Aleem Khan

As more than ten com­pa­nies are in talks with Rep­sol to buy its LNG as­sets around the world, the bal­ance of pow­er at At­lantic, the LNG com­pa­ny of which Rep­sol is a co-own­er, may shift if the as­sets are bought by Chi­na through one of its state-owned com­pa­nies. While Rep­sol Chief Fi­nan­cial Of­fi­cer Miguel Mar­tinez would not say who are the in­ter­est­ed buy­ers or where they are from, in an Au­gust 1, 2012 press re­lease, Rep­sol an­nounced that it in­tends to sell its "whol­ly owned sub­sidiary Amodai­mi Oil Com­pa­ny (in Ecuador) to Tip­top En­er­gy Ltd, a whol­ly owned sub­sidiary of Sinopec of Chi­na." Al­so, on Au­gust 10, 2011, Chi­na In­vest­ment Cor­po­ra­tion ac­quired French en­er­gy gi­ant GDF Suez's ten per cent stake in Train 1 of At­lantic LNG.

GDF Suez and the Chi­na In­vest­ment Cor­po­ra­tion signed a Mem­o­ran­dum of Un­der­stand­ing on Au­gust 10, 2011 in which they agreed that the Chi­nese com­pa­ny would pur­chase a 30 per cent stake in the ex­plo­ration and pro­duc­tion di­vi­sion of GDF Suez for US$3.26 bil­lion. As part of the trans­ac­tion, Chi­na In­vest­ment Cor­po­ra­tion al­so ac­quired from GDF SUEZ its ten per cent stake in the Train I of the At­lantic LNG liq­ue­fac­tion plant lo­cat­ed at Point Fortin, as well as pro­duc­tion pay­ments as­so­ci­at­ed with Trains II, III and IV for an amount of US$852 mil­lion, ac­cord­ing to the joint state­ment is­sued by the com­pa­nies.

At the time, Lou Ji­wei, Chair­man and Chief Ex­ec­u­tive Of­fi­cer of Chi­na In­vest­ment Cor­po­ra­tion, had said: "We are pleased to co­op­er­ate with GDF SUEZ, a lead­ing util­i­ty com­pa­ny world­wide. Our in­vest­ment of 30 per cent in GDF SUEZ E&P would be our first size­able trans­ac­tion in Eu­rope to date and, to­geth­er with At­lantic LNG, one of our most im­por­tant in­vest­ments world­wide. We are com­mit­ted to work­ing with GDF SUEZ E&P to achieve its growth prospects." G�rard Mes­tral­let, Chair­man and Chief Ex­ec­u­tive Of­fi­cer of GDF Suez, had said: "I am very pleased to en­ter in­to this MoU with Chi­na In­vest­ment Cor­po­ra­tion, a ma­jor in­vest­ment force world­wide, which can help GDF SUEZ ac­cess sub­stan­tial in­cre­men­tal fi­nanc­ing re­sources and strong net­works in Chi­na and through­out Asia." Dur­ing a Ju­ly 26 con­fer­ence call, Rep­sol's Mar­tinez said, "In re­la­tion with the LNG, our idea is to sell it as a block, and not in parts." That block in­cludes as­sets in Cana­da, Pe­ru and Trinidad and To­ba­go. "With re­spect to the as­set dis­pos­al pro­gram, we have sold our LPG op­er­a­tions in Chile for $540 mil­lion in Ju­ly. This trans­ac­tion, along with the sale of the 5 per cent trea­sury stock in Jan­u­ary 2012, amounts to EUR1.8 bil­lion, de­liv­ered out of the EUR4.5 bil­lion we have an­nounced as an ob­jec­tive for the five-year du­ra­tion of the strate­gic plan," Mar­tinez said. The im­mi­nent sale of its com­pa­ny in Ecuador to Chi­na's Sinopec sub­sidiary is linked to the same strate­gic plan and part of the same as­set dis­pos­al pro­gramme, Rep­sol said in its re­lease.

Added to what Rep­sol owns, a 20 per cent share in Train 1, a 25 per cent share in Trains 2 and 3, and a 22.22 per cent share in Train 4, a Chi­nese buy­er would shake-up the own­er­ship struc­ture of the LNG pro­duc­er, T&T's sin­gle largest rev­enue earn­er. If Chi­nese in­ter­ests buy out Rep­sol's LNG fa­cil­i­ties in Cana­da, Pe­ru and T&T, Chi­na will own 30 per cent of Train 1 mak­ing it the sec­ond largest share­hold­er be­hind BP, which owns 34 per cent, and the third largest share­hold­er of Trains 2 and 3 with 25 per cent. BP owns 42.5 per cent of Trains 2 and 3, while British Gas owns 32.5 per cent. Asked about the prospec­tive buy­ers of the block of its LNG as­sets, Mar­tinez said, "I can tell you that we have a strong team in our side, with the Gov­ern­ment, plus some con­sult­ing group. We have al­so, I think it's De­loitte's, or KP­MG. So we have all the groups work­ing, and we have al­ready re­ceived in­ter­est from more than 10 com­pa­nies. So we will see how it de­vel­ops, but our idea is, as men­tioned, to move it fast in or­der to have more pos­si­bil­i­ties (be­fore) the (rat­ings) agen­cies." Asked if the sale of its LNG as­sets as a block could fetch the re­main­ing EUR2.7 bil­lion, or at least EUR2.4 bil­lion that San­tander An­a­lyst Ja­son Ken­ney said was "par­tic­u­lar­ly low," Mar­tinez re­spond­ed, "Those are your es­ti­mates; EUR2.7 bil­lion, EUR2.4 bil­lion. We will see. I mean, we will see. There at least ten dif­fer­ent com­pa­nies which are in the process and nor­mal­ly I don't like to ad­vance the re­sult of what third par­ties are go­ing to put on the ta­ble." On Ju­ly 21, in re­sponse to a text mes­sage from the Guardian, En­er­gy Min­is­ter Kevin Ram­nar­ine said: "In the event that Rep­sol does in fact de­cide to sell its LNG as­sets in T&T, the pur­chase of these as­sets by the NGC or some oth­er en­ti­ty would be con­sid­ered. This would, how­ev­er, be sub­ject to the ap­proval of Cab­i­net. I have asked the LNG di­vi­sion of the Min­istry of En­er­gy to pre­pare a brief for me on the op­tions avail­able to the Gov­ern­ment."

Why sell?

The im­pe­tus to sell comes from its strate­gic plan, one of the aims of which is "to re­duce debt and im­prove the fi­nan­cial ra­tios and cash po­si­tion," but Rep­sol is al­so strong­ly mo­ti­vat­ed by the opin­ion of the rat­ings agency. Cit­ing the Ar­gen­tine gov­ern­ment's ex­pro­pri­a­tion of YPF, Moody's down­grad­ed Rep­sol's rat­ing on June 12, four days af­ter Fitch Rat­ings did the same. Re­spond­ing to Busi­ness Guardian ques­tions by e-mail from Madrid, Mar­tinez said: "In re­la­tion with the LNG, the pri­or­i­ty is to keep the in­vest­ment grade. We are go­ing to move faster with the LNG, and in par­al­lel with the pref­er­ence shares.

"If the LNG gives us enough room to work with the agen­cies, find a sta­tus in which the in­vest­ment grade thus is not in dan­ger, then we will look for a so­lu­tion for the pref­er­ence shares to­tal­ly dif­fer­ent from cap­i­tal. There are oth­er for­mu­las that can solve the sit­u­a­tion of liq­uid­i­ty of the pref­er­ence shares not be­ing cap­i­tal. But, hav­ing said so, I need first to know how the LNG process is go­ing ahead. So I will solve both the is­sues, but once -- I need a vari­able to be solved, which is how the LNG and how the agen­cies will an­a­lyze the Com­pa­ny once the LNG is sold. Al­so I think it's im­por­tant to men­tion, when we talk about LNG we are not talk­ing about the Up­stream as­sets linked to the LNG. So, ba­si­cal­ly, first step, let's see how the LNG works; then let's solve the prob­lem of the pref­er­ence shares. If the rat­ing agen­cies give us com­fort, and we know that we can keep the in­vest­ment grade, then there are for­mu­las to pro­vide liq­uid­i­ty to the ten­ants of the pref­er­ence shares not af­fect­ing the cap­i­tal; let's say hy­brids, or many oth­er op­tions. But I can­not give you more flavour to­day, be­cause first I need to know how the agency will re­act once we move in­to the LNG process."

On T&T

Speak­ing specif­i­cal­ly on T&T, Mar­tinez said: "Pro­duc­tion in the Up­stream di­vi­sion with­in the quar­ter was 320,000 bar­rels of oil equiv­a­lent per day; 8 per cent high­er than dur­ing the sec­ond quar­ter of 2011. The main vari­a­tions come from Libya, Bo­livia and Trinidad and To­ba­go. In Libya, the pro­duc­tion reached 47,000 bar­rels of oil per day, which we have reached pre-con­flict (in­audi­ble) lev­els. "In Bo­livia, pro­duc­tion was 26,000 bar­rels per day; 24 per cent high­er than dur­ing the same pe­ri­od last year, due to the start­up of Mar­gari­ta phase one. "In Trinidad and To­ba­go, we were still af­fect­ed by main­te­nance on the off­shore plat­forms, and in the At­lantic LNG trains, and pro­duc­tion reached 119,000 bar­rels of oil equiv­a­lent per day; 16 per cent less than dur­ing the same pe­ri­od in 2011." He then im­me­di­ate­ly fol­lowed with, "Since ear­ly Ju­ly, pro­duc­tion is at record lev­els of 350,000 bar­rels of oil equiv­a­lent per day, due to the re­cov­ery of Trinidad and To­ba­go. We ex­pect­ed to ma­te­ri­al­ize added pro­duc­tion from Kin­teroni in Pe­ru, Rus­sia and mid-con­ti­nent in the US in the sec­ond half of the year." Mar­tinez al­so said Rep­sol is "wait­ing for no­ti­fi­ca­tion from au­thor­i­ties on our en­try in­to the [Penin­su­lar] Block in the Por­tuguese At­lantic deep wa­ter off­shore, and, al­so, the award of off­shore in Block 23B in Trinidad and To­ba­go."

Noth­ing cast in stone

Still, noth­ing is cast in stone for Rep­sol. Mar­tinez said: "We have to check first how the LNG busi­ness is go­ing to evolve and which will be the im­pact, be­cause I think that the LNG, un­der the (rat­ings) agen­cies con­cept, im­plies a debt of EUR4 bil­lion. So it will have a mas­sive im­pact on the con­sid­er­a­tions of the (rat­ings) agen­cies. So I can­not go any fur­ther be­cause first we have to check the evo­lu­tion of the LNG process, and then we will an­a­lyze the prefs. It's im­por­tant to keep both projects in par­al­lel be­cause one thing is im­por­tant; what we con­sid­er to­tal­ly nec­es­sary is to keep the in­vest­ment grade. So we will see. We will see. But I can­not be more clear. Okay?" He lat­er re­it­er­at­ed the im­por­tance of the rat­ings agen­cies: "One thing is clear; we have to keep the in­vest­ment grade, and we will look at the, first, at the re­sults of the LNG, and, if nec­es­sary, we will go to the pref­er­ence shares. So we keep with both process in par­al­lel. And we will see. In to­day's fi­nan­cial mar­kets, and in to­day's -- I mean, volatil­i­ty's the name of the game; so it's quite dif­fi­cult to as­sess what is go­ing to hap­pen in two weeks. So we will keep work­ing on the LNG, and then we will take our de­ci­sions. This is all I can tell you."