Aleem Khan

Rep­sol SA (REP), Spain's largest en­er­gy com­pa­ny, will be tak­ing bids for its liq­ue­fied nat­ur­al gas (LNG) as­sets in­clu­sive of its stake in Point Fortin-based At­lantic on Mon­day, Rep­sol chief fi­nan­cial of­fi­cer Miguel Mar­tinez said in a con­fer­ence call with Bar­clays of Lon­don last Thurs­day. In its con­fer­ence call re­port ac­quired by the Guardian, Bar­clays Cap­i­tal's an­a­lysts Ly­dia Rain­forth, CFA, and Rahim Karim, said, "The po­ten­tial sell down of Rep­sol's LNG busi­ness is like­ly to prove a com­pet­i­tive process.

"Non-bind­ing bids are due in on Sep­tem­ber 19, and will then be eval­u­at­ed. No an­nounce­ment on the bids re­ceived will be made whilst the process is on­go­ing, but with the sched­ule on track and a num­ber of in­ter­est­ed par­ties, we see this as en­cour­ag­ing." The Rep­sol LNG busi­ness con­sists of At­lantic LNG, Pe­ru LNG, the Cana­port re­gas fa­cil­i­ty and a 25 per cent stake in Bahia de Bizka­ia Elec­t­ri­ci­dad's (BBE), a pow­er gen­er­a­tor in Spain.

Sell­ing these as­sets would re­move 4.6 bil­lion eu­ro of as­so­ci­at­ed debt (both on and off bal­ance sheet) in ad­di­tion to any cash in­flow from the sale, the re­port said. "Our own analy­sis shows that the sale of LNG should en­able Rep­sol to main­tain its in­vest­ment grade cred­it rat­ing.

Rep­sol shares this view, but will meet with the rat­ing agen­cies in 4Q to dis­cuss whether the ac­tions the com­pa­ny has tak­en are suf­fi­cient. If this proves to be enough, Rep­sol will not pur­sue a di­lu­tive con­ver­sion of the pref­er­ence shares. "In­stead, we see a num­ber of op­tions that could be used. This could in­clude a hy­brid bond such as the ones used by BG and OMV (of Aus­tria) in the last 12 months. A sell down of the trea­sury shares is still seen as a 'last bul­let,'"the re­port said.

Op­ti­mistic re­port

The Bar­clays re­port was up­beat about Rep­sol's Pe­ru dis­cov­ery. It high­light­ed: "Rep­sol an­nounced pre­lim­i­nary re­sources as­so­ci­at­ed with the Sagari dis­cov­ery in Pe­ru block 57 of 1-2 tril­lion cu­bic feet. Rep­sol owns 58.4 per cent." Its part­ner, Brazil­ian state-con­trolled en­er­gy gi­ant Petro­bras, holds the re­main­ing 46.16 per cent. Block 57 is lo­cat­ed in Pe­ru's Ama­zon­ian jun­gle.

It al­so said that Rep­sol's up­stream growth is "on track and on bud­get." Rep­sol's core op­er­a­tions con­tin­ue to progress well, it said. The Mar­gari­ta field is now on­stream and Kin­teroni is sched­uled to come on­stream in No­vem­ber. When com­bined with the con­tri­bu­tion from Rus­sia, Rep­sol should achieve its 335,000 bar­rels per day pro­duc­tion tar­get on av­er­age for 2012, the re­port said.

"With Guara due on­stream in 2013, we see po­ten­tial for pro­duc­tion growth to con­tin­ue at over ten per cent next year," Bar­clays said. Rep­sol is al­so op­ti­mis­ing its down­stream op­er­a­tions, the re­port said. The pre­mi­um Rep­sol achieved from the fin­ished re­fin­ery up­grades reached US$2 bil­lion in Au­gust, it said. Rep­sol sees this as a re­flec­tion of "the team now get­ting used to a new crude slate fol­low­ing the in­tro­duc­tion of Iran­ian sanc­tions."

Un­der the head­ing What to do with the Stock, Bar­clays said, "We con­tin­ue to see sig­nif­i­cant up­side to our 20 eu­ro per share price tar­get and rate the shares over­weight. A suc­cess­ful LNG sell down should re­move com­pa­ny-spe­cif­ic cred­it rat­ing con­cerns and en­able fo­cus to re­turn on what is a rapid­ly grow­ing up­stream busi­ness."

Over­weight is part of a three-tiered rat­ing sys­tem, along with "un­der­weight" and "equal weight", used by fi­nan­cial an­a­lysts to in­di­cate a par­tic­u­lar stock's at­trac­tive­ness. If a stock is rec­om­mend­ed to be over­weight, the an­a­lyst opines that the stock is a bet­ter val­ue for mon­ey than oth­ers.

Back­ground

In April, the gov­ern­ment of Ar­genti­na ex­pro­pri­at­ed YPF SA (YPFD), the coun­try's largest oil com­pa­ny, from Rep­sol SA af­ter com­plain­ing about ris­ing oil im­ports last year and lack of re-in­vest­ment by the com­pa­ny in­to Ar­genti­na. In May, Rep­sol pre­sent­ed its 2012-2016 strate­gic plan, which called for in­vest­ment of 19 bil­lion eu­ro over the next five years, and di­vest­ment of up to 4.5 bil­lion eu­ro to re­duce debt and pro­tect earn­ings growth. In Ju­ly, Rep­sol an­nounced the sale of its Bu­tano Chile sub­sidiary for about US$540 mil­lion to a con­sor­tium of Chilean in­vestors, led by Lar­rain­Vial.

In Au­gust, Rep­sol an­nounced the gov­ern­ment of Ecuador ap­proved the sale of Rep­sol's whol­ly-owned sub­sidiary Amodai­mi Oil Com­pa­ny to Tip­top En­er­gy Ltd, a whol­ly-owned sub­sidiary of Sinopec of Chi­na. In the At­lantic project in T&T, Rep­sol par­tic­i­pates to­geth­er with bpTT, BG, the Gov­ern­ment of Chi­na through one of its state com­pa­nies, and T&T's Na­tion­al Gas Com­pa­ny.

At­lantic's strate­gic po­si­tion al­lows it to sup­ply to the mar­kets of the At­lantic basin, un­der ad­van­ta­geous con­di­tions (Eu­rope, US and the Caribbean). This plant has four liq­ue­fac­tion trains in op­er­a­tion with a joint ca­pac­i­ty of 15 mil­lion tonnes per year. One of the trains is one of the largest in the world, with a pro­duc­tion ca­pac­i­ty of five mil­lion tonnes per year.

Rep­sol al­so plays the main role in the sup­ply of gas and is one of the main LNG pur­chasers, ac­cord­ing to Je­sus Chillon, Rep­sol di­rec­tor of LNG projects and op­er­a­tions. Pro­duc­tion from the joint­ly op­er­at­ed Rep­sol/bpTT fields sup­plies the trains of the At­lantic plant.