Oil (and Repsol), Always a State Affair

Repsol has unanimously said yes to the agreement signed by Spain, Argentina and Mexico in compensation for 2012 expropriation of its 51% stake in YPF. According to deal terms, Repsol will get between $5-5.5 billion (near €3.7- 4bn) in Argentinian covered bonds. This amount is under those €7bn expected by the company, but its board of directors would have accepted mainly because the bonds offer a negotiation margin and also a quick liquidation that long court proceedings would not have guaranteed.

Reading between the lines

For Sabadell analysts Repsol target price after the agreement would increase by 13-14% to 23,5-23,7 € euros per share, what means a growth potential of 28. This payment option’s disadvantages is that those bonds could not have been issued yet and the potential of Argentina as an issuer is very limited, so that their liquidity could become a problem. Another negative point for the Spanish blue chip in the short term is that the Mexican oil company Pemex intends to raise funds for investing on Vaca Muerta’s site through Repsol disinvestment. YPF needs money to develop this huge field and Pemex has been willing to collaborate, but Repsol has always theatened with taking to court if that happened.

Argentinian bonds paid to Repsol may have a 10 years maturity with early liquidation discounts going from € 200 to 250 million. The Latinamerican country’s 25 and 30 year bonds price stands at 9% and 11.6%, respectively on Wednesday.

Why does Madrid care so much?

Oil is the most strategic raw material in the world and the one that affects and moves more interests, as well as more economic resources. The conflict between Repsol and the Argentine government about the abusive expropriation of YPF goes beyond the private international law framework: it is not solved in international judicial instances –even though it would be logical. Sooner or later, the governmental intervention appears and also the quick political fix that imposes new conditions. That is precisely what is happening right now in the case Repsol vs. Argentina.

A recent conversation in Panama between the president of the Republic of Mexico and PM Mariano Rajoy opened the political phase of the case, which last Tuesday marked a decisive turning point in Buenos Aires with several ministers from Argentina and Spain as representatives of Repsol and YPF. The next step now is to formalise a deal between the three governments: two of them directly affected, and a third, Mexico, which is partner of Repsol and is interested in the energetic industry of Argentina. The remaining agenda items include the deal between Repsol’s council and its president (which was withdrawn from the negotiations due to the political forces), as well as the agreement of the General Meeting of Shareholders, which must block any possibility of contestation.

We are talking about private businesses, which are subject to international law but also to geopolitics and to the interests of the State. Oil is more and more an affair of those states that dominate the exploration, production and exportation, and which collect quite a lot of taxes with petroleum products. But then, Repsol is a “rara avis”, a private and listed firm, with public shareholders and indirectly supported by the Spanish government because it can’t defend its own interests. Calm and order are key points in Repsol’s agreements.

About the Author

Fernando Gonzalez Urbaneja
Over 30 years working in economic journalism. Fernando was founder and chief-editor at El País, general editor at the business daily Cinco Días, and now teaches at Universidad Carlos III. He's been president of the Madrid Press Association and the Spanish Federation of Press Associations. He's also member of the Spanish press complaints commission.

Be the first to comment on "Oil (and Repsol), Always a State Affair"

Leave a comment