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Repsol to spend €21bn to help boost reserves

Financial Times: Repsol to spend €21bn to help boost reserves

 

By Mark Mulligan

Published: June 1 2005

 

Repsol YPF, the Spanish oil and gas group, plans to invest €21bn ($26bn) over the next five years as part of a new strategic plan aimed at lifting flagging reserves and reducing its dependence on Argentina and Bolivia.

 

The company, considered one of the most profitable refiners in the world, will spend €11.4bn on exploration and development, mainly in northern and western Africa, the Caribbean and the Middle East.

 

This compares with the €8.8bn earmarked under a former four-year plan that would have expired at the end of 2007. As part of the strategy, it is in exclusive talks with First Calgary, the London-listed exploration group, over joint development of large gas deposits in Algeria, where the Spanish company is already well established and has plans to build a gas liquefying plant.

 

Antoni Brufau, chairman, this week confirmed Repsol was close to finalising negotiations with the Canadian company about a farm-out agreement, whereby the two sides would share development costs. “This may or may not happen, depending on the conditions of the accord,” he says.

 

Mr Brufau yesterday addressed his first shareholders’ meeting since taking the helm of Repsol after a boardroom coup late last year. The former head of Spain’s Gas Natural, the gas group, he has been quick to put his stamp on Repsol, whose untidy structure, poor reserve replacement rates and heavy exposure to instability and price controls in Bolivia and Argentina have restrained the shares and made the company look vulnerable to takeover.

 

In January, Mr Brufau overhauled management and decentralised decision- making to three revamped business areas comprising the Southern Cone, and upstream and downstream activities.

 

He also removed Ramón Blanco, chief operating officer, to clear lines of command to the new operating departments. The restructuring was partly designed to align the company more closely with Gas Natural, in which Repsol has a 30 per cent stake. The two companies have launched a joint venture in gas exploration, production and transport.

 

Mr Brufau admits that Repsol was “not understood” by analysts and investors and says he hopes to correct this over the next five years.

 

“The market doesn’t recognise our expertise in liquefied natural gas and has yet to recognise our geographical strengths [outside Argentina],” he says.

 

Surging demand for natural gas in Argentina and Brazil would help the company monetise the massive reserves it holds in Bolivia, he says. However, the country’s worsening political crisis – fuelled by popular demands to penalise multinationals and re-nationalise the hydrocarbons industry – raised serious doubts about further investments, he says.

 

Instead, Repsol’s exploration and development effort would focus mainly on north and western Africa, the Middle East and the Caribbean, where 160 new wells would be drilled over the next five years. The company has also expressed interest in Royal Dutch/Shell’s liquefied petroleum gas (LPG) business. In March, it signed joint-venture agreements with PDVSA, Venezuela’s state-owned oil group.

 

Current production of hydrocarbons would increase by 13.6 per cent to 1.312m barrels equivalent a day by 2009, while reserve replacement rates would be almost doubled to 60 per cent. Proved gas and oil reserves in Libya and Algeria would grow by 170 per cent during the period.

 

Repsol hopes to increase the dividend by 20 per cent this year.

 

“The most notable part of the strategic plan is the push in exploration and production,” says one Madrid-based analyst. Generally speaking, the news is good, but the share price already reflected this before yesterday.”

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