Though the compensation is half of what Repsol initially demanded
after Argentina expropriated its majority stake in energy firm YPF <YPFD.BA>,
the company has been eager to end a rocky chapter in its history and
avoid a drawn-out legal fight.
Argentina hopes the agreement will help it attract foreign
investment in the country, which holds one of the world's most
promising shale gas and oil formation.
"I think to finally reach a friendly agreement on this contentious
issue that has taken two years is extremely positive," Repsol
Chairman Antonio Brufau said in a video message that accompanied a
statement on the terms of the deal.
YPF President Miguel Galuccio, speaking to reporters in Buenos
Aires, praised the deal as a crucial step for Argentina's economy. "YPF
is a fundamental tool for the country's energy future and I believe
the expropriation has given that tool back to Argentines."
Under the agreement, Repsol will receive a package of three
dollar-denominated Argentine sovereign bonds with a nominal value of
$5 billion. It will also receive additional bonds for a maximum face
value of up to $1 billion to compensate for the market discount on
the first group of bonds.
Argentine sovereign bonds mostly trade at a steep discount since the
country defaulted on international debt in 2002.
The total market value of the combined packages will be at least
$4.67 billion, which could be supplemented by $500 million in back
interest payments on one of the bonds, known as the Discount 33.
Repsol can sell the bonds whenever it wants though the final amount
it receives for the bonds cannot exceed $5 billion after expenses
As part of the deal, which follows nearly three months of
negotiations in Buenos Aires and still requires approval from
Repsol's shareholders and the Argentine Congress, Repsol will drop
all lawsuits against Argentina and waive any future legal claims.
After the seizure, Repsol initially sought $10.5 billion in
compensation in international arbitration.
"As far as we are concerned, from a financial point of view, we have
started a new chapter where we are stronger ... and have enormous
enthusiasm," Brufau said.
Argentine President Cristina Fernandez expropiated YPF in a move
that stripped Repsol of one-fifth of the Spanish oil giant's annual
profit. YPF was created in the 1920s by Argentina's government and
privatized in the 1990s.
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Fernandez's decision came as Argentina grapples with a chronic
energy deficit, with government spending on energy imports rising
sharply, putting pressure on state coffers.
For Argentina, putting an end to the Repsol conflict will clear the
way for it to pursue foreign investors to develop the Vaca Muerta
formation, one of YPF's crown jewels and potentially one of the
biggest shale reserves in the Western Hemisphere.
Argentina needs foreign money to develop the field, but
international investors, facing legal threats from Repsol, have been
reluctant to jump in.
The agreement follows involvement by Spanish and Argentine
politicians, and officials in Mexico, whose state-owned oil firm
Pemex is Repsol's third largest shareholder. The Mexican company
also has close ties with Argentina.
With a deal behind it, Repsol can now focus firmly on a strategic
plan to boost its international exploration and production business
to compensate for the loss of YPF, which had accounted for over half
of its output.
It has said it could sell its 30 percent stake in Spanish power firm
Gas Natural Fenosa <GAS.MC> to help fund a purchase in North
America, as well as its remaining 12 percent stake in YPF, worth
about $1.8 billion.
Repsol's shares, which have suffered during the turmoil with
Argentina, closed up 0.88 percent at 18.37 euros on Tuesday before
the deal was announced.
Analysts have said a $5 billion settlement from Argentina could add
up to 3 euros to Repsol's share price.
(Additional reporting by Alejandro
Lifschitz in Buenos Aires; editing by Fiona Ortiz and Chizu Nomiyama)
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