YPF: What’s The New Plan?

Via The Financial Times, a look at Argentina’s plans for YPF:

YPF, the Argentine oil company, has a new owner (the Argentine state); a new logo (complete with the Argentine flag) and, as the pro-government Tiempo Argentina newspaper put it, a new “dream team” of savvy professionals to run it.

So the big question now is: what is the new plan?

All eyes will be on Miguel Galuccio, the new YPF boss, and Cristina Fernández, the Argentine president, at an event scheduled for 2000 GMT, marking YPF’s 90th anniversary, at which Galuccio will present the “vision for the company’s new strategic plan” after Héctor Valle, one of the new board members, said ousted former Spanish owner Repsol had been “sucking (YPF’s) blood, like a vampire”.

It is only seven weeks since the government grabbed de facto control of the company and only a month since the renationalisation of YPF was approved by Congress and signed into law. Is that enough to have come up with a real plan – or, indeed, a partner – for YPF? We shall see.

The government has been sounding out oil majors about their willingness to work with YPF, especially to develop the vast Vaca Muerta shale play. Shale is a high-risk, but potentially hugely high reward business. But considerable investment will be needed. Alone, the government will not be able to afford it.

But will any companies be willing to publicly team up with YPF when the future price structure for shale oil and gas – a key number for corporate executives to crunch when they do their maths on exploration projects – remains unclear?

Argentina’s hydrocarbons industry is heavily regulated and domestic prices are way lower than international ones – leading to the bizarre situation in which Argentina imports gas from Bolivia (produced ironically by Repsol), paying more than three times the price that domestic gas producers are paid. And that’s not mentioning liquefied natural gas, its other main supply. Repsol has ditched 10 LNG shipments to Argentina in the wake of the privatisation, forcing the government to find new supplies at short notice and, naturally, higher cost.

Then there is the threat of legal action: Repsol is challenging the expropriation in US courts and plans to take a separate case to the World Bank’s investment arbitration tribunal, ICSID. It has also vowed to sue any company that invests in YPF or its assets.

Galuccio has already made one thing clear: for an unspecified initial period, forget dividends. In a statement issued after his first board meeting on Monday, YPF said:

In a first phase, YPF will face a period of major growth and investment in which it will reinvest profits, but then, in a second phase, a policy of dividends will be defined that will be in accordance with those of a company that is expanding. YPF will be run preserving the interests of its shareholders.

All eyes on Galuccio’s announcements later.


This entry was posted on Wednesday, June 6th, 2012 at 7:42 am 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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