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

Eni 2010-2014 business plan clouded by Africa unrest

Eni is planning to achieve 3% annual production growth by 2014, higher compared to the previous plan of 2.5%. About 80% of the production due to come on-stream over the plan period will be from giant projects, in particular from those in Venezuela, Russia, the Arctic region and Angola.

The company’s strategy of quickly developing oil and gas resources could work but depends a lot on Africa — this now looks challenged given the unrest in North Africa. ENI is one of the biggest foreign operators in Libya which gets more than half its oil and gas from Africa and which is one of the fattest dividend yields among European oil majors.

The production target is clearly at risk if the unrest goes on and if that happens, Eni have to cut the dividend. In any case the troubles remove potential upside to the 2011 dividend. Before the North Africa crisis erupted Eni had succeeded in renegotiating its gas supply contracts with Libya. But that is now on hold given the suspension of Libyan flows. Italy has increased Russian gas imports. Gazprom will now be strengthened in renegotiations with Eni as Italy, and Europe, once again relies on Russian gas.

ONGC misses the bus again “Will it be Chinese who will outbid ONGC”

ONGC has lost bid to buy US energy major Exxon Mobil's 25% stake in a deep-sea oil block in Angola. ONGC had last year bid around $2.1-2.2 billion for the 25% stake in Block 31 in Angola. It will be fair to guess that it might be a Chinese, Korean or even a Thai company which has bidded more than ONGC.
It is not that ONGC is out of the race. They have an option to hike their bid. But more importantly, if the company at the forefront is not liked by Angolan government, Exxon may be forced to go to other bidder.

ONGC failed to acquire Akpo in the past
ONGC had in 2004-05 lost out on acquiring 45% stake in the giant Akpo oilfield in Angola.
The government had rejected ONGC proposal due to Akpo's ownership issues. After Indian government disallowed ONGC to pursue the Akpo opportunity, China's CNOOC Ltd acquired the 45% stake for $2.268 billion.

Block 31 overview

Block 31 is expected to produce 1,50,000 barrels of crude oil per day (7.5 million tons a year) and output is expected to start in 2012. In all 19 oil discoveries have so far been made in the block. Sonangol is the concessionaire of Block 31. The other interest owners in Block 31 are BP (26.67% and operator), Sonangol P&P (20%), Statoil (13.33%), Marathon (10%) and Total (5%).


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