YPF: Investment Up, Dividends Down, Operational Plans TBA

Via The Financial Times, a report on the latest YPF shareholders’ meeting:

Tuesday’s meeting of YPF shareholders in Buenos Aires was most notable for its interminable length – more than six hours – and for decisions to ramp up investment and drastically cut the company’s dividend payout.

But investors will have to wait a bit longer to find out how the newly-nationalised oil company aims to revitalise its operations. Attempts to put questions about future plans were brushed aside.

In the first assembly since Argentina seized a majority of Spanish oil producer Repsol’s shares in YPF in April, shareholders approved a plan to cut its dividend payout from 5.6bn pesos ($1.2bn) in 2011 to 303m pesos this year, and redirect profits to create a 5.8bn peso investment fund.

The proposal for this switch offered the government of president Cristina Fernández de Kirchner an opportunity to hammer home the argument it has made for nationalisation. That is, that Repsol was “emptying” YPF by having it pay a disproportionate share of its profits to shareholders instead of investing in exploration, thereby causing Argentina, a one-time petroleum exporter, to import oil and gas (in 2011, Argentine fuel imports doubled to $9.4bn).

According to the Argentine newspaper La Nación, YPF has paid out an average of 105 per cent of its net profits in dividends since Repsol took over in 1999.

In introducing the investment fund and dividend proposal, an Argentine state representative said:

“During the last decade, YPF has invested the minimum necessary to maintain its installations and production. Insufficient investment has translated into a practically uninterrupted decline in production. The same has occurred with the company’s reserves, which have shrunk to less than six years’ worth of production, threatening the future of the company and its productive goals and at the same time significantly impacting the country’s energy supply… The national government, as majority shareholder, has pledged to turn around this situation, promising all the resources in its grasp to guarantee sustainable growth in the medium and long term.”

Much of the assembly was taken up with such attempts to define YPF’s recent past, with Argentine representatives arguing that Repsol was pillaging the YPF cashbox and Repsol representatives defending their management – pointing to shale oil deposits that were found on their watch – and demanding more transparency in terms of dividends, salaries and production.

They also threw a few sharp elbows. At one point, a Repsol representative caustically noted:

“To mention the stock – as shareholders are interested in that – YPF shares were at $40 before the nationalisation and now the company is worth less than a quarter of that. And that’s not Repsol’s fault.”

Besides the company’s shrunken dividends and the less-than-cordial relationship between the government and the company whose shares it expropriated, what was most conspicuous was what was left unsaid.

Miguel Galuccio, YPF’s new president, avoided discussing the current situation or future plans, largely limiting the meeting to 2011 when Repsol ran the company. He dodged several questions from Repsol’s representatives by saying they were outside the day’s agenda, at one point replying to a query about the progress of exploration at Vaca Muerta (‘Dead Cow’, a recently discovered shale oil field), by saying: “Sir, we’re not dealing with the balance sheet of 2012, but the one from 2011.”

There was also scarce mention of the Eskenazi family, minority YPF shareholders brought in at the behest of the late Néstor Kirchner, former Argentine president and husband of Cristina Fernández. The Eskenazis funded their share purchase with $3.4bn in loans from Repsol and a consortium of banks – loans they were able to repay only on the promise of big dividends, and on which they have defaulted since nationalisation.

Also notable for his silence was Carlos Slim, the Mexican billionaire who inherited 8 per cent of the company when the Eskenazis defaulted. Although his arrival as an YPF investor was heralded by Fernández as a sign of international confidence in the nationalised company, no representatives of his investment company signed into or participated at the meeting. When asked beforehand whether Slim planned to increase his holdings, Arturo Elias Ayub, director of strategic alliances at Telmex, Slim’s fixed-line telephone company, told beyondbrics: “For the time being, we are going to stick with the stock position we have.”

Tuesday’s meeting marked the 72nd day of new management at YPF. Galuccio, the new boss, pledged to announce a strategic plan within the first 100 days. While the sparring of a shareholders meeting can be entertaining, investors’ eyes will be closely fixed on that big announcement, less than four weeks away.

This entry was posted on Wednesday, July 18th, 2012 at 11:30 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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