Repsol and Pemex make peace

By Tania Suárez, in Madrid | After the storm, the sun shines. After several months of conflict and based on the relevant fact sent by Repsol to the CNMV, the Spanish financial supervisor, the Spanish oil company and Pemex have reached a “strategic agreement of mutual cooperation.”

Below, we reproduce the statement:

“Repsol YPS, Inc. (Repsol) and Petróleos Mexicanos (Pemex) have signed a letter of intent under which they undertake negotiations for a strategic industrial alliance that will contribute to the better development of their respective business plans and allow to establish avenues and mechanisms for mutual cooperation (the Alliance). The main points on which the Alliance would be configured are as follows:

“The Alliance will be based on the principles of reciprocity, mutual benefit and cooperation, pursuing a long term but not exclusive relationship.

“The scope of the Alliance will encompass the Upstream and LNG business areas as well as the Downstream in America, Spain and Portugal. Each party will evaluate the offering to the other of business opportunities that may arise.

“Within the constitutional and legal framework that regulates the oil industry in Mexico, Pemex will count on Repsol as an ally within the terms of the Alliance to evaluate and promote the business opportunities that may be of mutual interest.

“In order to promote and monitor the Alliance, a Strategic Committee, an Upstream & LNG Committee, and a Downstream Committee will be constituted, all with equal representation of Pemex and Repsol, whose functions will be to advise and inform.

“Pemex renews its commitment to Repsol of ensuring the stability of its stake in Repsol (not to be reduced to below 5% and to not exceed 10%) and its support to the strategic plan and to the current structure of management in Repsol.

“The Alliance will last an initial term of 10 years. The development and completion of the negotiation process of the intentions agreement are subject to the formalities and procedures of the respective internal regulations for the approval of a strategic alliance and, specifically, to the approval thereof by the competent corporate bodies in charge in each case.”

Madrid City analysts consider the agreement between Repsol and Pemex, in general, as positive. For Renta4, the news means greater certainty for the shareholder and a support in terms of a successful strategy. Sabadell experts also stress the importance of having achieved shareholding peace but they point out a negative aspect: the agreement does not entail an increase in the participation of Repsol in Pemex.

Finally, the comments of Ahorro Corporación Financiera (ACF) are more concrete and they assure that the new situation improves the supply of Mexican crude necessary to Repsol’s refineries in Spain(heavy crude oil with an average spread over Brent of $14/bbl in 2011). They also believe that

“the Spanish company will be a key partner in the foreseeable new deepwater exploration project tenders in Mexico. On the negative side, ACF analysts highlight that Pemex only needs 6.25% of Repsol to keep its seat on the board compared to the 9.8% it currently holds.

“Therefore, the Mexican oil company could choose to sell 3.5% of its stake in Repsol to obtain liquid funds, something which adds downward pressure on Repsol,” they conclude.