Repsol chief heads for showdown with critic

By Mark Mulligan

Published: January 14 2010 02:00 | Last updated: January 14 2010 02:00

After months of speculation, Antonio Brufau, executive chairman of Spanish oil and gas group Repsol, will tomorrow be forced to defend his job against one of his fiercest critics. Luis del Rivero, chairman of construction and property company Sacyr Vallehermoso, wants to unseat the oil boss as the first step in a plan to carve up the group and sell part of it to focus on the domestic refining operations.

An extraordinary board meeting has been called for tomorrow to resolve the issue. In a highly leveraged operation at the peak of the credit bubble in 2006, Sacyr paid €6.5bn ($9.4bn) for a 20 per cent stake in Repsol, making it the largest shareholder. The subsequent collapse of the Spanish property market, coupled with the credit squeeze has made the holding Sacyr's most valuable asset.

Mr Del Rivero now wants to monetise some of the holding to reduce his company's heavy debt load and restructure its core businesses. Efforts to sell the stake outright to Russian and Chinese energy groups unsettled the Spanish government, which is keen to keep Repsol out of foreign hands. With that strategy torpedoed, Mr Del Rivero has changed tack in recent months.

In a campaign waged largely through the Spanish media, he has instead questioned Mr Brufau's policy of heavy upstream investment, aimed at replenishing thin reserves, and criticised the chairman's decision to reduce last year's dividend. He wants to replace Mr Brufau with one of his own men. However, people with knowledge of the situation claim his challenge will fail, partly because Mr Brufau appears to have the support of La Caixa, the Catalan savings bank and Repsol's second-biggest shareholder. There is also wider support for the chairman's aggressive drive to secure upstream assets, which has started to yield important results.

When Hugo Chávez, Venezuela's president, visited Spain in September last year, he famously broke with protocol to go shopping with Mr Brufau. Together, they used the stopover to announce that a consortium including Repsol had made the largest ever offshore gas find in Venezuela. With 1.4bn barrels of oil equivalent (boe), the reservoir also represented the Spanish company's biggest gas discovery, and remains one of the five largest hydrocarbon finds in the world.

At about the same time, tests in part of the Santos Basin off the coast of Brazil, in which the Spanish company also has a stake, showed that the so-called Guara well held between 1.1bn and 2bn boe of recoverable crude and gas, making it the second most productive section of the fields. Six days later, Repsol was able to reveal yet another new oil and gas discovery, in the Abare West well of the Brazilian deepwater fields. In all, the company last year announced 12 important finds, and numerous exploration deals, culminating last month with a licence to explore new blocks in southern Algeria.

Apart from bolstering its upstream portfolio, all this activity helped Repsol silence those who joked that it was the only large oil group without oil. Analysts have become more upbeat on the company, identifying its Brazilian ventures as central to its long-term growth. The gradual sale of about half of YPF, Repsol's Argentine operation, has also been welcomed in the market.

The shares mainly outperformed peers last year, climbing more than 20 per cent. However, Repsol's push to rebuild reserves, from dangerously low levels, has not been without costs. Heavy investment in expensive technologies and refining margins last year, were also behind the dividend decision that so upset Mr Del Rivero. Operating income was down 51 per cent for the nine months to the end of September, at €2.5bn. Total oil and gas production at the core business, which excludes YPF, was down 1.6 per cent at 328,297 boe a day.