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Repsol's Antonio Brufau honoured at PE awards

Antonio Brufau helped transform Repsol it into an outfit that punches well above its weight - and shepherded the company through its most serious crisis. Profile by Anthea Pitt

For Antonio Brufau, 2014 has been a good year. Repsol's non-executive chairman stepped aside as chief executive in April this year, handing over day-to-day responsibility for the Spanish integrated firm to Josu Jon Imaz. Before doing so, Brufau crowned his 10 years at the company's helm with what may become his defining achievement - securing $5 billion in compensation for the 2012 expropriation of its Argentine unit YPF.

At the start of 2012, Repsol's future looked bright. Months earlier, Brufau saw off an attempted boardroom coup over dividends and earnings, led by minority shareholders from Sacyr Vallehermoso and Pemex. Capping this was the announcement that, via YPF, Repsol had identified recoverable reserves of 927 million barrels of oil equivalent from just 4% of its holdings across Argentina's 30,000 square km Vaca Muerta shale play. Many believed that the Neuquen basin discovery would be transformational for the Spanish firm.

And so it proved. Without warning, on 16 April 2012, Argentina's president, Cristina Fernandez de Kirchner renationalised YPF. The market shuddered, sending Repsol's shares into freefall. The company escaped a ratings downgrade by selling assets and reworking its strategic plan. But rather than accept the expropriation, Brufau and his team went into battle, filing suits against Argentina in international courts, claiming $10.5bn in compensation for YPF.

Some believed Repsol's fight was foolhardy at best, at worst, perhaps futile. Minority shareholder Pemex (which then held a 9.3% stake in Repsol; it has since sold its holding) was vocal, publicly criticising Brufau's handling of the crisis. Those voices were silenced in November last year, when Repsol announced it was settling with Argentina, accepting a $5bn offer for its 51% stake in YPF.

The payout - made in government bonds which Repsol then quickly sold, netting $6.31bn -- was far less than the sum initially demanded, but it won praise from analysts. Deutsche Bank called the terms 'solid', while Citibank said the agreement was 'better than expected'. At the time, Brufau described the deal as 'friendly, fair and reasonable'

Speaking to Petroleum Economist, Brufau is modest about the YPF deal. "It's not bad," he says. "When we were expropriated, we decided to be very tough, legally tough. We fought everything that was happening in Argentina. It was not very nice, but that was the action [we had] to take."

While the battle was, in some ways, one to ensure the company's survival, it had wider implications. Had Repsol accepted the situation and simply walked away from Argentina, without pushing for compensation for the lost assets, Brufau says it would have set 'an unacceptable precedent' for Western businesses. "I think the authorities understood this very well."

And now, while Repsol may no longer have its transformational Argentine stake, it finds itself in an enviable position. "Now we have cash," Brufau says. "This is liquidity we can use to create growth. We are not in a hurry, though. When we see an opportunity, we can take it."

Repsol is now a different company to the one Brufau took stewardship of in 2004. Far from being the cash-rich operator it is now, 10 years ago the firm was struggling. It was burdened with debt, its financial results were sluggish, its production was declining, its exploration results lacklustre.

During his tenure, Brufau reshaped and reformed the company, turning it around. Its downstream unit is now Europe's most efficient with a conversion rate of 63%, net debt has been slashed, and its upstream portfolio has genuine breadth and depth, with assets in the US and Canada, Latin America and Africa.

The scope of the change Brufau has ushered in can be judged by Repsol's reserves replacement ratio (RRR). In 2002, its RRR - used to judge a company's upstream performance - was just 8%. Last year, it booked an RRR of 275%, the industry's highest. 

This is not to say Argentina wasn't a bitter pill to swallow. "Our commitment to Latin America remains," Brufau says, pointing out the company has assets across the continent, including Venezuela, Bolivia and Brazil. "But based on our experience in Argentina, we now try to hedge our positions."

As an example, he cited Venezuela, where Repsol is part of a consortium with PdV and Eni working on the $1.4bn Perla gasfield development. The country's economic weakness and its perceived political risk are just two reasons some Western companies have resisted exposure to its energy sector. "I am not as pessimistic about Venezuela as the Anglo-Saxons," Brufau says. "It's a good business, it's just a matter of organising it. We need to ensure capital spending discipline and that investments remain in projects".

He admits though that Repsol is now probably more inclined to be conservative than it once was. "I think the way the YPF acquisition was made in 1998 was a mistake," he says. "We paid $15bn for a business in one country when oil was $13 a barrel. We should have sold two-thirds of [YPF] to others to share the risk, rather than being the major player. Strategically, we lost momentum. "But now? We are in a different situation. We don't have to reduce risk, we share it, spread it across regions and consider the breadth of our portfolio."

For his peers, Brufau's handling of the Argentina crisis is the outstanding achievement of his tenure as chief executive. But his transformation of Repsol from a sluggish state-owned entity to a nimble, integrated firm with a significant global presence is just as remarkable. And it was for both of these achievements that Brufau was honoured at the annual Petroleum Economist Awards in September, being named chief executive of the year. Repsol was named energy company of the year.

Accepting the awards, Brufau says: "We have tried to reinvent our company. It has been difficult. Even though my name is on this, it belongs to all the people at Repsol. They deserve this recognition. My job has been to pull everything together to reach our goals. They have done the work. But this tells me that we have achieved a great deal."

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