Paseo de la Castellana 89
+ 34 1 348 81 00
Fax: +34 1 314 28 21
Sales: US$18.20 billion (1994)
Stock Exchanges: Madrid New York
SICs: 1311 Crude Petroleum & Natural Gas; 2869 Industrial Organic Chemicals, Not Elsewhere Classified; 2911 Petroleum Refining; 3559 Special Industry Machinery, Not Elsewhere Classified; 4925 Mixed, Manufactured or Liquefied Petroleum Gas Production and/or Distribution; 5169 Chemicals & Allied Products, Not Elsewhere Classified
Repsol S.A. is Spain’s largest industrial company and is the sixth-largest oil company in Europe in terms of sales. Formed in 1987 by the merger of state-controlled oil sector companies, Repsol is now more than 90 percent privatized thanks to four separate share offerings from 1989 to 1996. The company controls about 60 percent of the refining market in Spain and has a 45.5 percent stake in Gas Natural, which dominates the Spanish natural gas market. Repsol is Spain’s first integrated international company in a national oil industry that, although dating back centuries, was relatively small and unimportant until recent times.
In 1539, the Spanish ship Santa Cruz transported the first transatlantic oil shipment when it carried a barrel from Venezuela to Spain. It was thought the dark fluid had properties to relieve the gout of King Charles I. History does not record whether he found it to be an effective remedy.
State monopoly and control, a characteristic that persisted in the Spanish industry, was established at the end of the 18th century when King Charles III declared all mining deposits, whether they were of a commercial character or not, to be the property of the crown. Only the crown would have the right to grant exploration or development concessions.
As 19th and 20th century Spain fell into a long period of decline and lagged behind the rest of Europe in industrial development, the country failed to develop a strong domestic oil industry. By the mid-1920s only a few unsuccessful attempts at oil exploration had taken place. No refineries were built. The country was heavily dependent on imported foreign oil, supplied by Shell and other major multinationals and distributed through an inadequate and fragmented network.
Spain was forced to spend valuable foreign exchange to import expensive refined oil. The corrupt dictatorship of Primo de Rivera, which governed the country between 1923 and 1930, realized that this state of affairs could not continue if Spain were to industrialize. The problem haunted successive Spanish governments and later it became more important as living standards and the number of motor vehicles rose in the period of rapid economic growth that followed World War II. By 1980, 65 percent of Spain’s oil was still imported. Rivera’s solution was to return to the tradition of state monopoly, a policy that was followed in modified forms by all successive Spanish governments up to 1986. In 1927, the dictator issued a decree expropriating all foreign and domestic oil sector companies and placing them under the control of a state agency. Administration was entrusted to Compañia Arrendataria del Monopolio de Pétroleos Sociedad Anónima (CAMPSA), which had the sole rights to purchase oil from producers at state-controlled prices.
Ironically, the country’s first refinery was built in the Canary Islands by Compañia Española de Petróleos S.A. (CEPSA), a private company, in 1930. The islands had been specifically excluded from the decree. Today CEPSA remains an important Spanish oil company. Three state-owned refineries were built prior to the disruptions of the 1936–39 Spanish civil war and the Franco dictatorship’s diplomatic isolation and armed neutrality during World War II.
In July 1941, CAMPSA undertook the country’s first major exploration, the “Tudanca” survey of the northern Burgos region, with negative results. Foreign exchange pressures and CAMPSA’s continued failure to discover oil on Spanish territory led the Franco regime to relax rules on foreign participation.
A 1947 law left CAMPSA in control of marketing and distribution, but enabled the government to authorize private and public companies to develop a wide range of activities in trade, industrial handling—especially refining—storage, research, and exploration for production of oil and gas fields.
In practice, the government usually required foreign companies to work under joint participation schemes with CAMPSA or other state-controlled entities. A requirement that both private and public refineries had to sell to CAMPSA continued, and in 1957 it was extended to gassified petroleum products.
The State Monopoly in the 1960s and 1970s
In 1963, the government announced the National Combustibles Plan and it asserted direct control of sales, imports, and production of oil products. The government would determine each refinery’s contribution to the national supply. Each refinery had to offer its product to CAMPSA, which then sold to consumers through its monopoly distribution network. To protect the balance of payments, refineries had to purchase a set percentage of their crude requirements from the Spanish government. This was known as the “Government Quote” and reached a height of 50 percent in 1980, then declined until it was removed in 1985.
After 169 wildcat failures, an association of Caltex and CAMPSA made the first discovery of oil in the “la Lora” concession and produced small amounts of low-grade crude oil in 1964. In 1965 offshore drilling began, and ten years later joint ventures discovered substantial quantities off the Mediterranean coast. By the early 1990s five offshore producing fields were in operation.
The rapid expansion of the Spanish economy created a 15 percent increase in annual oil consumption. In 1965, the government founded Hispänica de Petróleos (Hispanoil) as a state-owned company charged with spearheading exploration and development efforts in Spain and elsewhere.
When the share of imported crude reached 73 percent of the country’s total supply share in 1973, the government initiated a policy of encouraging more foreign participation to build refineries. It hoped to offset the costs of imported crude with exports of refined products. Shortly afterward, it attempted to cushion the shock of the first Arab oil boycott and OPEC-induced price rises by lowering taxes on products, with the result that only some of the costs were passed on to consumers.
In June 1974, the government announced the merger of the three refineries in which the state had a controlling interest: REPESA, ENCASO, and ENTASA. The state retained 72 percent of the shares. The new company, Empresa Nacional del Petróleo (ENPETROL) was also given the task of coordinating efforts to secure crude supplies through direct bargaining with producing states. An attempt to develop the First National Energy Plan was soon abandoned in 1976 and the country was without a coordinated energy plan until 1979. Authority for the use and production of energy was dispersed among different agencies, departments, and public companies.
Transition to Privatization in the 1980s
Francisco Franco died in 1975 and Spain passed into a new democratic era. In October 1977, the Spanish government and political leaders signed the Pacts of Moncloa, which attempted to establish a consensus for political and economic change. Included were provisions for the reorganization of the energy sector.
The Second National Energy Plan, introduced in July 1979, laid the groundwork for the formation of Repsol. According to the plan, a reorganization of public entities was required because exploration had failed to develop. The structure of the industry was fragmented and lacked vertical integration. CAMPSA, the Spanish banks, and the Department of Finance continued to resist moves toward integration, the second oil crisis and moves toward joining the European Community (EC), however, forced the logic of integration and the creation of Instituto Nacional de Hidrocarboros (INH), Repsol’s direct predecessor. On December 18, 1981, all public participations in the oil sector were brought together in one holding company: INH. Minority foreign shareholders in Spanish public oil companies were gradually bought out.
During the 1983–86 negotiations for Spain’s entry to the EC, it became increasingly clear that Spain would have to dismantle its formal government monopoly in marketing. CAMPSA shares were split among the refineries, with INH retaining the majority of the shares. Negotiators hoped to avoid a situation in which the EC would require CAMPSA to offer its distribution network and services to every interested foreign company. The refineries agreed to continue to sell products destined for the domestic market to CAMPSA.
In 1985, Hispanoil took over ENIEPSA, a public company formed in 1976 to engage in exploration. Shortly afterward, INH was reorganized into a divisional structure: Hispanoil exploration, Enpetrol refining, Alcudia petrochemicals, Butano liquefied petroleum gas, and Enagas natural gas distribution. In September 1987, all these divisions, except Enagas, were incorporated into the new Repsol S.A., a company then 100 percent-owned by the Spanish state. The name Repsol, formerly a trademark for lubrication products, was chosen after extensive marketing research because it was short, widely recognized in Spain, and easy to pronounce in other languages. It was envisaged that Enagas would be added to Repsol at some future point. The time was not yet appropriate because it had an ambitious investment program, which would generate insufficient immediate returns. Otherwise, Repsol retained the INH divisional structure but Hispanoil became Repsol Exploración, Enpetrol was renamed Repsol Petróleo, Alcudia became Repsol Química, and Butano became Repsol Butano.
Repsol’s Initial Years
In 1986 Spain joined the EC under a phased plan to enable the country’s protected industries, including the oil industry, to adapt to EC regulations. With the creation of Repsol, the government hoped to create an integrated national oil company that would be able to compete successfully in the post-1992 single European market. By changing the structure from that of a government agency to a company in which the government retained a majority stake through INH, an arm’s-length relationship was established that might satisfy critics of the Spanish government’s close involvement with its oil industry. The INH also wanted to have a strong domestic oil company able to develop an overall strategy including exploration, production, refining, and distribution.
The EC Commission was reluctant to accept Repsol’s dominant role in CAMPS A because Article 37 of the Treaty of Rome declared that member states should adjust commercial monopolies to the extent that all discrimination in trade between citizens of member states disappeared. Also, Article 48 of Spain’s treaty of adhesion to the EC required Spain to open up its frontiers to the importation of oil products originating from the EC. In December 1987, the EC Commission warned Spain that it would be taken to the European Court if it did not take further steps to liberalize the market.
A decision had already been made to sell 26 percent of Repsol to the public, both in Spain and abroad. Repsol and the government were impressed with similar privatizations in the United Kingdom. It was believed that a partial flotation would not only raise money and make it easier for the company to secure private sector finance, but also introduce a private sector discipline and increase the international stature of the company. INH would continue to hold a two-thirds share to ensure government control.
The May 1989 share issue, on the Madrid and New York stock markets simultaneously, was successful beyond expectations. The initial offering of 40 million shares was heavily oversubscribed and a further issue equivalent to ten percent of the original had to be made. Overall, the equivalent of more than US$1 billion was raised and the company had 400,000 new shareholders (to date this was the largest share offer ever for a Spanish firm and largest of 1989 worldwide). The issues were so attractive that at least three brokerage firms were later successfully prosecuted for irregularities in the flotation by the Comision Nacional de Valores (CNV), the Spanish stock market supervisory body.
At the beginning of 1989, Repsol acquired the Naviera Vizcaina shipping company to increase its own marine fleet and avoid rising charter rates. Later that year, Repsol took over the 34 percent interest of Petróleos Mexicanos (Pemex), the Mexican state oil company, from the Spanish Petronor refinery company in exchange for a three percent interest in Repsol. The deal included a five-year supply contract by Pemex and envisaged cooperative ventures in Mexico. It brought Repsol to a holding of 90 percent in Petronor and 70 percent in CAMPSA. In August of that year, Repsol purchased Carless Refining & Marketing and Carless Petroleum from Kelt Energy, the U.K. oil independent. Repsol intended to develop a market for its products in the United Kingdom through the Carless chain of 500 service stations.
1990s and Beyond
By 1990, Spain still had only 5,000 service stations. The United Kingdom, by comparison, had 20,000. Foreign companies had only opened seven in Spain, and Repsol’s Spanish competitors had opened only 180. In November 1989 Leon Brittan, the EC Competition Commissioner, attacked Spain for failure to open markets in heating oils and liquefied petroleum gas (LPG). With 13 million customers, the subsidiary Repsol Butano had 100 percent of Europe’s largest market for butane. But prices for liquefied petroleum gas were soon to liberalized.
Brittan warned that the commission would keep a close watch on Spanish interpretations of regulations, the dominant position of Repsol in CAMPSA, and the slow development of independent outlets. He said the commission would reexamine a possible court action against Spain if the Spanish market were not fully opened up to foreign competitors.
In 1991 Repsol refined more than 60 percent of all the crude processed in Spain, distributed all liquefied petroleum gas, and produced half the petrochemical and oil products. Partially in response to EC criticism, Repsol and the other CAMPSA shareholders decided that CAMPSA’s 3,800 service stations and some other retail assets would be divided between Repsol and the CAMPSA minority shareholders—CEPSA, Petromed, and Ertoil. In 1991 the division took place, with Repsol gaining about two-thirds of the stations as well as the use of the service station brand name Campsa (the company continued to also use the Repsol and Repshop brands). CAMPSA continued as a distribution and transportation company, with Repsol in control of the majority of the shares.
Market liberalization continued in Spain into the mid-1990s, resulting in increased competition for Repsol and the loss of some of its clout, such as from the dissolution of CAMPSA. Competitors entering the Spanish market included British Petroleum which took over Petromed, a small refiner, and the French oil powerhouse Elf which bought a stake in CEPSA, the largest private refiner in the country. Altogether about 40 different petroleum companies had been allowed into the Spanish market by the end of 1995.
In response to the growing competition, Repsol pursued an increasingly international strategy of seeking both sources of crude and markets for its products abroad. The company successfully discovered oil in the North Sea, Colombia, Angola, and Egypt and was awarded new exploration areas in Argentina, Angola, Algeria, Dubai, Egypt, and Vietnam. In 1990, it began explorations in Soviet Turkmenistan and agreed to explore in other Soviet areas in cooperation with Total and Petrofina.
Overseeing Repsol since its founding in 1987 was chairman and chief executive officer Oscar Fanjul-Martin. A former economics professor and technocrat, he was instrumental in the negotiations that led to Spain’s entry into the European Union. In the early 1990s, Fanjul-Martin succeeded in his efforts to significantly expand Repsol’s natural gas operations. In 1992, Repsol and La Caixa, a Spanish bank, merged their natural gas operations to form Gas Natural, with Repsol holding 45.5 percent of the new gas utility. The following year, Repsol gained an even stronger position in natural gas when Gas Natural purchased 91 percent of the Spanish state-owned Enagas, giving Gas Natural a near-monopoly on natural gas on Spain. By 1995, Repsol’s natural gas and bottled-gas businesses contributed about 25 percent of company earnings, compared to just nine percent in 1987.
Fanjul-Martin also had the difficult task of guiding Repsol through the oil downturn of 1993, when prices plunged. The company’s strengths—such as having much stronger downstream operations than such price-sensitive areas as exploration—were clearly in view, however, and by instituting a vigorous cost-cutting program, Repsol was able to increase profits more than 11 percent, outperforming most of its competitors.
The mid-1990s were marked by a significant reduction in the government ownership of Repsol. Share issues in 1993, 1995, and early 1996 reduced INH’s stake in the company to 40.5, 21, and about ten percent, respectively. Each of the issues proved extremely popular in Spain, elsewhere in Europe, and in the United States, testifying to Repsol’s strong position.
Repsol headed into the end of the century almost fully privatized and with enviable strength in oil and gas in its home market. The company showed considerable resilience in the face of generally difficult conditions in the oil industry and increased competition. Repsol’s diversification into natural gas would likely prove extremely important, as the Spanish market for natural gas was only in its infancy in the mid-1990s.
CLH; Gas Natural (45.5%); Petronor EE. SS., SA (86.58%); Repsol Butano, SA; Repsol Comercial de Productos Petroliferos SA (96.93%); Repsol Derivados, SA (99.96%); Repsol Distribución, SA (99.96%); Repsol Exploración; Repsol Naviera Vizcaína, SA (99.54%); Repsol Petróleo (99.96%); Repsol Química SA; Repsol S.A., Repsol Quimica; Repsol Oil International Ltd. (Channel Islands); Repsol Petroli S.p.A. (Italy); Gaviota Re, S.A. (Luxembourg); Repsol S.A. de C.V. Mexico; Carless Refining & Marketing BV (Netherlands); Repsol Intl. Finance BV (Netherlands); British Solvent Oils (U.K.); Repsol Petroleum Ltd. (U.K.); Repsol (U.K.) Ltd.; Repsol Oil, U.S.A.
Calian, Sara, and Carlta Vitzthum, “Demand for Repsol Shares Outstrips Supply in Offering as Investors Expect to Strike Oil,” Wall Street Journal, January 31, 1996, p. C2.
Correlje, A. F., The Liberalization of the Spanish Oil Sector: Strategies for a Competitive Future, Rotterdam: The Centre For Policy Studies, Erasmus University, 1990.
Irvine, Steven, and Elisa Martinuzzi, “Repsol Guarantees Satisfaction,” Euromoney, September 1995, p. 258.
Kielmas, Maria, “Ole Repsol! The Spanish Oil Company Sets a Swift Pace,” Barron’s, August 7, 1989, p. 15.
“Oscar Fanjul-Martin: Repsol,” Financial World, July 19, 1994, p. 46.
“Profits from Adversity,” International Management, January/February 1994, pp. 36–41.
Santamaria, Javier, El petroleo en Espana: del monopolio a la libertad, Madrid: Espasa Calpe, 1988, 210 p.
—updated by David E. Salamie