May 19, 2013
Yes, Planning Future
Since the “100-day plan” of YPF CEO Miguel Galuccio unveiled last Thursday (his 112th day on the job if we keep an exact count) was not his maiden speech, most aspects followed familiar lines — perhaps the most striking novelty (apart from more details about the offshore D129 shale oil and natural gas deposits near the Valdés Peninsula) was the degree to which the monster investments of the next five years are intended to be self-financing. How are we to understand the suddenly more relative importance of overseas investment, hitherto the crunch point (at least for shale deposits) — unexpectedly rapid progress in revamping the oil giant, an assertion of economic nationalism, making a virtue out of necessity or simply wishful thinking? According to Galuccio, 70 percent of the mega-investment of 37 billion dollars required until 2017 can come out of YPF’s own cash flow while only 12 percent would entail an international partner (the remainder would be debt), also creating 10,000 jobs. The global professional has surely done his sums with care but last year’s cash flow totalled 2.76 billion dollars, about half the level stipulated in the plan — moreover, the initial pricing of public works projects in Argentina has a nasty habit of falling well short of the final reality. Not to mention the need to prevent YPF from reverting to the “jobs for the boys” vices of its previous 1928-1992 state incarnation as the world’s only loss-making oil company (even after 1973).
Galuccio’s immaculate detail failed to include any precise indication of future pricing apart from a vaguely upward momentum — he may feel this key factor to be beyond his control ever since Decree 1277 centralizing all energy resource management in the hands of Deputy Economy Minister Axel Kicillof (perhaps this as much as anything highlights Galuccio’s anomalous position as the CEO of a private company with a majority state share-holding). Could future pricing rather than sheer volume be the key to the dramatic improvement in cash flow promised by Galuccio (the high price of current fuel imports certainly gives him some room for manoeuvre)?
This highly professional CEO was probably describing reality accurately enough when he said that the expropriation of Repsol shares would deter some investors but others would be interested. If the interest of the latter (Chevron, Texaco, a Bridas rapidly closing in on Esso to become Argentina’s second-largest player and Eduardo Eurnekian) is to materialize into anything substantial, much will depend on whether Galuccio and his plans are really calling the shots.