UPDATE 3-Repsol's LNG business shines ahead of sale

Thu Nov 8, 2012 9:45am EST

* Quarterly adjusted net profit beats forecast

* Profit driven by output in Libya and Bolivia

* LNG division strong before planned assets sale

* Shares up 2.6 percent

By Tracy Rucinski

MADRID, Nov 8 (Reuters) - Spanish oil company Repsol beat third-quarter profit forecasts and said assets it is selling to recover from the nationalisation of a key Argentinian unit are performing well.

Argentine President Cristina Fernandez seized Repsol's majority stake in YPF in April, raising concerns over its ability to fund development projects given that the unit accounted for half of group output.

Repsol is trying to sell liquefied natural gas assets in Canada, Trinidad and Tobago and Peru to boost its finances and credit ratings. It said on Thursday their income surged.

Excluding YPF, Repsol posted an 89 percent rise in net profit - adjusted for one-time items and inventory costs - to 496 million euros ($633 million) from 262 million on a proforma basis a year ago.

Repsol shares, which have lost a third of their value so far this year on Argentine and debt woes, rose 2.6 percent in Madrid trading, with analysts citing solid results across all of the company's operations.

Still, analysts said its future stock performance depended on a successful LNG sale.

"Repsol needs this sale to generate fresh funds and continue reducing debt after the loss of YPF," Intermoney analyst Alvaro Navarro said.

In the third quarter, operating income from the LNG division surged 75 percent to 189 million euros, boosted by improved commercial margins and higher volumes.

Repsol has received binding offers for the LNG package and Financial Director Miguel Martinez said on Thursday it expected to seal the sale in January.

The firm has not provided an official valuation of the LNG interests but in a presentation in August said they had off-balance sheet debt of 3.6 billion euros and gross debt of 1 billion euros.

HUGE LOSS

If Repsol does not sell the assets soon, it has said it will proceed with a plan to convert 3 billion euros of preference shares into equity, which would also be a way of cutting debt.

Credit rating agencies have warned Spanish companies they must reduce debt if they want to hang on to coveted investment grade ratings while Spain hovers on the brink of a downgrade to junk status in the midst of its sovereign debt crisis and recession.

Repsol's net debt reached 4.98 billion euros at the end of September, excluding the 3 billion euros of preference shares, down 4.9 percent from end-June.

While suffering a huge loss in production from its YPF unit, the company said production in remaining areas is growing.

Recurring operating profit at the exploration and production division, excluding YPF, surged 97 percent in the third-quarter, driven by a recovery in output in Libya and production increases in Bolivia and the United States.

Repsol also said it made recent new discoveries in Algeria and Colombia, meaning the group has exceeded its 2012 target for new resources that could turn into reserves.

In its traditional refining business, margins more than tripled thanks to expansion at its Cartagena and Bilbao refineries, helping to compensate for a 9 percent fall in fuel sales in crisis-hit Spain and weakness in its chemicals unit.

Adjusted CCS earnings before interest and tax (EBIT), which exclude special items and inventory holding effects, rose 64 percent to 1.3 billion euros in the third quarter compared with a Reuters poll average of 1.1 billion.

In Argentina, YPF reported a 51 percent decline in third-quarter net profit on Wednesday as domestic crude prices failed to keep pace with rising production costs.

Repsol is seeking compensation for the controversial loss of YPF in international courts but any settlement may take years.

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