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Oil price tumble could accelerate Repsol deal search

[MADRID] Spanish oil firm Repsol is set to accelerate a US$10 billion acquisition drive to take advantage of lower US shale valuations in the face of falling oil prices and eventually fill a gap left by the 2012 seizure of its Argentine business.

The cash-rich group has been on the hunt for oil and gas assets for months as it tries to reduce its heavy exposure to conflict-ridden regions such as Libya and Venezuela and to protect itself from any takeover bid from bigger international competitors.

After failed attempts at deals with Talisman and Pacific Rubiales of Canada and Norway's Marathon Oil , it continues to pursue oil and gas targets in OECD countries that offer a 7 or 8 per cent investment return, sources familiar with the matter said.

The sources would not be drawn on which companies Repsol is potentially pursuing.

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Repsol is trying to reduce a shopping list of potentially tens of small companies or assets to just a handful, with the finalists likely to be those targets that offer oil wells already in production as well as an entry point in the US shale industry.

Although Chairman Antonio Brufau recently said he would not make a purchase for the sake of it and the firm would take its time to analyse any opportunity, the clock is ticking.

While most banks have lower price forecasts next year for Brent and US crude, some analysts think the markets may rebound quicker than projected. "The strong correction in Brent prices should turn the tide in favour of Repsol but it may be a narrow window of opportunity," BPI analysts said in a note to clients.

Repsol has said it could spend between US$8 billion and US$10 billion on a purchase, or even more if it decides to sell its 30 per cent stake in Spanish gas and electricity firm Gas Natural , worth another US$8 billion at current market prices. "I think they'll end up selling Gas Natural, all or part of it, if they find a target that really interests them," Intermoney analyst Alvaro Navarro said.

Sources familiar with Repsol's plans said such a move should not be ruled out although the company would consider selling its Gas Natural stake only if it finds a big enough alternative investment that would yield more than Gas Natural's stable 4 per cent annual return.