MADRID (Bloomberg) -- Repsol YPF SA, Spain’s largest oil company, is negotiating to buy a stake in a Russian field as it tries to cut reliance on South America for supplies.

The company expects to conclude the purchase this month, said a Repsol official who declined to be identified. The Financial Times today cited unidentified people in the industry as saying the deal would involve a 25 percent stake in Sakhalin-3 in the Far East of Russia. Russia's OAO Rosneft Oil Co. and China Petroleum & Chemical Corp. are already exploring that block.
Madrid-based Repsol has pledged to almost triple profit by 2012 as it shifts its reliance on earnings from Argentina. International oil companies view Russia as one of the last places to expand their shrinking reserve base. Royal Dutch Shell Plc, Exxon Mobil Corp. and Total SA have all formalized their relationship with the Russian state, while a dispute with shareholders is preventing BP Plc from doing the same.
The acquisition of a stake “could be interesting for Repsol as it fits with its strategic plan of developing its liquefied natural gas business and diversifying the oil upstream business away from Argentina and Bolivia,” Bruno Almeida da Silva, an analyst at Banco BPI SA, said today in a note.
Repsol is in “advanced negotiations” to buy a “significant stake” in a Russian Sakhalin block, the FT reported, citing Executive Chairman Antonio Brufau.
--------------Sakhalin projects
Sakhalin Island, north of Japan in the Pacific Ocean, is Russia’s largest oil province and has been developed since the collapse of the Soviet Union in 1991. The island’s offshore oil and gas fields are divided into numbered projects.
State-run Rosneft, whose Chief Executive Officer Sergei Bogdanchikov built his career on Sakhalin Island, already has a 20 percent stake in the Exxon Mobil Corp.-led Sakhalin-1 project. Sakhalin-1 started producing oil and gas in 2005.
Rosneft is also exploring the Veninsky block, one of four blocks in the Sakahlin-3 project. China Petrochemical Corp., or Sinopec, has a 25 percent stake in the project, with Rosneft holding the rest.
State-run rival OAO Gazprom is a latecomer to Sakhalin, the birthplace of the gas company’s chief of exports, Alexander Medvedev. Gazprom took control from Royal Dutch Shell Plc of the Sakhalin-2 project last year and is now aiming to explore the Kirinsky block of Sakhalin-3.
Repsol was one of several international oil companies interested in becoming a partner in Gazprom’s planned liquefied natural gas plant on the Baltic Sea. Gazprom dropped the plan in February after other projects took precedent.
Nikolai Manvelov, a spokesman for Rosneft, declined to comment on the report when contacted today. Gazprom spokesman Sergei Kupriyanov couldn’t comment immediately.
--------------Favorable development
“Both the size of the reserves and the strategic location of the block on the east of Asia could favor the development of liquefied natural gas in order to take advantage of the Asian market’s growth or even arbitrage opportunities with the U.S.,” BPI’s Almeida da Silva said.
Repsol shares dropped as much as 77 cents, or 3.2 percent, to 23.63 euros, and traded at 23.84 euros as of 11:05 a.m. in Madrid. The stock has declined 2.2 percent so far this year, giving the company a market value of 29 billion euros ($46 billion).
Stocks fell in Europe and Asia today and U.S. index futures dropped as concern deepened that financial firms will need more capital. Europe’s Dow Jones Stoxx 600 Index dropped 2.4 percent.
“Russia does have a risk element, as we have seen with the example and the problems of BP in this country,” Banesto Bolsa SA analysts said Tuesday in a research note.
Robert Dudley, the chief executive officer of BP’s Russian venture, yesterday survived a vote to dismiss him as head of the company’s management subsidiary as BP's partners seek to force him out of Russia’s third-largest crude producer. BP's 50 percent stake in the TNK-BP venture accounts for a quarter of the company's output and a fifth of proved reserves.
Royal Dutch Shell Plc was forced to sell control of its $22 billion Sakhalin-2 oil and gas project in Russia's Far East to Gazprom after regulators threatened to halt the development.