Repsol Q1 Profit Up, Underlying Trend Disappoints

Exploration and production books 190 million euros loss; refining up but not enough to offset cheap oil effect.

Repsol shares fell 3 percent on Thursday, despite a 74 percent rise in adjusted clean net profit for the first quarter, as the oil group's operating performance undershot analysts' expectations.

Low energy prices, stalling production in Libya, currency adjustments in Brazil and higher exploration costs more than offset the positive impact of rising refining margins in Spain and encouraged investors to take profits after months when Repsol has outperformed the sector.

Repsol is hoping to open a new chapter in 2015 after several years marked by boardroom battles and a corporate transformation which culminated in the purchase of Talisman Energy (TLM) and the transfer last month of executive powers from Antonio Brufau to Josu Jon Imaz.

While the integration of Talisman was a long-term strategic move for Repsol to grow in exploration and production, it had a first immediate impact on results as the dollar-denominated cash earmarked for the deal appreciated on the quarter and boosted core profits by 462 million euros ($525 million).

With the currency effect stripped out, average recurring net profit, adjusted for inventory effects, came in at 466 million euros, below a market consensus of around 500 million euros and a 532 million euros reading last year.

Shares in Repsol were down 3.7 percent to 17.75 euros at 0905 GMT, underperforming both Spain's blue-chip index Ibex and the pan-European sector index.

"Our initial reaction is to look beyond the large corporate and other beat and focus more on the core Repsol operating units results, which we would consider a little weak in the context of high expectations," said Jefferies analysts in a note.

The main reason for the miss was the exploration and production arm's 190 million euros loss in the quarter compared with a 255 million profit in the first three months of 2014.

This was only partly offset by an 84 percent jump, to 534 million euros, of the domestic refining unit's profit as refining margins hit a record high of 8.7 dollars per barrel.

The contribution of the Gas Natural stake to the results was stable to 122 million euros.

By Julien Toyer