MercoPress. South Atlantic News Agency

Repsol-YPF “hunted” or “on the hunt”

Spanish Argentine Repsol-YPF oil and gas consortium is being “hunted” or is “on the hunt” to recover lost positions speculates the Spanish press this week.

Giants British Petroleum and Italy's ENI are among oil companies mentioned as interested in acquiring Repsol-YPF was reported earlier in the week in Madrid.

Allegedly the two oil giants are "on the hunt of Repsol" taking advantage of the 10% drop in shares prices following a considerable 25% reduction in the company's proven reserves plus the fact that this week expired the "golden share" arrangement, designed to give the Spanish government control over the oil company.

However the world's second largest oil company ruled itself out of driving a new round of industry consolidation by claiming that it was not dependent on acquisitions to achieve growth targets. Lord Browne of Madingley, BP's CEO, specifically dismissed market speculation linking it to Repsol YPF, revealing that BP could distribute over 50 billion US dollars to shareholders over the next three years.

"In terms of growth we don't need to acquire anyone. We don't even need new acreage. Right now we see nothing, given the rather strong prices being put on things that attract us", said Lord Browne of Madingley, adding that the same is true of refining assets".

BP had more than 18 billion barrels of proven reserves at December 31 and Lord Browne said that he expected to convert 11 billion barrels of its 41 billion barrels of non-proven resources into proven reserves by 2010.

BP's reserves replacement ratio for last year was 100% on a UK reporting basis but only 95% under more stringent US rules that take into account year-end prices. BP reported a company record of 22.3 billion US dollars net profit for 2005.

BP's growth pipeline projects that are expected to come on stream over the next three years and should underpin ambitions to increase production by 4% a year until 2010. BP's average production last year was just over four million barrels of oil and gas- equivalent per day (bpd), slightly lower than original targets because of damage caused by hurricanes in the Gulf of Mexico. This year's target is 4.1/4.2 million bpd. BP's expenditure for this year will be 15 billion US dollars, compared with 14 billion last year, when it reinvested 65% of its operating cash-flow. The industry average is 54%.

In Madrid Industry Minister Jose Montilla said that the Spanish government would not be "particularly excited" about an attempt to acquire Repsol-YPF which it the dominant integrated oil and gas player in the country.

Mr. Montilla also pointed out that regulatory circumstances in the markets where Repsol-YPF is present don't make the operation feasible since the Argentine government still holds a golden share in Repsol, dating back to YPF's acquisition process in 1999.

Following the January stock exchange adjustment Repsol-YPF is now valued below 27 billion US dollars, down from 30.5 billion, adds the Madrid press. This together with the loss of the "golden share" makes the company "particularly vulnerable to any foreign acquisition attempt". Another company mentioned as possibly interested in Repsol-YPF is Exxon which reported the highest profits in history, 36 billion US dollars.

But the Spanish press also admits that even with several foreign corporations interested in the Spanish-Argentine oil and gas company, "Spanish assets are attractive but not Latinamerican assets given the volatility and uncertainty of the industry in the region".

Besides the Argentine government can veto any operation with its YPF sine die golden share and in current circumstances it's hard to see who would like to sit down to a table to negotiate with Argentine president Nestor Kirchner.

"Expansion", Spain's main economic publication speculates that actually Repsol-YPF could be interested in going "shopping" to acquire smaller companies and recover an appropriate reserves level.