Repsol Partners with Venezuela

Spain’s largest integrated oil and gas company, Repsol YPF, S.A. (REP), will pay Venezuela $203 million to exploit the Barua-Motatan oil field.

Repsol took the minority share of this oil field, which includes 432 square kilometers, after lawmakers voted for the transfer of that area to Petroquiriquire, a joint venture between Repsol and the Venezuelan Oil Corporation (CVP), a unit of Venezuelan state oil company PDVSA.

Repsol has been pursuing talks for several years on acquiring an interest in Barua-Motatan, located near Petroquiriquire’s Mene Grande oil field in western Venezuela. Petroquiriquire was formed in 2006 as a 60-40 joint venture between PDVSA and Repsol to operate the Mene Grande oil field.

With the addition of this field, the current production of 25,000 barrels per day could increase up to 100,000 barrels per day.

Management is targeting stable production growth, driven by the company’s pipeline of development projects in Venezuela, Trinidad and Tobago, Libya, Bolivia, Argentina and Ecuador. Long-term growth is expected to result from opportunities in Trinidad and Tobago, Algeria, the U.S. Gulf of Mexico, Libya and Saudi Arabia.

In the recent past, Repsol made a six-year (from 2012 to 2018) contract extension with the Government of Ecuador for operation at Ecuador’s Block 16, which includes an investment commitment of an estimated $173.5 million through 2018. This project flow will help the company maintain steady production growth going forward.

Although the production growth outlook could help Repsol to stabilize and build earnings, we are concerned about the company’s declining reserves, very low reserve lives and rising costs. Consequently, we maintain our Neutral recommendation.

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