Spanish Dynamo

In two years, Spain's Repsol has become the largest gas distributor in Latin America. And plans call for further expansion.

IT MAY NOT BE AS KNOWN AS Spain's telecom and banking invasion of Latin America in recent years, but it's just as aggressive: Since 1996. Spanish gas company Repsol has invested heavily in the region, US$1.8 billion in 1997 alone--53.3% of the company's total investments that year and a 100% increase over 1996. And it's not over yet: The company plans to increase that amount by $3 billion over the next five years, according to Repsol president Alfonso Cortina.

"Expansion in Latin America is a key part of our strategy for the future. It's an emerging geographical area with growing economic markets and huge competitive advantages," he says.

Latin American profits reached $20 million last year, but should increase tenfold over the next five years. Miguel Angel Rem6n, Repsol's chief of strategic planning, told a recent press conference in Madrid.

Yet, some analysts caution against cheering so soon.

"The feeling among analysts is that Repsol paid too much for its assets." says Jason Feer, publisher of the U.S-based newsletter Latin America Energy Alert. "The other complaint is that Repsol. by paying such high prices, has pushed up the prices of other [oil and gas] assets."

The Latin America expansion was spurred by a combination of factors, including the company's goal to reduce dependence on the Spanish market and the fact that the other European markets are mature and oil-saturated. At the same time, Repsol was aiming at the development of electricity generation projects utilizing gas.

Repsol has been concentrating on establishing integrated operations throughout Latin America including production, refining, transportation and marketing, as well as power generation in new markets with large population centers and growing energy demands.

In its short stint in Latin America, Repsol has already become a major oil company in Argentina, thanks to its 56.7% share in the Argentine giant Astra and that company's proven reserves of 151 million barrels of oil and net reserves of 1.3 trillion cubic feet of natural gas.

"When construction is completed on the Atacama pipeline in Argentina. Repsol will be supplying gas to the center of Argentina. Bolivia. Chile and Brazil," Cortina says.

Repsol is currently present in nine Latin American countries: Mexico. Colombia. Ecuador, Peru, Chile. Venezuela. Brazil. Argentina and Trinidad Tobago.

In Mexico. Repsol has a 50% ownership of Gas Natural Mexico, which in March obtained a concession for the distribution of natural gas in Monterrey, and is working on getting the concession for the Mexican capital.

With that concession and those in Buenos Aires. Bogota and Rio de Janeiro, Repsol now distributes gas in four of the region's seven largest cities.

Repsol also sells petroleum products through service stations, specifically in Ecuador, Peru and Argentina.

"Within the next few years we plan to have 1 .000 service stations in Argentina, 120 in Peru, and 170 in Ecuador," Cortina says.

Repsol's exploration and production strategy is to use Astra as a vehicle for the company s expansion in Mercosur, and the group's own Repsol Exploration division for expansion in the rest of the continent. It also wants to give priority to gas exploration in Argentina and Bolivia in order to integrate gas reserves and electricity generation.

As far as refining and marketing activities goes. the company will concentrate in Argentina through Astra and in Peru through Repsol Peru, with no short--to medium-term plans to expand those activities to other Latin American countries.

But Cortina says the industry can expect Repsol to be placing special emphasis on its gas distribution networks and the generation of electricity through its seemingly endless gas reserves.

Feer says it may take at least a couple of years to see if the company's strategy pays off. "It's unreasonable to expect fantastic results this year, but you should see some results by the year 2000."

In the meantime, company officials are bullish on both Latin America in general and their company specifically. Says Remon: "We have great confidence in the future of the region, and that view is being shared by more and more people every day."

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