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Is it Time for Repsol (REPYY) to Bid Goodbye to Oil Growth?

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Repsol, S.A. (REPYY - Free Report) is looking to restrict its growth in the upstream oil and gas business, as the company wants to take a strong step toward energy transition. The company is expected to revise its business plan this June by putting a ceiling on its future production, per Bloomberg. Repsol is intent to move toward renewable sources.

The company will likely set its oil and gas reserve life to no more than eight years on its books. This is pretty short for the $30.3 billion market cap oil major compared with other companies like Exxon Mobil Corp. (XOM - Free Report) , BP p.l.c. (BP - Free Report) and Chevron Corp. (CVX - Free Report) that have 15 years, 14 years and 12 years of reserve life, respectively.

We note that Repsol produced 727,000 barrels of oil equivalent per day in the first quarter of 2018 — of which 63% was gas — which is the highest since 2012 records. Production level is expected to stay the same and remain stable for the time being.

The company’s move toward renewable energy sources is expected to bring it closer to solar and wind sources. Notably, if the company completely shifts its business, it would be the first to do so among its peers. Energy mammoth, Royal Dutch Shell started investing in renewable sources and is currently one of the largest electric vehicle charging companies in Europe since it acquired NewMotion. Shell has not completely abandoned oil and gas businesses yet, as it is not commercially viable for the company.

Another energy giant Statoil recently dropped ‘oil’ from its name and rebranded as Equinor. It is a massive step for the company, driving it toward a greener future. The company still invests large part of its capital oil and gas businesses.

The move from Repsol is targeted against carbon emissions and goes in favor of other environmental concerns like climate change. Moreover, if the move takes place, it will diversify the Spanish company’s business and make it a sustainable company. Also, the company’s transition toward cleaner energy sources can be supported by its gas dominance. The company is also involved in two offshore wind power pilot projects, namely Principle Power and WindFloat Atlantic.

Price Performance

Madrid-based integrated energy company, Repsol — carrying a Zacks Rank #3 (Hold) — gained 20.9% in the past year compared with 15.6% growth of its industry. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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