The Argentine government's right of veto on any decision relating to the future of Spanish oil major Repsol's unit YPF is likely to outweigh any desire Repsol might have to free up some cash by disposing of its stake.

For this reason, most market experts expect Repsol to stick to its original intention of selling 20-30 percent of YPF, a strategic company for the Argentine economy.

Last week, sources told Reuters that China National Petroleum Corp (CNPC), the country's largest oil company, was eyeing 75 percent of YPF and could pay up to $14.5 billion for the stake.

Furthermore, China's top offshore oil and gas producer CNOOC (0883.HK) is eyeing the remaining 25 percent of YPF, the sources said.

Analysts are sceptical however that the Argentine government would be prepared to hand over control of YPF to Asia, one of its most important trading partners.

The Argentine government will prefer to have Repsol as a counterparty in YPF. The Chinese government is a more complicated partner and could exert more financial-economic pressure than Repsol, BNP Fortis analyst Rafael Rico said.

But with the two-pronged assault from CNPC and CNOOC, China is now hedging its bets.

CNPC made an unsuccessful bid for YPF's Latin American assets in 2007, but this time round a joint assault with CNOOC could be a good move.

If they give 75 percent of YPF to CNPC, China will be in control. But the Chinese government is saying, hmmm, if you don't give me the 75 percent, you'll give me the 25 percent and CNOOC will win, Gordon Kwan, a Hong-Kong based analyst at Mirae Asset Securities said.

China is hedging against the risk of Argentina not giving them majority control, he said.

According to various media reports, India's Oil and Natural Gas Corporation (ONGC.BO) and Russia's TKTK are also eyeing YPF.

CHINA DEAL BENEFICIAL FOR ARGENTINA

While some experts have questioned the strategic fit of YPF for China -- much of Argentina's reserves are gas, while China is mostly interested in oil -- if a deal fails, Argentina could be in trouble in terms of oil production growth.

YPF's fields are mature and Repsol simply doesn't have the balance sheet or ability to rejuvenate or rehabilitate these fields, Gordon Kwan said.

But CNPC, because of its experience with mature oil fields like the Daqing field and the Liaohe field, can revive production growth in Argentina, which in turn will lead to more taxes for the local government, he said.

Chinese state oil companies have been tasked with securing energy supplies to fuel a fast-growing economy and if the YPF deal went ahead it would mark the latest in a string of foreign takeovers.

YPF SHAREHOLDER STRUCTURE COMPLICATES SALE

Given the complexity of its shareholder structure, the market is betting more on a partial sale of YPF, Ibersecurities oil analyst Jorge Gonzalez said.

YPF's three core shareholders are Repsol with 84 percent, local businessman Enrique Eskenazi with 15 percent and the Argentine government, which has the right to veto any bid affecting over 15 percent of the company. Eskenazi also has the option to buy a further 10 percent of YPF before 2012.

Repsol bought 85 percent of YPF in 1999 for $13.4 billion after paying $2 billion for 15 percent of the firm.

Last year, the deal with the Eskenazi's Petersen Group valued YPF at $15 billion, while the offers touted currently raise this to $17-18 billion, which only implies a modest premium for shareholders.

YPF controls over half of Argentina's refining capacity and nearly 40 percent of the country's oil output. It accounts for three quarters of Repsol's production.

But its fields are aging and some analysts are of the opinion that if Repsol sells out a reasonable price, this will be a good move.

Repsol has not reaped enormous dividends from YPF, so taking into account the financial costs, the acquisition can be seen as less than successful

It has been looking to sell a stake in YPF for some time and has been considering a public share offer, which has been scuppered by the global financial crisis.

I don't think it would be a problem if Repsol sold all of YPF. Its upstream exposure would be less but it could buy other assets ... It could also keep the cash in hand, one analyst said.

On the possible timing of a China offensive on YPF, an investment banker with direct knowledge of the YPF auction told Reuters on Friday that China's energy majors, including CNPC and CNOOC often butt heads like rival siblings when it comes to negotiating with China's government about deals.

For that reason, it is unlikely that a formal joint bid for YPF will be submitted on paper in the next few days, the banker added.

(Reporting by Clara Vilar and Judy MacInnes; additional reporting by Tom Bergin, Joseph Chaney and Michael Flaherty; Editing by Rupert Winchester)

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