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Repsol said to get $5 billion of 10-year bonds in YPF accord

BY WILL KENNEDY and CHARLIE DEVEREUX

BUENOS AIRES (Bloomberg) -- Repsol SA, the oil producer whose YPF unit was seized by Argentina’s government last year, will get $5 billion of 10-year bonds as compensation, a person briefed on the proposal said.

The agreement to pay the bonds, denominated in dollars and guaranteed by the government, will end the legal dispute between Madrid-based Repsol and Argentina, the person said, asking not to be identified before the company’s board meets to consider the proposal tomorrow.

While the accord is backed by Repsol’s management and its two largest shareholders -- Mexico’s state oil company and CaixaBank SA -- the board will seek assurances that the bonds offer sufficient security and liquidity, the person said.

Spanish Economy Minister Luis de Guindos said any agreements that “remove uncertainties are good,” when asked by reporters to comment today at an event in Madrid.

If ratified, the deal would end a yearlong dispute over compensation for the seizure of 51% of Argentina’s biggest energy company. Repsol, which originally sought more than $10 billion, rejected a $5 billion offer in June because it involved reinvesting in Argentina in partnership with YPF.

Repsol rose 4.3%, the most in more than a year, to 19.24 euros by the close in Madrid. YPF’s American depositary receipts rose 9.5% to $29.20 in New York, the highest since March 2012. The Buenos Aires-based company rallied 11.2% to 259 pesos in the Argentine city, after reaching a record 270 pesos.

Buenos Aires

“There was little in Repsol’s share price for a deal,” Neill Morton, an analyst at Investec Bank Plc, said in London. “There are still a number of uncertainties with respect to valuing the impact of any deal, not least how ‘liquid’ any compensation will be.”

The agreement was negotiated in Buenos Aires yesterday by ministers from Argentina and Spain; the head of Petroleos Mexicanos, Emilio Lozoya; the chairman of CaixaBank and vice chairman of Repsol, Isidro Faine; and Repsol Chief Operating Officer Nemesio Fernandez-Cuesta.

Argentina is offering “fair and reasonable” compensation, Economy Minister Axel Kicillof told reporters today in Buenos Aires. He declined to provide the amount and form of payment, citing a confidentiality agreement.

YPF spokesman Alejandro Di Lazzaro and a Repsol official declined to comment.

“The heads of agreement involves setting a compensation amount to be paid with liquid assets and both parties desisting from legal processes,” Argentina’s government said in a statement yesterday, without disclosing details of the package.

Vaca Muerta

Argentine President Cristina Fernandez de Kirchner took control of YPF in April 2012 after a dispute over slumping oil output and investments. A day later, Repsol Chairman Antonio Brufau said the company sought $10.5 billion in compensation, based on the valuation methodology in YPF’s bylaws written by the government that privatized the company in the 1990s.

The Madrid-based producer rejected in June an offer that included a 47% stake in a project in the Vaca Muerta shale formation valued by Argentina at $3.5 billion, as well as $1.5 billion for development. Repsol was willing to reach a settlement that didn’t involve reinvesting in the country, Brufau said in a Nov. 21 interview.

State-owned Pemex, based in Mexico City, has an almost 10% stake in Repsol. Lozoya said Oct. 31 that Repsol should take a more “proactive and prudent approach” to resolve the YPF matter.

Shale Gas

Argentina holds the world’s second-largest shale gas reserves and the fourth-largest shale oil reserve, according to U.S. Energy Information Administration data. The company is offering tax and export incentives to energy companies that invest at least $1 billion over a five-year period.

Repsol asked a World Bank panel in July to help prevent YPF from developing the company’s seized assets. Repsol also filed a lawsuit demanding fair compensation for the seizure of its YPF stake with the Washington-based International Center for Settlement of Investment Disputes.

The accord will help “normalize and strengthen the historic ties between the three countries and its companies,” the Argentine government said in the statement.

“For us this helps construct a path that will allow us to continue to generate investment for the development of hydrocarbons,” Jorge Capitanich, Argentina’s cabinet chief, told reporters today. “We have an ambitious two-year program.”

11/26/2013

 

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