Repsol Has To Fight Argentina's Oily Expropriation 

Agenda-Setting Financial Insight.
April 16 2012 6:19 PM

Repsol Has To Fight Argentina's Oily Expropriation 

Argentine President Cristina Fernandez outlined plans on April 16 to take control of the country’s leading oil and gas company YPF.

Photo by DANIEL GARCIA/AFP/Getty Images

Argentina’s leftist government is taking control of YPF, the oil and gas company 57 percent owned by Repsol of Spain. Worse, the state is nationalizing only Repsol’s shares. Stakes owned by Argentina’s Petersen Group, and other minorities, will escape the expropriation. 

It’s not yet clear what price Argentina will pay for the shares, but given that a state tribunal will decide, it’s safe to assume Repsol will get a raw deal. Nor is this small beer for the Spanish company. YPF has accounted on average for 63 percent of Repsol’s oil and gas production since 2007 and has contributed nearly 30 percent of its group operating income, according to Société Générale estimates. What’s more, Repsol’s exposure to YPF is actually larger than it looks. Argentina’s Petersen group still owes Repsol $1.9 billion after it struck a deal to buy shares from the Spaniards. Petersen has relied on dividends from YPF to service the loan. Now Argentina may redirect these dividends into capital investment at YPF. 

Fighting the expropriation will probably be an uphill struggle, though Spain’s government has already said it would defend its national interest. The EU has also expressed concern and this might carry more weight, since Europe is Argentina’s second biggest export market after Brazil. 

If diplomatic pressure fails, Repsol could try the courts. A bilateral investment treaty between Argentina and Spain includes robust protections for shareholders. But Argentina has a history of flouting adverse judgments by international bodies. Just last month, the United States said it would suspend waivers on import duties for Argentine goods in retaliation for the country’s failure to pay more than $300 million in compensation awarded to two U.S. companies by international arbitrators. 

Yet while Argentina’s naked power play may be overwhelming, Repsol should not just roll over. It has too much to lose. Besides, financial realities mean that Buenos Aires may be persuaded to soften its line. After all, it will cost billions of dollars a year to develop one of the largest reserves of shale hydrocarbons worldwide in Vaca Muerta. After this display, it is hard to see the Argentine state raising much cash from private sources.

Read more at Reuters Breakingviews.

Kevin Allison is global resources columnist at Reuters Breakingviews.

Fiona Maharg-Bravo is Breakingviews´ Madrid correspondent. Fiona joined breakingviews in 2003 in London, covering media, transport, energy and Spain.



Don’t Worry, Obama Isn’t Sending U.S. Troops to Fight ISIS

But the next president might. 

IOS 8 Comes Out Today. Do Not Put It on Your iPhone 4S.

Why Greenland’s “Dark Snow” Should Worry You

How Much Should You Loathe NFL Commissioner Roger Goodell?

Here are the facts.

Amazon Is Launching a Serious Run at Apple and Samsung


Slim Pickings at the Network TV Bazaar

Three talented actresses in three terrible shows.


More Than Scottish Pride

Scotland’s referendum isn’t about nationalism. It’s about a system that failed, and a new generation looking to take a chance on itself. 

The Ungodly Horror of Having a Bug Crawl Into Your Ear and Scratch Away at Your Eardrum

We Could Fix Climate Change for Free. Now There’s Just One Thing Holding Us Back.

  News & Politics
Sept. 17 2014 7:03 PM Once Again, a Climate Policy Hearing Descends Into Absurdity
Business Insider
Sept. 17 2014 1:36 PM Nate Silver Versus Princeton Professor: Who Has the Right Models?
Sept. 17 2014 6:53 PM LGBTQ Luminaries Honored With MacArthur “Genius” Fellowships
  Double X
The XX Factor
Sept. 17 2014 6:14 PM Today in Gender Gaps: Biking
  Slate Plus
Slate Fare
Sept. 17 2014 9:37 AM Is Slate Too Liberal?  A members-only open thread.
Brow Beat
Sept. 17 2014 8:25 PM A New Song and Music Video From Angel Olsen, Indie’s Next Big Thing
Future Tense
Sept. 17 2014 9:00 PM Amazon Is Now a Gadget Company
  Health & Science
Sept. 17 2014 4:49 PM Schooling the Supreme Court on Rap Music Is it art or a true threat of violence?
Sports Nut
Sept. 17 2014 3:51 PM NFL Jerk Watch: Roger Goodell How much should you loathe the pro football commissioner?