Repsol Subsidiary to Explore Offshore Uruguay
Last week, YPF SA, Spanish oil firm Repsol’s (REP) Argentine unit, together with other South American oil majors, won a bid to explore for oil in offshore blocks near the coast of Uruguay. YPF will have a 40% interest in the exploration consortium, the same as Petrobras Uruguay, a unit of Brazil ’s state-run oil giant Petrobras (PBR). Portugal’s Galp Energia will control the remaining 20% share.
YPF is the operator of ‘Block 3,’ while Petrobras will operate ‘Block 4,’ both located along the coast of Punta del Este. Situated around 150 kilometers off the coast of Uruguay, ‘Block 3’ is at a depth of 100 to 200 meters beneath the ocean surface. Block 4 is at a distance of 300 kilometers from the mainland at depths varying from 200 to 1,500 meters. The companies can conduct studies on the blocks for four years before deciding on drilling.
YPF, which reported a 59% decline in first quarter net income, accounts for two-thirds of the Spanish group’s oil production. Though YPF did not specify the quantum of investment it plans for the projects, we believe that the awards could boost the company’s (and its parent Repsol’s) development profile.
Any drilling success in the long-term will help Repsol (which makes much of its profit from refining in Europe) strengthen its crude reserves and both stabilize and build earnings. Until then, we prefer to remain on the sidelines and maintain our Hold recommendation on the company.
We believe that the long list of challenges facing Repsol will continue to weigh on its valuation, limiting its upside from current levels. These include declining reserves, weak volumes, very low reserve lives, and rising costs.
Read the full analyst report on “REP”
Read the full analyst report on “PBR”
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