Spanish oil firm Repsol (REP.MC) is set to accelerate a $10 billion acquisition drive to take advantage of lower U.S. shale valuations in the face of falling oil prices and eventually fill a gap left by the 2012 seizure of its Argentine business.

The cash-rich group has been on the hunt for oil and gas assets for months as it tries to reduce its heavy exposure to conflict-ridden regions such as Libya and Venezuela and to protect itself from any takeover bid from bigger international competitors.

After failed attempts at deals with Talisman (TLM.TO) and Pacific Rubiales (PRE.TO) of Canada and Norway's Marathon Oil (MRO.N), it continues to pursue oil and gas targets in OECD countries that offer a 7 or 8 percent investment return, sources familiar with the matter said.

The sources would not be drawn on which companies Repsol is potentially pursuing.

Repsol is trying to reduce a shopping list of potentially tens of small companies or assets to just a handful, with the finalists likely to be those targets that offer oil wells already in production as well as an entry point in the U.S. shale industry.

Although Chairman Antonio Brufau recently said he would not make a purchase for the sake of it and the firm would take its time to analyze any opportunity, the clock is ticking.

While most banks have lower price forecasts next year for Brent and U.S. crude, some analysts think the markets may rebound quicker than projected.

"The strong correction in Brent prices should turn the tide in favor of Repsol but it may be a narrow window of opportunity," BPI analysts said in a note to clients.

Repsol has said it could spend between $8 billion and $10 billion on a purchase, or even more if it decides to sell its 30 percent stake in Spanish gas and electricity firm Gas Natural (GAS.MC), worth another $8 billion at current market prices.

"I think they'll end up selling Gas Natural, all or part of it, if they find a target that really interests them," Intermoney analyst Alvaro Navarro said.

Sources familiar with Repsol's plans said such a move should not be ruled out although the company would consider selling its Gas Natural stake only if it finds a big enough alternative investment that would yield more than Gas Natural's stable 4 percent annual return.

GET "CREATIVE" ?

In the meantime, the possibility often mentioned by industry and market sources of Repsol pursuing a merger with Gas Natural now seems more remote following the gas group's $3.3 billion takeover offer this month for Chile's biggest electricity distributor Compania General de Electricidad (CGE).

Any deal involving Gas Natural would also need the consent of Catalan banking powerhouse Caixa (CABK.MC), a core shareholder of both Repsol and the Barcelona-based gas company but which is currently focused on restoring its banking business after a deep financial crisis in Spain.

Some analysts, speaking on condition of anonymity, believe Repsol could also be tempted to get "creative" if the price or the characteristics of a specific asset requires it.

Although maintaining its investment grade rating remains a top priority for Repsol, the firm could decide to tap the market for extra financing, they say, adding that funding a potential deal with shares is also a possibility if the target turns out to be a listed company.

The prospect of a special dividend, which Repsol has said it will pay if it fails to find an acquisition that meets all of its standards within two years, has diminished in the last few weeks, the sources familiar with the firm's strategy say.

Another special dividend following the 1.3 billion euros it handed out in May after the Argentine settlement would be seen as a failure for Brufau, who celebrated ten years at the helm of Repsol this week and is keen to both reaffirm his leadership and prepare his legacy after riding out several big storms, they say.