YPF: $37.2bn Investment? No Problem.

Via The Financial Times, a report on YPF’s proposed five year plan:

Well, you can’t fault YPF for lack of ambition.

On Thursday, Miguel Galuccio (pictured), the CEO of Argentina’s recently nationalised YPF oil company, laid out a hard-charging five-year plan to increase production and return Argentina to its former glory as a net petroleum exporter.

The numbers were nothing if not impressive in size. Over the next five years, Galuccio said the company plans to invest some $37.2bn in a quest to increase oil and gas production by almost a third and petrol and diesel refining by 37 per cent. The number of new wells would go from an annual average of 19 from 2007 to 2011 to some 50 a year.

Argentina’s main attraction as a petroleum producer is its recently discovered vast shale oil and gas fields, the third largest behind those in China and the United States. In its energy portfolio, over half of Argentina’s oil and gas are in shale, Galuccio noted, and as a teaser, he said that YPF had recently made five new shale discoveries, three in Golfo San Jorge and two in the wonderfully named Vaca Muerta (‘Dead Cow’) field.

Of course, there’s a catch. While 70 per cent of the $37.2bn investment would come from YPF’s own cash flow, the rest would come from petroleum company partners and debt investors. And those two groups are in short supply when it comes to Argentina. With its recent history of sovereign default, currency restrictions, tightening energy industry regulations, and, of course, nationalisations like that of YPF, only the heartiest investors will be interested in partnering with YPF.

In his presentation, Galuccio admitted that Argentina’s expropriation of YPF from its Spanish parent company, Repsol, would make the road more difficult.

I will not hide the fact that after an expropriation there will be a period when people will be reluctant [and want to] wait to see how the whole situation develops. But I strongly believe in the model we implemented. In the first 100 days we have honored our debts. We’ve increased investment. We’ve increased production. We have a solid plan. So I think that fear is going to disappear with time as long as we show that the plan is solid and that we are delivering results.

And, he added,

I don’t think anybody in the government thinks this is a nationalisation trend. YPF is a particular case, in which a company on which the nation depends wasn’t reacting to the needs of the country. No one should think this is a trend or a modus operandi.

Galuccio will have to hope that the investing and petroleum world believe him. To get to his $37.2bn he’ll need debt investors to pony up $6.7bn in YPF bonds and strategic partners to bring $4.5bn, not to mention shale know-how, to the deal.

While Chevron has been flirting with YPF, and Galuccio said that companies, including Corporación América and Bridas Corp, have expressed interest in teaming up, getting Big Oil to put up the money on Argentina’s terms will be a hard sell.

But Galuccio can’t be faulted for thinking small.

This entry was posted on Friday, August 31st, 2012 at 3:41 pm and is filed under Argentina.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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