By Tracy Rucinski , Andrés González and Kevin Gray
MADRID/BUENOS AIRES Feb 25 Spanish oil major
Repsol said on Tuesday its board of directors approved
a $5 billion settlement with the government of Argentina, ending
a two-year dispute over the seizure of the company's operations
in the country.
Though the compensation is half of what Repsol initially
demanded after Argentina expropriated its majority stake in
energy firm YPF, the company has been eager to end a
rocky chapter in its history and avoid a drawn-out legal fight.
Argentina hopes the agreement will help it attract foreign
investment in the country, which holds one of the world's most
promising shale gas and oil formation.
"I think to finally reach a friendly agreement on this
contentious issue that has taken two years is extremely
positive," Repsol Chairman Antonio Brufau said in a video
message that accompanied a statement on the terms of the deal.
YPF President Miguel Galuccio, speaking to reporters in
Buenos Aires, praised the deal as a crucial step for Argentina's
economy. "YPF is a fundamental tool for the country's energy
future and I believe the expropriation has given that tool back
Under the agreement, Repsol will receive a package of three
dollar-denominated Argentine sovereign bonds with a nominal
value of $5 billion. It will also receive additional bonds for a
maximum face value of up to $1 billion to compensate for the
market discount on the first group of bonds.
Argentine sovereign bonds mostly trade at a steep discount
since the country defaulted on international debt in 2002.
The total market value of the combined packages will be at
least $4.67 billion, which could be supplemented by $500 million
in back interest payments on one of the bonds, known as the
Repsol can sell the bonds whenever it wants though the final
amount it receives for the bonds cannot exceed $5 billion after
expenses and interest.
As part of the deal, which follows nearly three months of
negotiations in Buenos Aires and still requires approval from
Repsol's shareholders and the Argentine Congress, Repsol will
drop all lawsuits against Argentina and waive any future legal
After the seizure, Repsol initially sought $10.5 billion in
compensation in international arbitration.
"As far as we are concerned, from a financial point of view,
we have started a new chapter where we are stronger ... and have
enormous enthusiasm," Brufau said.
Argentine President Cristina Fernandez expropiated YPF in a
move that stripped Repsol of one-fifth of the Spanish oil
giant's annual profit. YPF was created in the 1920s by
Argentina's government and privatized in the 1990s.
Fernandez's decision came as Argentina grapples with a
chronic energy deficit, with government spending on energy
imports rising sharply, putting pressure on state coffers.
For Argentina, putting an end to the Repsol conflict will
clear the way for it to pursue foreign investors to develop the
Vaca Muerta formation, one of YPF's crown jewels and potentially
one of the biggest shale reserves in the Western Hemisphere.
Argentina needs foreign money to develop the field, but
international investors, facing legal threats from Repsol, have
been reluctant to jump in.
The agreement follows involvement by Spanish and Argentine
politicians, and officials in Mexico, whose state-owned oil firm
Pemex is Repsol's third largest shareholder. The Mexican company
also has close ties with Argentina.
With a deal behind it, Repsol can now focus firmly on a
strategic plan to boost its international exploration and
production business to compensate for the loss of YPF, which had
accounted for over half of its output.
It has said it could sell its 30 percent stake in Spanish
power firm Gas Natural Fenosa to help fund a purchase
in North America, as well as its remaining 12 percent stake in
YPF, worth about $1.8 billion.
Repsol's shares, which have suffered during the turmoil with
Argentina, closed up 0.88 percent at 18.37 euros on Tuesday
before the deal was announced.
Analysts have said a $5 billion settlement from Argentina
could add up to 3 euros to Repsol's share price.