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Repsol placates shareholders with $7.1bn Sinopec deal in Brazil

REPSOL's decision to sell 40% of its Santos basin oil assets to Sinopec is an attempt to ease tensions with Sacyr, its largest shareholder, as it plots heavy spending to develop pre-salt prospects

China's state-owned Sinopec will pay the Spanish firm $7.1bn for a 40% stake in its Brazilian assets. The deal values the joint venture at $17.8bn.

It also gives Repsol much-needed cash to develop its pricey deep-water, pre-salt assets in the Santos basin, which lies southeast of São Paulo in the South Atlantic Ocean. Repsol is planning capital expenditure of $4bn-5bn for its Brazilian operations in 2010-14 and a further $6bn-9bn in 2015-19. The Santos basin alone could hold 50bn barrels of oil, according TO the US Energy Information Administration.

Brazil's state-controlled Petrobras, which has a 45% stake in Repsol's Santos basin operations, also launched a bid to raise $25bn for development through share sales in September. The sale, which was delayed from July, aims to raise cash for the company's $224bn five-year investment plan, under which Petrobras aims to increase production from 2.7m barrels of oil equivalent a day (boe/d) in 2011, to 5.7m boe/d by 2020.

Repsol originally planned to raise cash for its global upstream investment plan – €32bn ($42.9bn) to develop its Brazilian deep-water assets, along with projects in North Africa and the Gulf of Mexico – by cutting its interim dividend at the end of 2009 by 19%. But it came under fire in February from Sacyr, a Spanish construction company holding 20% of Repsol's shares. Sacyr refused to accept the dividend reduction and demanded that Repsol find other ways to raise the cash.

Repsol had no choice but to sell its assets in Brazil to assuage its biggest investor, says Juliette Kerr, an analyst at IHS Global Insight, a consultancy. "Repsol has become a victim of its own success," she adds, pointing to a string of recent discoveries – including the Guara and Carioca fields, estimated by Repsol to hold up to 3bn boe – in the Santos basin, that now need new capital for development. The fields were discovered by a consortium consisting of Repsol (25%), BG Group (30% and operator) and Petrobras (45%). A compromise with Sacyr, says Kerr, is the "result of increased pressure from both the market and the Spanish government."

The Chinese government's fingerprints are also on the deal. China is buying into South American acreage in a bid to cater for its growing energy needs. The country's oil demand will increase to around 13m b/d by 2030, according to the International Energy Agency (IEA). China's gas consumption will also soar, to 240bn cubic metres (cm) a year in 2030, says the IEA, compared with 69.5bn cm in 2007.

Repsol is also aiming to sell up to 20% of YPF, the Argentine company in which it is a majority stakeholder, to raise cash for spending in Brazil, according to local media. Repsol is looking for local investors to buy part of the company's 84% stake, valued at around $3bn.

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