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Repsol Refining Margins, Upstream Output Lift Earnings Outlook, RBC Says

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Repsol faces stronger earnings prospects as refining margins rise, upstream output expands, and shareholder returns increase, RBC Capital Markets said in a Thursday note.

RBC updated its estimates after hosting Chief Financial Officer Antonio Lorenzo Sierra at its Global Energy & Mining Back-to-School Series and raised its 2026 buyback assumption.

The firm now expects Repsol to repurchase 2 billion euros ($2.33 billion) of shares in 2026, up from its previous estimate of 1.5 billion euros, as free cash flow strengthens.

Refining margins climbed to about $40 per barrel quarter-to-date in Q3 2026, with a $10 premium as outages and low inventories tightened product supply.

Middle East and Russian outages have constrained oil product availability, while the current all-in margin stands near twice the $24/bbl level recorded in Q2 of 2022.

A spot margin indicator near $50/bbl and recent highs point to further upward pressure on estimates, while Repsol has not seen significant demand destruction in Iberia.

RBC raised its all-in refining margin assumptions to $50/bbl for Q3 and $30/bbl for Q4 of 2026.

Upstream growth will focus on the Americas, particularly Alaska, where Repsol's Pikka project started production in June and remains on track to reach 80,000 barrels of oil equivalent per day by September-end.

Repsol owns a 49% working interest in Pikka, representing 39,000 boe/d of net production, while recent water injection should accelerate the ramp-up.

Santos reported current gross Pikka production at 40,000 boe/d and expects the project to reach full capacity by the end of Q3 2026.

Management prefers share buybacks for excess free cash flow and ruled out special dividends requiring shareholder approval, while maintaining a payout target of 30% to 40% of cash flow from operations.

RBC expects a material distribution upgrade alongside Q3 results, with Repsol's current 500 million euro buyback program ending when the company reports results at the end of October.

The firm also raised its 2027 and 2028 estimates on stronger refining margins and expects Repsol to remain a significant share buyer through 2026 and 2027.

RBC's Q3 earnings estimate now stands 80% above its Q2 2026 level and 80% above Q3 consensus, supporting its Outperform recommendation.

In Venezuela, Repsol expects Cardon IV production to increase by 10% over the next year, while negotiations on fiscal terms continue, with no change in receivables expected during the second half of 2026.

Chemicals margins also improved sequentially from the record 569 euro per ton in Q2 2026, while Repsol expects future recovery to rely more on self-help measures such as the Alba project.

Spain's potential windfall tax remains a concern as energy prices stay elevated, but Repsol said implementation remains uncertain; pump discounts could help reduce consumer pressure and limit political scrutiny.

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