Argentina's Battle For YPF Takes On International Dimensions
April 09 2012 - 6:31PM
Dow Jones News
Argentina's dispute with its largest oil and gas producer, YPF
SA (YPF, YPFD.BA), has taken on international dimensions after
provincial governments revoked oil concessions held by companies
from three countries.
The dispute with YPF, which had previously been limited to a
tensions with Spain, home to YPF's majority shareholder, Repsol YPF
SA (REP.MC), now involves Brazil, Canada and Chile.
President Cristina Kirchner has aggressively confronted the oil
and gas industry this year as declining output at aging fields
leads her government to import growing volumes of expensive fuel to
meet domestic demand.
Kirchner and provincial governors say private-sector companies
haven't invested enough in exploration and production, turning
Argentina into a net energy importer.
But until last week the government and the provinces had focused
their attacks on YPF. In recent weeks provincial governments have
revoked more than a dozen YPF's concessions, saying the company
invested too little in its oil fields.
That changed when Neuquen Province broadened the scope of its
targets to include other foreign investors, jeopardizing badly
needed investment in the sector, analysts say.
Neuquen rescinded concessions held by three companies, including
Petrobras Argentina SA (PZE, PESA.BA), a unit of Brazil's state
energy giant Petroleo Brasileiro SA (PBR, PETR3.BR), and a
subsidiary of Canada's Azabache Energy Inc (AZBCF, AZA.V).
Local media reported Neuquen revoked the Brazilian and Canadian
concessions as part of legal strategy to defend itself against
claims it singled out YPF even though other companies have invested
even less, or nothing at all, at other concessions in the
province.
Indeed, YPF has accused the provinces of "discriminating"
against it while letting other firms off the hook and said such
discrimination is unconstitutional.
A spokesman for Neuquen Governor Jorge Sapag could not be
reached for comment.
In March, Chubut Province rescinded a concession jointly held by
YPF and Chile's state-owned oil and gas company Empresa Nacional
del Petroleo SA, also known as ENAP.
"It's one thing to take a block back because contractual
agreements have not been complied with. It's another thing to take
a block back because the government is unhappy with something.
That's not right. If done systematically and fairly, that's part of
natural business practices. But if done the latter way, it's not,"
said Warren Levy, founder and chairman of the oil services company
Estrella.
Levy said Argentina's natural resources are "phenomenally
attractive" but constantly shifting government policies make the
country less appealing to oil and gas companies.
Kirchner is taking a hard line with oil companies at a time when
the country needs billions of dollars of investment to develop what
are thought to be some of the world's largest deposits of
unconventional oil and gas locked in shale rock.
The Kirchner administration has compensated for booming demand
and falling gas production by importing expensive gas from Bolivia
and Trinidad & Tobago. Last year, Argentina's energy import
bill doubled to $9.4 billion. That is crimping Argentina's trade
surplus, which is a key source of the U.S. dollars the
administration uses to pay its creditors.
YPF has denied government accusations of underinvestment and is
fighting the concession grabs in court. Meanwhile, Repsol YPF has
enlisted the aid of high-ranking Spanish government officials,
including the King of Spain.
But it is unclear if those efforts have achieved anything. Local
newspapers have reported a call by King Juan Carlos angered
Kirchner.
So far the other companies that lost concessions have adopted a
more conciliatory response.
Enap and Azabache Energy declined to comment.
While defending its investment track record at the concession
revoked by Neuquen, Petrobras Argentina said in a statement it was
open to dialogue with provincial officials. Petrobras officials
declined to comment.
Apart from the diplomatic issues raised by the provinces'
actions, the rapidly evolving dispute with YPF, and now other
companies, seems likely to worsen matters.
"It is a difficult time for doing business in Argentina,"
economist Federico Thomsen said in a report Thursday. "If an
orthodox programme ever existed, it has been shelved, replaced by
messy and often incoherent, market-unfriendly policies."
-By Taos Turner, Dow Jones Newswires; 5411-4103-6728;
taos.turner@dowjones.com
--Jeff Fick and Graciela Ibanez contributed to this article.