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Repsol taking bids on its Atlantic LNG stake
Repsol SA (REP), Spain’s largest energy company, will be taking bids for its liquefied natural gas (LNG) assets inclusive of its stake in Point Fortin-based Atlantic on Monday, Repsol chief financial officer Miguel Martinez said in a conference call with Barclays of London last Thursday. In its conference call report acquired by the Guardian, Barclays Capital’s analysts Lydia Rainforth, CFA, and Rahim Karim, said, “The potential sell down of Repsol’s LNG business is likely to prove a competitive process.
“Non-binding bids are due in on September 19, and will then be evaluated. No announcement on the bids received will be made whilst the process is ongoing, but with the schedule on track and a number of interested parties, we see this as encouraging.” The Repsol LNG business consists of Atlantic LNG, Peru LNG, the Canaport regas facility and a 25 per cent stake in Bahia de Bizkaia Electricidad’s (BBE), a power generator in Spain.
Selling these assets would remove 4.6 billion euro of associated debt (both on and off balance sheet) in addition to any cash inflow from the sale, the report said. “Our own analysis shows that the sale of LNG should enable Repsol to maintain its investment grade credit rating.
Repsol shares this view, but will meet with the rating agencies in 4Q to discuss whether the actions the company has taken are sufficient. If this proves to be enough, Repsol will not pursue a dilutive conversion of the preference shares. “Instead, we see a number of options that could be used. This could include a hybrid bond such as the ones used by BG and OMV (of Austria) in the last 12 months. A sell down of the treasury shares is still seen as a ‘last bullet,’”the report said.
The Barclays report was upbeat about Repsol’s Peru discovery. It highlighted: “Repsol announced preliminary resources associated with the Sagari discovery in Peru block 57 of 1-2 trillion cubic feet. Repsol owns 58.4 per cent.” Its partner, Brazilian state-controlled energy giant Petrobras, holds the remaining 46.16 per cent. Block 57 is located in Peru’s Amazonian jungle.
It also said that Repsol’s upstream growth is “on track and on budget.” Repsol’s core operations continue to progress well, it said. The Margarita field is now onstream and Kinteroni is scheduled to come onstream in November. When combined with the contribution from Russia, Repsol should achieve its 335,000 barrels per day production target on average for 2012, the report said.
“With Guara due onstream in 2013, we see potential for production growth to continue at over ten per cent next year,” Barclays said. Repsol is also optimising its downstream operations, the report said. The premium Repsol achieved from the finished refinery upgrades reached US$2 billion in August, it said. Repsol sees this as a reflection of “the team now getting used to a new crude slate following the introduction of Iranian sanctions.”
Under the heading What to do with the Stock, Barclays said, “We continue to see significant upside to our 20 euro per share price target and rate the shares overweight. A successful LNG sell down should remove company-specific credit rating concerns and enable focus to return on what is a rapidly growing upstream business.”
Overweight is part of a three-tiered rating system, along with “underweight” and “equal weight", used by financial analysts to indicate a particular stock’s attractiveness. If a stock is recommended to be overweight, the analyst opines that the stock is a better value for money than others.
In April, the government of Argentina expropriated YPF SA (YPFD), the country’s largest oil company, from Repsol SA after complaining about rising oil imports last year and lack of re-investment by the company into Argentina. In May, Repsol presented its 2012-2016 strategic plan, which called for investment of 19 billion euro over the next five years, and divestment of up to 4.5 billion euro to reduce debt and protect earnings growth. In July, Repsol announced the sale of its Butano Chile subsidiary for about US$540 million to a consortium of Chilean investors, led by LarrainVial.
In August, Repsol announced the government of Ecuador approved the sale of Repsol’s wholly-owned subsidiary Amodaimi Oil Company to Tiptop Energy Ltd, a wholly-owned subsidiary of Sinopec of China. In the Atlantic project in T&T, Repsol participates together with bpTT, BG, the Government of China through one of its state companies, and T&T’s National Gas Company.
Atlantic’s strategic position allows it to supply to the markets of the Atlantic basin, under advantageous conditions (Europe, US and the Caribbean). This plant has four liquefaction trains in operation with a joint capacity of 15 million tonnes per year. One of the trains is one of the largest in the world, with a production capacity of five million tonnes per year.
Repsol also plays the main role in the supply of gas and is one of the main LNG purchasers, according to Jesus Chillon, Repsol director of LNG projects and operations. Production from the jointly operated Repsol/bpTT fields supplies the trains of the Atlantic plant.
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