Repsol Ypf S.A. (REPYY.PK)

Q2 2012 Earnings Call

July 26, 2012 6:30 AM ET

Executives

Maria Victoria Zingoni – Managing Director, IR

Miguel Martínez – CFO

Analysts

Haythem Rashed – Morgan Stanley

Bruno Silva – BPI

Filipe Rosa – Banco Espirito

Theepan Jothilingam – Nomura International

Lydia Rainforth – Barclays

Alastair Syme – Citi

Mark Bloomfield – Deutsche Bank

Peter Hutton – Royal Bank of Canada

Daniel Ekstein – UBS

Iain Pyle – Sanford Bernstein

Marc Kofler – Macquarie

Thomas Adolff – Credit Suisse

Henry Morris – Goldman Sachs

Jason Kenney – Santander

Luis de Toledo – BBVA

Maria Victoria Zingoni

Presentation

Operator

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Good morning, ladies and gentlemen. Thank you for standing by, and welcome to Repsol Second Quarter 2012 Results Presentation. This conference call will be lead by Mr. Miguel Martínez, CFO of the company.

(Operator Instructions)

I will first pass the floor to Ms. Maria Victoria Zingoni, Investor Relations Managing Director that she will make a brief introduction. Maria Victoria, please go ahead.

Maria Victoria Zingoni

Good day, ladies and gentlemen. This is Maria Victoria Zingoni, Director of Investor Relations at Repsol. On behalf of our company, I’d like to thank you today for taking the time to attend this conference call on Repsol’s second quarter results.

The presentation as I said will be conducted by Mr. Miguel Martínez, CFO; other members of the Executive Committee will be joining us as well.

After the speech, we will have a Q&A session. Before we start, I invite you to read our disclaimer note. We may make forward-looking statements, which are identified by the use of words such as will, expect, and similar phrases. Actual results may differ materially depending on a number of factors as indicated on the slide.

I now hand the conference over to Miguel.

Miguel Martínez

Thanks, Maria, and thank you all for attending this conference on our second quarter results. In today’s call, we will cover three topics. First we will give an update on the YPF expropriation on board. The status of the legal action and the accounting impact on the financial statements then we will explain the progress, we have made on the actions to strengthen the balance sheet. And finally, we’ll cover the quarterly results and current status of the operations.

Let us start with the update on the YPF situation by reviewing the progress on the legal matters. The legal actions are related both the 51% of the company subject to expropriation and already occupied by the Argentine government, and to the remaining stake held in YPF.

Repsol currently has the right to exercise both in concern so another powers pertaining to class these shares of YPF representing a 12% stake, which is composed of two parts 6.4%, which was part of the original 57.4 we own, and was not subject to expropriation.

And then additional 5.4% further which we have those power, as a result of the early termination of the loan agreement with the Petersen Group. And Repsol rights on the collateral of that loan agreement, according to the terms of the collateral pledge. The other shares belonging to the Petersen Group are now in the hands of the bank or institutions, which were part of the loan to Petersen at the time of expropriation among them we find the companies of the (inaudible) Brazilian Group or Banco Itau, which are not shareholders of YPF as the result of the exercise of their collateral rates. The most relevant legal steps taken by Repsol include the following.

Repsol notified the Argentina state of the controversy resulting from a breach of the agreement for the promotion and protection of investments between Spain and Argentina, and its intention to file for international arbitration of the international center for settlement of investment disputes exit.

Second, Repsol file a claim of unconstitutionality against the temporary occupation of the shares of YPF subject to expropriation. Third, Repsol launch a class action lawsuit in New York, jointly with Texas Yale Corporation for the part of its stake in YPF through ADRs not subject to expropriation against the Argentina state for breaching its obligation to file a tender offer in the event of gaining control of YPF in accordance with the provisions of Sections 7 and 28 of YPF articles of association as approved in 1993.

Portion to the legal regulation on the appreciation of YPF. The class action lawsuit also includes the protection of all the ADRs held by the Petersen Group on that date and held in favor of Repsol as a pledge for its loan to the Petersen Group.

Those rules were very clear of the procedures to be followed in case and entity wanted to game control over YPF. These procedures were followed by Repsol during 1999, when we acquired YPF. The government has failed to comply with the obligation to launch a tender offer to allow the shareholders to decide, if they want to remain in spite of the company with our new shareholder in control, a basic rights, which is recognized in similar transactions all over the world.

In summary, Repsol that has always been open to a negotiator solution for the issues facing in the Argentine energy sectors has been forced to-date all our prepared legal actions in defense of its rights has an extra bit in party. Even again those who may attend to take a fair advantage open on our local discussion. As current shareholder of YPF, Repsol also will require full transparency professionalism and rigor in the management of a private company that is listed in New York and in Buenos Aires.

To penalize our update on YPF, we will explain the accounting of the expropriation, the fact, which affects our financial situation is the change of control, due to the unlawful taking of YPF’s management and assets by the Argentine government. The accounting is as follows. First the consolidation of YPF, which is the write-off of the related assets liability, minority interest and translation differences for an amount of €4.7 billion.

Second write-off of all the loans related to the Petersen Group, net of the value of the 5.4% claim as collateral for an amount of €1.4 billion. Additionally, we have recognized a provision of an amount of €54 million because of the guarantees granted to Petersen Group. Third registration of YPF shares that remain our property as financial in business for sale at their fair value.

For those shares not subject to expropriation that is 6.4%, fair value has been calculated according to quoted prices in the market. For the 51 stake subject to expropriation fair value should be among the group expects finally and effectively to receive as a result of the expropriation process.

Considering those values (inaudible) which the relevant bodies and cost resolving the price or compensation were lifted through the expropriation process would reasonably apply. (inaudible) mentioned of the recoverable due entails uncertainty not only related to the amount but also to the time and terms of payment.

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