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Repsol, Maritimes Face Possible Downgrade by Moody's

In the wake of last week's decision by the Argentine government to nationalize YPF SA, Moody's Investors Service has placed Spain's Repsol and Maritimes & Northeast Pipeline LLC (M&N) under review for possible downgrades.

Last Wednesday Moody's analysts said Argentina's decision to nationalize YPF would reduce Repsol's stake in the company from 57% to 6%, and that such a move without adequate compensation from Buenos Aires would weaken Repsol's credit metrics.

"The expropriation will reduce the scale and diversity of Repsol's business profile and increase its relative exposure to the challenged European downstream sector," the firm said. "YPF accounts for around one third of Repsol's proved reserves on a proportional basis, even though it contributed by way of dividend just above 20% of the group's funds from operations in 2011." Moody's said Repsol's "Baa2" long-term issuer rating, the "Baa2/Prime-2" ratings for Repsol International Finance BV's senior unsecured guaranteed debt, and the "Ba1" preferred stock rating of Repsol International Capital Ltd. would be reviewed and all face possible downgrade.

Unease over a messy Repsol-YPF divorce has also ensnared M&N and its "Baa3" unsecured rating, since about 88% of the pipeline's capacity through 2034 has been contracted through the former's subsidiary, Repsol Energy North America (RENA), with a guarantee from Repsol. Moody's said about $490 million of debt securities could be affected.

"Any significant weakening of Repsol's overall financial position will undoubtedly diminish the quality of the guarantee and [M&N's] ability to rely on it to backstop RENA's contracted capacity payments which represent a material concentration risk that would put downward pressure on the rating," Moody's said. "At the same time, we will be evaluating shipments and supply factors in the context of current forecasts for continuing low natural gas prices in the United States and the growing sources of supply in the Northeast."

Moody's plans to finalize the ratings reviews within the next few weeks. It did not say how long the review of M&N would take.

According to reports, Repsol is considering legal action if any companies assist Argentina with developing its assets there. The Associated Press reported that Argentine officials have met with executives from France's Total SA and Brazil's Petroleo Brasilerio, or Petrobas, and plan to meet with Chevron Corp., ExxonMobil Corp. and Apache Corp. in the coming days.

Chevron has about 110,000 leased acres in Argentina's shale plays, while an ExxonMobil subsidiary has signed on to an agreement on 163,500 gross acres in Neuquen province (see Shale Daily, March 14; Aug. 31, 2011). Last November, Repsol announced that it had made a huge discovery in the Vaca Muerta formation in Neuquen province, totaling 927 million boe of recoverable oil and natural gas, of which 741 million bbl is oil (see Shale Daily, Nov. 10, 2011).

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