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Repsol's next steps after YPF compensation deal

The two companies have reached a compensation deal over the nationalisation of YPF

Repsol has wasted little time cutting its ties with Argentina after the two sides reached a compensation deal over the nationalisation of the Spanish company's majority stake in YPF. 

In March, Repsol agreed to a deal that saw it receive $5 billion in Argentine bonds as compensation for the nationalisation of its 51% stake in YPF. Late last week, the company said that it had sold those bonds and its remaining stake in YPF, bringing in a total of $6.31bn in cash.

The deal brings the acrimonious YPF affair to a much swifter conclusion than most analysts thought possible. Many warned that it could take many years for Repsol to see any compensation, if it ever saw any at all. 

The big question hanging over the company now is what next? Repsol has suddenly gone from being cash-poor, forced to sell its liquefied natural gas (LNG) business and on the defence from credit downgrades to flush with cash and free to shape its post-YPF future. 

The company has options. It could give cash back to investors through a special dividend. It could launch a share buyback scheme, which has become popular with the supermajors. It could look to buy assets or acquire a company. Or, more likely, it could pursue a mix of these options. The Spanish press has reported that the company is considering a $1.8bn special dividend.

Analysts at Deutsche Bank reckon the company could comfortably spend around $5.5bn. It could spend more if it also decides to sell its 30% stake in Gas Natural, which is thought to be worth around $8.4bn. 

The company's management has made it clear that it is interested in spending at least some of the windfall on acquisitions, and that it has been looking closely at the market. The company needs to fill the gap left by YPF, and in particular the stake in the potentially huge Vaca Muerta shale that could have delivered long-term growth for the company. 

"It's true that after the expropriation of YPF and the sale of the [LNG] division, we need somehow to rebuild - and this will imply acquisitions - one or several acquisition," the company's chief financial officer Miguel Martinez told analysts earlier this month. "We are looking for companies or assets."

Martinez added: "First, we are looking for something in OECD. Second, we are looking for areas in which we have extra growth capacity, not only with the acquisition, but developing an area. So we are looking for a growth platform. And also we are looking to increase our capabilities." 

Repsol has been linked to a wide range of potential deals that fit the criteria, with most analysts focusing on assets and companies in the oil sands in Canada or the US shale oil patch. Both areas would help offset the political risk in the company's profile, which is skewed towards Latin America and Libya, while also potentially offering large growth opportunities. The company has also been rumoured to be interested in Marathon Oil's Norwegian North Sea assets

The company could also look to acquire gasfields in Canada as part of an overhaul of its to underused Canaport LNG facility on Canada's Atlantic coast, according to Mark Bloomfield, an analyst at Deutsche Bank. 

The company couldn't find any takers for the import plant when it sold its LNG business to Shell last year, forcing the company to take a $1.4bn write-down on the plant. The facility has been hurt by a fall in LNG import demand after an influx of new shale gas supplies into the region. However, Repsol may take inspiration from US Gulf Coast LNG companies and convert the import facility into an export plant to send gas to European buyers looking to diversify away from Russian supplies. The company could be keen to find gas-producing fields to feed into the plant.  

Meanwhile, the company has a busy drilling schedule ahead of it, with closely watched high-impact wells this year in Angola, Namibia, Alaska and Colombia.

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