The future for Repsol

For the spanish company Repsol it’s time for big changes after a 2012 full of shadows. The main strike was the decision by the government of Argentina to nationalize Repsol YPF, a 13 USD billion asset and a good source of revenues for the whole group.

repsol+ypf

After the final approval of law 660 the control of Repsol YPF has been transferred to the local government (new quotas are as follows: 26.03% to the central government of Argentina, 25.46% to the Petersen Group, 24.99% to the argentinian territories that produces oil, 6.43% to Repsol and 17.09% to be traded on the market). This is the conclusion of a commercial war between the central government of Argentina and Repsol, a war that hit hard on the markets with damages evaluated by the company’s management about seven USD billions.

The aftermath is a legal controversy to be settled, argentinian president Cristina Fernandez de Kirchner has been adamant about the defence of the national economy and the controversy is expected to be nothing short of a long legal war. Even the choice given to Repsol to buy back shares from the Petersen Group isn’t any good for the company. The cumulative losses from this struggle has been quite hard for Repsol, leading to a cash flow problem and to a change of direction in the company business. A very hard one. Repsol needs a lot of cash, in the fastest way possible.

The oil/gas market is not an easy place to live in, when a company is falling the smell of blood is enough to attract all kind of sharks. Repsol is negotiating a massive sellout of all the LNG-related assets to Royal Dutch Shell (in short RDS) in order to get enough cash to substain its main operations this year, hoping for the best when it will comes to market’s evaluations. This means a big opportunity for RDS, that get valuable assests for a good price and finally get to complete its repositioning in this particular market. RDS is expected to pay about 4.5 USD billions (both in cash and in debt coverage).

What to do next for Repsol? Sell more assets is quite a risky move in the short period but the cash shortage will stop any further aquisition and/or to expand the company’s investments in technology and exploration of potential new resources. Repsol itself could become a prey for the competitors, with Lukhoil that could be already on the hunt.

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