Spain’s largest oil integrated Repsol YPF, S.A. (REP) entered into a definitive agreement with Qatargas for the supply of liquefied natural gas (LNG) at the Canaport LNG plant in Canada. Under this agreement, Qatargas will supply LNG for several years to Canaport, which is operated by Repsol.

 

Qatargas will supply LNG by Q-Flex and Q-Max ships. Q-Flex and Q-Max have a capacity to carry the equivalent of approximately 4.6 and 5.6 billion cubic feet of natural gas, respectively. Repsol’s Canaport facility is among a few terminals worldwide that have the capacity to dock such huge tankers.

 

Repsol is one of the largest LNG operators in the world. This supply agreement will augment the company’s competitive position in the Canadian and Northeast U.S.markets.

 

While Repsol’s LNG business experienced a downturn in the second quarter due to narrow marketing margins, the company is expanding its LNG footprint as this business is seen as a key component for medium and long-term growth.

 

We believe that the supply agreement with Qatargas will give Repsol a big boost in Eastern Canada and Northeast U.S. natural gas markets as Qatar has the third largest oil and gas reserves worldwide.

 

Although we believe that Repsol is a downstream-weighted company (contributed approximately 65% to last year’s operating revenue), its recent upstream initiatives are notable. The company is keen to adopt its successful Brazilian pre-salt oil reserves model for the development of Western Africa properties.

 

The company has taken several measures for upstream growth including the goal to reduce its stake in its Argentine counterpart YPF, as upstream growth at YPF is lagging. Additionally, it is also pursuing upstream opportunities in Russiaand Indonesia.

 

Repsol ADRs were up more than 16% in the last three weeks. We believe its recent efforts toward upstream as well as downstream growth will positively impact the stock performance. Consequently, we currently rate the stock Outperform with the Zacks #2 Rank (Buy).

 
REPSOL SA-ADR (REP): Free Stock Analysis Report
 
Zacks Investment Research