Repsol Faces $5.5 Billion Claim -- WSJ
June 18 2016 - 3:03AM
Dow Jones News
By Selina Williams and Razak Musah Baba
Repsol SA said it faces a $5.5 billion arbitration claim from a
Chinese state-controlled energy firm, adding to problems tied to
one of the Spanish oil company's largest acquisitions.
Sinopec International Petroleum Exploration and Production Corp.
and its subsidiary Addax Petroleum U.K. are seeking compensation to
cover their initial investment in 2012 in a venture in the British
North Sea with Talisman Energy Inc., a Canadian company that Repsol
bought last year for $8.3 billion, excluding debt.
The claim also includes "lost opportunities" from the British
joint venture that has stakes in 57 North Sea oil and gas fields
and related infrastructure, including pipelines and processing
facilities, Repsol said on Friday, without providing further
details.
Repsol said the $5.5 billion claim is groundless and has been
classed as "remote risk" by the firm's legal advisers. It said the
claim, which was filed in Singapore, reflected Sinopec's belief
that its $1.5 billion investment in the U.K. venture "has not
delivered the results expected."
Addax confirmed that it and Sinopec had filed arbitration
proceedings to collect at least $5.5 billion, but declined to
provide further details citing confidentiality obligations between
the parties.
Sinopec wasn't immediately reachable for comment.
The news is the most recent wrinkle for Repsol's acquisition of
Talisman completed in May last year.
The Talisman deal was meant to bring new production capacity for
a company that saw a large portion of its resources wrested away by
a populist Argentine government in 2012. Folding in Talisman, a
Canadian owner of shale acreage and offshore oil rigs, nearly
doubled Repsol's daily oil output and lowered the Spanish company's
exposure to volatile Latin American economies by increasing its
exposure to North America.
But the purchase expanded the Spanish company's debt as revenue
and profit fell during the oil-price slump.
Repsol announced the transaction at the end of 2014, some six
months into what has become a two-year-long rout in oil prices that
has forced the entire industry to rein in spending.
At the time of the deal's announcement in December 2014, oil
prices had already more than halved from their mid-summer peak of
around $115 a barrel. Hopes for a price recovery in 2015 faded as a
supply glut filled up crude storage tanks and weighed on
markets.
Amid the fall in oil prices, Repsol's profits have plunged and
the company has lowered its dividend. Its cost-cutting efforts in
recent quarters have done little to dent the company's expanding
debt load, and analysts have pointed to the company's "stretched"
balance sheet as a risk.
Repsol's net debt was EUR12 billion ($13.47 billion) in the
first quarter of this year, slightly higher than in the previous
quarter, while its net profit was EUR434 million, down 43% from a
year earlier.
Repsol's share price has fallen around a third since it
announced the deal, more than the 17% fall in the oil price over
the same period and underperforming its European oil and gas peers,
reflecting investors concerns over the company.
Write to Selina Williams at selina.williams@wsj.com and Razak
Musah Baba at Razak.Baba@wsj.com
(END) Dow Jones Newswires
June 18, 2016 02:48 ET (06:48 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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