Galp Abandons the Moeve Refining Deal, So Sines Stays in Its Hands, and Posts 682 Million Euros of Adjusted Quarterly Profit

Galp has ended its talks with Spain's Moeve on combining the two companies' refining and fuel retail businesses, so the Sines refinery and Galp's Portuguese service stations stay with the Portuguese group. Galp announced the end of the talks to the market on Monday 26 October, the same morning it published third-quarter results showing adjusted net income of 682 million euros, up 68 percent on a year earlier.

What the deal would have done

The plan dated from a non-binding agreement announced on 8 January with Moeve's shareholders, Mubadala Investment Company and The Carlyle Group. It would have created two companies. A "RetailCo", co-controlled by Galp and Moeve with balanced stakes, would have run about 3,500 service stations, mostly in Iberia. An "IndustrialCo" would have combined refining, petrochemicals and supply across three industrial sites with close to 700,000 barrels a day of crude capacity, and Galp expected to hold "more than 20%" of it. ECO reported that the industrial venture would have brought Sines together with two Moeve refineries in Spain.

In Monday's statement, Galp said that "following extensive negotiations between the parties, no agreement has been reached." Its chair, Paula Amorim, said the parties "were unable to achieve the necessary commercial alignment". ECO, citing two sources, reported on Sunday that Amorim had not accepted demands from the Mubadala-controlled Moeve.

The quarter in numbers

Figures are from Galp's third-quarter report. Galp's headline profit measure is RCA (replacement cost adjusted) net income, which strips out inventory effects and special items.

• RCA net income: 682 million euros from July to September, against 407 million a year earlier; 1,494 million euros in the first nine months, up 54 percent from 973 million. Jornal de Negócios described the nine-month figure as a record.
• IFRS net income: 201 million euros in the quarter, down 24 percent, and 852 million euros in nine months, down 9 percent. Galp attributes the gap mainly to the mark-to-market of unsettled financial derivatives, at a time of high commodity prices.
• Refining: Galp's refining margin was 34.0 dollars a barrel of oil equivalent, against 9.5 dollars a year earlier, on high diesel and jet margins.
• Guidance: full-year RCA Ebitda is now expected at around 5 billion euros, up from around 4 billion.

The results come in a year of dear fuel, with pump prices still moving weekly under the government's tax discount, as in this Monday's adjustment. Upstream production rose 14 percent with the ramp-up of the Bacalhau field off Brazil.

What it means for Sines, the pumps and shareholders

• Sines: the refinery stays wholly within Galp, alongside the low-carbon projects it is building there, including what it calls one of Europe's largest green hydrogen electrolyser projects. In its results presentation, Galp said its trading desks had "already secured all Portugal's jet import requirements for the remainder of the year".
• Service stations: Galp says the outcome "does not impact Galp's existing operations". The report notes lower fuel volumes sold to Portuguese consumers in the quarter, offset by stronger sales to business customers in Iberia.
• Dividends and buybacks: in January Galp presented the deal as one that would "enable enhanced capital returns to shareholders". On Monday it said its capital allocation priorities "remain unchanged" and announced no new payout. It paid a 253 million euro interim dividend in the quarter and has bought back 230 million euros of shares under a 250 million euro programme due to run until 27 November at the latest.

Galp said it still favours industry consolidation and "strategic partnerships". Our September markets briefing covered Galp's answer to the windfall tax.