T&T not seeking to acquire Repsol's stake in Atlantic

Repsol is selling a basket of assets inclusive of its stake in Point Fortin-based Atlantic, and whether it is sold to Shell, China's state-owned Sinopec, India's state-owned GAIL or Russia's state-controlled Gazprom is speculative. 

What is certain is that it will not be sold to T&T's state-owned National Gas Company (NGC), if Energy and Energy Affairs Minister Kevin Ramnarine, and a report by Spanish newspaper Cinco Dias are correct.

In response to mobile phone text messages from the Business Guardian, Ramnarine said he has been "in contact with President (Antonio) Brufau of Repsol" but dismissed the question of whether T&T had placed a bid on the assets, reiterating that Repsol is selling a basket of assets, and the stake in Atlantic is only one of the assets in that basket.

The basket of assets includes the re-gasification plant Canaport, in Canada, where Repsol has a 75 per cent stake; a 20 per cent share in a liquefaction plant in Camisea, in Peru; its stake in Atlantic (formerly Atlantic LNG); a 25 per cent stake in an 800 megawatt electricity plant in Spain, called Bahía de Bizkaia Electricidad; gas contracts, and a fleet of liquified natural gas (LNG) carriers (ships). Repsol owns 20 per cent in Atlantic Train 1; 25 per cent in Train 2; 25 per cent in Train 3; and 22.22 per cent in Train 4.

Ramnarine said: “On two occasions he (Brufau) has sent a senior Repsol LNG executive to keep the ministry updated. Brufau and I have also exchanged letters on the matter. We are fully aware of the issues and are monitoring the situation,” but would add nothing further. 

When asked if he would be averse to another country's state-owned gas company acquiring the stake, given that T&T did not bid, he said: “At this time, it would be inappropriate to comment as the matter is still confidential and sensitive. Please note too that the NGC is a shareholder in Trains 1 and 4.”

Repsol's Chief Financial Officer Miguel Martinez had promised an announcement on the sale by the end of 2012, but the sale appears to be delayed because January 2013 has come to an end, and word from Gonzalo Velasco, a Repsol spokesman in Madrid is still: "We can only say that we continue with negotiations."

Just under €1 billion to €3.2 billion

Repsol may raise between just under €1 billion and €3.2 billion, analysts from several European and United States investment banks have said. As Repsol seeks to shore up its finances and maintain its investment grade rating, in the wake of the Argentine government's expropriation of what was then Repsol YPF, analysts have said the most valuable asset in the basket is Repsol's stake in Atlantic.

London-based oil and gas expert, Jason Kenney, a Santander Group analyst, said in his January 22 note on Repsol: "An announcement on the potential sell down of Repsol’s LNG division is anticipated by (the) end (of) January 2013. We still have a net asset value (NAV) of €3.2 billion for this business but accept that this might be optimistic versus market views. Either way the potential removal of up to €4.4 billion of on- and off-balance sheet debt is probably of more importance than the price, particularly for fixed income investors."

In another report on Repsol, Morgan Stanley analysts Haythem Rashed, Martijn Rats, Sasikanth Chilukuru, and Paul Loudon said: "Our analysis assumes that the sale of the LNG business generates approximately €1.4 billion of enterprise value (including approximately €0.5 billion of net debt), based on Wood Mackenzie’s bottom-up valuation of Peru and Trinidad LNG (Atlantic) and an IHS Herold estimate for Canaport Regas. We then include a further debt reduction of approximately €3.5 billion for operating and finance leases associated with the LNG business.

"We therefore believe that a sale of the LNG business close to, or above, our estimate would be positively received by the market, and any subsequent confirmation by the ratings agencies that this was sufficient to maintain Repsol’s investment grade credit rating would be a positive short-term catalyst for the shares. That said, we expect the incremental upside would be limited, because, as we illustrated earlier, the shares have already outperformed the sector by over 40 per cent since the announcement of the company’s intention to sell its LNG assets, so we argue that a successful sale is already partially reflected in the price."

Morgan Stanley said that after the sale of the LNG assets, however, Repsol’s upstream growth "becomes more dependent on a challenging Spanish downstream."

Repsol's expected performance

The analysts said: "Assuming the LNG business is sold successfully in the near term, we expect the market to refocus on Repsol’s upstream business, which the company is confident will generate significant production growth over the next four years – management has guided for production of around 500,000 barrels of oil equivalent per day (boe/d) by 2016, compared to around 330,000 boe/d expected in 2012."

Morgan Stanley said it expects Repsol's production to grow by around 10 per cent per annum over the 2012-16 period. "However, this growth is heavily dependent on a significant upstream capital expenditure (capex) programme, which we estimate will total €15.4 billion over the period (modestly higher than company guidance of €14.7 billion)," Morgan Stanley said.

That notwithstanding, Santander said: "We appreciate that Repsol offers an exciting exploration outlook," and again, later in the report: "Repsol’s upstream division does have credible growth underpinned by development activity in the United States' Gulf of Mexico, Brazil, and Peru."

Giving its estimates for Repsol's 2012 fourth quarter results which are due to be released on February 28, Santander said it expects the Spanish company's current cost of supplies (CCS) to have an operating profit of €1.05 billion, up 34.5 per cent year on year (YoY) driven by a volume uplift of 16.2 per cent YoY to 340,000 boe/d on a Libya production rebound. Santander sees upstream operating profit at €588 million, an increase of 200 per cent YoY. CCS refers to the net income of a company after taking into account the increase (or decrease) in expenses over the reporting period. It is often used in the energy industry because the price of oil can change significantly from one year to the next.

Overall, Repsol's CCS net profit is forecast to rise 28.3 per cent to €455 million, Santander said, with earnings per share (EPS) of €0.355. Bloomberg's forecast is for an adjusted EPS of €0.403 for the fourth quarter of 2012, which is up 7.6 per cent in the last four weeks.

Sinopec to the rescue?

While the Cinco Dias article quoting sources "close to the operation" hinted that Shell is the top contender to acquire the Repsol assets, the market is also rife with speculation about China's Sinopec. State-owned Sinopec of China allegedly bid just under €1 billion, but is not interested in taking on all the debt that comes with the assets.

Cinco Dias said the top contender is Shell, with Russia's Novatek, China's Sinopec, India's GAIL, France's TOTAL and GDF Suez following behind, in that order. Both GDF Suez and Sinopec have history with Atlantic and Repsol. In August 2011, the state-owned China Investment Corporation acquired GDF Suez's 10 per cent stake in Atlantic's Train 1, after the Chinese company purchased a 30 per cent stake in the exploration and production division of GDF Suez for US$3.26 billion. However, Cinco Dias said its source "discarded" GDF Suez as an option and said Gazprom is also a long shot.

Sinopec, the Chinese state-owned company, came to Repsol's rescue on at least two occasions in the past already. On October 1, 2010, Repsol capitalised its Brazilian business through a 40 per cent sell-down to Sinopec. Then again on August 1, 2012, a Bloomberg report said: "Repsol, fighting to keep its investment grade rating, received government approval to sell a business in Ecuador to China Petroleum & Chemical Corporation as part of a €4.5 billion divestment program. Repsol plans to dispose of Amodaimi Oil Co., a wholly-owned subsidiary, to the Chinese company known as Sinopec." If China Investment Corporation's 10 per cent stake in Atlantic Train 1 is added to Repsol's stake in all four Trains through an acquisition by Sinopec, the largest shareholder in Atlantic would become China.

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