The Spanish company, which was the first oil major to set a net-zero emissions target a year ago, will put its projects into “harvest mode” as it refocuses on higher-value oil production in fewer countries. While the dividend will be lower in 2021, it will be paid out entirely in cash, unlike the current distribution which is mostly given as new shares. Repsol expects to start growing the payment again from 2023.

Repsol’s decision last December to write down the value of its oil assets by 4.8 billion euros ($5.7 billion) and promise to eliminate net emissions of greenhouse gases from its operations by 2050 was the first step in a dramatic shift for the oil industry. It plans to funnel cash from the petroleum business into an expansion of renewable capacity to 15 gigawatts — including wind and solar — from the current 2.95 gigawatts.

The “new strategic plan highlights the continued shift in focus to renewables from oil,” said Salih Yilmaz, an energy analyst at Bloomberg Intelligence. “The move is expected to be self-financing with Brent at $50 a barrel.”

Repsol’s new strategy also includes a concrete target for green-hydrogen production, setting it apart from other oil producers. Most companies argue this fuel is not yet cost-effective, but Repsol Chief Executive Officer Jon Josu Imaz said the company could produce renewable hydrogen 30% cheaper than others in Spain. The company is seeking to align itself with the government’s aim of transforming the country into a key European hub for hydrogen shipments, and Repsol aims to produce more than 1.2 gigawatts in 2030.

Repsol plans to use three types of technology to produce green hydrogen: electrolysis, using renewable electricity to make hydrogen from water; biomethane in steam reformers, which extracts hydrogen from gas produced from biological sources; and photo-electrolysis, where sunlight is used to extract hydrogen from water. Hydrogen made from biomethane will become competitive in the short-term, Imaz said in an analyst call.

The shares fell 3.8% to 8.40 euros at 4:40 9.m. in Madrid, taking this year’s decline to about 40%. The Stoxx Europe 600 Oil & Gas index was trading flat.

Dividend Policy

Repsol’s early move on emissions cuts has been followed, or bettered, by larger European rivals, including Total SE, Royal Dutch Shell Plc and BP Plc, although the U.S. majors remain committed to fossil fuels. But Repsol is now spending the most on renewables among the majors, according to analysts at Redburn. Some of the biggest oil companies have also reduced their dividend payouts as they reset in the face of the coronavirus-induced slump and the pressure to move more decisively in the energy transition.

Repsol will reduce the dividend to 60 euro cents a share next year from 1 euro in 2020, the company said in a presentation on Thursday. It plans to boost it by 5 cents annually from 2023 to 2025. If Brent prices fall to below $40 a barrel on average for a year, which the company does not expect, “we have a capex flexibility to be debt-neutral paying our dividend of 60 euro cents a share,” Imaz said.

The company also set a new payout policy, moving all outflows to cash and no longer offering a so-called scrip, which is paid in shares. It doesn’t plan to increase debt in the next five years, and is targeting adjusted earnings before interest, taxes, depreciation and amortization of more than 8.2 billion euros by 2025.

Shifting Focus

Chairman Antonio Brufau started to publicly outline his intention to build a cleaner oil firm as far back as 2016. Central to the Catalan-native’s strategy is becoming what he calls an all-around “energy company” rather than an oil producer. Last month, Imaz said he is already spending more on developing renewable projects than searching for oil.

The company may sell a minority stake in its low-carbon business unit, or hold an initial public offering next year or in 2022, the CEO told reporters. Imaz said the company would look to enter the renewables markets in two or three more countries over the next “few years.” Repsol will only enter renewable projects that have a minimum returns of 10%, Maria Victoria Zingoni, EMD of Commercial Businesses and Chemicals said. It may enter offshore wind “at some point.”

Conversely, Repsol is looking to exit some countries where it holds an upstream oil and gas business. It will reduce its global presence to 14 nations, from over 20 today. The company will invest further in operations in North America while exiting non-core countries, Tomas Garcia, executive managing director of exploration and production said. It will not pursue frontier exploration, but will continue to drill in places such as Alaska, Mexico and Brazil, Imaz said.