YPF: Here Today, Gone Today

Via The Financial Times, a report on Argentina’s re-nationalization of YPF:

So that’s that then. YPF is, once again, Argentina’s state oil company. According to a flurry of news reports after president Cristina Fernández de Kirchner’s TV address at noon on Monday in Buenos Aires, the federal and provincial governments of Argentina are its new owners, with a 51 per cent stake. Julio De Vido, planning minister, is its new CEO. The changes take “immediate” effect.

The announcement was hardly unexpected – though YPF’s ADRs did lose a fifth of their value in New York before recovering a bit. It will take rather longer for YPF and Argentina to adjust to its implications.

It will be no surprise that equity analysts are dismayed at the news. This from Bloomberg:

“They are going to be closing the country as an investment destination,” Anish Kapadia, an analyst at Tudor Pickering Holt & Co. in London, said in a telephone interview. “What’s surprising is that they are expropriating assets rather than going through a fair market means to get hold of a stake in the company. That sets a terrible precedent.”

That’s not how it went down in Argentina. The packed auditorium in which Fernández made her address burst into joyous applause as she revealed the news. The Twittersphere was all but swept away in a flood of national pride.

But a surge in popular support may be the most Fernández will get for her audacity. She seems to have shrugged off Spain’s threat last week that any attack on its companies was an attack on Spain and would have “consequences” – perhaps emboldened by a wave of derision for Argentina’s former colonial masters at the weekend after it emerged that King Juan Carlos had been shooting elephants in Botswana (a story that only emerged after he was flown home with an injury).

But if Spain gets tough – as it surely must – the results will not be good for Argentines. Nationalising YPF doesn’t just risk souring the country’s investment climate in general. It could have dire consequences for some specific and very large projects.

Argentina’s reserves of shale gas and oil are not the largest in the world but they are among the most commercially attractive. YPF, which has concessions covering the biggest chunks, estimates that developing the industry over the next decade will cost about $250bn.

No company, public or private, is going to execute something like that on its own. There were dark warnings from senior Spanish officials last week that, if Argentina expropriated YPF, then Spain would do all it could to discourage private investment in its shale.

Argentina officials will dismiss this as a lot of talk. And they may feel they can turn to China if western oil majors get nervous. That would be a very big bet. Anyone investing in Argentina will look at recent experience. Repsol put up with years of government bullying of YPF because, in the long run, Argentine was too good a prospect to miss out on. That turned out to be a mistake.


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