Repsol Agrees to $5 Billion Deal With Argentina on YPF

Repsol SA’s board agreed to accept at least $5 billion for Argentina’s expropriation of its YPF SA unit, ending a two-year international dispute.

Argentina will issue as much as $6 billion in bonds that the Spanish oil company can sell or hold until maturity, according to a Repsol filing today to regulators. The debt won’t be satisfied until Madrid-based Repsol has received $5 billion, even if the bonds default, the company said after a board meeting today. The deal requires shareholder approval.

President Cristina Fernandez de Kirchner’s government seized 51 percent of YPF in April 2012 after saying Repsol hadn’t invested enough. Ending the dispute may help attract investors to the country to develop some of the world’s largest shale fields. The agreement, less than the $10.5 billion in compensation Repsol initially sought, marks the end of two years of wrangling over the unit, which remained on the company’s books at full value until last week.

“This is very positive,” YPF Chief Executive Officer Miguel Galuccio told reporters in Buenos Aires. “Repsol still has a 12 percent stake in the company, there should be a new dynamic now in the board. We should be able to leave this dispute in the past and focus on a more constructive future.”

On Feb. 21, Repsol took a 1.28 billion-euro ($1.76 billion) charge to reduce the value of the stake to 3.63 billion euros. The company removed the YPF suffix from its name in 2012, 13 years after acquiring the unit from Argentina and private shareholders at the peak of an economic boom under Argentine President Carlos Menem.

Bond Value

Repsol’s fourth-quarter net income adjusted for one-time items and inventory fluctuations was 251 million euros, compared with an average analyst forecast of 253 million euros and 517 million euros a year earlier. The company’s reserve replacement ratio rose a record 275 percent, while production was undermined by stoppages in Libya.

Repsol’s American depositary receipts, each worth one ordinary share, rose 3.3 percent to $25.81 at the close in New York. YPF’s ADRs fell 3.5 percent to $27.30.

Argentina will hand over as much as $6 billion in nominal value of bonds to guarantee a minimum market value of $4.67 billion. The bonds will be held in an international clearing facility, Repsol said. If Repsol sells the securities and makes more than $5 billion, it will return the surplus to Argentina.

Pemex Role

Argentina will issue at least $3.25 billion of new bonds due 2024 with an interest rate of 8.75 percent and pay the rest with securities maturing in 2017 and 2033. Those notes trade at prices of 84 cents and 64 cents on the dollar respectively.

Repsol officials will travel to Buenos Aires to sign the deal on Feb. 27, Argentine Economy Minister Axel Kicillof said today at a press conference. The government will send a bill to congress to obtain approval on the debt sale, he said.

The deal took about three months to complete after an outline agreement was reached in November with the help of the Spanish government and officials from Petroleos Mexicanos, the Mexican state-owned oil company that is a Repsol shareholder and has expressed interest in developing Argentine shale fields.

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

Energy Deficit

Argentina, which has signed deals with Chevron Corp. and Dow Chemical Co. to develop shale fields since seizing Repsol’s controlling stake, had a record energy deficit of $6.1 billion last year. The South American country posted an energy surplus for 20 years ending in 2010.

Argentina is trying to repair relations with international creditors including the International Monetary Fund, the Paris Club and the World Bank to obtain fresh financing after reserves tumbled 34 percent in the last year to $27.7 billion, close to a seven-year low.

The accord is the latest step in what appears to be a change in policy toward international investment by the government, said Sebastian Vargas, a New York-based economist at Barclays Plc. Settling with Repsol will bring a wave of investment in Argentina’s oil sector and is another step forward as the South American country has been virtually locked out of international credit markets since 2001 when it defaulted on a record $95 billion.

“This reinforces the idea that Argentina is looking for a new relationship with investors and creditors,” Vargas said in a telephone interview. “This transaction is fundamentally positive news because it could unleash pent up investments in the energy sector to develop energy resources in Argentina.”