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China's CNPC Eyes Repsol YPF's Argentine Arm

In yet another sign of China's interest in locking up oil and gas resources for its energy-hungry economy, China National Petroleum Company is reportedly reviving its $17 billion bid for the Argentine arm of Repsol YPF.

CNPC may offer to buy up to 75 percent of YPF -- Repsol's Argentine company -- while China National Offshore Oil Companyor CNOOC is interested in acquiring a 25 percent stake, Hong Kong's South China Morning post reported Thursday.

Repsol, a Spanish oil company, has confirmed it has received offers to buy a stake in YPF, but stopped short of providing details and said none of the proposals are firm, according to the FT. Petersen Energia, part of Agrentina's Grupo Petersen, bought a 14.9 percent stake in YPFin February 2008. Grupo Petersen has an option to buy another 10 percent by 2012.

YPF is the albatross hanging around Repsol's neck. Ridding itself of the Argentine company would allow it to put money in far more promising ventures such as exploration and production in North Africa, Brazil and the Gulf of Mexico.

Short of the obvious desire of China to scoop up overseas energy assets and its reported interest in South America, I don't know why YPF is on the CNPC's -- aka China's -- radar.

China's latest acquisitions have made sense. China Petrochemical Corp., known as Sinopec, acquired last month Addax Petroleum for $7.2 billion, a purchase that gives it access to the Kurdistan Region of Iraq and West Africa. More recently, CNPC was part of a BP-led consortium that produced the only successful contract to develop an Iraq oil field.

The company along with Kazakhstan's KazMunaiGas purchased Kazakh oil producer MangistauMunaiGas for $3.3 billion. And CNPC purchased Verenex Energy, which owns oil fields in Libya, for $499 million in February, although the deal has been held up accusations of improper bidding maneuvers.

CNOOC is interested in buying a stake in Kosmos Energy, a U.S.-based company focused on developing oil and gas in Africa. Kosmos closed bidding for the sale of its two blocks in the Jubilee oil field in Ghana, which has resources of about 1.2 billion barrels of oil.

And then there are all of those fuel-for-loans deals China has worked out with Venezuela, Russia and China.

YPF, however, exists in a highly regulated environment and one that doesn't coalesce with the Repsol's bottom line.

Since Repsol purchased the stake in YPF in 1999, Argentina has become increasingly nationalized. For the past two years, YPF earnings have suffered from caps placed on oil prices, as noted by Bloomberg. There also is an earnings cap of $42 per barrel of oil exported, with any revenue above that amount collected as taxes.

In its annual report filed with the U.S. Securities and Exchange Commission, YPF provides a litany of economic, political and regulatory issues in the country. The list is a long one and includes a government-mandated priority placed on domestic demand, higher taxes on exports, limitations on its ability to pass increases in crude prices through to domestic prices and work disruption or stoppage. The list goes on.

CNPC may be motivated to scoop up overseas assets while the global recession is still working its credit crisis magic. But YPF seems to provide nothing but regulatory and economic hurdles.

Other BNET coverage of China and its recent acquisitions: