Repsol and YPF C Recovering Value

CASE: P-90 (C)
DATE: 04/12/17
REPSOL AND YPF (C):

RECOVERING VALUE
The expropriation of YPF deprived Repsol of about 60 percent of its global oil and natural gas
production and half of its reserves.1 In the three months after the announcement of the
expropriation, Repsol shares lost approximately 37 percent of their market value.2 Repsol stated
that “the magnitude, illegality, severity and arbitrary nature” of the expropriation were
“unequalled in the modern international oil industry”3 and said it would take “any legal action
we can in order to protect our interests against an illegal confiscation.”4
Repsol created a dedicated legal team that included lawyers from Europe, the United States, and
Argentina,5 with Miguel Klingenberg as deputy general secretary for coordination of YPF
activities.6 Said Repsol CFO Miguel Martínez in August 2013: “It is our obligation to protect
the assets of YPF. And this is what we are trying to achieve. We have advised third parties that
1
Stanley Reed and Raphael Minder, “Repsol in $5 Billion Settlement With Argentina,” The New York Times,
February 25, 2014, https://www.nytimes.com/2014/02/26/business/international/repsol-said-to-reach-settlement-
with-argentina.html (March 15, 2017).
2
Patricia Laya, “Repsol Sues Argentina’s Bridas Over Shale Development With YPF,” Bloomberg, March 7, 2013,
https://www.bloomberg.com/news/articles/2013-03-07/repsol-sues-argentina-s-bridas-over-shale-development-with-
ypf (March 15, 2017).
3
Repsol, “Notes of Repsol after the expropriation of YPF,” September 2012,
www.realinstitutoelcano.org/wps/wcm/.../Notes_Repsol_expropriation_YPF_1.pdf (March 15, 2017).
4
“Repsol to sue Bridas Over YPF Deal,” Reuters, January 5, 2013,
http://www.buenosairesherald.com/article/120911/repsol-to-sue-bridas-over-ypf-deal- (March 15, 2017).
5
“Repsol seeking more than US$10B in lawsuit against Argentina over YPF seizure,” RTE, May 15, 2012,
https://www.rte.ie/news/business/2012/0515/321023-spanish-repsol-takes-steps-against-argentina/ (March 15,
2017).
6
“Repsol Steps Up Legal Actions over YPF in Argentina,” Latin American Herald Tribune,
http://www.laht.com/article.asp?ArticleId=706427&CategoryId=14093 (March 15, 2017).
Sheila Melvin and Professors Katherine Casey and Ken Shotts prepared this case as the basis for class discussion
rather than to illustrate either effective or ineffective handling of an administrative situation.
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This document is authorized for use only in Prof. Biju Paul Abraham's Country Risk Analysis_2021-22_Term-V_Prof. Biju Paul Abraham at Indian Institute of Management - Calcutta from Sep
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Repsol and YPF (C): Recovering Value P -90 (C) p. 2
we are going to fight against those who are willing to take advantage of these illegal
expropriations.”7 The company ultimately launched nine judicial proceedings related to YPF.8
ARBITRATION, LAWSUITS, AND PRESSURE
In May 2012, Repsol informed Argentina of its intention to claim a dispute under the terms of
the Treaty for Investment Promotion and Protection between Spain and Argentina, a first step for
arbitration at the World Bank’s International Center for Settlement of Investment Disputes
(ICSID).9 The ICSID required that six months then pass before it would consider arbitration.10
Repsol thus formally filed a $10.5 billion suit on December 3, 2012 11 based on an $18 billion
valuation for YPF.12 The Repsol suit made a two-fold claim, as Klingenberg subsequently
described: “On the one side, we are requesting the tribunal to grant us the restitution of the assets
expropriated, the shares. In fact, we are still the legal owners of those shares, although economic
and voting rights were seized by the Government. And secondly, as an alternative, an economic
financial compensation.”13
In May 2012, Repsol lodged two suits against Argentina in New York federal court, claiming
breach of contract and violation of U.S. securities laws.14 The company charged that Argentina
was trying to “walk away from the contractual obligations” it assumed when it raised capital
through an initial public offering of YPF in the United States15 and said that the seizure of YPF
violated shareholder agreements because Argentina had promised not to reassume control of the
company without offering to pay back investors.
Repsol also tried to make it difficult for the Argentine government to attract investment for
development of the Vaca Muerta shale field.
In response to Chevron’s September signing of an MOU with YPF, Repsol filed a lawsuit in
New York asking the court to prevent Chevron from partnering with YPF because the
memorandum of understanding was not approved by Repsol-appointed management at YPF.
Repsol argued that Chevron had proceeded with the agreement even though it knew it violated
7
Aleem Khan, “Repsol fights Chevron for ‘taking advantage of illegal expropriation’,” TT.com, August 5, 2013,
http://news.co.tt/public_html/article.php?story=20130729153706284 (March 15, 2017).
8
“Repsol Steps up Legal Actions over YPF in Argentina,” Latin American Herald Tribune,
http://www.laht.com/article.asp?ArticleId=706427&CategoryId=14093 (March 15, 2017).
9
“Repsol seeking more than US$10B in lawsuit against Argentina over YPF seizure,” Reuters, May 15, 2012,
https://www.rte.ie/news/business/2012/0515/321023-spanish-repsol-takes-steps-against-argentina/
(March 15, 2017).
10
Ibid.
11
Sarah Downey, “Repsol Files $10.5 billion ICSID Claim,” Commercial Dispute Resolution, December 5, 2012,
https://www.cdr-news.com/categories/spain/repsol-files-10.5-billion-icsid-claim
12
“Repsol seeking more than US$10B in lawsuit against Argentina over YPF seizure,” Reuters, May 15, 2012,
https://www.rte.ie/news/business/2012/0515/321023-spanish-repsol-takes-steps-against-argentina/
(March 15, 2017).
13
Khan, op. cit.
14
The cases were Repsol YPF SA v. Republic of Argentina, 12-cv-03877; Repsol YPF SA v. Republic of
Argentina, 12-cv-04018, U.S. District Court, Southern District of New York (Manhattan).
15
Bob Van Voris, “Repsol Drops US Suits Against Argentina Over 2012 Seizure,” Bloomberg, May 10, 2014,
https://www.bloomberg.com/news/articles/2014-05-10/repsol-drops-u-s-suits-against-argentina-over-2012-seizure-
1- (March 15, 2017).
2021 to Dec 2021.
YPF’s bylaws.16 Chevron replied that Chevron Argentina was a legally distinct operating unit so
any lawsuit against it needed to be filed in Argentine courts, a tactic Fortune magazine called
“playing with fire” because it set a precedent for settling any disputes in Argentine courts.17
On December 20, 2012, Chevron and YPF signed a letter of intent to begin a pilot program and
in July 2013 Argentina announced agreement on a joint venture. Repsol quickly sought an
injunction from the ICSID to stop YPF and Chevron from moving forward with the deal. 18 In
August 2013, Repsol CFO Martínez stated that Chevron was “interfering” in Repsol’s effort to
get “fair compensation” for YPF. He added, “Repsol regrets that a company like Chevron…is
willing to take advantage from an illegal act [by] entering into an agreement over the
expropriated assets prior to the payment of a fair compensation to Repsol.”19
SETTLING
On June 24, 2013, the Financial Times reported that Repsol was “under increasing pressure from
two of its biggest shareholders to strike a deal” with the Argentine government. 20 These
shareholders were the Catalan bank La Caixa and the Mexican state oil group Pemex.21
Nonetheless, on June 26, 2013, Repsol’s board of directors unanimously rejected Argentina’s
offer of $5 billion in noncash compensation for the expropriation of YPF, stating that it did not
accurately reflect Repsol’s loss.22 The offer included a 47 percent stake in a joint venture to
develop Vaca Muerta and $1.5 billion in capital to be invested in the joint venture. Repsol CEO
Antonio Brufau was said to be strongly opposed to the deal. Repsol’s board said in a statement
that, “Following an exhaustive technical and economic internal analysis, supported by external
specialist reports, the board of directors considered (the offer) unsatisfactory for the interests of
the company.” It added that it “welcomed” the government’s willingness to negotiate but
required that any deal follow “the appropriate corporate channels.”23
16
Gavin Broady, “Chevron, YPF Agree To Pilot Program For $15B Shale Deal,” Law360.com, December 20, 2012,
https://www.law360.com/articles/403113/chevron-ypf-agree-to-pilot-program-for-15b-shale-deal (March 13, 2017).
17
Cyrus Sanati, “Chevron is Making a Mistake in Argentina,” Fortune, July 19, 2013,
http://fortune.com/2013/07/19/chevron-is-making-a-mistake-in-argentina/ (March 15, 2017).
18
The arbitration case was Repsol SA and Repsol Butano SA v. Argentine Republic, case number ARB/12/38, see:
https://www.law360.com/articles/460332/repsol-asks-world-bank-panel-to-block-1-5b-ypf-shale-deal
19
Natalie Rodriguez, “Repsol Asks World Bank Panel To Block $1.5B YPF Shale Deal,” Law360.com, July 26,
2013, https://www.law360.com/articles/460332/repsol-asks-world-bank-panel-to-block-1-5b-ypf-shale-deal (March
15, 2017).
20
Miles Johnson and Jude Webber, “Investors Press Repsol to Strike Deal Over YPF Expropriation,” Financial
Times, June 24, 2013, http://www.ft.com/cms/s/0/3f284060-dcd7-11e2-9700-00144feab7de.html (March 15, 2017).
21
Ibid.
22
Tracy Rucinski, “Repsol rejects $5 billion offer from Argentina for YPF,” Financial Post, June 26, 2013,
http://www.financialpost.com/m/search/blog.html?b=business.financialpost.com/2013/06/27/repsol-rejects-
argentinas-us5b-ypf-compensation-offer/&q=Mexico&o=3088 (March 15, 2017).
23
Ibid. Repsol CFO Martínez subsequently explained: “The offer was based on over-valued assets, far from market
values seen in recent transactions in Argentina and in the US, and had a structure which was far from the declared
interest of Repsol for an agreement, since it lacked liquidity, did not include the minimum necessary legal nor
financial warranties, and required significant and compulsory investments.” See:
http://news.co.tt/public_html/article.php?story=20130729153706284 (April 4, 2017).
2021 to Dec 2021.
Citing unnamed sources, Reuters reported that “La Caixa and Pemex have been orchestrating
talks with Argentina in recent months, without the knowledge of Repsol executives.”24 In
August, Repsol CFO Martínezconfirmed that negotiations with the Argentine government were
taking place “indirectly,” adding “So basically what we had was a meeting in Mexico with YPF
people and Pemex people and our team, and that was it. So, I cannot say that we are in
conversation [with the Argentine government].”25
The Argentine government also came under pressure to reach a settlement. From its 2000-2001
financial crisis, the country still owed $9.5 billion to wealthy creditor nations, some of which
expected compensation for Repsol as a precondition for the country to regain access to
international capital markets.26 The U.S. embassy’s business adviser, Kevin Sullivan, agreed
that this was important, saying “We believe that solving these controversies will help in several
ways. First and most importantly, trying to raise investor confidence, both nationally and
internationally, so that they support growth and development in the country. That is the key, for
us to take the most controversial and problematic issues off the agenda to leave more space for
the collaboration we want to make happen.”27
The two sides finally reached an outline agreement in November 2013 with help from the
Spanish government and Pemex.28 On February 25, 2014, Repsol’s board agreed to a deal in
which it received $5 billion in guaranteed government bonds and agreed to drop all claims
against Argentina and YPF.29 The agreement stipulated that Argentina would issue additional
bonds if the value of those given to Repsol fell below the agreed-upon amount and said that if
Argentine government failed to pay, Repsol could seek enforcement of the agreement through
the United Nations Commission on International Trade Law.30 The Financial Times evaluated
the agreement the following day:
The deal is complicated but designed to ensure that Repsol will receive its $5bn
no matter how well or poorly the dollar-denominated bonds that underpin the
settlement perform. Analysts have been impressed with the details of the
agreement, with Citibank noting that the YPF compensation package looks “better
than the market expected.”
24
Rucinski, op. cit.
25
Khan, op. cit.
26
Guillermo Haskel, “Argentine government, economists, cautious on Paris Club debt talks,” Buenos Aires Herald,
March 24, 2014, http://www.buenosairesherald.com/article/155197/argentine-government-economists-cautious-on-
paris-club-debt-talks (April 4, 2017).
27
“US praises 'positive' Argentine negotiations with Repsol, Paris Club” Buenos Aires Herald, February 24, 2014,
http://www.buenosairesherald.com/article/152929/us-praises-positive-argentine-negotiations-with-repsol-paris-club
(April 4, 2017).
28
Emma Ross-Thomas and Daniel Cancel, “Repsol agrees to $5 billion deal with Argentina on YPF stake,”
Bloomberg, February 27, 2014, http://www.business-standard.com/article/international/repsol-agrees-to-5-billion-
deal-with-argentina-on-ypf-stake-114022700013_1.html (March 15, 2017).
29
Reed and Minder, op. cit. For details of the agreement, see:
https://www.repsol.com/es_en/corporacion/prensa/publicaciones/acuerdo-por-ypf/ (April 4, 2017).
30
Jillian Blake, “Repsol, Argentina Settle YPF Expropriation Dispute, Await Final Approval,” The Motley Fool,
March 11, 2014, https://www.fool.com/investing/general/2014/03/11/repsol-argentina-settle-legal-dispute-await-
final.aspx (March 15, 2017).
2021 to Dec 2021.
Inside Repsol’s glass-fronted corporate campus in Madrid, meanwhile, the mood

is one of quiet satisfaction rather than outright triumph.
“This is a sad story but I think the ending has been reasonable for both sides,”
says Miguel Martínez, the group’s chief financial officer and one of the lead
negotiators with Argentina. “We are a cleaner company now, we have ended the
uncertainty and we can get back to our daily work.”31
On March 28, Repsol’s shareholders ratified the agreement with Argentina. Repsol, in its press
release, called the deal a “successful recovery of YPF value.”32
For Argentina, the settlement was a step towards access to international credit markets and
foreign investment. Bloomberg quoted Barclays economist Sebastian Vargas as saying that
“This reinforces the idea that Argentina is looking for a new relationship with investors and
creditors. This transaction is fundamentally positive news because it could unleash pent up
investments in the energy sector to develop energy resources in Argentina.”33
MOVING FORWARD
On May 7, 2014, Repsol sold most of its remaining stake—11.86 percent—in YPF through
Morgan Stanley for $1.3 billion.34 On May 8, it received compensation from Argentina in the
form of bonds and sold $2.8 billion worth of these to J.P. Morgan at a discount. It sold the
remaining bonds to J.P. Morgan on May 23 along with its remaining 0.48 percent stake in YPF.
Analysts predicted that Repsol would look at the United States, Canada, and Norway as target
markets for investment.35 In December 2014, Repsol acquired 100 percent of the Canadian oil
company Talisman Energy for US$8.3 billion plus debt. The deal, said Repsol, “will transform
Repsol into one of the largest energy groups worldwide, increasing its presence in politically-
stable OECD countries and reinforcing its upstream business, which has become the company’s
growth engine.”36 The transaction also substantially reoriented Repsol’s exploration and
production focus towards North America.37
In October 2016, Repsol signed an agreement with Bolivia that extended its contract for its
operations in Bolivia by 15 years, until 2046. This investment was structured as a consortium, in
which Repsol was the operator and held 37.5 percent, with other major stakes held by Shell and
31
“Repsol Draws Line Under Argentina Dispute,” Financial Times, https://www.ft.com/content/b89c5516-9efc-
11e3-8663-00144feab7de (April 4, 2017).
32
Repsol, “Our History,” https://www.repsol.com/es_en/corporacion/conocer-repsol/perspectiva_historica/
(March 15, 2017).
33
Ross-Thomas and Cancel, op. cit.
34
Tracy Rucinski, “Repsol Completes Argentine Exit With $1.3B YPF Sale,” Reuters, May 7, 2014,
http://www.rigzone.com/news/oil_gas/a/132958/repsol_completes_argentine_exit_with_13b_ypf_sale
(March 15, 2017).
35
Ibid.
36
Repsol, “Repsol reaches an agreement with Talisman Energy to acquire the Canadian oil company,”
https://www.repsol.com/es_en/corporacion/prensa/notas-de-prensa/ultimas-notas/16122014-repsol-alcanza-un-
acuerdo-con-talisman-energy-para-adquirir-la-compania-canadiense.aspx (March 15, 2017).
37
Ibid.
2021 to Dec 2021.
Pan American Energy. The new agreement called for Repsol and its partners to invest in
exploration and development of new resources for production.38
Argentina, meanwhile, continued its efforts to develop Vaca Muerta. YPF estimated that it
would require ten years and $200 million of new investment to develop the field and eliminate
the nation’s energy deficit.
The 2015 presidential election surprised many when President Fernández’s anointed successor
Daniel Scioli lost to the center right former mayor of Buenos Aires, Mauricio Macri. 39 The
Argentine pendulum swung again as Macri began implementing market-oriented reforms,
including reducing energy subsidies.40
Vaca Muerta was still, according to Reuters, “mostly unexplored, largely due to high production
costs and a lack of labor flexibility.”41 However, President Macri announced a deal with labor
unions and energy companies that included a subsidy for natural gas produced at Vaca Muerta
and would see companies including YPF, Chevron, Total, Royal Dutch Shell, and BP unit Pan
American Energy invest $5 billion in Vaca Muerta in 2017 and double that in subsequent years.42
Asked about Repsol and YPF in the autumn of 2016, Macri commented:
That was not an expropriation; it was a confiscation that, over time, became an
expropriation. On top of that, as with so many mistakes made by the previous
Government, it was Repsol who got the best deal, because it sold its oil at the
highest price when oil prices were already down to a fifth of that value.43
38
Repsol, “Repsol extends contract for the operation of Caipipendi (Bolivia) until 2046,”
https://www.repsol.com/es_en/corporacion/prensa/notas-de-prensa/ultimas-notas/26-10-2016-repsol-amplia-hasta-
ano-2046-contrato-operaciones-caipipendi.aspx (March 15, 2017).
39
In 2016, Fernández was indicted on corruption charges, which she denied and labeled as political persecution by
Macri.
40
Jonathan Gilbert, “Argentina’s New Reform-Minded President Is Facing His First Big Test,” Fortune,
June 1, 2016 http://fortune.com/2016/06/01/argentina-president-mauricio-macri-reforms/ (March 15, 2017).
41
“Argentina clinches deal to attract investment in Vaca Muerta shale, Reuters, http://www.reuters.com/article/us-
argentina-gas-idUSKBN14V03N (March 15, 2017).
42
Ibid.
43
José Antonio Vera and Pedro Damián Diego, “Macri: There’s no better place to invest in than Argentina,” Fox
News Latino, September 15, 2016, http://latino.foxnews.com/latino/politics/2016/09/15/macri-there-no-better-place-
to-invest-in-than-argentina/print (March 15, 2017).
2021 to Dec 2021.

Repsol and YPF C Recovering Value

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CASE: P-90 (C)

REPSOL AND YPF (C):

ARBITRATION, LAWSUITS, AND PRESSURE

Inside Repsol’s glass-fronted corporate campus in Madrid, meanwhile, the mood

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