Eskenazi Said to Tell Brufau YPF Buyback Pact Off Table

Repsol YPF SA Antonio Brufau
Antonio Brufau, chief executive officer of Repsol YPF SA. Photographer: Angel Navarrete/Bloomberg

Sebastian Eskenazi, YPF SA’s former CEO, told Repsol YPF SA Chairman Antonio Brufau in a meeting in Madrid that he won’t immediately seek to enforce a buyback option on YPF, two people familiar with the meeting said.

The Eskenazi family is looking at different plans for its 25 percent YPF stake after the Argentine government seized control April 16, one of the people said, declining to be identified because the meeting wasn’t public. Eskenazi and Brufau met in the Spanish capital last week, the people said.

The Eskenazis, which owe at least $2.7 billion to Repsol and banks including Credit Suisse and Goldman Sachs Group Inc., are waiting to see if Congress approves a bill to nationalize a 51 percent stake in YPF before making any decision, the person said. The bill is being discussed today by Argentina’s Senate.

“We’ve assumed the worst, so anything incrementally positive is good for Repsol,” said Jason Gammel, an analyst at Macquarie Capital Ltd. in London. “There is transparently value in the stock but there are still potential risks that could come to life as this whole political mess plays out.”

Argentina’s Senate a few hours ago approved President Cristina Fernandez de Kirchner’s proposal to nationalize YPF, the country’s biggest energy company, as the government seeks to increase oil production and reduce imports.

The legislation now goes to the lower house, where Fernandez’s ruling Victory Front coalition and its allies have a majority, for a vote next week.

Repsol in 2008 agreed to buy back the Eskenazi family’s stake in YPF should Madrid-based Repsol lose control of the company, according to an agreement between the Spanish oil producer and the Eskenazis’ Petersen Group holding company.

Fernandez Decision

YPF’s American Depositary Receipts dropped 2.5 percent to $13.31 in New York yesterday. Repsol fell 1.5 percent to 14.06 euros in Madrid today as of 1:37 p.m. local time, down 20 percent since the takeover was announced on April 16. That’s made it the worst performer on the 122-member MSCI World/Energy Index this year, down 41 percent.

Kirchner’s decision to expropriate 51 percent of YPF from Repsol invalidates the agreement because it qualifies as a force majeure event, an unforeseeable event comparable to a hurricane which can release a company from contractual obligations, a Repsol spokesman, who declined to be named under corporate policy, said last week.

“My question would be, over what time frame that commitment was valid for?” said Stuart Joyner, an analyst at Investec Securities Ltd. in London. “I’d be very surprised if the Eskenazis unequivocally gave up something that has some insurance value for them at least.”

The government is seeking investors to help YPF develop shale reserves in the Vaca Muerta block, which holds at least 23 billion barrels of oil, 13 billion of which belong to YPF, according to a report published by the crude producer in February. Developing the reserves requires $25 billion a year.

Output Declines

Argentine oil output declined to 35.3 million cubic meters in 2010 from 45.4 million in 2001, according to the most recent data published by the Argentina Oil and Gas Institute. YPF produces about 34 percent of the country’s crude.

YPF executives, including Eskenazi and the head of exploration and production, Tomas Garcia Blanco, were told to leave YPF’s headquarters in Buenos Aires on April 16, the day that Argentina announced Planning Minister Julio de Vido would run the company on an interim basis.

The European Union will do “everything in our power” to support Spain in the dispute with Argentina, which nationalized only the Spanish majority shareholder and not local stockholders, EU Trade Commissioner Karel De Gucht said April 24.

Fernandez, in a speech in Buenos Aires province on April 24, said she was never more nervous than before her April 16 speech announcing the takeover. Argentina needs energy independence, she said.

Repsol Investments

Since taking over YPF’s management, De Vido and Deputy Economy Minister Axel Kicillof have met with officials from Chevron Corp., Exxon Mobil Corp and ConocoPhillips to discuss possible investments in Argentina.

The government today denied claims by Repsol that the Madrid-based company invested $20 billion in YPF between 1999 and 2011. Repsol invested $3.7 billion in the period, the government said in an e-mailed statement.

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