Spain Wants to Keep Repsol Spanish

APSpain said on Wednesday that it will defend Repsol's "Spanish nature" in the face of possible stakebuilding by LUKoil.
Spain's government will not allow Repsol, the country's largest oil company, to fall into foreign hands, Prime Minister Jose Luis Rodriguez Zapatero told parliament on Wednesday.

While he will not block the sale of a minority stake to LUKoil, "the government will defend the Spanish nature of Repsol," Zapatero said.

Spanish builder Sacyr Vallehermoso, whose debt is six times its market value, has decided to sell its 20 percent stake in Repsol, the supplier of 42 percent of Spain's oil, to repay more than 2 billion euros in loans by 2010.

LUKoil, which owns oil-producing assets in Siberia, is adding refining capacity in the Mediterranean to process its crude.

Repsol rose 3.5 percent this week in Madrid as LUKoil held discussions with Repsol's two largest shareholders to buy a stake of up to 29.9 percent, according to Criteria CaixaCorp, the company's second-biggest investor.

Its shares fell 3 percent on Wednesday as Zapatero said Repsol should have Spanish directors as well as autonomy and independence. "We will support them, but we won't intervene."

A 30 percent stake in Repsol is worth about 5 billion euros ($6.5 billion), based on the oil producer's closing share price Nov. 20, the day before Criteria, a Barcelona-based investment company, first disclosed the talks.

LUKoil, Russia's largest nonstate oil company, already owns refineries in Bulgaria and Romania, and chief executive Vagit Alekperov agreed in June to pay 1.35 billion euros to buy into a refining venture in Italy with ERG. Repsol, which operates five refineries in Spain, has lost 40 percent of its value this year.

"LUKoil is actively pursuing downstream assets in Europe, and Repsol controls some of the best refineries in the region," said Artyom Konchin, an analyst at UniCredit Aton in Moscow. "If LUKoil can get the Repsol stake at a very steep discount, then it makes sense. It all comes down to the price of the deal."

Repsol closed down 1.5 percent in Madrid. LUKoil slid 4.8 percent on the MICEX.

An agreement to buy a stake of more than 30 percent would oblige LUKoil to make a public offer for the rest of Repsol.

LUKoil declined to comment Wednesday.

Earlier this month, Gazprom ruled out any interest in the Repsol stake. The Spanish government has already said it is opposed to an approach by a nationally owned company. LUKoil is 20 percent owned by ConocoPhillips, the second-largest U.S. refiner.

"We're concerned LUKoil will need a lot of cash next year," said Igor Kurinnyy, an ING analyst in London. "If buying this stake means deeper cuts in capital expenditures and core activities, then we'd rather they not buy it. I'm worried that there could be substance behind these stories, because LUKoil is not denying them."