China National Petroleum Corp., the country's largest oil company, could pay up to $14.5 billion for 75 percent of Spanish oil major Repsol's Argentine unit YPF, sources said on Tuesday.

CNPC, parent company of top Asian oil and gas firm PetroChina, and Repsol have begun talks, sources with knowledge of the matter told Reuters.

The sources, not authorized to speak publicly, said an offer from CNPC -- which in 2007 failed twice to buy all of YPF's Latin American assets amid wrangling over terms -- had yet to be put on paper or formally submitted.

China's top offshore oil and gas producer CNOOC, India's Oil and Natural Gas Corporation and Russian companies are also eyeing YPF, newspaper reports said.

Repsol, ONGC, and CNOOC all declined to comment, and a CNPC spokesman said he had no information the deal.

Last week Repsol, which is running short of reserves but has been looking to sell YPF for some time, said it had several offers for a stake in the unit, but none were firm.

Analysts have valued YFP at around $15-17 bln so the around $19 bln implied by the bid CNPC is mulling would offer shareholders only a modest premium.

At 1000 GMT (6 a.m. EDT), Repsol was trading up 0.6 percent at 16.39 euros, underperforming a 2.8 percent gain for the European oil and gas sector.

We don't believe there is likely to be significant value upside from a deal unless it implies a value well over $17 billion, Gordon Gray , oil analyst at Collins Stewart, said last week.

FUELLING CHINESE GROWTH

Chinese state oil companies have been tasked with securing energy supplies to fuel a fast-growing economy, and if the Repsol deal went ahead it would mark the latest in a string of foreign takeovers, including a $7.2 billion bid for Swiss oil explorer Addax Petroleum by Sinopec Group.

Chinese firms have showed willingness to pay prices for assets that Western oil companies are not prepared to match, and to invest in locations where political risks might their Western peers.

The country's National Development and Reform Commission (NDRC) has historically decided which company can proceed with deals involving multiple domestic bidders, as China does not want state-backed companies bidding up the price of a deal.

However, CNOOC is reported to be eyeing the remaining 25 percent of YPF and analysts say CNPC and CNOOC could make a joint bid, although a clear timetable remains unclear.

Both companies can work together; CNPC can gain access to the onshore exploration rights, while CNOOC can gain access to the offshore assets, said Gordon Kwan, a Hong Kong-based analyst at Mirae Asset Financial.

CNOOC is being represented by JPMorgan, while Morgan Stanley

is representing CNPC and Goldman Sachs is advising YPF on the sale, sources told Reuters.

Aging GIANT

YPF has more than 30,000 employees, controls over half of Argentina's refining capacity and nearly 40 percent of the country's oil output. It holds mineral rights to 21 exploration blocks and 92 production blocks in Argentina, according to the company. As of end-2008, YPF owned 1,678 service stations.

Repsol, which in 1999 bought 85 percent of YPF for $13.4 billion after it paid $2 billion for 15 percent of the firm -- has been looking to sell a stake in YPF for some time and has been considering a public share offer.

Analysts at Morgan Stanley cautioned last week that Repsol, running short of reserves, might not want to lose control of YPF, and that Argentina's Peronist government might also baulk at allowing a fresh foreign buyer take it over.

However, CNPC usually seeks control in its overseas acquisitions.

Last year YPF's output at its aging fields slipped 4.6 percent to 619,000 barrels of oil equivalent per day, according to media reports.

It doesn't matter how old they are, said Macquarie analyst David Johnson. The real question is, what is the oil worth and are you buying at a correct price? Selling mature oil fields is normal in the E&P industry. If they can buy reserves at a good price, it's better than taking the risks of exploring for oil.

In February 2008, the Petersen Group -- run by Argentine banker Enrique Eskenazi-- bought 14.9 percent of YPF for roughly $2.2 billion, and has an option to buy another 10 percent.

CNPC's efforts to buy YPF's Latin American assets in 2007 foundered on disputes over deal structure, lack of conviction about returns, and Chinese fears about nationalizations in South America, according to media reports.

(Additional reporting by Tom Bergin in LONDON, Jim Bai in BEIJING, Jesus Aguado and Jason Webb in MADRID and Sumeet Chatterjee in MUMBAI; Editing by John Stonestreet)

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