Repsol board expected to approve YPF compensation deal

Oil firm’s shares jump as agreement brokered by Argentinean, Mexican and Spanish governments hints at compensation of $5 billion

Repsol has said that its board of directors will study on Wednesday the terms of an in-principle agreement reached overnight by the governments of Argentina, Spain and Mexico on compensation for the expropriation of its Argentinian unit YPF.

The leading Spanish oil firm said it will analyze the deal, which would involve the Argentinean government paying Repsol some five billion dollars in liquid assets, “as it deems appropriate in the sole interest of the company and its shareholders.”

Reuters quoted two sources close to Repsol’s board as saying that the company’s directors are likely to give unanimous approval to the agreement.

It would be a major surprise if the board does not approval the proposal"

“The initial agreement already has the backing of Repsol's management, its main shareholders and the governments, meaning that with all probability the board will give the green light,” one of the sources said.

“It would be a major surprise if the board does not approval the proposal. The technical details of the guarantees of the assets offered in compensation remain to be seen but in broad lines they are good for Repsol,” Reuters quoted the other source as saying.

At 2.30pm, Repsol’s shares were up 4.88 percent at 19.35 euros on news of the deal.

Repsol was seeking compensation of around double the amount that has been put on the table for 51 percent of YPF seized by the government of President Cristina Fernández de Kirchner in July 2012.

The in-principle agreement was negotiated in Buenos Aires by newly appointed Argentinean Economy Minister Axel Kicillof, the chairman of YPF, Miguel Galuccio and Spanish Industry, Energy and Tourism Minister José Manuel Soria. Also present at the talks were the chairman of Caixabank, Isidro Fainé, and the chief executive officer of state-owned Mexican oil company Pemex, Emilio Lozoya. Caixabank and Pemex are leading shareholders of Repsol, with 12.02- and 9.34-percent stakes respectively.

“An in-principle agreement has been reached on compensation for the expropriation of the 51-percent stake in YPF that took place in April 2012, subject to its ratification by the maximum controlling bodies of Repsol,” Kicillof said Tuesday. “This in-principle accord will imply fixing the amount of compensation and its payment with liquid assets and that both parties desist from legal action currently underway.”

Repsol had taken legal action against the Argentinean government to recover its investment in YPF on a number of different fronts, including the World Bank's International Center for Settlement of Investment Disputes.

The absence of Repsol Chairman Antonio Brufau at the negotiating table has raised eyebrows

Repsol also filed a suit with a federal law court in New York against its US rival Chevron over an agreement it entered into with YPF on the Vaca Muerta shale reserves discovered by Repsol before its unit was expropriated.

The absence of Repsol Chairman Antonio Brufau at the negotiating table has raised a few eyebrows and further fueled speculation about his future at the head of the Spanish oil firm.

Pemex was reportedly moving to have Brufau removed as chairman. Pemex CEO Lozoya had earlier passed on a previous offer from the Argentinean government to settle the dispute that consisted of 1.5 billion dollars in Argentinean government bonds and a section of the Vaca Muerta discovery. However, the offer was unanimously rejected by Repsol’s board, including Pemex’s representative, because there was no guarantee that the assets in the section of the Vaca Muerta field would be productive.

Soria had discussed a possible deal with his Mexican counterpart Joaquín Coldwell at a meeting held in Mexico City on November 15. Brufau had given Soria a written explanation of the terms of any deal that would be acceptable to Repsol to take to the meeting. These terms insisted that any assets in the deal be liquid and that Repsol would have carte blanche to do with those assets as it deemed best in its own interests.

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