After a troubling year of internal strife and outside threats to production efforts around the world, Spain’s Repsol will begin the 2012 in a calmer and more stable place. However, political and funding factors could still derail the company from having what they expect will be an outstanding new year.
Repsol’s internal challenges this year centered on an attempt by two of the company’s largest shareholders to exert greater control over official decisions. Led by CEO Luis del Rivero, Spanish construction company Sacyr partnered with Mexico’s Pemex to try to force the company’s hand, leading to significant media attention dedicated to company cohesion and requests for government investigations into their actions by Repsol. Eventually, the move backfired on del Rivero, who was forced from his post by the Sacyr easing tension between the company and shareholders.
Thanks to a substantial presence in Libya, Repsol also faced production delays in the Mediterranean as the country’s civil conflict boiled over into violence that forced the evacuation of expatriate staff members. The conflict would go on to all but halt exploration and production efforts for foreign firms.
Challenges aside, it was not all bad news for Repsol in 2011. The company was on hand in Argentina when the country announced what has been predicted to be the third largest shale reserve in the world behind the United States and China. Despite having reduced their presence in the country over the past several through the sale of shares in their local subsidiary, Repsol still hold a substantial role in the country, representing two-thirds of the company’s overall output, according to the Financial Times. The company’s Argentinean efforts stand to be the quickest way to boost earnings and production levels, offering an estimated 927 million barrels within reach, 741 million of which are oil.
That Argentinean presence, combined with a significant return to production levels in Libya with Repsol and Italy’s Eni at the forefront of the country’s energy plan, have allowed Repsol some confidence moving into the new year. This week saw Libya’s National Oil Corporation announce a list of international energy firms that would receive preferential treatment for the county’s efforts to return to pre-conflict production levels. However, in spite of the company’s positive outlook for 2012, some political and financial factors could prove challenging both at home and aboard.
Following early elections at the end of November, Spain welcomed the conservative Partido Popular (PP) back to power after nearly eight years of Socialist rule. While ostensibly pro-business, the PP has a legacy of corporate interventionism that could prove challenging to the company’s directors. Under previous PP governments, the party has injected their input into corporate decisions on investment and leadership, which could pose a problem for the company’s plans for expansion and raising new capital. Furthermore, the PP’s leader Mariano Rajoy has previously expressed a strong distaste for doing business with certain leaders in South America, including countries where Repsol currently operates.
During the eight years under Prime Minister José Luis Rodríguez Zapatero, Spain sought a more open relationship with both countries, as well as others sharing a political spirit in the region, such as Bolivia. During this period, Repsol established a strong regional presence with extensive projects in Argentina, Brazil, Peru and Ecuador. After nearly seven years of absence, Repsol recently announced a return to Cuban waters with a planned offshore effort that is scheduled to commence in January 2012, despite strong opposition from U.S. political actors.
The company’s Cuban efforts could invite further political problems, though not from home. The project has elicited strong opposition from U.S. lawmakers who worry both about the offshore effort’s environmental impact and Cuban energy endeavors so close to American territory. To counter such criticism, Repsol have invited U.S. officials to inspect the project before moving forward.
Political obstacles aside, Repsol will also face funding challenges in the new year that could hinder the company’s ability to capitalize on their projects with the most potential. In order to reach desired production levels in Argentina, the Spanish giant will need a significant level of investment, predicted to reach upwards of $20 billon to fully exploit the South American reserves over the coming years. The company began this process recently with the dedication of $400 million towards the effort over the next year. While investor confidence in the company and shareholder cohesion are likely to attract further investment, allowing for such obligations, the company’s domestic situation does not allow for such a positive outlook.
Furthermore, Spain’s downbeat economic forecast for the year could weigh down domestic investment as well as foreign investor’s confidence in a Spanish company. Economic data released this month predict almost non-existent growth rates for the first quarter of the New Year, leading to speculation that another national recession could be on the horizon. This lack of expected growth and related loss in domestic demand is unlikely to slow Repsol too much given its broad, international presence, though the company’s exposure to national firms like Gas Natural could cause some problems should Spain’s economic slowing continue.
Image: Arabian Business