Repsol Requires Repair

If adversity builds character, the folks running RepsolYPF (NYSE:REP) should have character oozing from their pores in a few years' time. The already-dubious prospects of this European oil company have been further clouded by uncertainties in Latin America.

Sure, revenue growth of 23% in the latest quarter looked all right, but EBITDA growth of 15% was pretty sluggish, and adjusted profit growth of less than 8% was downright stagnant. On the other hand, while those results don't compare well to French oil giant Total SA (NYSE:TOT), they're not so out of line with, say, BP (NYSE:BP).

Production and reserves continue to be an issue here. Production was down 2.6% this quarter, and given that Repsol generally relies a bit more on refining and marketing than other big oil companies, the 6% drop in oil might be a little extra pain. Don't forget, too, that this company slashed its reserve estimates by 25% a little while ago, and has a pathetic reserve replacement ratio and reserve life position. Nonetheless, its finding and development costs remain higher than average.

On top of that, add turmoil in Venezuela and Bolivia. About 18% of Repsol's reserves are in Bolivia, and the company will obviously be hurt by that country's decision to effectively invalidate the rights of foreign energy operators. While Repsol is still talking a good game, they seem to have few options other than accepting the new terms.

What's more, Repsol has a lot staked on Latin America in general, and things could get very unstable down there very quickly. It may seem alarmist of me to suggest that Brazil, Argentina, or Chile could ultimately go to war with Bolivia over this issue, but remember: There was bloodshed in the region not too long ago over smaller and less certain stakes.

I can't see a good reason to own Repsol right now. It seems cheap, yes, but there are some good reasons for that. Even if things somehow settle down in Bolivia and Venezuela in favor of Repsol, there's still the matter of poor reserve trends. What's more, there's no shortage of other interesting energy ideas out there, which makes taking a chance here seem a bit more risky by comparison.

For more energetic Foolishness:

• BP Needs Better Performance
• Changes Afoot for Total
• Hugo Chavez Makes His Move

Total SA is a Motley Fool Income Investor recommendation.Go drilling for dividend gushers with a free 30-day guest pass.

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).