Repsol to Start Talks With Argentina

MADRID--Repsol S.A.'s (REP.MC) board Wednesday took a step toward ending the company's conflict with Argentina over the expropriation of its controlling share in an Argentine oil producer by accepting the outline of a compensation deal worth $5 billion.

The Spanish oil major said it would open negotiations with the Argentine government on details of the accord, including the legal jurisdiction that would govern it, in order to find a "fair, effective, and quick solution of the controversy."

The conversations will take into account "the appropriate terms and guarantees to secure its effectiveness," Repsol said in a statement after a board meeting that lasted several hours.

Repsol said it would hire an international investment bank to help guide its negotiations with Argentina.

The tentative agreement comes after a 19-month diplomatic standoff between Spain and Argentina over the expropriation of 51% of YPF SA (YPFD.BA) in spring 2012.

The nationalization strained relations between Argentina and Spain and threatened Repsol's investment-grade credit rating by stripping the company of more than half its oil and gas production. The Spanish oil company ended up with a 12% stake in Argentina's biggest oil-and-gas company.

Spain retaliated by trying to block Spanish purchases of Argentine biodiesel. Meanwhile, Repsol, which sought more than $10 billion for its YPF stake, moved to divest billions of dollars worth assets to pay down debt. The company also launched lawsuits to keep other oil companies from investing in Argentina and started arbitration proceedings against Argentina with the World Bank. Under the deal, which has the support the Mexican and Spanish governments, Argentina and Repsol have said they'll drop all lawsuits in the case.

A settlement would help Repsol as it seeks to grow outside its main production areas of Latin America and northern Africa. It could also help Argentina restore the confidence of investors as it seeks billions of dollars in capital to exploit untapped hydrocarbon reserves.

People familiar with the deal said that Repsol wouldn't reinvest in Argentina or take part in the development of the big Vaca Muerta field in the south of the country. It wasn't clear whether Repsol would keep its remaining stake in YPF.

Write to Ilan Brat at [e-mail]

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