Gas Natural, Repsol Shares Hit by Algerian Production Setback

MADRID Sep 4, 2007 (Dow Jones Newswires)

Shares of Gas Natural SDG SA (GAS.MC) and Repsol YPF SA (REP) were hit Tuesday by the Algerian government's decision to take full control of the Gassi Touil gas exploration project it had been running with the two Spanish companies.

At 0857 GMT, Gas Natural was the leading decliner on Spain's blue-chip IBEX-35 index. Its shares were down EUR0.59, or 1.5%, at EUR38.02, while Repsol shares were down EUR0.25, or 1%, at EUR26.20. The IBEX-35 was 0.5% lower.

The Algerian move underscores the difficulties U.S. and European companies face in securing new gas and oil sources at a time when the developing countries' want to exert more control over their resources and cash in on record commodities prices.

"The decision by the Algerian government is in line with what is happening in other parts of the world," Madrid-based brokerage Banesto Bolsa said in a research note.

Spain's largest oil company and its large gas distributor won in 2004 a contract to explore and produce gas in Algeria's Gassi Touil region together with the country's state-owned energy company Sonatrach. Repsol and Gas Natural would provide 65% of the $7 billion planned investment and Sonatrach would provide the rest.

The project was scheduled to begin operation in 2010, but had recently run into trouble, with the Spanish companies warning of cost overruns and delays. Algerian officials said Repsol and Gas Natural would have to pay any costs associated with delays.

Banesto Bolsa said that while the Algerian government's decision to takeover the Gassi Touil project didn't come as a surprise, it "puts Gas Natural under pressure to find other attractive investment opportunities" to develop its upstream gas business.

Repsol has run into problems also in Bolivia and Venezuela, where governments there have recently forced foreign oil companies to re-negotiate terms of exploration and production contracts.

In the case of Gas Natural, Lisbon-based brokerage BPI noted in a research note that the spat with the Algerian government could have wider consequences as the Spanish company obtains much of its gas from Algeria.

Repsol and Gas Natural said they plan to appeal Algeria's Gassi Touil decision through international arbitration.

Analysts, nonetheless, believe the Algerian setback won't have a significant financial impact for the two Spanish companies. They had so far invested $320 million in Gassi Touil, and the project was not expected to contribute to earnings until 2010.

"It was a project that wasn't going to have an immediate earnings impact," said Madrid-based brokerage Inverseguros in a note to investors. "This is bad news, yes, but let's not get carried away."

Copyright (c) 2007 Dow Jones & Company, Inc.


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