Argentina
would
pay Repsol SA $5 billion in Argentine government bonds to compensate the
Spanish oil company for expropriating its controlling stake in YPF SA last
year, according to people familiar with a proposal Repsol management has agreed
to bring to a vote by its board.
The dollar-denominated bonds would be secured by guarantees, and the company
would face no requirements to reinvest any money in
Argentina
and
no restriction on its ability to sell the bonds, these people said Tuesday. The
interest-rate and others terms of the bonds were unclear.
Repsol's board is likely to accept the basic structure of the proposed
agreement at its meeting Wednesday, these people said, because it has the
implicit support of the Spanish and Mexican governments. A compensation deal
would end an 18-month standoff between
Spain
and
Argentina
over
the expropriation.
Spanish Energy Minister José Manuel Soria personally delivered an outline of
the proposed deal on Nov. 15 to Mexican government officials and the chief
executive of Petróleos Mexicanos, or Pemex, which has a 9% stake in Repsol,
said a person familiar with the talks. Mr. Soria then accompanied top Repsol
executives to a meeting with
Argentina
's new
economy minister in
Buenos Aires
,
where the proposal won tentative approval on Monday. The chairman of Catalan
bank Caixabank SA, Repsol's largest single shareholder, also attended that
meeting.
Repsol Chairman Antonio Brufau, who had led efforts to fight
Argentina
's
nationalization of 51% of YPF last year, was absent from Monday's meeting. One
person familiar with the matter said Mr. Brufau approved of the proposal but
felt the company would make more progress toward a deal if other Repsol
executives attended in his place. Following the expropriation, Mr. Brufau and
Argentine government officials accused each other of mismanagement and
bargaining in bad faith.
One issue for Repsol, and a potential sticking point, is whether its board
members trust the guarantees underlying the offer, said a person familiar with
the proposed deal. It wasn't clear Tuesday what guarantees were offered.
Investors welcomed the surprise announcement of the preliminary accord. Repsol
shares shot up Tuesday morning. But some analysts cautioned that, without
knowing all the terms, it would be difficult to fully value the deal or predict
how quickly Repsol may be able to sell the bonds.
The preliminary agreement "is a step in the right direction, [but] we feel
Repsol could still extract better terms for its minority shareholders,"
said Alejandro Demichelis, an analyst with Exane BNP Paribas.
A final agreement on compensation to Repsol could help patch up relations
between
Spain
and
Argentina
,
which were strained when the South American country nationalized 51% of its
largest energy company. The YPF expropriation prompted the European country to
try to limit its purchases of Argentine biodiesel. Repsol, which has said its
stake in YPF was worth more than $10 billion, also launched an arbitration
claim against
Argentina
with
the World Bank.
The preliminary agreement also follows a cabinet shuffle last week by Argentine
President Cristina Kirchner, whose government is seeking to mend ties with
foreign creditors at a time when the country faces foreign-currency shortages
and limited borrowing options. In recent elections, key candidates from Mrs.
Kirchner's leftist faction fared poorly, raising hopes that a new pro-business
administration might succeed hers when her term ends in 2015.
On Monday evening, Repsol, which currently has a 12% stake of in YPF, said in a
statement that its board would analyze the proposal Wednesday and make a
decision based exclusively on what the board considers best for the company and
its shareholders. If Repsol ratifies the deal, both it and
Argentina
would
drop all lawsuits in the case.
In June, Repsol rejected a Pemex-brokered compensation offer that the Argentine
government valued at $5 billion. Repsol's board said the offer, which included
a stake in a company that would hold land in YPF's large oil and gas field,
Vaca Muerta, didn't fairly value the assets. And Repsol would have been
required to reinvest about $1.5 billion of the compensation in
Argentina
.
A compensation deal would help Repsol grow outside its main production areas in
Latin American and northern
Africa
. Repsol
is looking to buy assets worth up to $10 billion in stable market economies
such as the
U.S.
or
Canada
.
The Spanish company is among the integrated European oil companies most heavily
exposed to frontier oil-exploration areas such as
Morocco
and
Sierra
Leone
, according to a recent
Bernstein Research report. Working in those countries carries the promise of more
profitable oil production as well as risks.
For example, civil war and armed assaults have disrupted output in
Libya
,
depressing the company's third-quarter profit.
By expanding in countries such as
Australia
,
Norway
and
the
U.S.
in
recent years, Repsol has been seeking a better balance of production-growth
potential and risk.
Repsol shares have recovered more than 50% since hitting a low in the summer of
2012 following the expropriation.
Juan
Montes in Mexico City contributed to this article.