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Desperate Argentina Now Seen Begging for Oil Investment

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Thursday, May 10, 2012 – by Staff Report

Argentine Vice President Amado Boudou on Tuesday urged US companies to invest in YPF, the nationalized oil company that Argentina recently expropriated from Spain’s Repsol … “We are very optimistic in terms of what is coming for the Argentine economy in general and the hydrocarbons sector specifically” Boudou said at a Conference on the Americas at the US State Department in Washington. Far from scaring off foreign investment because of the expropriation, the government of President Cristina Fernandez has set the framework for “excellent opportunities for those who want to invest in joint ventures and possibilities of joint work in the energy sector,” he said. The Cristina Fernandez administration is gambling that the discovery in May 2011 of a giant oilfield in Argentina’s Patagonia would be too tempting for foreign oil giants to ignore. YPF needs the know-how and the capital to fully exploit the oil fields in the south-western Nequen province, known as Vaca Muerta (Dead Cow), which according to official estimates holds 150 million barrels of oil. YPF is “open to capital and the possibility of working together with public or private companies in Argentina or abroad,” Boudou said. – Merco Press

Dominant Social Theme: Don’t cry for Argentina. It’s all under control …

Free-Market Analysis: Are Argentina’s top officials having second thoughts about their expropriation of Spain’s Argentine oil-producer? It would seem that way from the above news report via Merco Press.

If the move was as wildly destructive as people think it may have been, then this posture would tend to confirm the idea that one of the world’s more powerful and influential states is simply spinning out of control.

The results may be truly catastrophic, not just for Latin America but for the larger, struggling world.

This boom may well be ending – or certainly growing long-in-the-tooth after a decade or more.

Although the Argentine expropriation of Repsol made major shock waves, the Argentine government under President Cristina Fernandez has portrayed it as a judicious and necessary gambit.

Many other observers regardless of political affiliation have branded the move as a shallow populist one that will bring disaster to Argentina and environs.

As the predictions of damage mount, there is more speculation that Fernandez’s action may bring down not only her own government but other regional governments as well.

These predictions involve inevitably a peso devaluation that will set off a dollar-withdrawal frenzy in big regional banks. Real estate prices – radically inflated after a decade of monetary expansion – may well plunge. The results could affect large swaths of South America.

Countries that could be affected include Uruguay, Brazil, Chile and Peru among others – all countries that have pursued moderate market-based policies and have benefitted from the South American industrial and monetary boom.

Meanwhile, Repsol doesn’t seem apt to surrender. Here’s more from the article.

YPF is “open to capital and the possibility of working together with public or private companies in Argentina or abroad,” Boudou said.

Last week the Argentine president signed a bill expropriating 51% of YPF stock from Repsol, its majority shareholder, sealing a measure that has roiled the country’s trade ties with Europe.

Cristina Fernandez has argued that the move was justified because Argentina faces sharp rises in its bill for imported oil, and Repsol has failed to make agreed investments needed to expand domestic production.

In Madrid, a Repsol spokesman Tuesday said the company has warned its competitors that they will face legal action if they invest in YPF.

“The idea is to protect the assets that were confiscated in Argentina until the situation is resolved in a satisfactory way for the parties that are involved,” the spokesman said.

Conclusion: A cascading crisis in South America may still seem likely …

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Leftist economist masterminds Argentina’s YPF grab

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By Hilary Burke and Magdalena Morales
BUENOS AIRES 
Fri Apr 20, 2012 12:42pm EDT

(Reuters) – Government economist Axel Kicillof stormed the world stage this week when Argentina moved to nationalize energy company YPF, defending the plan he helped devise in a fiery speech worthy of Venezuelan President Hugo Chavez.

Charismatic and polarizing, the 40-year-old Kicillof lambasted “free-market fundamentalists” as he defended the push to seize control of YPF from Spain’s Repsol.

Just four months after taking the deputy economy minister post, Kicillof has penetrated the small circle of trusted advisers to President Cristina Fernandez, who singles him out for praise in her speeches.

Sporting sideburns and an open collar, Kicillof told Congress that only “morons” would think the state was stupid enough to play by Repsol’s rules and make an offer to buy 100 percent of its shares. He blasted economic theories that “justify the looting of our resources and our companies.”

People who know Kicillof say they are not surprised to see him become the public face of a move that has prompted howls of protest from abroad. They say he has always been brilliant, hard-working and even messianic.

One classmate remembered a high school camping trip where Kicillof and a group of friends played at him being God, surrounded by his chanting followers.

“It was child’s play, but it’s striking that Axel was God,” she said, speaking on condition of anonymity.

Kicillof, who declined to be interviewed for this story, spent most of his career in academia, giving classes and writing about the theories of economists such as John Maynard Keynes and Karl Marx.

His first foray into business administration came in 2009, when he took a key position at flagship carrier Aerolineas Argentinas, which the government had expropriated from Spanish travel group Marsans.

Last year, he rose to prominence when Fernandez’s administration fought to appoint him as state representative on the board of directors at steelmaker Siderar, despite company resistance.

With that, local media at odds with the government crowned him the new radical boogeyman.

As a college student, Kicillof co-founded TNT, a group that used irony and humor to tackle corruption and raise standards inside state-run Buenos Aires University’s economics department.

Later, during the 1999 presidential election, he helped organize a protest against Argentina’s obligatory vote because he said the field of candidates was too narrow.

“He’s a brilliant guy. He’s one of the most intelligent people I know, very honest and with strong ideals,” said Leo Piccioli, general manager of Staples Argentina and a fellow member of TNT in the 1990s.

SALVATION

Despite his youthful appearance, Kicillof is an old-school ideologue who shuns the tenets of 21st Century globalism and believes Argentina must find its own way to economic development and industrial prominence.

In his Tuesday speech, he mocked the concept of the “rule of law,” saying this was designed to protect big business. He also compared the Spanish operators of YPF and Aerolineas Argentinas, who received no compensation after the airline was expropriated.

“Spanish officials decide what is done at YPF … in the same way that (Marsans) was bent on lobotomizing Aerolineas Argentinas,” Kicillof said. “This is a transnational group that doesn’t think about the Argentine worker.”

Kicillof helped put together a strategic plan for Aerolineas, which critics say has failed because the company keeps losing money. Others say it is impossible to evaluate his administration of the airline’s finances when so much tax revenue has been used to revamp the company.

Admirers call him captivating while critics see him as inflexible and verbose. His influence is growing where it counts — with the president.

At both Siderar and YPF, Kicillof urged company officials to make fewer dividend payments abroad and invest more locally. Fernandez ended up enshrining that view in government policy.

“He was the main architect of this concept,” said a personal acquaintance who met Kicillof in the last few years. “He is absolutely convinced that (his vision) will be Argentina’s salvation and not its death knell.”

Some people view Kicillof as a threat to the country’s future, saying he will scare off private investors. Emerging markets analyst Walter Molano at U.S.-based BCP Securities called Kicillof “a flaming red Marxist” on Thursday.

One old friend said his lack of political experience, and his impulsive, irreverent style, could eventually cause a rift with the president and end with him being scapegoated.

But that view might underestimate the loyalty shown by Fernandez to another controversial government figure, price and import czar Guillermo Moreno, famed for his vulgar talk and his fanatical work ethic.

Like Moreno, Kicillof isn’t seen giving an inch.

“He is intelligent,” his old schoolmate said. “But he won’t listen to other opinions or other points of view. He won’t learn from past mistakes.”

(Writing by Hilary Burke; Editing by Helen Popper and David Gregorio)

Repsol YPF ups Argentine shale potential

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Posted on February 8, 2012 at 6:08 pm by Associated Press

SANTIAGO, ChileRepsol YPF on Wednesday raised the estimate for potentially recoverable oil and gas in its part of Argentina’s “Vaca Muerta” (Dead Cow) basin to the equivalent of nearly 23 billion barrels, indicating a total shale deposit big enough to enable Argentina to challenge the United States in non-conventional petroleum production.

But it cautioned that exploiting the formation would need a huge expansion in Argentina’s oil and gas industry, requiring thousands of wells, hundreds of drilling rigs and a national push to attract the necessary talent, equipment and investment at a time when other countries are competing to increase energy resources.

The company’s shares traded on the Buenos Aires stock exchange jumped 8 percent after the announcement.

Repsol YPF SA, a majority-Spanish-owned company, issued the statement from Madrid shortly after its president, Antonio Brufau, returned from a series of closed-door meetings in Argentina with government officials who have been pressuring the company to increase exploration and development.

The pro-government newspaper Pagina12 in Buenos Aires said Repsol YPF has been paying out more in dividends than it has made in profits in Argentina, and suggested President Cristina Fernandez might consider nationalizing the company’s Argentine operations so the money could instead be used to increase Argentina’s energy capacity.

Juliette Kerr, a Latin America energy analyst at IHS in London, discounted the possibility of nationalization, saying Argentina can’t afford a buyout. The idea was never openly endorsed by Fernandez or her Cabinet ministers.

Company spokesmen and government officials declined to comment on the talks this week.
But Wednesday’s statement, made as a filing to Spain’s securities regulator, provided a stark analysis of Repsol YPF’s commitment to Argentina and how much would have to change for the country to realize its energy dreams.

“If exploration proves successful in the Vaca Muerta formation and immediate intensive development began in the area, in 10 years its capacity could double Argentina’s existing gas and oil production. This would require a vast investing effort that would reach $25 billion per year in order to develop all the existing prospective resources,” it said.

Repsol YPF said in November that it had discovered 927 million barrels of recoverable oil and natural gas in the shale deposit. But even 23 billion barrels ranks below Brazil’s recent deep-sea oil discoveries, which experts estimated at up to 55 billion barrels, or the 296 billion barrels of proven crude reserves that Venezuela claims.

Argentina currently has only 80 drilling rigs and would need at least 100 more, along with upgrades in all sectors of its oil and gas industry, to capitalize on the potential of the deposit in western Neuquen province, the company said.

Repsol YPF currently is the leader in exploring in this area, having invested $300 million in exploration, mapping and initial development, but has claims on less than half of the formation, which stretches over 7.4 million acres. Many other companies would need to make substantial investments for the area to achieve its potential, it said.

So far, only a tiny fraction of the Vaca Muerta foundation has been developed, producing 700,000 barrels as of December, and the statement suggested that Brufau didn’t give in to the pressure for huge new investments right away.

“The company aims to drill 20 wells in 2012, solely and jointly with several partners, to continue investigating prospective resources,” it said.

The statement suggested international investors may be holding back until they have confidence that Argentina will guarantee government policies and labor unrest won’t get in the way of eventual profits. Instead, Argentina has been withdrawing energy exploration subsidies, dealing with a punishing oil workers strike and making it more difficult for multinational companies to move their gains out of the country.

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