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Repsol to Weigh YPF Compensation Brokered by Governments

A Repsol SA Gas Station in Barcelona
Repsol, which has axed YPF from its name while not writing down its value on its books, rejected a $5 billion offer in June because it involved reinvesting in Argentina in partnership with YPF. Photographer: David Ramos/Bloomberg

Repsol SA’s board will consider a proposal negotiated by the governments of Spain and Argentina to compensate the Madrid-based company for its stake in YPF SA.

Spanish Industry Minister Jose Manuel Soria and Argentina’s newly appointed Economy Minister Axel Kicillof reached a preliminary accord in meetings with company officials in Buenos Aires yesterday, according to government statements. Emilio Lozoya, chief executive of Petroleos Mexicanos, a minority holder in Spain’s largest oil producer, also attended.

If ratified, the deal would end more than a yearlong dispute over compensation for the seizure of a 51 percent stake in Argentina’s biggest energy company. Repsol, which has axed YPF from its name while not writing down its value on its books, rejected a $5 billion offer in June because it involved reinvesting in Argentina in partnership with YPF.

“The heads of agreement involves setting a compensation amount to be paid with liquid assets and both parties desisting from legal processes,” Argentina’s government said in the statement, without disclosing details of the new package.

Repsol shares jumped as much as 4.6 percent in Madrid and traded at 19.23 euros, up 4.2 percent, as of 12:37 p.m. local time. The accord was announced after the close of trading yesterday. That brought its gain this year to 25 percent this year, beating the 3.6 percent advance of the 22-member Bloomberg Industries Integrated Oils index.

Sweetened Offer

Argentine President Cristina Fernandez de Kirchner took control of YPF in April 2012 after a dispute over slumping oil output and investments. A day later, Repsol Chairman Antonio Brufau said the company sought $10.5 billion in compensation, based on the valuation methodology in YPF’s bylaws written by the government that privatized the company in the 1990s.

The Madrid-based producer rejected in June an offer that included a 47 percent stake in a project in the Vaca Muerta shale formation valued by Argentina at $3.5 billion, as well as $1.5 billion for development. Repsol is willing to reach a settlement that didn’t involve reinvesting in the country, Brufau said in a Nov. 21 interview.

The latest proposal includes $5 billion of Argentina-backed debt, Spain’s El Confidencial reported on its website yesterday, without saying where it got the information.

“It would be a positive surprise for Repsol if a credible cash or liquid assets compensation deal is agreed near term,” Jason Kenney, an analyst at Banco Santander SA in Edinburgh said in an e-mailed response to questions. “We do not model any compensation for YPF currently, although do still assume a writedown of this position in our first quarter of 2015 estimates.”

Share Reaction

A spokeswoman for Soria didn’t respond to phone calls and an e-mailed request for comment made outside of business hours, while YPF spokesman Alejandro Di Lazzaro didn’t return calls and Kicillof wasn’t available to comment, an assistant said by phone.

YPF rose 1.6 percent in New York yesterday, extending a rally this year to 83 percent. Argentine markets were closed for a public holiday yesterday.

Repsol’s board will decide on the proposal at a Nov. 27 meeting “as it deems appropriate in the sole interest of the company and its shareholders,” it said in a separate statement.

State-owned Pemex, based in Mexico City, has an almost 10 percent stake in Repsol. Lozoya said Oct. 31 that Repsol should take a more “proactive and prudent approach” to resolve the YPF matter.

Shale Ranking

Argentina holds the world’s second-largest shale gas reserves and the fourth-largest shale oil reserve, according to U.S. Energy Information Administration data. The company is offering tax and export incentives to energy companies that invest at least $1 billion over a five-year period.

Repsol asked a World Bank panel in July to help prevent YPF from developing the company’s seized assets. Repsol also filed a lawsuit demanding fair compensation for the seizure of its YPF stake with the Washington-based International Center for Settlement of Investment Disputes.

The accord will help “normalize and strengthen the historic ties between the three countries and its companies,” the Argentine government said in the statement.

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