Spanish oil, gas and chemical company Repsol S.A. is aiming to cut emissions to net-zero by 2050 and said it would take a multibillion euro impairment charge against its oil and gas assets.
The company REP, -2.05% REP, -1.01% said late Monday that its management analyzed the company’s role “in the fight against climate change,” which triggered the strategic shift. “It is possible to achieve at least 70% of this target with the technology that can currently be foreseen, and the company is committed to applying the best available technologies to increase this figure, including carbon capture, use and storage,” it said. Repsol would, if necessary, additionally offset emissions through reforestation and other natural climate sinks to achieve zero net emissions by 2050, it added.
Repsol said it would also tie at least 40% of the long-term variable pay of its management and senior executives, to the goals, which will form the basis for its 2021-25 strategic plan.
It now “expects a gradual decarbonization of the economy, a reduction in the expectations of future oil and gas prices and the increase of expected costs for future CO2 emissions,” it said.
Its exploration and production business would thus prioritize cash and value generation over a production increase, while its industrial businesses will keep their current position in “refining profitability together with more challenging decarbonization goals,” as well as an increase their production of biofuels and chemical products with a low carbon footprint. New businesses would take on “a more ambitious objective of low carbon power generation by 2025,” the company said.
Repsol said it expects to book an after-tax impairment charge of about 4.8 billion euros ($5.3 billion) in some assets in 2019. “This valuation adjustment will mainly affect exploration and production assets located in the United States of America and Canada, due to the reduction in the expectations of future gas prices,” it said.
The charge will hit specific reported income for 2019 but doesn’t impact cash flow or shareholder remuneration, it said.