President Cristina Fernández de Kirchner shocks oil industry by planning to seize 51% of Repsol's Argentinian assets....
Terry Macalister and Uki Goñi in Buenos Aires;
Argentina sent shock waves through the oil industry by announcing plans to nationalize local oil assets controlled by a Spanish company, in a controversial move that threatens to sour the already troubled relationship between the two countries.
The move to seize 51% of Repsol's YPF business in Argentina sent the company's shares spinning down 18% on Wall Street and will worry other big foreign investors such as BP.
Cristina Fernández de Kirchner, Argentina's president, introduced the new measure to Congress in a bid to recover sovereignty over its national hydrocarbon resources.
Kirchner accused Repsol of failing to produce enough oil through YPF to meet Argentina's energy requirements. Repsol's alleged failure threatened to "practically turn us into an unviable country," Kirchner said. Economic and political interest in the country's hydrocarbons has rocketed since the end of last year when YPF announced it had discovered a shale oil site that could potentially yield 1bn barrels.
Politicians have accused Repsol of failing to invest enough in future production at a time when the high cost of oil is undermining the country's economy.
The nationalization comes amid escalating threats against operators drilling for oil off the disputed Falkland Islands.
Argentina is expected to expropriate about 24% of YPF from Repsol and another 26% from Argentina's Peterson Group at a price yet to be determined by the government.
Kirchner said the price would be set by the national appraisal tribunal and insisted the business could continue to be managed "professionally". She said Argentina was one of the few countries that did not control its own oil.
YPF is Argentina's biggest oil company and was in the hands of the state until the early 1990s. It was acquired by the Spanish group in 1999 and the boss of Repsol, Antonio Brufau, has been in Argentina since last week trying to head off a takeover. He told Mitre, a local radio station: "You've got to talk, not impose."
Speaking in Madrid a few hours before the announcement, the Spanish prime minister, Mariano Rajoy, warned: "Wherever there is a Spanish company, the Spanish government will be there defending its interests as its own."
Last week, Spain's foreign minister, José Manuel García-Margallo, threatened to break off economic and fraternal relations with Argentina if Kirchner moved against YPF.
Independent petroleum experts were stunned by the development. "They are going to be closing the country as an investment destination," Anish Kapadia, an analyst at the London-based energy investment house Tudor Pickering Holt, told Bloomberg. BP, whose Pan American business in Argentina was a fully-integrated oil business covering exploration, production and petrol marketing, said it was unable to talk about what the nationalisation might mean for its business.
"We have not heard anything from the government. It is business as usual for us. I do not want to make a comment on someone else's business," said a company spokesman. BP tried to sell the business in 2010 for $7bn to Bridas Corporation, a deal which fell apart.
Kirchner's bill is expected to fly through Congress within the next couple of weeks thanks to the President's legislative majority....
An incensed Spain threatened swift economic retaliation against Argentina on Tuesday after it announced plans to seize YPF, the South American nation's biggest oil company, in a move which pushed down shares in Spanish energy giant Repsol, the controlling shareholder.
Madrid called in the Argentine ambassador in a rapidly escalating row over the nationalization order by Argentina's populist and increasingly assertive president, Cristina Fernandez, a move which delighted many of her compatriots but alarmed some foreign governments and investors.
Promising action in the coming days, Spanish industry minister Jose Manuel Soria said: "With this attitude, this hostility from the Argentine authorities, there will be consequences that we'll see over the next few days. They will be in the diplomatic field, the industrial field, and on energy."
It was not immediately clear what Spain was planning and Argentina has proven impervious to such pressure in the past.
Repsol (REP.MC) said YPF (YPFD.BA) was worth $18 billion as a whole and it would be seeking compensation on that basis, but the Spanish oil major's shares fell by nearly seven percent in Madrid on Tuesday. The company said it could raise money in the bond market and sell some assets to help its cash flow.
Repsol described Argentina's move as "clearly unlawful and seriously discriminatory" and said it would take legal action.
"This battle is not over," Repsol Chairman Antonio Brufau said. "The expropriation is nothing more than a way of covering over the social and economic crisis facing Argentina right now."
But Fernandez dismissed the risk of reprisals. "This president isn't going to respond to any threats ... because I represent the Argentine people. I'm the head of state, not a thug," she said.
European Commission President Jose Manuel Barroso said he expected Argentina to uphold international agreements on business protection with Spain. "I am seriously disappointed about yesterday's announcement," he said in Brussels.
Spanish media condemned the Argentine action, believed to be the biggest nationalization in the natural resources field since the seizure of Russia's Yukos oil giant a decade ago.
"THE NEW EVITA"...
La Razon newspaper carried a photograph of Fernandez on its front page in a pool of oil with the headline: "Kirchner's Dirty War", referring to her full name. The business newspaper La Gaceta de los Negocios called the takeover "an act of pillage".
El Periodico spoke of "The New Evita", pointing out that Fernandez had announced the nationalization in a room decorated with a large portrait of Eva Peron, the actress who was married to a president and revered by many Argentines as a populist mother of the nation and champion of the poor.
Repsol's Brufau said he suspected nationalization of YPF was imminent when he tried to contact Fernandez last Friday and was told that the president "was angry" and did not want to speak.
YPF has been under pressure from Fernandez's center-left government to boost oil production, and its share price has plunged in recent months on speculation about a state takeover.
Through the nationalization move, Argentina runs the risk of frightening off foreign investors, key to contributing money to help develop one of the world's largest reserves of shale oil and gas recently discovered in the Vaca Muerta area.
This led some analysts to question whether Argentina might have an ace up its sleeve in the form of a new partner such as China Petrochemical Corp (Sinopec Group).
Repsol has, however, identified Vaca Muerta as "the cause of the pillage", or the reason Argentina went after its YPF share.
A Chinese website said Sinopec was in talks with Repsol to buy YPF for more than $15 billion, although other sources said the nationalization move would probably get in the way of such a deal. Repsol and Sinopec are strategic partners in Brazil.
Fernandez said the government would ask Congress, which she controls, to approve a bill to expropriate a controlling 51 percent stake in YPF by seizing shares held exclusively by Repsol, saying energy was a "vital resource".
"If this policy continues - draining fields dry, no exploration and practically no investment - the country will end up having no viable future, not because of a lack of resources but because of business policies," she said.
YPF's market value is $10.6 billion, although an Argentine tribunal will be responsible for valuing the company as part of the takeover. Central bank reserves or state pension funds could be used for compensation.
Fernandez, who still wears the black of mourning 18 months after the death of her husband and predecessor as president Nestor Kirchner, stunned investors in 2008 when she nationalized private pension funds. She has also renationalized the country's flagship airline, Aerolineas Argentinas.
MEXICO CONCERNED...
Such measures are popular with ordinary Argentines, many of whom blame free-market policies such as the privatizations of the 1990s for the economic crisis and debt default of 2001/02.
Her announcement of the YPF takeover plan, however, drew strong warnings from Spain, Mexico and the European Union, a key market for Argentina's soy-meal exports.
Mexico's President Felipe Calderon said Fernandez's plan would damage chances for future foreign investment in Argentina and hurt Repsol, in which Mexico's state oil monopoly Pemex holds a 10-percent stake.
Venezuela, where socialist President Hugo Chavez has nationalized almost all the oil industry, applauded her move.
The row over YPF comes as Fernandez heaps pressure on Britain over oil exploration off the Falkland Islands, over which Argentina claims sovereignty.
A decade after staging the biggest sovereign debt default in history, Argentina has been frozen out of global credit markets, and economic analysts said seizing YPF might make it even harder for the country to get fresh financing.
Repsol's original strategy in buying YPF in 1999 was to expand away from its core refining business into more lucrative upstream oil and gas production. However the plan did not work as low domestic oil and gas prices made it unprofitable to develop many of the company's reserves. It signaled a retreat from the investment in 2006....
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