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Repsol, Gazprom Joint Venture to Operate in Western Siberia

Spanish energy giant Repsol, S.A. REPYY and Russian integrated oil company PJSC Gazprom Neft recently formed a joint venture(“JV”) with the latter buying 25.02% interest in Repsol's Evrotek-Yugra project in western Siberia.  This includes seven oilfields in Khanty-Mansiysk Autonomous Okrug, Russia. The terms of the deal also allow Gazprom to increase its ownership in the Evrotek-Yugra project to 50%.

About the Deal

The deal will provide Gazprom access to Evrotek-Yugra’s exploration and production rights in Karabashsky 1 and Karabashsky 2 blocks. The project also includes licenses for geological prospecting in Kondinsky district's Karabashsky 3, Karabashsky 9, Karabashsky 78, Karabashsky 79 and Kileysky blocks.

The Karabashsky 1 and Karabashsky 2 blocks include the Ouryinskoye field that has recoverable reserves of 33.8 million tons of oil, discovered in 2013. Due to the recent downturns in the oil market, Repsol has only drilled three wells in Russia since 2014.

The JV will finalize its investment decision for the field based on the geological prospecting program by the end of 2019.

Deal Rationale

Gazprom expects the JV to enable work on the development cluster in the Federal District of Urals on a parity basis. The deal will help Gazprom to expand its resource base strategically in Russia.

On the other hand, the proceeds from the deal will help Repsol to fund development in the field. Importantly, Repsol believes that a local partner with knowledge and expertise will help the company realize the full potential of the Evrotek-Yugra project. The clubbed expertise in geological exploration of the European and Russian companies will increase efficiency in the Evrotek-Yugra field. Active in Russia since 2010, Repsol holds licenses for 17 production and development blocks as well as 16 exploratory blocks.

Investors should know that in the first quarter of 2017, Repsol allocated 16% of its exploration investment in Russia.

About the Company

Repsol explores for, develops and produces crude oil products and natural gas, transports petroleum products and liquefied petroleum gas and refine petroleum. In addition, the company produces a variety of petrochemicals and markets petroleum products, petroleum derivatives, LPG and natural gas. The vertically integrated company operates in more than 40 countries.

Price Performance

Repsol belongs to the Zacks categorized Oil and Gas – International - Integrated industry. In the last six months, its stock gained 8.7% while the broader industry fell 8.1%.

Zacks Rank and Stocks to Consider

Repsol presently has a Zacks Rank #2 (Buy).

Some top-ranked stocks in the oil and energy sector are Delek US Holdings, Inc. DK, Southcross Energy Partners, L.P. SXE and Canadian Natural Resources Limited CNQ. All of these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Delek US Holdings’ sales for 2017 are expected to increase 71.3% year over year. The company came up with an average positive earnings surprise of 60.7% in the last four quarters.

Southcross Energy’s sales for the second quarter of 2017 are expected to increase 29.4% year over year. The partnership delivered an average positive earnings surprise of 22.7% in the last four quarters.

Canadian Natural Resources’ sales for 2017 are expected to increase 49.4% year over year. The company delivered a positive earnings surprise of 30.8% in the first quarter of 2017.

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