Repsol continues to make natural gas a centerpiece of its new global strategy. Shown are gas processing/gathering facilities that are part of the Suez Oil Co. assets in Egypt Repsol acquired from BP Exploration early in the 1990s. Photo courtesy of Repsol.
- Refining/marketing expansion outside Spain is another key element of Repsol SA's global repositioning effort, as shown by this Repsol service station in Portugal. Photo courtesy of Repsol [14,155 bytes].
Repsol SA celebrated its tenth anniversary last year. During the past decade, the Spanish company has transformed itself into a world-class oil operator by establishing itself as a dominant force in Spain's oil refining and distributing chain, then as a major player abroad.
Repsol has become a global power by strategically investing first in the Latin American energy industry, then in petroleum projects in Northern Africa. Its investments run the gamut of the energy industry, from oil field development to gas distribution, refinery operation, and even power production.
At the same time that Repsol moved beyond Spain's borders, it made its push into sectors outside of former areas of concentration. By moving both upstream and downstream of its traditional niche, Repsol has redefined itself as an international energy company.
Expansion plans
For Repsol, 1986-95 was marked by a massive investment program, in which the company spent 1.559 trillion pesetas to expand operations. Of the total: 774.6 billion was spent on refining, marketing, and transportation; 326 billion pesetas on exploration and production; 297.8 billion on gas; 93.6 billion on chemicals; and 66.7 billion pesetas was spent largely on debt write-off.The largest portion of Repsol's 1986-95 E&P spending-121.8 billion pesetas-was earmarked for development drilling. The company spent 107 billion pesetas on reserves acquisitions and 97.472 billion on exploratory drilling.
Repsol's strategy has been to focus less on buying reserves and conducting exploration, and instead concentrate on development. As a result, the development drilling now accounts for about 75% of the company's E&P spending.
Repsol spent the majority of its 1986-95 refining, marketing, and transportation investments (about 351.2 billion pesetas) on expanding its retail network-particularly its number of service stations. Because competition in the Spanish service-station sector has steadily increased, Repsol has had to pump more and more money into this area in order to maintain its market share. By 1995, Repsol's retail investments were almost double its combined refining and transportation investments.
In the area of natural gas, the bulk of the company's 1986-95 investment-207.1 billion pesetas-was spent on natural gas, with a further 90.7 billion spent on LPG. Repsol is expected to continue its heavy investment in the natural gas sector as Spain increases its dependence on the fuel.
Diversification
Spain's petroleum market is now an essentially mature one. Margins are falling day by day, and petroleum-related companies increasingly have to find ways to slash operating costs in order to maintain earnings.Under these circumstances, the individual strategies of companies in Spain's oil industry vary. Nevertheless, in general, two sector-wide phenomena are becoming increasingly apparent: investment in emerging economies-particularly South America, but also the Far East and eastern Europe-and penetration into the natural gas and electricity sectors. These trends reflect to a new concept of energy companies as integrated firms, rather than single-sector oil, gas, or electricity companies.
Repsol has been no exception in this respect. Until now, the company has succeeded in growing at a much faster pace than many of its domestic competitors and has maintained, year after year, one of the best earnings growth rates in the energy sector.
At the same time, Repsol in many respects has been at the forefront of Spanish energy companies' drive to diversify their portfolios. It has been 11 years since Repsol entered the natural gas business and 5 years since it conceived of boosting refinery profitability by generating electricity on-site.
By the middle of the decade, however, Repsol had decided it was time to look beyond Spain's borders for further expansion. In 1995 it drew up an ambitious, international strategic plan to invest 1.5 trillion pesetas ($10.15 billion) in 5 years. In the future, its efforts will largely be directed in two principal areas: overseas E&P and South American energy distribution.
Repsol is progressively modernizing its domestic refining operations as a way of boosting production of light products. This will reduce its deficit in these products and cut back on the need for more-expensive imports.
Domestic demand for light products also will eliminate the small quantities of refined products currently exported by Repsol. It is estimated that, within 5-6 years, virtually all of its refined products will be earmarked for domestic use.
But, to achieve real savings in this area, the company aims to further integrate operations by increasing its refineries' access to Repsol oil reserves. At the same time, it is betting heavily on demand growth for natural gas, both at home and abroad, where it will be a major supplier to the planned Bolivia-Brazil gas pipeline (OGJ, Sept. 29, 1997, p. 49).
To satisfy demand from both these sources, Repsol plans to invest around 300 billion pesetas in oil and gas exploration and production and a further 150-200 billion to purchase reserves during the next 4 years.
Marketing
Repsol's international strategy will allow it to reduce its exposure to the vagaries of Spain's economy.A few years ago, Repsol embarked on an ambitious plan to recover lost market share in the marketing sector. The company announced that it aims to build 40-45% of all new service stations targeted for construction in Spain through 2000.
Not only are the number of potentially profitable sites in an increasingly saturated market rapidly diminishing, but the company also is facing stiff competition from a number of domestic and foreign competitors. One of the most notable is Portugal's state-controlled oil company, Petrogal, which has made significant inroads into the Spanish service-station sector as part of its own international diversification program.
While Petrogal's recently acquired minority of private shareholders has been less than enthusiastic about the extent to which the company has thrown itself into the Spanish market, it by no means favors a complete halt to Petrogal's expansion into Spain. Instead, this group would prefer a more selective targeting of sites.
In either case, Repsol will have to fight hard for new sites-especially those in the more westerly regions of the country.
Latin American push
For a number of years, Repsol has been actively establishing its presence internationally. While it has invested significantly in the Portuguese and French marketing sectors, it was only in 1995 that the company embarked on a comprehensive international expansion program.The program is centered primarily on the South American market, where Repsol plans to invest some $3 billion through 2001. The company is clearly attracted, as are many international players in the industry, by a cluster of emerging Latin American countries that offer accumulated annual growth in gross domestic product of well over 4%. And potential earnings in these countries far exceed any that can be found in the more-mature markets close to home.
A number of factors have led to Repsol's decision to concentrate its investments in Latin America. In addition to attractive costs, acceptable risks, and potential profits, there is the fact that Spain's linguistic and cultural affinities with this region make it a natural target.
In addition, Repsol's recent privatization parallels current events in Latin American countries, giving the company experience it can apply in a new setting. And the significant gas reserves on the Atlantic side of the subcontinent, combined with plans for their exploitation, could give Repsol the means to successfully integrate its natural gas activities.
Although Repsol's Latin American strategy includes investments across the region, it has clearly targeted countries that are in the process of liberalizing their economies. This will allow the company to set up regional bases that can be used as springboards for expansion into other markets yet to be opened.
Repsol's first steps
Repsol has effectively broken its Latin American expansion program into two components.On one hand, there are its investments in the region's oil industry, including refining and marketing. The company is already present in Ecuador, Peru, and Argentina, and is looking to extend its investments initially into Colombia and Brazil, and later into Mexico.
On the other hand, the Spanish company is also betting on a strategy encompassing the gas and electricity sectors, from the acquisition of gas fields to processing, distribution, and natural gas-fired power generation. To help it achieve its targets, it has joined with two other Spanish companies-Gas Natural SA and the power utility Endesa SA.
In 1995, Repsol began implementating its Latin American strategy in Ecuador, where petroleum sales had been liberalized only a few months earlier. Also appealing to Repsol was the relative absence of any overly stiff competition from rival multinationals. At the time, there were only three competitors; all, like Repsol, were newcomers to Ecuador.
Within a few months, the company had acquired 25 service stations and purchased land for building 20 more. This immediately gave Repsol about 10% of the market, with sales of 300 million l./year.
But that was not enough for the company. It set targets of 63 service stations by the end of 1996 and 84 outlets by the end of this year. The company now says it is watching carefully any moves by Ecuador to sell refining operations and is eyeing the possibility of moving into the country's LPG sector.
Further moves
In 1995, Repsol sent a team to Peru, which had just announced the partial privatization of Petroperu. The outcome of the trip was a contract for the management of the La Pampilla refinery for a Repsol-led group. With its 50% stake in the group, Repsol was designated technical operator of the refinery.The group, which includes Argentina's Yacimientos Petroliferos Fiscales SA (YPF), Mobil Corp., and three local companies, went on to acquire a 60% stake in La Pampilla for $18.5 million. Under terms of the contract, the group must spend at least $50 million more to boost the plant's productivity during the next 5 years.
Repsol's control of La Pampilla fits well with its other acquisitions in Peru, such as a network of service stations from local group Petrol SA. By mid-1996, Repsol owned 26 stations with sales of 120 million l./year.
It has also bought a small LPG distribution company, which it will use as a springboard for further investments in the gas sector.
Repsol plans to spend more than $20 million by the turn of the century to expand its Peruvian gasoline distribution and LPG operations.
The potential it sees in the Peruvian market can perhaps be gauged by the fact that, last summer, Repsol sent a delegation that included its president, Alfonso Cortina, and most of its executive committee to meet Peruvian President Alberto Fujimori.
Other plans
Latin America's gas sector is seen as a major target for Repsol. In Mexico, it has purchased stakes in two regional distributors in Saltillo and Nuevo Laredo.The company is also looking to move into gas distribution in major Mexican cities such as Monterrey and Mexico City. Gas Natural Latinoamericana (GNL), a 50-50 joint venture of Repsol and Gas Natural SDG SA, has obtained a concession to distribute natural gas in the metropolitan area of Toluca, near Mexico City.
The concession includes Toluca and six annexed municipalities-Lerma, Matepec, Ocoyoacac, San Mateo Atenco, Xonacatlan, and Zinancantepec-with a total population of more than 650,000.
During the next 5 years, GNL plans to increase its customers by about 50,000. Planned investments for the period are 4.4 billion pesetas, which will be used to build the necessary transportation and distribution infrastructure.
Last year, however, GNL failed to win a gas-distribution contract in Mexicali. Clearly, Repsol is not the only petroleum company eyeing the region, and it will have to bid hard for future contracts.
Nevertheless, Repsol also is looking to enter the gas-distribution chain in other major South American cities, including Bogota and Caracas, Rio de Janeiro, and Sao Paulo. An Enron-led consortium, in which Repsol has a 4% share through its Argentine subsidiary Pluspetrol, recently acquired a 56.4% stake in CEG, Rio de Janeiro's gas distribution company. Gas Natural SDG has a 33.5% stake in the group.
Repsol also has been keen to integrate its gas operations both at home and abroad and therefore has been actively seeking stakes in gas processors and gas fields in the region. It recently acquired a 20% stake in Trinidad and Tobago's gas liquefaction plant, due to come on stream in 1999 (OGJ, Dec. 16, 1997, p. 12).
The single-train, $1 billion LNG complex at Point Fortin, Trinidad, initially will supply only two clients-the U.S.'s Cabot Corp. and Spain's Enagas, both of which will use the LNG to supply their domestic customers. But Repsol's longer-term strategy for the plant is to vertically integrate it by investing in nearby gas fields to supply the plant and by expanding its distribution network in the area.
Last year, Trinidad and Tobago's Ministry of Energy and State Enterprises awarded two production-sharing contracts to groups in which Repsol holds significant stakes. The first covers the 181,977-acre Block 5(b) about 55 miles off Trinidad, in which Amoco Corp. owns 70% and Repsol 30%. The second is for the 400 sq km Block S11 off Trinidad's southern coast, won by a group of Elf Exploration Trinidad, Amoco Trinidad, and Repsol Exploration Trinidad.
Repsol in Argentina
It was Repsol's emphasis on integration that led it last year to acquire a controlling 37.7% stake in the Argentine company Astra SA. Repsol says it wants to make the most of Astra's status as an integrated oil, gas, and electricity company and to aggressively expand its presence in Argentina's energy sector.Not only does Astra control reserves of about 200 million boe, but it also has a 10.5% stake in Refinor SA, one of the country's major refineries.
Astra also has boosted its equity stake to 91.5% from 32.5% in EG3, the country's fourth largest marketer. EG3 controls a service station network that includes about 700 outlets.
In addition to controlling about 15% of Argentina's retail petroleum market, EG3 supplies about 35% of its asphalt market and 4% of its lubricants market. The company also owns a 150,000 cu m terminal at the port of Buenos Aires.
The acquisition of a majority stake in EG3 is part of a deal with Grupo Comercial del Plata SA (GCP), in which Astra acquired not only GCP's 32.5% stake in EG3, but also its stakes in Refinería San Lorenzo SA (42.5%), Destilerías Argentina de Petróleo SA, (50%), and Parafinas del Plata SA (50%).
Astra is also active in gas and power distribution. Among its stakes in the gas distribution sector is its holding in Metrogas, one of the principal distributors for the southern part of Buenos Aires. Meanwhile, Repsol's Spanish partner in Astra, Gas Natural, is already a distributor for the northern part of the city.
Repsol plans to invest significant sums to double Astra's gas production capacity. This will not only allow Metrogas and Gas Natural to supply gas procured solely from Astra, but also will enable Astra to supply the city with electric power from gas-fired plants.
To this end, Repsol has linked up with Endesa to construct several combined-cycle power plants in the city. Endesa is already active in supplying power to Buenos Aires via its subsidiary Enador SA, in which Astra has a stake.
Meanwhile, Repsol has agreed to form an alliance with Argentina's Pluspetrol Energy SA to build an integrated gas business in Latin America via Astra. Under the deal, Astra will take a 45% share in Pluspetrol at a cost of $340 million.
The deal arises from Pluspetrol's 1995 decision to split into three divisions: international exploration and production, Argentine exploration and production, and gas operations. This third unit is the partner in Repsol's deal. It has assets that include a 60% interest in Ramos field-Argentina's second largest gas field-and owns outright a gas-fired power plant in Tucuman province.
The power plant is operating, but its capacity is being increased to 460 MW. The Ramos field produces 8 billion cu m/year of gas, but the venture partners will increase output to 11 billion cu m/year by 1998.
This increase is intended to release a significant amount of non-contracted gas production to be used as a lever for entry into new gas projects in rapidly developing markets in northwestern Argentina, northern Chile, and Brazil. Moreover, Repsol and Pluspetrol Energy intend to develop and acquire new assets in gas production, transportation, and supply and in electricity generation, distribution, and supply.
Astra recently acquired an additional 50% stake in Mexpetro Argentina SA for $102 million, adding to the 15.5% stake it already had in the company. The remainder of Mexpetro Argentina's capital is controlled by YPF.
Mexpetro Argentina operates the El Porton Buta Ranquil field, which produces 24,500 b/d. The company's oil and gas reserves are estimated at 41.4 million bbl and 138 bcf, respectively.
At the same time, Repsol is looking to restructure and concentrate Astra's energy activities by selling stakes the company owns in non-related companies while substantially boosting other energy-related activities, such as production of LPG and specialty asphalts. Astra recently acquired a 99.3% stake in the Argentine LPG distributor Algas SA-which controls about 13% of the country's 900,000 metric ton/year LPG market-and a 98.4% stake in its subsidiary Poligas Lujan SA for more than $79 million.
This move is important because it allows Astra to enter the LPG distribution market, thus integrating its existing LPG production with operations further downstream.
Astra recently accepted an offer from the Panamanian company Ultragas International SA to buy a 100% equity stake in Antares Naviera SA for $45.54 million.
Negotiations on this operation are nearing conclusion, and Astra is expected to obtain capital gains of about $7.63 million.
The transaction means that all of Astra's shipping assets will be divested as part of the company's strategy to concentrate activities in its main business areas of exploration and production, refining and marketing, LPG, natural gas, and electricity.
In Bolivia
More recently, Repsol obtained four exploration blocks in the first international tender on exploration areas held by the Bolivian Ministry for Oil and Mines. Bolivia offered 29 exploration blocks, previously nominated by international oil companies.The tender was highly contested among 34 groups that presented offers on a total of 16 areas. Repsol, as part of one group, presented offers on five blocks and won four: Tuichi, Rurrenabaque, Itau, and Pilcomayo.
Repsol will act as operator in the Tuichi and Rurrenabaque areas, where it has a 25% stake in a consortium with Exxon Corp., Elf Aquitaine, and P?rez Companc. These are two large blocks, with a total area of 14,000 sq km, in northwestern Bolivia.
In the Itau area, Repsol's interest is 50%, with Braspetro holding the other 50%. This covers 400 sq km in the Sabandino Sur basin.
The fourth block, Pilcomayo, with a surface area of 5,400 sq km, is near the border with Argentina. There, Repsol will form a group with some of the other companies who have shown interest in it.
With these four new blocks, Repsol takes up a participation in acreage of more than 20,000 sq km. Investment will be about $27 million over the next 3 years.
Repsol was already engaged in exploration in Bolivia, where it operates the Secure block in the northwest of the country. This latest transaction is part of Repsol's strategy to increase and consolidate its presence in Latin America, where its activities include exploration and production, refining and distribution of oil products and gas, and power generation and distribution.
Efforts elsewhere
Repsol's efforts have not been directed solely at South America. It also has been targeting North Africa and the Middle East.Perhaps one of its greatest successes in the region came last fall, when it was awarded a turnkey contract by the Egyptian-dominated consortium Midor to build and operate a new refinery in the tax-free zone of Alexandria. Midor is made up of the Egyptian group H. Salem 40%, the Israeli investment group Merhav 40%, and state oil company Egypt General Petroleum Corp. (EGPC) 20%.
Under terms of the contract, Repsol can acquire a 10% stake in the company within 30 months of the signing of the contract, and a further 11% should any of Midor's partners put their stakes up for sale.
The $1.2 billion refinery will come on line in 2000. Its strategic location is ideal: It is connected to the Sumed (Suez-Mediterranean) oil pipeline, the oil terminal at the port of Alexandria, the regional network's LPG storage facilities, and EGPC's El Ameriya refinery. The Midor refinery will initially supply Egyptian and Israeli markets, although as much as 30% of output could be earmarked later for other eastern Mediterranean markets.
Egypt is also being targeted by Repsol for oil and gas exploration-an area in which it plans to invest 70 billion Pesetas by 2001. For example, last year Repsol agreed to acquire Norsk Hydro AS's 63.64% operating interest in the Ras Kanayes and Ras El Hekma concession areas in Egypt's western desert. The deal is subject to consent of Kuwait's Kufpec, which holds the remaining 36.36% interest in the concessions, as well as to approval by EGPC and the Egyptian government.
Repsol also is looking to set up a network of service stations in Cairo and Alexandria.
Repsol teamed up with Total and OMV AG to develop the Murzak field in southwestern Libya. The Total-led group began production of about 50,000 b/d earlier this year and plans to reach a rate of 100,000 b/d by yearend.
Production is expected to peak at 200,000 b/d mark by 2005. The field's reserves are pegged at about 1 billion bbl.
Repsol holds a 40% stake in the venture, while Total and OMV each have 30%.
The project also involved construction of a 345-km, 30-in. oil pipeline from the field to the Zawia refinery west of Tripoli.
Tin Fouye Tabankort
Meanwhile, Repsol, in conjunction with France's Total SA, became the second foreign firm to win a major gas deal with Algeria's Sonatrach.The three companies will develop the Tin Fouye Tabankort gas/condensate field, which has reserves of 1 billion boe. Development, including construction of a gas separation/
treatment plant, is expected to cost $850 million. Total and Sonatrach each will hold a 35% interest, and Repsol 30%.
The companies will set up an operating joint venture (JV) and are considering a gas marketing JV. Under the deal, Total and Repsol will receive their share of output in NGL and condensate, with the dry gas being allocated to Sonatrach.
Plans call for building the two-train separation and treating plant by 1998. By that time, all wells planned should be on stream. (Only about half of the wells have been drilled to date.)
The plant will produce 630 MMcfd of dry gas, 14,000 b/d of NGL, and 20,000 b/d of condensate. Development is expected to take 3 years and include drilling 50 wells and fracturing 30 existing wells.
Total and Repsol will be reimbursed for their outlays with a share of production allocated under terms of the production-sharing contract. They will transfer their shares of dry gas to Sonatrach in exchange for comparable volumes of LNG and condensate. However, although the dry gas will remain Sonatrach's property, the three partners have agreed to reserve the right to market the dry gas jointly in the future.
Total and Repsol will pay a $22 million bonus when the contract with Sonatrach takes effect. The two European companies also will reimburse Sonatrach for the $71 million it has spent to date on development of Tin Fouye Tabankort. This sum will be deducted from Sonatrach's share of future capital outlays for the project.
Field development will account for about two thirds of the project's cost, and downstream facilities the rest. Contracts for engineering and construction were let to Brown & Root and Root/Condor, a joint venture of Halliburton Inc. and Sonatrach.
Asia
Although Repsol has had a small presence in Indonesia for many years, its investments in the Far East have been very limited. This is slowly changing, however.Last year, Repsol linked up with a U.S.-Japanese consortium and Petrovietnam to develop Vietnam's 5,300 sq km Block B in the Gulf of Thailand. Repsol has a 30% stake in the venture. Exploitation of these reserves is unlikely to take place for another 4-5 years.
Nevertheless, although this last example shows that Repsol is clearly not prepared to miss any opportunity to expand its presence wherever it feels money is well spent, it is equally obvious that Repsol believes that its investment program must be overwhelmingly concentrated in two types of markets: those in which it feels it has a significant cultural/linguistic advantage over its often more powerful rivals (South America), and those which it can logistically exploit to satisfy Spain's hydrocarbon demand (North Africa).
Moreover, Repsol's heavy investments in these markets show that it is serious about risking capital in its efforts to implement formidable international expansion strategy.
Copyright 1997 Oil & Gas Journal. All Rights Reserved.
![Refining/marketing expansion outside Spain is another key element of Repsol SA's global repositioning effort, as shown by this Repsol service station in Portugal. Photo courtesy of Repsol [14,155 bytes].](http://images.pennwellnet.com/ogj/images/ogj2/9544jnld5.jpg){kind=link}
