|---|---|---|
| Absolute Emissions' reduction from operations |
Emissions related to Galp's operations (scopes 1 & 2) |
c.4 mtonCO2e (Sc. 1 & 2) |
-40% | |
| Carbon Intensity Production-based approach |
Emissions from operations (scopes 1 & 2) + emissions from use of Upstream products (oil & gas; scope 3) Energy produced by Galp generation)1 (Upstream oil & gas, power |
93 gCO2e/MJ |
-40% | Net Zero Emissions |
| Downstream sales based approach |
Emissions from operations (scopes 1 & 2) + lifecycle emissions from products sold by Galp (oil products, gas & power; scope 3) Energy of all products sold by Galp |
76 gCO2e/MJ |
-20% |
| \$ (or USD) |
Dollar | Ebitda | Earnings before interest and taxes, depreciation and amortisation | m | Million |
|---|---|---|---|---|---|
| % | Percentage | eIRR | Equity Internal Rate of Return | mboe | Million barrels of oil equivalent |
| & | And | EM | Energy Management | MJ | Megajoules |
| @ | At | ESG | Environmental, Social and Governance | MSCI | Morgan Stanley Capital International |
| € (or EUR) | Euro | EU | European Union | mton | Million tonnes |
| + | Plus | EV | Electric vehicle | MW | Megawatt |
| < | Below | FCF | Free Cash Flow | MWh | Megawatt-hour |
| > | Above | FID | Final Investment Decision | n | Number |
| 1C; 2C | Contingent resources | FLNG | Floating Liquefied Natural Gas | ND | Net debt |
| 1P | Proved reserves | FPSO | Floating Production Storage and Offloading | NG | Natural Gas |
| 2H | Second Half | g | grams | NPV | Net Present Value |
| 2P | Proved and probable reserves | GW | Gigawatt | O&G | Oil and Gas |
| Adj. OCF (or OCF) | Adjusted Operational Cash Flow (RCA Ebitda + Dividends from Associates – Taxes paid) |
H | Half | o.w. | of which |
| B2B | Business to Business | H2 | Hydrogen | Oper. | Operating |
| B2C | Business to Consumer | HVO | Hydrotreated Vegetable Oil | Opex | Operational expenditure |
| bbl | Barrel | IFRS | International Financial Reporting Standards | p.a. | Per annum |
| BBLT | Benguela, Belize, Lobito, and Tomboco | IOGP | The International Association of Oil & Gas Producers | PEL | Petroleum Exploration Licences |
| bn | Billion | IRR | Internal Rate of Return | PPA | Power Purchase Agreement |
| BoD | Board of Directors | k | Thousand | PV | Photovoltaic |
| boe | Barrel of oil equivalent | kbbl/d | Thousand barrels per day | Q | Quarter |
| c. | Circa | kboepd | Thousand barrels of oil equivalent per day | RCA | Replacement Cost Adjusted |
| Capex | Capital expenditure | kbpd | Thousand barrels of oil per day | RED II | Renewable Energy Directive II |
| CFFO | Cash Flow from Operations | kg | kilogram | RT2020 | 2020 Real terms |
| CO2 | Carbon dioxide | kton | Thousand tonnes | Sc. | Scope |
| CO2e | Carbon dioxide equivalent Carbon Offset and Reduction Scheme for |
ktpa | Thousand tonnes per annum | vs | Versus |
| CORSIA | International Aviation International | LCE | Lithium Carbonate Equivalent | WI | Working Interest |
| d | Day | Li | Lithium | x | Times |
| E | Estimated | LNG | Liquefied Natural Gas |
x-sell | Cross-selling |
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