Repsol s Recent Inorganic Acquisitions in Russia and in the U.S. JV with Alliance Oil Eurotek acquisition Acquisition of a stake in Mississippian Lime
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Selective inorganic growth with upside potential Acquisitions of assets with upside Projects : Camisea TSP Shenzi/Gk IRR (full cycle) >14% at 100$ 2012 / bbl Brent Alaska Russia SandRidge 2005 2006 2011 Repsol s excellent track record in acquisitions has been behind the consolidation of our growth program and has bolstered our portfolio. Focused on the selective search for new opportunities that fit in with the strategic plan and offer upside potential.
Joint Venture Alliance Repsol AROG Acquisition of Eurotek Russia
Repsol and AOC a 6-year alliance Acquisition of 10% of WSR WSR and AOC merger Joint Venture with AOC In February 2006, Repsol acquired a10% stake in WSR worth 88M$, acquiring 50% through a new private placement. In 2008, the merger of WSR with AOC, mainly an upstream company, increased the size of the company by more than twofold. Repsol s stake in the merged company was diluted to 3.5%. Technical cooperation has enabled Repsol to gain a better understanding of the AOC upstream assets and choose the right assets for the JV JV fulfill the company s objectives of immediate output in the region with infrastructures and reserves. The partners relationship based on trust has been bolstered by the 5-year alliance.
Our strategy in Russia TIMAN PECHORA VOLGA URALES SK YK WEST SIBERIA Kumolsky- SNO TNO Karabashsky- Salymsky- 2000 600 1200 km. Our strategy in Russia focuses on: Organic growth in West Siberia and Timan Pechora Inorganic growth through the joint venture with AOC
Eurotek acquisition Description Situated in the Khanty-Mansiysk and Yamal-Nenets regions (West Siberia Basin) 9 exploration and production licenses The gas licenses for the SK and YF fields are of particular interest due to their level of development, especially SK which is about to come on stream (2012) Eurotek (25.1%) and Repsol (74.9%) are holders of the Eurotek-Yugra exploration licenses. The current workforce is 35 employees. License status Repsol is interested in 2 exploration licenses. Yuzhno-Khadyryakhinskoye (YK) Syskonsyninskoye (SK) Production (1) Reserves (1) 35000 30000 PRODUCCIÓN 100%: SK &YK 2P Reserves 647.3 Bcf (1) boed 25000 20000 15000 35% 10000 5000 0 2012 201 4 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 65% SK gas production YK gas production 2P YK Reserves2P SK Reserves (1) Technical profiles of Repsol at November 2011.
Eurotek acquisition: Why gas from Russia? Russia : giant producer and consumer Largest gas reserves holder in the world Second-leading gas producer of the world Second gas consumer worldwide Domestic price vs. Netback parity Russian Government decided to liberalized the market 55% discount Doubts about the possibility of reaching gas net back parity? Russian Domestic gas market Upside Rapid expansion in installed power capacity Gasprom s operated production declining. Gasprom s focus on exports. New non-discriminatory access to the network. Liberalization. Royalties much lower than those for oil production Resources of about 5800 TCF, Surplus reserves at more than 7200 TCF Nearly 42% of yet to be discovered resource in West Siberia region, where Repsol is present 8 Source: BP Statistics 2011,
Valuation of assets contributed to the JV Multiples and discounted cash flows JV- Market multiples valuation* *(excluding Gusikhinskoye and exploration) (1) Avg.: 4.5$/boe Eurotek- Market 230 multiples M$ valuation 586 M$ (1) Avg.: 2.4$/boe Valuation hypotheses: Brent (SNO/TNO): 85.00 $/bbl at 2011, 85.75 $/bbl at 2012, 87.90 $/bbl at 2013, +2.5% per annum since 2014; Gas (SK/YK): 1.58 $/kscf (YK) and 1.87 $/kscf (SK) at 2011, +15% per annum from 2012 to 2016, +2.5% p.a. as of 2017; Transport: 5.75 $/bbl (SNO), 4.59 $/bbl (TNO); Valuation at June 2011 for TNO and SON and at January 2012 for SK and YK (Valuation does not include acquisition price). (1) 3,5$ multiple on the back of 2P reserves at 31 December 2010 based on DeGovler & MacNaughton report, minus production of first quarter 2011, taking into account 99.54% of TNO. Discounting working capital, the valuation at 30 June 2011 is 570 M$.
JV organizational chart and governance Joint management Holland ALREP OIL BV JV Company Annual General Meeting Proportional representation of JV Qualified issues: unanimous Russia Board resolutions Quorum: both shareholders JV Operating and Mgmt Co. (1) Board of Directors COO CEO CFO AOC 7 members: 4 Alliance + 3 Repsol Management instructions (SNO and TNO) NK Alliance Mgmt Co. (1) Trading Other DCFO Management instructions Repsol Quorum: at least one director from each party Qualified issues: unanimous Chairman of the Board, appointed by AOC. Saneco TNO Eurotek Future Acquisitions
Sandridge / Repsol Joint Venture Acquisition of stake in the Mississippi Lime Field. Oklahoma / Kansas
Joint Venture with SandRidge, Mississippi Lime Field Executive Summary (1/2) Repsol acquired from the oil company SandRidge a vast oil field with associated gas produced from fractured carbonates in the Mississippian Lime Play. The acquired area comprises two sectors: Original Area : 113,636 net acres for Repsol, 16.2% interest Extension Area : 250,000 net acres for Repsol - 25% interest Mississippian High Perm, Carbonate Oil Play Anadarko Basin in NW Oklahoma / SW Kansas Kansas Oklahoma ~1MM acres ( Area Extensión ) ~700K acres ( Original Area ) Both are proven areas with production throughout more than 30 years and more than14,000 vertical wells drilled in both States. Appealing improved recovery per well and lower Capex/bbl unit cost. The Original Area has a historical record of production with horizontal wells Production in the Extension Area is limited, although similar performance is anticipated based on geological elements. 2
Joint Venture with SandRidge, Mississippi Lime Field Executive Summary (2/2) Net resources: 382 MBOE (179 MBO and 1,139 BCF) Net production reaching a peak of 90 kboepd (45% oil and 55% gas) by 2018. Nature of the producing warehouse Option to acquire new mining acreage during the next 7 years. Nominal average acquisition cost: $2,750/Acre Initial payment of $ 250 million 200% carry of Sandridge 13
Joint Venture with SandRidge, Mississippi Lime Field Activity in the Original Area SandRidge 300 to 500 Mboe EUR Chesapeake SandRidge Energy SHELL Range Resources Pablo / Territory 22 days drilling (4,500 lateral) $3.0 million per well 456 Mboe EUR (NSAI Consultant) Chesapeake 290 to 435 Mboe EUR 4.000 lateral $2.8 million per well Eagle Energy 300 to 650 Mboe EUR $2.5 million per well Range Resources 400 to 500 Mboe EUR 2.200 lateral $3.1 million per well Ross Smith (Independent Engineers) 253 to 343 Mboe EUR $2.7 million per well Eagle Energy Plymouth Devon Calyx Horizontal Wells Horizontals operated by SandRidge Horizontals operated by other operators Vertical wells 14
Mississippi Lime: An emerging Resource Play Characteristics that make Mississippi Lime an attractive play: Conventional Good porosity and permeability Known storage rock: + 30 years of historical production in 15,000 wells Size: 17 million acres Low cost: 3 M$/well Bakken Niobrara Hz. Mississippian Wolfberry Eagle Ford 15
Joint Venture with Sandridge, Mississippi Lime Field Business and competition scenario SandRidge is the most active operatorin the area: 21 active rigs, more than 200 horizontal wells, 18,000 bopd (@ 12/11) Sufficient collection, treatment and transport facilities. Favorable realization price Services companies and necessary materials available in the area. Companies in the Mississippi Lime are protected from inflationary tensions 16
Mississippi Lime: Full Cycle Economics comparison with other Resource Plays
Sunflower Project: Mississippi Lime Strategic sense Production: Net production contribution from start of project, with a proportion of liquids production of 46% and good quality oil. Cash flow: only 2 years of negative cash flow, followed by 3 years of neutral cash flow generation and very positive cash flow as of the 6th year. WTI and HH increases would improve cash rapidly. Earnings contribution: the project makes it possible to obtain positive operating income as of the first year. Operating efficiency: F&D of ~13.5 $/boe (including acquisition price) is in line with the current average in the Upstream Division (~ in the Upstream Division 13 $/boe). Geostrategic sense: fulfills strategic objective of increasing the relevance of our presence in OECD countries. Fiscal and legal security offered by the US is not an impediment to reaching interesting rates of profitability. Rapid access to new horizontal and fracturing drilling technologies that could be applied in other areas (Argentina). 18
Repsol s Recent Inorganic Acquisitions in Russia and in the U.S. JV with Alliance Oil Eurotek acquisition Acquisition of a stake in Mississippian Lime Analysts Presentation 20 January 2012