Could the shock nationalisation of YPF and consequent share price drop for parent company Repsol be a precursor to a takeover of the Madrid-based company? This idea may seem fanciful to some, but Interfax understands that analysts at major oil companies in Europe and the US are running the numbers over the Spanish oil group. Even so, these number crunchers should be warned that however enticing Repsol may be, in particular its upstream holdings, any acquisition will be fraught with difficulty.
The company’s shares have fallen by more than 40% this year, from €23.72 ($29.67) at the beginning of the year to €13.82 ($17.29) by lunchtime on Friday. This precipitous decline was almost entirely because of the nationalisation of YPF, which accounted for 46.5% of the combined group’s reserves and 62.4% of its production, according to figures from Société Générale.
The Madrid-based company has launched arbitration proceedings against Buenos Aires, and appears determined to retrieve some cash from the politically motivated confiscation, but analysts are now assuming that the separation will end as a permanent divorce.
As well as the share price fall, the company has been downgraded by the credit ratings agencies, though it remains investment grade. The group’s net debt to equity ratio is high relative to the rest of the sector, and the company will face growing capital expenditure bills in coming years as development projects in South America are given the go-ahead.
The group has interests in Brazil, the US Gulf of Mexico, French Guiana and Venezuela, and has invested heavily in exploration to prove up reserves over the past couple of years.
But are these unfortunate circumstances enough to tempt a buyer? No, said analysts spoken to by Interfax. “There would be an awful lot of pain for not a lot of gain [from an acquisition],” one UK-based equity analyst said. He cited Repsol’s Spanish downstream holdings, which are “not a great business unless you know Spain”, and they are also at the mercy of the outcome of the unfolding eurozone crisis.
The political ramifications of a deal could also trouble a buyer, another pointed out, saying that “politicians in recent years would be very sensitive to energy security”. The Spanish government does not own a stake in Repsol, but any deal involving a foreign acquirer is bound to draw Madrid’s ire.
And even if these problems could be surmounted, Repsol’s share price isn’t actually that cheap compared with other oil industry peers. “While Repsol has fallen by 40% this year, the [oil and gas] sector is down by 15%. The share price is still not attractive at these levels,” Stuart Joyner from UK brokerage Investec told Interfax. The shares need to fall to below €10 ($12.52) to be attractive, he added, and this is “unlikely in the near term”.