Repsol YPF, S.A., Spain’s largest integrated oil integrated, has decided to sell a 40% stake in its Brazilian assets to China Petrochemical Corp. or Sinopec Group for $7.1 billion. This deal reflects China’s increasing interest in international oil and gas resources, especially in Brazil.
This transaction is China’s largest year-to-date international investment for oil and gas.
In August 2009, Sinopec had acquired Geneva-based oil and gas explorer Addax Petroleum for $7.5 billion. Post acquisition, the company would gain access to Addax’s substantial reserves off the coast of West Africa and in Iraq.
Repsol was searching for funds for its various upstream activities in the coveted subsalt area offshore Brazil. The deal will help Repsol to invest in these prolific projects as subsalt projects need substantial capital to explore.
The joint venture between the two companies, valued at $17.8 billion, will explore these subsalt offshore oilfields. Importantly, the joint venture will be treated as the largest foreign-controlled energy venture in Latin America, in which Repsol will have the controlling interest with a 60% interest.
The key positives in the Repsol story include its leverage to the Atlantic Basin LNG market and improving prospects for diversification away from its Latin American (particularly Argentine) core. For this, the company is trying to sell a stake in its Argentine counterpart YPF. The company’s growing pipeline of projects outside Argentina is expected to lower its exposure to that market in the long run.
Following this news, the American Depository Receipts of Repsol were up nearly 7% to $27.47 at closing on Friday.