May 29, 2012 / 7:37 AM / 6 years ago

UPDATE 3-Repsol invests in bid to recover from YPF blow

* To invest $24 billion, mostly in exploration and new wells

* Aims to boost production by over 7 pct a year

* To sell assets, cut dividend payout ratio

* Shares drop over 7 percent, hit 3-year low (Adds more details, background, quotes, updates shares)

By Tracy Rucinski

MADRID, May 29 (Reuters) - Spanish oil firm Repsol will cut its dividend and sell billions of dollars of assets to help fund an investment drive aimed at boosting production as it battles to recover from the seizure of Argentine business YPF .

In its first strategy update since most of its 57 percent stake in YPF was nationalised by Argentina last month, Repsol said on Tuesday it would invest 19.1 billion euros ($24 billion) over four years, with 77 percent earmarked for exploration and recent discoveries.

The group, which bought YPF in 1999 to reduce its exposure to the less lucrative refining business, said this would help to drive annual output growth of more than 7 percent from 2012-16, compared with less than 5 percent targeted by most peers.

However, Repsol shares tumbled over 7 percent as investors were disappointed by the dividend cut and questioned whether the ambitious targets were achievable.

“Punchy growth targets tend to have been missed by Big Oil companies historically,” Investec analysts said, noting that Repsol’s new forecasts were heavily reliant on just one country - Brazil - where the group and its partners announced a big discovery last week.

“This appears a coherent package, but we believe it stabilises a perilous situation rather than creating an attractive equity proposition at this stage,” they added.

Major oil companies like BP, Shell and Total are all ramping up spending on exploration as they seek to take advantage of high oil prices. However, some analysts fear the additional spending will not significantly boost returns as margins on many projects have shrunk.

To help fund the investment and defend its credit rating, Repsol said it would reduce its dividend payout, which had been much higher than the European sector average, to between 40 and 55 percent of earnings, down from 63 percent.

Chairman Antonio Brufau said the board would decide the final dividend but that it would “certainly be lower than the current 1.15 euros per share.”

Citigroup analysts estimate the dividend will be cut to 0.75-0.80 euros per share for the current financial year.

Repsol’s credit rating was put on negative watch by Moody’s and cut by S&P after the YPF nationalisation.

At 1350 GMT, its shares were down 7.5 percent at 12.785 euros, after touching a three year low, underperforming a flat European oil and gas sector and a 2.8 percent fall in Spanish stocks. The stock has fallen over a quarter in value since the nationalisation of YPF.


Repsol said it would fund its investment plan with 23.2 billion euros of operating cash flow and the sale of between 4 and 4.5 billion euros of non-core strategic assets by 2016.

The latter figure includes estimated proceeds from the sale this year of 5 percent of its own shares that had belonged to construction shareholder Sacyr.

Repsol sold another 5 percent of stock taken on from debt-laden Sacyr in the first quarter of 2012 for 1.36 billion euros.

“Obviously our strategy has to show that we can self-finance,” Brufau told a news conference in Madrid.

Repsol forecast net profit would grow 80 percent over the four years from the 1.7 billion euros it made in 2011, excluding YPF and based on an oil price of around $80 a barrel.

Futures markets suggest prices above $90 a barrel for the coming years which could boost profits, although higher prices could also lead to lower production as, under many contracts, volume entitlements from projects fall as the oil price climbs.

Repsol and Argentina are now in litigation over what, if any, compensation the Spanish firm will get following the nationalisation. Repsol has valued YPF at $18 billion but analysts doubt it will get full value back.

Oil companies including U.S. groups Exxon Mobil and Apache, France’s Total and a host of smaller western companies oil have invested in major shale gas and oil finds in Argentina in recent years. BP-controlled Pan American Energy is also a longstanding investor in the country.

Oil executives say operations in Argentina have been unaffected and they have no intention to drop investment plans.

“The recent nationalisation of the majority of YPF has cast a shadow over investments in the country. While clearly worrying, we do not expect Argentina will begin a widespread programme of energy asset expropriation,” analysts at Jefferies said in a research note on Tuesday.

Repsol still owns 6 percent of YPF and that could rise to 12 percent if it gets shares from the Petersen Group in exchange for a 1.5 billion euro loan, Brufau said, and called on Argentina to launch a bid to buy out all the remaining shares.

“Another 6 percent would be received as guarantees from the Petersen loan, which probably won’t be paid back,” he said.

$1 = 0.7976 euro Additional reporting by Tom Bergin in London; Editing by Mark Potter

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