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Repsol : Faces $5.5 Billion Claim — WSJ

by June 18, 2016 General

By Selina Williams and Razak Musah Baba Repsol SA said it faces a $5.5 billion arbitration claim from a Chinese state-controlled energy firm, adding to problems tied to one of the Spanish oil company’s largest acquisitions.Sinopec International Petroleum Exploration and Production Corp. and its subsidiary Addax Petroleum U.K. are seeking compensation to cover their initial investment in 2012 in a venture in the British North Sea with Talisman Energy Inc., a Canadian company that Repsol bought last year for $8.3 billion, excluding debt.The claim also includes “lost opportunities” from the British joint venture that has stakes in 57 North Sea oil and gas fields and related infrastructure, including pipelines and processing facilities, Repsol said on Friday, without providing further details.Repsol said the $5.5 billion claim is groundless and has been classed as “remote risk” by the firm’s legal advisers. It said the claim, which was filed in Singapore, reflected Sinopec’s belief that its $1.5 billion investment in the U.K. venture “has not delivered the results expected.”Addax confirmed that it and Sinopec had filed arbitration proceedings to collect at least $5.5 billion, but declined to provide further details citing confidentiality obligations between the parties.Sinopec wasn’t immediately reachable for comment.The news is the most recent wrinkle for Repsol’s acquisition of Talisman completed in May last year.The Talisman deal was meant to bring new production capacity for a company that saw a large portion of its resources wrested away by a populist Argentine government in 2012. Folding in Talisman, a Canadian owner of shale acreage and offshore oil rigs, nearly doubled Repsol’s daily oil output and lowered the Spanish company’s exposure to volatile Latin American economies by increasing its exposure to North America.But the purchase expanded the Spanish company’s debt as revenue and profit fell during the oil-price slump.Repsol announced the transaction at the end of 2014, some six months into what has become a two-year-long rout in oil prices that has forced the entire industry to rein in spending.At the time of the deal’s announcement in December 2014, oil prices had already more than halved from their mid-summer peak of around $115 a barrel. Hopes for a price recovery in 2015 faded as a supply glut filled up crude storage tanks and weighed on markets.Amid the fall in oil prices, Repsol’s profits have plunged and the company has lowered its dividend. Its cost-cutting efforts in recent quarters have done little to dent the company’s expanding debt load, and analysts have pointed to the company’s “stretched” balance sheet as a risk.Repsol’s net debt was EUR12 billion ($13.47 billion) in the first quarter of this year, slightly higher than in the previous quarter, while its net profit was EUR434 million, down 43% from a year earlier.Repsol’s share price has fallen around a third since it announced the deal, more than the 17% fall in the oil price over the same period and underperforming its European oil and gas peers, reflecting investors concerns over the company.Write to Selina Williams at and Razak Musah Baba at