Spain’s largest integrated oil and gas company Repsol YPF S.A. (REP) and its partners Enel and GdF-Suez have signed an exploration and exploitation contract for the ‘Sud-Est Illizi’ gas field in Southeastern Algeria with Sonatrach, the Algerian national oil company. The respective shares of the companies in the consortium are 52.5%, 27.5% and 20%.
 
This contract represents Repsol’s position in Algeria, where the company has been actively engaged in various upstream activities. Repsol is already active in Reggane, Tinfouye Tabenkort and Tifernine, reaffirming the company’s commitment to this country. Exploration activity in this area is amongst the ten key growth projects of Repsol’s 2008-2012 strategic plans.
 
Management is targeting stable production growth, driven by the company’s pipeline of development projects in Trinidad and Tobago, Libya, Bolivia, Venezuela, Argentina and Ecuador. Repsol’s latest agreement with the Algerian state-owned company is a case in point.
 
Repsol has been very active on the exploration front in the last couple of years, resulting in some of the world’s largest oil and gas finds in the period. The company expects to reach a reserve replacement ratio of 125% by 2012.
 
Although the recent contract awards are liable to boost the reserves of the company as well as stabilize and build earnings, we believe that the long list of challenges facing Repsol will continue to weigh on its valuation, limiting its upside from current levels.
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