Interest in Repsol's YPF Unit Grows Among State-owned Oil Firms [Updated]

Last Updated Jul 6, 2009 4:51 PM EDT

A number of state-owned energy companies are reportedly circling Repsol YPF's Argentine arm -- and not all of them are Chinese.

Update: China National Petroleum Company has bid between $13.2 billion and $14.5 billion for a 75 percent stake in YPF, the South China Morning Post reported Tuesday.

In a post last week, BNET discussed implications of CNPC interest in reviving its $17 billion bid for Repsol's Argentine unit YPF. China National Offshore Oil Company or CNOOC also was reportedly interested in acquiring a 25 percent stake in the company.

CNOOC has clarified -- since those early reports -- it is pursuing joint ventures not acquisitions or mergers.

Now it appears India's Oil and Natural Gas Corp. and Russian companies are interested in buying a stake in YPF.

Repsol, a Spanish oil company, is in a somewhat awkward position. As I mentioned before, YPF has struggled under Argentina's increasingly nationalistic policies, which includes an earnings cap of $42 per barrel of exported oil, with any revenue above that amount collected as taxes. YPF provided a long list of economic, political and regulatory issues that have hampered its operations, in its annual report filed with the U.S. Securities and Exchange Commission.

It's in Repsol's best interest to rid itself of this burden. Funds generated from a sale would go towards more promising ventures such as exploration and production in North Africa, Brazil and the Gulf of Mexico. For example, Repsol has made three discoveries this year in the Santos Basin offshore Brazil, one of the 10 key projects included in the company's 2008-2012 strategic plan.

Here's where Repsol's effort to untangle itself from YPF becomes a bit more complicated. For one, YPF provides about 60 percent of Repsol's oil production, FT notes. While Repsol's new projects are promising, they are not exactly producing oil yet. Repsol would have to find a way to bridge its oil production gap if it sold off a large chunk of YPF. Adding to the complexity, is Repsol's commitment to keep at least a 50.1 percent stake in YPF until 2012.

The best scenario for Repsol -- if it can wrangle an approval from the Argentine government -- may be selling a small stake in YPF or pursuing a joint venture like the one CNOOC is apparently seeking. CNOOC could share some of the YPF burden and Repsol wouldn't be completely cut off from oil production in Argentina.

See additional BNET coverage of China and its recent acquisitions:

Image of Repsol YPF refinery in Argentina from Repsol