Oil player Galp's boss pleads for 'benefit of doubt over renewables returns'

Portugal’s Galp stood by its strategy to expand its renewables business despite the division still contributing only a minor part of the energy major’s overall earnings.

Galp joined a long list of energy majors posting record financials for 2022 as companies stood to profit greatly from the fallout of the energy availability and price shocks seen last year.

The company posted a 93% growth in net income for 2022 at €881m ($945m), against €457m in 2021.

The performance of Galp’s renewables and new businesses division improved last year delivering a €50m earnings before interest, taxes and amortisation (Ebitda), against a 2021 loss of €13m.

However, the business was dwarfed by the much larger — and profitable — upstream division, which took in €3.08bn in Ebitda and accounted for the lion’s share of earnings. Commercial and industrial also stood several multiples higher than renewables.

The fact that profits in renewables lagged behind those for conventional operations was not lost on analysts.

During an investors call on Monday, chief executive Filipe Silva was asked about any “changes” to be expected to the company’s strategy for renewables, following “concerns over lower returns”.

“Renewables at Galp is to create value, not to destroy value — and to integrate so that we decarbonise our existing operations,” Silva replied.

“We hope you give us the benefit of the doubt when you see Galp’s returns in renewables.”

In a video presentation of the full-year results, Silva said the renewables business will be expanded so that it can integrate easily within the existing asset base of the company and drive the decarbonisation of Galp’s footprint.

The executive stressed one crucial move over last year for the company was the takeover of full ownership of Titan Solar’s portfolio, which include the bulk of Galp’s Spanish solar assets.

“Decarbonising existing operations in Iberia is very low-hanging fruit for us,” he said.

The company has earmarked €1 billion in capital expenditure deployed per year from 2023 to 2025. Capital allocation will be crucial as Galp transforms “from grey to green”, as Silva put it.

“We continue to invest in upstream — very significantly. But the overall envelope for upstream is [our] net zero [target],” he said.

The company expects about 1.6GW of renewables operating capacity to be added in 2023 as well as the start of new projects. It is targeting 4GW of installed capacity by 2025.

The executive also framed the divestment of its Angola upstream assets, which was announced on Monday, as fitting within the firm’s long-term decarbonisation positioning. The Angola assets have carbon emissions per barrel “in line with industry average”, while Galp’s pre-salt Brazilian assets are “much lower than that”.

“The Angola divestment improves our overall carbon intensity,” Silva said.