Legislative and administrative actions
Opportunities in upstream oil and gas
On April 16 2012 President Cristina Fernández presented a bill to the national legislature to expropriate Argentina's largest oil and gas company, YPF. The following day she issued a decree which allowed the government to take temporary control of the company. On May 3 2012 the bill was passed by the legislature, providing for the expropriation of a controlling stake in YPF.
Legislative and administrative actions
Through the YPF Expropriation Act (Law 26,741)(1) Argentina expropriated 51% of YPF's shares that were owned by Spanish-based multinational Repsol. The remaining 49% - owned by Repsol, the Petersen Group and individual owners of publicly traded YPF securities - has not been affected by the expropriation. In addition to the expropriation of YPF's shares, the act also deals with Argentina's long-term hydrocarbons policy.
The act deemed the 51% of YPF SA, owned by Repsol YPF SA, and 51% of Repsol YPF Gas SA, owned by Repsol Butano SA, to be public goods and subject to expropriation. The expropriated shares in the YPF companies have been divided between the federal state (51%) and the hydrocarbon-producing provinces that form the Federal Organisation of Hydrocarbon Producers (49%).(2) The act provides that the compensation due to Repsol will be calculated in accordance with the Expropriation Act(3) by the Federal Court of Appraisals.(4) In order to transfer the expropriated shares in the future, a two-thirds majority of the national legislature will be required.(5)
On June 5 2012 the government formally appropriated the company by appointing 13 directors, as stipulated in the Expropriation Act. The provinces which form the Federal Organisation of Hydrocarbon Producers appointed another five directors.(6) Repsol, which still owns some shares in the company, was entitled to appoint one director.(7) The Expropriation Act also provides that the expropriated companies will continue to operate as companies which may publicly offer their shares.(8)
The YPF Expropriation Act sets out that achieving hydrocarbon self-sufficiency is a matter of national public interest and a state priority.(9) To that end, the act states that Argentina's hydrocarbon's policy shall be aimed at:
- integrating national and international public and private capital in the exploration and exploitation of conventional and unconventional hydrocarbon reserves; and
- maximising investments and resources in order to achieve hydrocarbons self-sufficiency.(10)
The act also creates the Federal Council of Hydrocarbons, which is tasked with promoting coordinated action between federal and provincial governments in relation to the federal hydrocarbons policy.(11)
Opportunities in upstream oil and gas
Oil exploration in Argentina has declined over the last decade after booming in the 1990s.(12) Recently, there has been limited investment in upstream oil and gas. Economic analysts have claimed that a key reason for the decline in investment in this sector is due to government regulation of oil prices.
It is clear from the policy goals set out in the YPF Expropriation Act that the government wants increased activity in this sector in the immediate future. Investment in the sector could be stimulated by removing subsidies. While there has been no indication from the president that the government intends to move away from this policy, there is nonetheless a precedent for such a move. In recent months, the government has removed subsidies on public transport and has also started removing electricity subsidies.
Since the nationalisation of YPF, Argentina has taken clear steps to attract investment in the oil and gas sector. The new government-appointed chief executive officer of YPF, Miguel Galuccio, outlined a plan at the start of June 2012 which contemplated an annual investment in the sector from YPF of more than $7 billion over the next five years. This is double the current amount invested annually, with a goal of increasing oil production by 36%. The investment is proposed to come from the company's own funds, external investors with the know-how to exploit unconventional reserves and others with the relevant technology resources.(13) With the aim of obtaining such investment, Argentine ministers met with the heads of major international and local oil and gas companies in the weeks after YPF's nationalisation. They reported positive outcomes from those meetings.(14)
The potential of the upstream oil and gas industry is undeniable. Argentina is still the largest natural gas producer in South America and a significant producer of oil. It also has the third-largest technically recoverable shale gas reserve in the world and a largely unexplored coastline stretching from Rio de la Plata to Tierra del Fuego.(15)
The market changes resulting from the YPF Expropriation Act may provide opportunities at all levels of the oil and gas sector. At the top end, the market will be re-shaped, with new opportunities for multinational companies to gain a greater foothold in the sector. There also appears to be substantial opportunities for juniors and service providers to explore and develop new areas and to subcontract services, which may revive the whole sector.
For further information on this topic please contact Federico Godoy at Beretta Godoy by telephone (+54 11 4326 7386), fax (+54 11 4326 7396) or email ([email protected]).
Endnotes
(1) Published in the Official Gazette and enacted on May 7 2012.
(6) www.lanoticia1.com/noticia/axel-kicillof-fue-nombrado-director-de-ypf-por-el-estado-30590.html.
(7) Before the expropriation, Repsol held 57% of YPF's shares. The government expropriated 51% of these shares, thus leaving Repsol with a 6% stake in the company. At the end of May 2012, Repsol acquired another 6% of YPF's shareholding, as a consequence of the Grupo Petersen's failure to pay an obligation towards Repsol, which had been guaranteed with the aforesaid number of shares. As a result, Repsol currently holds 12% of YPF's shareholding.
(12) See www.econlink.com.ar/petroleo-argentina/historia.
(13) Hidalgo Pallares, José, "YPF presentó un ambicioso plan, pero faltan definiciones", La Nacion: www.lanacion.com.ar/1479628-ypf-presento-un-ambicioso-plan-pero-faltan-definiciones.
(14) Henao, Luis Andres, "Energy crisis provokes Argentine YPF expropriation", Business Week: www.businessweek.com/ap/2012-04/D9UA6PVO0.htm.
(15) US Energy Information Administration – Argentina Country Profile: www.eia.gov/emeu/cabs/Argentina/pdf.pdf.