YPF expropriation clouds the allure of Argentine shale

April 30, 2012
On its way down the proverbial slippery slope toward economic statism, Argentina has laid claim to oil and gas assets worth, oh, $18 billion or so.

On its way down the proverbial slippery slope toward economic statism, Argentina has laid claim to oil and gas assets worth, oh, $18 billion or so. That's the value Repsol of Spain assigns YPF, its 57%-owned Argentine oil and gas subsidiary.

President Cristina Ferandez de Kirchner on Apr. 16 announced plans to expropriate 51% of YPF—just before authorities promptly entered YPF's office in Buenos Aires and expelled the staff.

Repsol bought YPF, formerly the national oil company in 1999, 6 years after it was privatized. In a sense, the government is reclaiming what once belonged to it, apparently without feeling obliged to pay.

This all happens during a period of rising interest in Argentina's potential for production of natural gas from shale.

Repsol has said the country could double its production by investing $25 billion/year in shale exploration and development for 10 years.

But Argentine oil and gas prospects are much less attractive to foreign investors than they were the day before Apr. 20. Nationalization is serious.

Thanks to heavy-handedness by the Kirchner government—manifest in moves like import controls and raids on private pension funds and central bank reserves—the country's allure to outside capital already was fading.

Now private property is in jeopardy.

Pundits in Buenos Aires complain Repsol hadn't fulfilled promises to raise the country's oil and gas production. They overlook unhelpful moves the government has made since the Repsol-YPF merger, such as the imposition in 2001 of price controls on natural gas.

Repsol isn't chastened by the criticism. On Apr. 17 it promised to fight what it called "the unlawful expropriation of YPF."

The Spanish company received support on Apr. 20 from the European Parliament, which passed a resolution calling Argentina's move "a unilateral and arbitrary decision which entails an attack on the exercise of free enterprise and the principle of legal certainty, thus causing the investment environment for [European Union] businesses in Argentina to deteriorate."

Indeed. Larceny by governments always has that effect.

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About the Author

Bob Tippee | Editor

Bob Tippee has been chief editor of Oil & Gas Journal since January 1999 and a member of the Journal staff since October 1977. Before joining the magazine, he worked as a reporter at the Tulsa World and served for four years as an officer in the US Air Force. A native of St. Louis, he holds a degree in journalism from the University of Tulsa.