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Financial Times: Repsol faces lawsuit over reserves levels

EXTRACT: As a proportion of the total, the reserves cut was bigger than that of Shell, the Anglo-Dutch oil group that has also been sued by shareholders.


By Mark Mulliganin Madrid

Published: September 4 2006 03:00 | Last updated: September 4 2006 03:00

Repsol YPF faces a potentially damaging lawsuit by shareholders in the US, who allege the Spanish oil group misled regulators and investors over the level of its oil and gas reserves.

An amended class action complaint filed in a New York district court on Friday alleges that company executives “knowingly or recklessly made numerous false and misleading statements concerning the company’s business and financial results”.

The complaint, on behalf of holders of American Depositary Receipts, follows revelations by Repsol in January that it had overstated its proven oil and gas reserves by 1.25bn barrels of oil equivalent, or 25 per cent of the total.

As a proportion of the total, the reserves cut was bigger than that of Shell, the Anglo-Dutch oil group that has also been sued by shareholders.

US law firms Schiffrin & Barroway and Lerach Coughlin Stoia Geller Rudman & Robbins are handling the case for the plaintiffs.

Repsol now has 60 days to file a motion to dismiss the revised complaint, in which it will attempt to refute specific claims questioning the veracity of its regulatoryfilings and reports toanalysts.

Lawyers acting for the investors will be allowed to table further evidence to support their allegations before a judge decides whether or not to proceed with the case.

This initial process can take more than a year.

Most of the writedown at Repsol related to fields in Bolivia and Argentina, which account for the bulk of the company’s hydrocarbons production.

Antonio Brufau, chief executive, blamed the correction partly on higher royalty charges in Bolivia, which he said had forced the company to downgrade the economic viability of extraction. In Argentina, he cited technical difficulties related to irregular pressure in gas reservoirs.

However, an independent review concluded in June that the company’s reserves booking process “was flawed between 1999 and 2004” and that it had been “unduly optimistic” about its oil and gas deposits.

But it also failed to find evidence of executives “inflating reserves for personal gain”.

Lawyers, however, are arguing that Repsol broke Federal securities laws by engaging in a “fraudulent scheme that massively overstated [its] proved oil and gas reserves and the rate at which Repsol was replacing those reserves”.

Repsol last night said it would respond to the complaint within 60 days, and “was optimistic of a favourable outcome”.

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