Sinopec Group, China's largest refiner and the parent of Sinopec Corp (NYSE: SNP, SHA: 600028, HKG: 0386), has reached a nonbinding agreement with Spain's Repsol to buy its 57.4% stake in YPF, the largest oil company in Argentina, according to a well-informed source close to Sinopec.

Sinopec will pay $15 billion for the deal, which has been supported by Repsol's board. But a final binding deal requires regulatory approval from the Spanish and Argentinean governments, the source said.

YPF is currently in a tense relationship with the Argentinean government, which has accused YPF of not investing enough and causing an oil shortage in the Latin American country. Many oil-producing provinces in Argentina have taken back YPF's licenses for exploitation. There are speculations that the Argentinean government is planning to renationalize YPF, which was privatized in the 1990s.

Argentina's refined oil prices are artificially set low by the government, and this has held back production and investment in the industry.

Despite these risks, Sinopec is confident it will meet the Argentinean government's desire to step up developing the idle blocks YPF once had the right to extract.

In 2009, PetroChina Co (NYSE: PTR, SHA: 601857, HKG: 0857) and CNOOC Ltd (NYSE: CEO, HKG: 0883) approached cash-strapped Repsol to acquire its stake in YPF, also for approximately $15 billion. Repsol scuppered the deal after it raised money from the Middle East later that year.


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