UPDATE 1-Spanish oil firms say Sonatrach ends Gassi Touil JV

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MADRID, Sept 3 (Reuters) - Spanish oil firm Repsol YPF (REP.MC: Quote, Profile, Research, Stock Buzz) and Spain's utility Gas Natural (GAS.MC: Quote, Profile, Research, Stock Buzz) said on Monday state-owned Algerian producer Sonatrach terminated a 2004 agreement to develop the Gassi Touil gas field with the two Spanish companies.

The two said they regretted Sonatrach's decision to take exclusive control of the Algerian project to explore, produce, liquefy and market the gas field, and would fight the decision through international arbitration. A source familiar with the matter valued the project at up to $7 billion.

"Sonatrach has communicated to Repsol YPF and Gas Natural its decision to dissolve the contract relating to the intergraded Gassi Touil project, which these companies had been awarded in 2004 in an international competition," Repsol and Gas Natural said in separate statements.

The source said that with international energy prices at near-record levels, Algeria had decided it did not need outside help to develop the field and it had taken the opportunity to bring it back in house.

The companies said Sonatrach's decision was in line with the Algerian pronouncements made in recent months.

In May Algeria's oil minister Chakib Khelil told Reuters that international firms hoping to invest in its hydrocarbon sector would have to "bring something in return," such as access to other country's reserves or providing technology and markets.

Repsol and Gas Natural had already hit snags in developing Gassi Touil in Algeria's southern desert.

The North African country said in April the Spanish firms would have to compensate it for any delays in the project, which had been due for completion by the end of 2009 before it hit technical problems.