The Spanish oil integrated company, Repsol YPFS.A. (REP) is planning to sell its 15% stake in its Argentine arm YPF SA. The divestiture is a part of the company’s strategic moves toward reducing its holdings in Latin America.
Repsol will sell as much as 59.9 million shares of YPF at a maximum of $39.93 each, according to a U.S. Securities and Exchange Commission filing from YPF after the market closed on November 26. Repsol anticipates approximately $2.36 billion from this sale and intends to deploy the amount in upstream activities in Brazil.
Repsol seeks to develop the offshore Guara and Carioca fields in Brazil, located near Rio de Janeiro-based Petrobras’ (PBR) Tupi field, which is one of the largest recent discoveries in the Western Hemisphere.
Repsol currently owns about 84% of YPF and wants to reduce it to 51%. Investment in other lucrative regions is the major reason for this sale as YPF’s annual production growth has been lagging significantly since 2003.
Repsol was searching for funds for its various upstream activities in the coveted subsalt area offshore Brazil. While we appreciate its strategic moves to reduce its Argentine exposure, raising funds from Sinopec (SNP) for upstream activity in Brazilis also commendable as it will likely increase value for shareholders.
Repsol is the second largest license holder in offshore Brazil. In its 2010–14 plan, Repsol has indicated that it will spend approximately $5.6 billion on developing its upstream opportunities in Brazil. With these fresh funds, we are optimistic on the future momentum of this development program. We have a short-term recommendation of Outperform for Repsol with the Zacks #2 Rank (Buy).
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