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The sharp decline in oil prices weighed on Repsol in the first quarter but the Spanish energy group managed to beat market expectations with a return to profit in its upstream business.

Adjusted net earnings fell 38 per cent to €572m, ahead of estimates of €261.2m, although still down from €928m a year earlier.

However, those results were boosted by an exceptional gain of €500m related mostly to funds received for YPF, a former subsidiary that was renationalised by the Argentine government.

Like many of its peers, Repsol has been hit hard by the steep decline in oil prices since 2014, forcing the Madrid-based group to slash costs and reduce its annual dividend. Repsol’s problems were compounded by the ill-timed acquisition of Talisman, a relatively high-cost Canadian oil producer, which it bought halfway through the price slump for $8.3bn.

The takeover resulted in a significant boost to oil production at Repsol in the first quarter, doubling to 714,200 barrels a day. The integration of Talisman alone was responsible for 330,300 barrels of that increase.

“Measures implemented by Repsol to increase efficiency and savings in recent months led the company to achieve positive results despite low oil prices,” the group said. The average Brent price in the first three months of the year stood at $33.90 a barrel, a decline of 37 per cent from the same quarter last year, it added.

The cost-cutting campaign showed up in the group’s net capital expenditure, which declined to just €86m in the first quarter, from €133m in the same period last year.

Analysts said they were positively surprised by the group’s results, and in particular by Repsol’s ability to generate a profit in its upstream — or exploration and production — business.

“They were very strong and above our forecasts . . . driven by better than expected results from their upstream business, while downstream was also strong,” investment bank Mirabaud said in a research note.

Repsol reported a €17m adjusted net profit in upstream, a notable improvement from the €190m loss last year. The group’s downstream operations, which include refining and chemicals, produced net adjusted earnings of €556m, a rise of 4 per cent.

Net debt was almost unchanged quarter on quarter, at €11.98bn. Repsol’s shares were up 4.6 per cent at €11.30 in early morning trading.