Spanish oil group has dismissed a legal demand by China’s for a $5.5bn repayment from their North Sea joint venture as “baseless”, in an escalation of a dispute over their UK operations.

Their joint venture, called Talisman-Sinopec Energy UK Ltd, describes itself as the largest single operator in the North Sea, with ten oil platforms. It was originally formed between Sinopec, its Canadian listed subsidiary Addax and in 2012.

Repsol then , and its share of the joint venture, in May this year.

On Friday, the Spanish oil major confirmed that Sinopec was seeking arbitration over the repayment of its initial $1.5bn investment in the venture, as well as $4bn in past and future expenditures, and opportunity costs.

But said the claim was “baseless”, adding: “Our external legal council has classified it as a ‘remote risk’.”

In a longer statement, issued at the request of the Spanish regulator after a local media report, Repsol said: “The claimants’ proceedings can be interpreted as a defensive action undertaken by those who adopted an investment decision in the United Kingdom which has not delivered the results expected by them — as it has also happened with other investments by this group of companies.”

It repeated that the arbitration claim was “groundless” and described Sinopec’s move as “inconsistent with the loyalty to be expected from a business partner.” Repsol said that, despite its claim, Sinopec intended to remain part of the North Sea joint venture, which is soon to be rebranded Repsol Sinopec Resources UK.

Sinopec declined to comment.

However, analysts at Exane BNP said on Friday: “While the headline amount is highly material, this news does not appear to reconcile with the significant improvement in operational performance in the companies’ UK operations, as part of the ongoing restructuring efforts. Additionally, the companies have previously had a good working relationship through their Brazilian [joint venture] operations.”

Sinopec has been conducting an internal audit of all its overseas purchases, which it initiated after China’s energy and security tsar Zhou Yongkang was charged in 2014. Many of Sinopec’s acquisitions were made during Mr Zhou’s political push for Chinese oil companies to “go out” and for the rapidly growing nation.

Chinese oil firms have since realised that many of their overseas purchases were made at the top of the oil boom, at steep premiums to the price other competitors were prepared to pay. A steep drop in oil prices has rendered some of the fields unprofitable.

Repsol has also had to as oil prices fell. Its problems were compounded by its ill-timed acquisition of Talisman, a relatively high-cost oil producer, which it bought halfway through the price slump for $8.3bn.

Buying Talisman boosted production for Repsol but increased its borrowing. As a result, and following shareholder pressure, the Spanish group has been trying to lower its debt and said it would aim to sell €6.2bn of assets by 2020.

In October, Repsol promised to cover its costs and deliver returns at a “break-even” price for oil of just $50 a barrel.

Talisman-Sinopec Energy, based in Aberdeen, cut its workforce by 10 per cent in early 2015 as oil prices dropped.