February 20, 2018 / 4:16 PM / 25 days ago

UPDATE 1-Portugal's Galp predicts flat 2018 earnings, slower output growth

(Updates share price, adds CEO on capex, refinery stoppages)

By Andrei Khalip

LISBON, Feb 20 (Reuters) - Portuguese oil company Galp Energia expects largely flat pre-tax earnings this year after a 32 percent increase in 2017 as production growth slows.

The company said it still aims to boost output by more than 50 percent by 2020, but its shares fell almost 3 percent after it released its outlook at a capital markets day on Tuesday, even though Galp also proposed increasing its dividend payout for 2017 by 10 percent to 0.55 euros a share.

The shares later recovered to trade just 0.2 percent lower.

The company said it expected earnings before interest, taxes, depreciation and amortization (EBITDA) of 1.8 billion-1.9 billion euros this year, after last year’s 1.87 billion.

Unlike last year, it would not provide a five-year EBITDA growth outlook, which it last put at 20 percent a year until 2021.

This year, Galp expects to increase output by 15-20 percent after last year’s 38 percent jump. In the final quarter of 2017, production exceeded 100,000 bpd for the first time, driving net profit 54 percent higher in the quarter to 186 million euros, the company said in a separate results statement.

EBITDA rose 24 percent in the quarter and 32 percent for all of last year, exceeding Galp’s initial guidance for 2017 of up to 1.6 billion euros.

Galp estimated capital expenditure at up to 1.1 billion euros this year and at around 1 billion euros on average per year until 2020 in a slight shift from the previous outlook, which put it in range of 0.8 billion to 1 billion euros.

“Capex guidance seems somewhat disappointing considering the expectations for savings with ongoing efficiencies in Brazil,” BPI analysts said in a note.

But CEO Carlos Gomes da Silva said this year’s capex included two refinery stoppages for maintenance, an increased exposure to the BM-S-8 project in Brazil after Galp raised its stake there to 17 percent from 14 percent, and investment in the adjacent North Carcara area.

Expenses related to maintenance works alone - one already completed in a shorter-than-scheduled 30 days at the Sines refinery and another due in the fourth quarter in Matosinhos - should amount to up to 70 million euros. Additional expenditure on the Brazilian projects is seen at more than 200 million.

“We will be very selective, very rigorous in terms of capex, always sticking to our target of 15 percent of return on capital employed,” Carlos Gomes told analysts.

When questioned about the decision to raise the dividend, he said the improved performance last year and better market conditions meant “that we are almost obliged to share the gains with shareholders”, adding that Galp saw the potential to further increase dividends in the future.

The company plans to boost output to 150,000 barrels of oil equivalent per day by 2020. Most of Galp’s production growth will come from Brazil, where it has stakes in large offshore oil fields and continues to look for expansion opportunities.

From 2020 onwards it plans to add new projects in Mozambique and Brazil which should boost the share of natural gas output to up to 30 percent of its total output, from around 20 percent now.

Galp expects free cash flow of over 1 billion euros by 2020, up from 600 million last year, and said it should break even at oil prices around $25 a barrel shortly after 2020, down from a break-even price of $35 in its previous forecast. (Reporting by Andrei Khalip; Editing by Alexander Smith and Susan Fenton)

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