Repsol-YPF SA plans to sell some of its refining and marketing assets in Argentina, held by its Astra unit, as part of its plan to divest assets following Repsol SA`s takeover of YPF SA last month (OGJ, June 28, 1999, Newsletter).
Repsol-YPF Chairman and CEO Alfonso Cortina told a press conference in Buenos Aires last week that the asset divestment may, in time, evolve into a swap with Brazil`s Petroleo Brasileiro SA, which is looking to expand its presence in Argentina`s downstream.
Cortina also said the new Repsol-YPF group plans to invest almost $11.8 billion worldwide over the next 3 years, while capital spending for Latin America would total $6-7 billion.
The new combine will have a single decision-making unit but two head offices, one in Madrid and one in Buenos Aires. The company`s structure will comprise four operating units-exploration and production, refining and marketing, chemicals, and natural gas and electricity-plus a separate unit for planning, control, and strategic development.
The Repsol-YPF group is among the 10 largest oil companies in the world.
It ranks seventh in oil production and refining and eight in total oil and gas reserves. It will take 1-2 years to integrate Repsol and YPF, 97.46% of which the Spanish firm acquired in June, Cortina said.
He also noted that Brazil is a "priority" for Repsol-YPF, and the company will be active in searching for hydrocarbons there.
Latin America focus
Repsol has said it wants to use its YPF subsidiary as its investment vehicle to expand its presence in Latin America.
YPF alone has 3.1 billion boe of oil and gas reserves and owns and operates the country`s three largest refineries, plus 2,253 YPF-branded stations. The company also participates in the upstream in Bolivia, Brazil, Ecuador, and Venezuela.
Cortina detailed that oil exploration and development would represent 40% of planned expenditures, natural gas 25%, refining and marketing 24%, chemicals 8%, and other activities 3%.
The biggest share of that investment will be targeted mainly at Latin America and North Africa, where Repsol-YPF has a strong market share. Exploration and development will concentrate both on countries where Repsol-YPF has existing competitive advantages-such as Algeria, Argentina, and Libya-and others where oil and gas reserves potential is highly promising. Cortina highlighted Bolivia, Brazil, Ecuador, and Venezuela as countries where the Spanish oil giant wants to expand.
Natural gas investments are being earmarked largely for Latin America and Spain. Cortina said Repsol-YPF considers the Mercosur trade union-which encompasses as full or associate members Argentina, Bolivia, Brazil, Chile, Paraguay, and Uruguay-to be among the world`s fastest growing markets.
Operating companies in Argentina and Bolivia continue to increase capital spending to develop gas assets with an eye to supplying Mercosur. Repsol-YPF, for its part, holds the largest reserves of any oil company in Argentina and is among the 10 largest gas producers in Bolivia.
Downstream dispositions
Argentina`s government has already said Repsol-YPF would have to decrease by 4% its stake in countrywide crude oil refining and sell part of its roadside gasoline retail outlets with a total sales capacity equivalent to its EG3-branded stations, or about 635 outlets.
Total crude oil refining capacity in Argentina is over 600,000 b/d, of which YPF`s share represents almost half.
Former state-run oil company YPF SA dominates Argentina`s downstream. The company has a 43.77% share of the market and the capacity to run 334,000 b/d of crude oil. Moreover, YPF accounts for about 85% of all Argentine product exports, or about 700,000-800,000 bbl/month of gasoline.
The contraction in Argentina`s buoyant refining sector would take Repsol-YPF`s combined refining capacity to the same level YPF had when it was privatized in 1993.
The government will not allow these retail outlets to be sold to companies with an existing market share of more than 10%. Royal Dutch/Shell and Exxon`s Esso Argentine units also retain major stakes in the domestic gasoline retail market. The government said these asset sales must be carried out within 18 months, from July 1.
Cortina did not offer details as to when Astra assets will be sold. However, he said service stations representing about 11% of the country`s fuels sales would either be sold outright or swapped for service stations owned by Petrobras in Brazil. Astra would sell its stake in a 31,500 b/d refinery in Buenos Aires province.
Gas asset divestments
The new combine will also have to sell certain natural gas assets, which will whittle away at its dominant position in the market. YPF controls about 60.3% of the Argentine gas market. YPF will also have to reduce its sales of LPG to the domestic retail market by 4% over 3 years. Furthermore, it will have to eliminate a clause in its LPG export contracts prohibiting reimportation of LNG into Argentina. All changes must occur by January 2001.
In March, YPF was slapped with a massive $109.6 million fine for noncompetitive practices in the LPG market (OGJ, Apr. 12, 1999, Newsletter).
The newly formed Repsol-YPF will study, as part of its process of integration, the issuance of new shares on the U.S. and Argentina stock markets. Cortina said the new group would enter these markets at the earliest possible moment, in part to help finance the two companies` integration. Less than 2% of YPF`s shares are still trading locally since Repsol finalized its $13.5 billion buyout of the former state-run oil company.
YPF, which had been Argentina`s largest component in most Latin American investment portfolios, still makes up 14.79% of the benchmark Merval index.
