By Christopher Bjork
MADRID--After assuming full executive powers at Repsol SA this
week, Chief Executive Josu Jon Imaz now faces the challenge of
completing the Spanish oil giant's biggest acquisition in
years--while pushing the steep cost-cutting needed to survive
today's crude-price rout.
Mr. Imaz, a former Spanish politician who rose through Repsol's
ranks by squeezing profit from its refinery business, became CEO a
year ago. However, since then the 51-year-old Mr. Imaz had been
serving in the shadow of Chairman Antonio Brufau, who relinquished
his executive duties Thursday, after a tumultuous decade at the
helm. Mr. Brufau, will stay on at Repsol as a nonexecutive
chairman.
Late last year, Mr. Brufau orchestrated Repsol's $8.3 billion
purchase of Canadian oil and natural-gas producer Talisman Energy
Inc. The purchase is a chance to restore Repsol's oil and
natural-gas producing ambitions more than two years after Argentina
expropriated a large chunk of its fields.
The Talisman deal is expected to close May 8. As Mr. Imaz takes
full responsibility for executing the integration, analysts are
already second guessing the price Repsol paid--as oil prices remain
low. Mr. Imaz said he'll apply lessons learned from his days
running Repsol's refining operations to squeeze out costs in the
company's newly expanded exploration and production business.
Oil firms in Europe have closed 20 money-losing refineries in
recent years. Repsol went a different route, assigning Mr. Imaz to
oversee a EUR4 billion ($4.45 billion) upgrade of its Spanish
refineries so they could operate at a lower cost.
"We got used to working very efficiently, squeezing out profits
when margins were very tight," Mr. Imaz told The Wall Street
Journal ahead of this week's transfer of power at the oil firm.
"That's the equivalent of operating with low oil prices."
Mr. Imaz said Repsol's expansion will help squeeze the cost of
producing oil across its assets around the world--including
Talisman's large, untapped shale resources in North America, and
its oil and gas fields in the North Sea and off Southeast Asia.
Repsol now spends an average of $12 producing every barrel of
oil. Mr. Imaz said he can cut that to between $6 and $7 a barrel by
drilling more selectively in the company's expanded portfolio of
reserves.
"For the past two decades, the sector was in an environment
where adding barrels and growing mattered most," he said. "We all
put efficiency second."
With oil prices now far lower than Repsol had envisioned as part
of the calculus behind the Talisman deal, Mr. Imaz is under
pressure to show results quickly.
Brent crude was trading just below $80 a barrel in late November
when Repsol set its final valuation for Talisman. By the time the
acquisition was announced in December, oil had fallen below $65 a
barrel. Early Friday, Brent was trading just over $66 a barrel.
In justifying the deal's price, Repsol said it expects Brent oil
to rise to $85 a barrel this year and to $99 within three years.
Repsol said the deal makes sense even if prices remain between $70
and $80 through 2017.
"It looks like they bought a bit too early," said Pascal Menges,
a fund manager at Lombard Odier. The fund doesn't own any Repsol
shares.
Mr. Imaz said he expects an oil price recovery. "I don't know if
it will take three or six months, a year or a year and a half," he
said. "But I expect oil prices to return to $80 a barrel."
Still, Mr. Imaz doesn't see any more big acquisitions for the
time being. With Talisman, Repsol has an optimal size, he said:
"Our growth story has ended, for now."
Mr. Imaz has some cushion--Repsol's substantial refining
business. In the fourth quarter, Repsol's so-called downstream
division, which includes refining, made $370 million in profit,
compared with $4 million profit in the company's upstream division,
which includes oil and gas exploration and production.
With a Ph.D. in chemistry and no upstream experience, Mr. Imaz
has scrambled to get up to speed on Repsol's drilling business,
which will grow significantly with the Talisman purchase.
In a November meeting with one of the company's 20 largest
institutional investors, he relied on other executives to answer
detailed questions about Repsol's drilling activities, according to
a portfolio manager who was present. At a third meeting, a few
months later, Mr. Imaz held his own.
"You could ask him pretty much whatever you wanted to," said the
portfolio manager.
Mr. Imaz rose from middle-class origins in the town of Zumárraga
and eventually led the Basque Nationalist Party, the largest
political force in northern Spain's heavily industrialized Basque
region. He quit politics in 2007 after clashing with a faction of
his party that wanted a referendum on the region's independence
from Spain, a move he opposed.
Mr. Brufau, hired him a year later. The two had met when Mr.
Imaz was serving as the regional industry minister.
He started running one of Repsol's Spanish refineries, then took
over all five. In recent years, big shareholders have pressured Mr.
Brufau to relinquish some of his control of the company. In the
wake of the dispute with Argentina, Repsol began organizing a
transition of power, including separating the roles of chief
executive and chairman. Repsol's board chose Mr. Imaz as chief
executive over two other candidates.
At Repsol's annual shareholder meeting Thursday, Mr. Brufau said
the company needed a "youthful" leader.
Write to Christopher Bjork at christopher.bjork@wsj.com
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