Repsol Inks Deal in Colombia - Analyst Blog

Spain's integrated oil and gas company, Repsol YPF, S.A. (REP) has joined hands with Petrobras Colombia Limited, the local unit of Brazil's Petroleo Brasileiro (PBR or Petrobras) and Colombian state oil firm Ecopetrol SA (EC) for an oil exploration project in the country. The deal is pending approval from Colombia's national hydrocarbon agency, ANH (Agencia Nacional de Hidrocarburos).

Per the agreement, the Spanish company will partake in the exploration of the Tayrona Block, which is located off Colombia's Caribbean coast. Repsol will secure a 30% interest in the block and Ecopetrol is expected to hold a 30% share. As the operator, Petrobas will take hold of the remaining 40% stake.

The offshore Tayrona Block in Colombia covers an area of approximately 1,657,900 hectares and is booked by a hydrocarbon exploration and exploitation contract with ANH that was signed in mid-2004. Tayrona is located near the Chuchupa and Ballena gas fields, which comprise 2 trillion cubic feet of combined proven reserves. Ecopetrol is also enhancing its exploration activities off Colombia's Caribbean coast in association with other co-partners.

Currently, Colombia's daily oil and gas production is higher than 1 million barrels of oil equivalent (MMBoe) and is expected to meet 1.5 MMBoe by 2015 on a daily basis. According to Oil and Gas Journal (O&GJ), Colombia had 1.36 billion barrels of proven crude oil reserves in 2010, the fifth-largest in South America.

Repsol is Spain's largest integrated oil and gas company, with significant operations in Argentina and the rest in Latin America. The majority of Repsol's operating earnings come from Latin America, with Argentina accounting for the bulk of its Latin American operations.

This Colombian exploration and production agreement reflects Repsol's aggressiveness toward upstream development. We believe this plan is in line with the company's 2010–2014 plans that focus on upstream development in exotic locations. On the back of the company's oil-centric development strategy and raising funds through non-core assets divestment, we maintain our long-term Outperform recommendation.