Repsol threatens to sue firms that help Argentina

By Alan Clendenning

AP

Spanish energy firm Repsol warned yesterday that it would consider legal action against companies or investors that help Argentina exploit oil-fields Repsol had planned to tap before its Argentine unit YPF was nationalized.

Repsol discovered vast shale oil and gas deposits under the “Vaca Muerta” basin in Neuquén province that could dramatically increase Argentina’s oil reserves.

Experts say Argentina will need strategic partners to tap the world’s third-largest unconventional reserves, and Argentine officials have wasted no time in lining up potential investors. They met last week with executives of French-owned Total Austral and Brazil’s Petrobras, announcing afterward that both planned to expand production.

They planned to meet yesterday with executives from Chevron and ExxonMobil, which have their own shale stakes in Argentina, and Apache, which began drilling through shale there last year.

Repsol YPF spokesman Kristian Rix said the company “is reserving the rights to take legal action against any investor in YPF or its assets following the unlawful expropriation of that company.”

Repsol’s share price sank nearly 6 percent to (euro) 14.03 each in Madrid yesterday, underperforming the benchmark Ibex index, which fell 2.8 percent. The shares were around (euro) 18 before Argentina announced the move to take over formerly state-owned YPF.

The Spanish government, meanwhile, adopted a stick-and-carrot approach.

Foreign Minister Jose Manuel García-Margallo sounded conciliatory, saying Spain historically had very good relations with Argentina and wants to recover them. He said Spain would try to convince Argentina it needed to reach agreement with Repsol on fair compensation for nationalizing YPF, which he nonetheless said was a mistake that would scare off foreign investors.

“It is in Argentina’s interest not to end up isolated in the world,” the minister said.

At the same time, he said, Spain has proposed to EU partners a series of retaliatory measures against Argentina, such as filing a complaint with the World Trade Organization or downgrading trade relations.

The EU could strip Argentina of trade benefits provided to developing countries or halt free-trade talks between the EU and Mercosur. That would mean dealing bilaterally with Mercosur’s non-Argentine members, which are Brazil, Uruguay and Paraguay, García Margallo said in Luxembourg.

While Argentine President Cristina Fernández de Kirchner’s move on YPF has infuriated Spain, the country’s largest foreign investor, it has elated many Argentines.

Only two months earlier, Repsol had increased its estimate for the shale oil and gas it found in Argentina to nearly 23 billion barrels, enough to double the country’s output in a decade.

But the Spanish company said it would cost 25 billion dollars a year to develop, and warned that Argentina would need to overhaul its energy policy to attract the necessary investment.

Instead, Fernández de Kirchner simply seized the company, giving her government access to billions of dollars’ worth of cash, enough energy to answer domestic demand in the short term, and potentially even solving Argentina’s chronic money woes in the future. The move has been overwhelmingly popular in Argentina, whose Senate will likely approve it tomorrow.

Repsol has valued the shares Argentina seized at $10.5 billion, but it’s unclear when, if ever, the company will get compensation.

Fernández de Kirchner has accused Repsol of draining YPF since the company was privatized in the 1990s, underinvesting in its oil and gas fields and failing to keep pace with the needs of Argentina’s growing economy even as it paid huge dividends to shareholders.

Repsol blames Argentina’s ever-changing mix of subsidies, price caps and export duties for depressing production as the country’s demand for energy soared since 2003, when her husband, President Néstor Kirchner, came to power.

Argentine oil production plunged 22 percent from 2000 to 2010, even as demand surged more than 40 percent, according to data from the Argentine Oil and Gas Institute and the Energy Ministry compiled by a former energy secretary, Emilio Apud.

Argentina’s production has fallen so low that the government now spends billions of dollars a year on expensive imported fuels that it provides at a loss to companies and consumers.