Wednesday, April 18, 2012

Argentina vs. Spain: YPF Oil

"Argentina has just shot itself in the foot in a really bad way," Spain's foreign minister, José Manuel García-Margallo

"This president won't respond to any disrespect or insolent phrases ... I am a head of state, not a bully." Argentine President Cristina Fernández
Argentina and Spain are going head to head against each other over YPF oil.

YPF was originally an Argentinean state-owned oil company, one of the biggest in the region and biggest in Argentina. In 1999, the Spanish based energy giant Repsol purchased 57.4% of YPF’s shares during privatization. Since then, YPF has been one of the primary business operations for Repsol. It accounted for nearly 60% of total Repsol’s production and represented a quarter of Repsol’s profits.
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Argentinean government plans to seize 51% of YPF’s shares through legislation. All of these shares will come out from Repsol’s pocket (57.4% shares) which will be left with just 6.4% shares.

Expressing outrage over Argentina’s decision, Spain’s Industry Minister Jose Manuel Soria has threatened with retaliation. Repsol’s executive chairman Antonio Brufau plans to seek $10.5 billion in compensation. He was quoted as saying, “This is being done to cover up the social and economic crisis in Argentina," The Argentine President Cristina Fernandez de Kirchner has already appointed her minister for planning and public investment as the new chief of YPF.

According to Argentine President, Argentina is the only Latin American country whose oil is managed by another country. Furthermore, Argentina became a net importer of oil for the first time in 17 years and spent around $10bn in 2011 on oil expenditure. Argentina is going through an energy crisis and the government believes that the crisis is due to poor management of state’s natural resources by YPF.

The import bill on oil and gas for the current year (2012) is expected to be around $12 billion. This expenditure, the government believes, is due to YPF’s inability to meet the local oil demand.

Argentinean government blames Repsol for not investing much in its oil industry instead it has taken away more than 90% of YPF’s profits.

The takeover is bound to raise eyebrows of foreign investors. YPF’s shares have already lost 18% on Wall Street while BP, a major investor in YPF, is refusing to give any comments.

It was only about 11 years ago, in 2001, when Argentina’s President Fernandez announced that Argentina won’t be paying back its foreign debt. 

Instead of solving the debt problem, that announcement sent the entire country into recession. Some analysts believe that the decision on YPF might create more problems than an easy solution. According to an analyst at London based Tudor Pickering Holt, “They are going to be closing the country as an investment destination,"
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The company had recently announced a major oil discovery of one billion barrels of shale oil in November. After the news of nationalization, a Chinese news report revealed that the state owned Sinopec, China’s energy giant, was negotiating to buy YPF. Meanwhile in early April, a Spanish newspaper reported CNOOC, another Chinese company, was negotiating to buy YPF for $12bn.