Pemex Sells $2.8 Billion Repsol Stake as Industry Opened

Repsol SA fell the most in four months after long-time shareholder Petroleos Mexicanos sold a $2.8 billion stake.

Spain’s largest oil producer dropped 3.6 percent to close at 20.11 euros in Madrid, after having dropped as much as 4.2 percent earlier today, the most since June 20, 2013. Pemex, as the Mexico City-based company is known, sold a 7.9 percent stake in the Spanish oil company in an offer managed by Citigroup and Deutsche Bank AG. The holding was bought by institutional investors at a 3.7 percent discount to yesterday’s close, according to security filings in Spain.

The Mexican company is raising cash as lawmakers prepare regulations to open the country’s oil industry to foreign investment for the first time since 1938. Pemex’s relationship with Repsol didn’t provide “mutual benefits,” Chief Executive Officer Emilio Lozoya said today.

“If Pemex is going to be restructured as a new company, it needs a nest egg of capital in its balance sheet,” George Baker, an energy consultant in Houston, said in a telephone interview before the sale. “This money is headed towards Pemex’s balance sheet to give it market credibility.”

Pemex plans to sell its remaining 1.4 percent stake in Repsol within the next few months.

‘Corporate’ Differences

“We wish Pemex the best of luck in their post-Repsol” venture, Repsol spokesman Kristian Rix said an e-mail from Madrid. Chief Financial Officer Miguel Martinez said May 5 that Repsol was “totally open and to collaborate with” Pemex and “we’re totally open to any suggestions.”

Differences over “corporate governance” is one of the factors behind the break up, Pemex said in an e-mailed statement today.

Pemex in August 2011 signed an agreement with Sacyr SA, Repsol’s second-largest holder, to press Antonio Brufau to name a separate chief executive officer for the Spanish oil producer. The attempt failed and Brufau continued to hold both the CEO and chairman positions until this year, when he proposed that the board name Josu Jon Imaz as CEO, which occurred. Brufau retained the chairmanship.

Funds from Repsol can be used in better ways by Pemex, though the state-owned oil producer has still to decide what to do with them, CEO Lozoya said today.

‘Not Bad Idea’

Reducing the stake would be “not a bad idea,” Mexican Finance Minister Luis Videgaray said May 4 in an interview with Radio Formula. Pemex could “bring that capital and invest it in the opportunities that Pemex is going to have in Mexico,” he said at the time.

An end to Mexico’s state oil monopoly would bring in an additional $20 billion of foreign investment a year, according to Bank of America Corp. Chevron Corp., the third most valuable oil producer, said last month that it has been in talks with Pemex about potential partnerships in onshore, shallow and deep water fields, according to Ali Moshiri, Chevron’s president of Latin America and Africa.

“If Pemex is going to go out and look for a joint venture with Chevron in deep-water Gulf of Mexico, they are going to want to know that Pemex has the resources to back up the commitments involved in that type of project,” Baker said.

Shale Interest

Pemex may not have the financial, technical or operational capabilities required to maintain all the fields it wants to keep, Lourdes Melgar, Mexico’s deputy energy minister, said in March. Pemex’s limitations will be considered by the ministry when awarding fields with potentially large amounts of oil reserves, Melgar said. The country’s oil regulator will decide by September which fields Pemex can keep.

Repsol’s growth plans were distracted by its feud with YPF SA after Argentina seized control of YPF from Madrid-based Repsol in 2012, Pemex’s CEO said in October. The stake “has returned zero” under the current administration, he told a congressional energy committee on Nov. 20.

Pemex, which has expressed interest in working with YPF to develop shale deposits in Argentina, helped broker a preliminary compensation accord between Repsol and YPF that led to a binding deal earlier this year. Repsol received and then sold about $5 billion in bonds from Argentina in May from the compensation.

Repsol’s stock had returned to investors about 100 percent in dollar terms since Brufau took the helm in 2004, compared with a 150 percent average gain among peers tracked by Bloomberg in the same span.

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