Repsol will make a provision of 837 million euros, representing 4% of its market cap, in its 2019 results after the first partial award (of a total of five) issued by the Arbitration Court in 2020. This has been found in favour of Addax and Sinopec in their litigation against Talisman Energy (currently “ROGCI”) and Talisman Colombia Holdco Limited (“TCHL”).
Addax and Sinopec bought 49% of Talisman Energy UK’s shares from Canada’s Talisman group in 2012 (and therefore before Repsol’s acquisition of Talisman in 2015). Addax and Sinopec initiated an arbitration proceeding against Talisman in 2015, requesting 5.500 billion dollars, about 5.050 billion euros. (This includes the initial investment in Talisman UK, subsequent investment increases, made or to be made in the future, and lost opportunities that might have occurred). Then in 2017, Repsol initiated another arbitration against China Petroleum Corporation and TipTop Luxembourg, claiming compensation for the damages it might suffer as a result of any adverse decision in the above-mentioned arbitrage process.
Repsol plans to challenge this award with the Singapore courts, (as they continue to believe that the claims are unfounded, being prior to the Spanish group's purchase of Talisman). But, despite the fact there is no certainty about the amount of possible compensation (if any), Repsol has been prudent and decided to make the afore-mentioned provision. There are still a lot of pending issues and the Court will rule on the four oustanding claims in due course. There is no definite date, but this is not expected until at least Q12022.
Up to now no provision had been made after a first partial award in 2017, which rejected Addax and Sinopec’s claims, and the procedure was bifurcated into two parts: resolution on responsibility and resolution on the amount of the responsibilities, in the event there were any. However, in 2020, the Arbitration Court has issued a second partial award on one of the five issues of the liability phase. Its decision is that ROGCI and TCHL are accountable to Sinopec and Addax with regard to this issue.
For Renta4 analysts, this provision will have an impact of 4% on Repsol’s market cap. Under prudent principles, it will be added to the 4.8 billion euros earmarked for the group’s transformation into zero net issues in 2050. It does not involve cash outflow and experts believe it should not affect the dividend (8% cash RPD).