Repsol's plan to sell €6.2bn (£4.6bn) of assets to reduce its unwieldy debt pile and keep investors happy was met with scepticism by the industry today, with questions over the viability of the oil giant's strategy.
The Spanish firm's shares saw a turbulent day of trading, plunging over four per cent in the afternoon after a morning bounce.
The oil producer is the latest of its peers to outline plans to slash spending and divest non-core assets amid tumbling oil prices. Brent crude fell below $49 per barrel this week, to its lowest level since 5 October, due to a surplus of supply and a slowdown in demand, namely from China.
Repsol did not say which assets it will put on the block. It also plans to slash its capital expenditure by a mammoth 40 per cent by 2020, bringing it down to $4.1bn, while at the same time doubling its core earnings to €11.5bn.
“The plan looks good in theory, but in granularity less so. Can you cut capital expenditure that much and maintain growth? With the oil price so low, can you sell €6bn worth of assets?” Richard Griffith, analyst at Canaccord Genuity, told City A.M.
The oil company vowed to keep its €1 per share scrip dividends throughout the 2016-20 plan, even if oil prices remain at $50 per barrel.
“At that Brent price, Repsol will be able to generate cash flow to finance its investment needs, maintain dividends, and pay off debt. Furthermore, it will be able to maintain its investment grade rating,” it said, in a clear bid to satiate investors and credit agencies.
Repsol is struggling with a $15bn debt mountain, following its $8.3bn acquisition of Canada's Talisman last December, putting its debt rating at risk.