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| Repsol's last tango |
| Fiona Maharg-Bravo / Jul 04, 2009, 00:04 IST |
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Repsol/China: The Chinese are pushing the envelope on oil. In Iraq, China’s Sinopec last month agreed to pay top dollar for Addax Petroleum, a big player in Iraqi Kurdistan. Then CNPC, along with oil major BP, capitulated to Iraq's tough terms to secure the only contract in an eight-field auction. Now, two of China’s biggest oil firms, CNPC and CNOOC, are reportedly discussing a possible deal to buy Repsol’s assets in Argentina for $17 billion.
Argentina isn’t as dangerous as Iraq. But political and regulatory risks are considerable. YPF has been a headache for Repsol ever since the Spanish energy group bought for $15 billion in 1999. Price controls prevented it from reaping the full benefit of high oil prices. Reserves are dwindling, and investment has been inadequate.
Repsol, which was forced to shelve plans to sell a 20 per cent of the company in the equity market, has been keen to sell a stake. It has higher priority investments elsewhere, particularly Brazil. And the company’s biggest shareholder, construction company Sacyr, desperately needs cash.
The Argentine government, which would have to approve any change of control at YPF, has its own agenda. It wants to see more of the company in local hands, but it may not want to see the Spanish exit altogether. That’s why Repsol sold a 15 per cent stake to the Peterson Group in 2008, financed largely by a loan from Repsol itself, and with an option to buy 10 per cent more.
But the cash-rich Chinese have an edge over any rival Argentinean buyer. They are well placed to exploit YPF’s maturing fields. And relations between Buenos Aires and Beijing are warm after China recently concluded a $10bn currency swap with Argentina.
The Chinese desire to tap more energy resources is great for countries which cannot manage to exploit their own resources, in Latin America and elsewhere. But this competition from a leading customer worries the traditional multinational oil majors.
The Chinese still want western partners, for both technical and political reasons. Several of the Iraqi bids were from consortia of Chinese and multinational oil companies. And the big oil companies may not cry over the sale of YPF, which has some, but limited appeal. But if Iraq and Argentina are anything to go by, the Chinese may get bolder. Big oil could soon face a big squeeze.
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