Tuesday, March 15, 2011

Argentina- a tough place to do business!! Repsol dilutes maturing Argentina assets and concentrates on Brazilian pre-salt discoveries

Repsol has agreed to sell a 3.83% stake of YPF to Lazard Asset Management and other investment funds for $639 million ($42.4/share). YPF's shares were last traded for $48.3/share on 14th Mar, 2011. In addition to this, Repsol announced a public offering of 24.27 million shares of YPF, in the form of American Depositary Shares, representing 6.17% of the company’s stock. Additionally, Repsol has granted the underwriters an option to purchase an additional 3.64 million shares, representing 0.93% of YPF.

At the end of last year, Repsol agreed the sale of 3.3% of YPF for $500 million to funds managed by Eton Park Capital Management, Capital Guardian Trust Company and Capital International Inc. Additionally, shares of YPF totalling 1.06% of the company have been sold on the stock markets in the last few months. Following the latest transactions, YPF’s shareholding structure is as follows: Repsol Group (75.9%), Petersen Group (15.46%) and 8.64% free float.

Repsol’s strategy- Dilute maturing assets in Argentina and focus more on Brazlian assets!
This deal is part of Repsol’s strategic aim to rebalance its global assets portfolio as laid out in the Horizon 2014 plan, allowing new shareholders into YPF. Repsol is seeking to reduce business in maturing fields in Argentina while investing in exploration in Brazil’s offshore Santos Basin. At the end of 2010, Sinopec signed agreement to invest $7.1 billion in Repsol’s Brazilian unit. Repsol forecasts annual production growth of as much as 4% through 2014 as projects in Brazil and Peru start. It plans to invest 28 billion euros from 2010 to 2014 on fields in Venezuela, Bolivia and Algeria. The company will invest about 6 billion euros this year and plans to drill 25 to 30 exploration and evaluation wells. Recently, Repsol signed agreement to invest at least $768 million in oil exploration and development on Alaska's North Slope.

Is doing business in Argentina tough??
Buying YPF could be a good business – Repsol in Argentina announced a large unconventional gas discovery in December 2010, which it is keen to explore with partners. But monetising that and any future discoveries of that type will take time, and the reality is that with its maturing markets and heavy regulation which discourages investment, Argentina is, for many energy companies, a tough place to do business.
Argentina has some of the lowest gas prices in the world, in large part because of governmental controls designed to curb inflation and bolster the competitive edge for manufacturers. Barclay Hambrook, CEO of Americas Petrogas, in an interview about Argentina's shale reserves potential said, “The Argentine government has to do a little more in terms of encouragement, especially in terms of higher prices, as the wells are deeper and require a lot of capital and expertise to complete. If there is some improvement in gas prices, then I think there could be a significant upturn in investment and exploration in the Neuquen Basin.”

To know more on shale gas projects in Argentina click here: http://docsearch.derrickpetroleum.com/research/q/%22argentina%20shale%20%22.html

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