Robbing Repsol, Argentina to nationalise YPF

Smash and grab could squander Argentina's shale exploration potential

YPF's nationalisation is a hit with voters, but could cost Argentina in the long run. GETTY IMAGES
YPF's nationalisation is a hit with voters, but could cost Argentina in the long run. GETTY IMAGES

Argentina’s government yesterday announced that it will ask the nation’s congress to nationalize YPF, an oil and gas company which is currently 57.4% owned by Spain’s Repsol.

YPF's nationalisation - the largest since the Yukos seizures in the 1990s - is hugely popular with voters and is likely to be approved by congress with an overwhelming majority.

After being stripped of 51% of its interest, Repsol would be left with 6.4% of YPF.

The move is likely to severely undermine international investment in Argentina’s oil and gas sector, and the country’s economy more widely. Spain has reacted furiously to the nationalisation, branding it a “hostile” act and vowing tough measures in response. Repsol will launch legal action for compensation if nationalisation is completed, based on an $18 billion value of the company.

The cash-strapped Kirchner administration had prepared Repsol for the worst, after a litany of accusations that the company was not investing sufficiently in YPF, and several license terminations by regional administration, despite YPF presenting a $4.4bn plan to drill 2,249 new wells by 2017.

A former Repsol executive admitted to the Financial Times that YPF was seen as a “cash-cow,” with profits at the company used to invest elsewhere.

Analysts have noted that the country’s oil policy, which includes regulated prices, the frequent denunciations of foreign oil companies as bogeymen, and stultifying bureaucracy, offered little incentive to invest.

It is unclear how the government will stump up the investment in YPF it had criticised Repsol for not making. While the country has significant upstream potential, particularly in shale gas, it lacks the domestic expertise to exploit its resources, and is largely barred from raising national finance through international capital markets.

Argentina imports oil and gas, a ruinously costly policy given prevailing LNG prices to the region of around $17 per MMBtu compared with around $3-4 MMBtu domestically, and generous government subsidies which make even domestic wholesale prices unsustainable.

YPF has estimated that developing its shale resources would cost around $250 billion. With Western investors likely to shun the country, the Kirchner administration may attempt to woo Chinese state firms, which are already pressing ahead with a domestic shale exploration program, to its relatively shallow, rich and concentrated shale plays.

Predictably, the nationalisation was cheered by Venezuela’s Hugo Chavez, whose nationalisations have seen national oil company PDVSA producing food, house furniture and home appliances.

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