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Repsol, YPF Settle Expropriation Issue

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Spanish oil and gas company, Repsol, S.A. (REPYY - Free Report) has agreed to settle with the Argentinean government over the 18-month old issue of expropriation of the company’s holding in the state-controlled, YPF S.A. (YPF - Free Report) .

Repsol shares went up 4.6% to $26.05 on Tuesday post announcement that the two parties have consented to a settlement. This figure rose the following day, reaching $26.15 per share, on the news of a final settlement.

The compensation offered under the settlement was not disclosed by the Repsol board but a source aware of the deal said that the state has agreed to pay $5 billion in dollar denominated government bonds, almost half of what Repsol had originally demanded.

Last May, the Argentinean government passed a bill, expropriating 51% of Repsol’s stake in YPF, citing its intent of partial renationalization of YPF and that Repsol was not spending enough to develop the country’s oil industry. The Spanish firm denied the allegation and was left with only a 12% stake in YPF. The decision soured the relationship between the two nations.

Mexico’s state-controlled oil giant Petróleos Mexicanos or Pemex – that has a 9.3% stake in Repsol – played an important role in reaching this settlement. The contribution could help the Mexican firm to secure exploration rights in Argentina’s giant Vaca Muerta fields.

Argentina holds a third position globally in terms of shale oil and gas deposits. However, till now, only the U.S. energy giant, Chevron Corp. (CVX - Free Report) has agreed to develop these fields. This settlement may offer some relief to investors who are interested to set foot in Argentina but stayed away fearing a similar fate as Repsol.  

Repsol currently carries a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, one can consider better-ranked energy sector stocks such as Abraxas Petroleum Corp. (AXAS - Free Report) , which currently sports a Zacks Rank #1 (Strong Buy).

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