Argentina's state oil company faces a possible shares embargo due the 2012 expropriation. It also considers strategies to exploit Vaca Muerta's dormant potential.
On November 20, 2023, when La Libertad Avanza's electoral victory over Peronism was still fresh, President-elect Javier Milei announced his first privatization plans for Argentina. In a country with a long statist tradition, the libertarian had no qualms about announcing the imminent sale of the public media and YPF, the state oil company.
Today, more than three months after his arrival to the presidency, the promises were left half-finished: the Télam state news agency has been shut down, but YPF remains a public asset. The negotiations between the government and the opposition to approve a simplified version of the so-called “Omnibus Law” had a lot to do with it, including withdrawing the oil company from Milei's neoliberal plans.
But it should be noted that YPF is not a conventional company: the Argentine government and the hydrocarbon-producing provinces own 51% of its shares while the remaining 49% is listed at the Buenos Aires Stock Exchange. This guarantees fiscal autonomy, unthinkable in many other oil companies in the region. With this in mind, it is worth asking whether full privatization would be a success or a loss.
MILEI, THE “DOGMATIST”
“President Milei proposes a dogmatic vision of the economy that takes Carlos Menem's government as a model to justify the privatization of YPF. But in Menem's time, the situation of the oil company was totally different because it was a 100% state-owned company, which no financing capacity. That is to say, it was deficient in terms of hydrocarbon production and never managed to make Argentina reach self-sufficiency,” explains Víctor Bronstein, director of the Center for Energy, Politics and Society Studies (CEEPYS) to AméricaEconomía .
Along the same lines, Eduardo Fernández, director of the Petroleum Engineering degree at the University of Buenos Aires (UBA), believes that YPF's mixed model is the ideal. “That the government maintains shares in a company like YPF, even if its participation is not a majority, does not bother or dislike me. But having a public company that responds to the government's strategies seems meaningless to me. Especially at this time when it is intended that the participation of the markets in competition is what establishes oil prices,” Fernández declared to AméricaEconomía .
However, YPF's era as a privately owned oil company also has lights and shadows. When the Menem government privatized the company in 1998, it was acquired by Repsol. Bronstein highlights that at that time the Spanish oil company had no upstream development, that is, it was not oriented towards exploration and production. It was mainly dedicated to refining and marketing oil, which is why it had to go into debt to acquire YPF.
“This detail caused Repsol to have to pay a large debt, which reduced its investment capacity. And then, they used YPF's profits to invest in other branches in Angola or Brazil. Their purpose was not the hydrocarbon development of Argentina and therefore, they stopped exploring new reserves and developing existing ones. So oil production began to decline in 1998 due to lower investments and we were on our way to remaining an oil-importing country,” Bronstein recalls.
PARTIAL RETURN TO STATISM
The situation changed in 2006, when Néstor Kirchner's government renationalized YPF with the support of the Eskenazi business group. Like Repsol, the consortium went into debt to buy a section of the Spanish shares, but it was agreed that management would once again remain in Argentine hands. As a local private capital company, YPF once again saw its development limited by debt, but it had specific successes such as the discovery of the Vaca Muerta in 2010.
Two years later, Cristina Fernández's administration expropriated 51% of the shares and then YPF promoted investments in the development of Vaca Muerta. However, the illegal nature of the measure led to protests and complaints from Repsol to international bodies. Like so, in 2023, US Judge Loretta Preska issued a ruling that forced the Argentine government to pay US$16 billion to the former shareholders of the oil company. Although the Milei government appealed the measure, it did not present guarantees for the requested amount.
The situation worsened when Burford Capital, an English firm that acquired the litigation rights of two former shareholders, claimed the seizure of YPF shares at the end of February. “Unfortunately, the ruling responds to the principles of justice and the arguments are logical to sue the Argentine government. The best thing would be for the authorities of the previous government to take responsibility for what they did. But that is not going to happen in Argentina,” laments Fernández. For his part, Bronstein maintains that while the claim is fair, “the amount is difficult to calculate around how much was actually lost or could have been gained. So, it seems to me that the ruling has a certain political flavor.”
In parallel, Burford presented a 122-page document on February 28 requesting a hearing from the US justice system. The reason is to force the Argentine State to report on a large amount of assets in its possession. It is not a casual request: it is the previous step to identify assets that can be seized. Until then, officially listed assets included YPF public shares in Caja de Valores, accounts, assets, debts and transactions valued at US$ 1 million. The list extends to include assets of other public companies such as Aerolíneas Argentinas, ARSAT, ENARSA and Banco Nación.
GOODBYE TO MATURE DEPOSITS
Back in Argentina, YPF, under the new presidency of Horacio Marín, proposed at the beginning of March the possible sale of mature fields. These are 55 conventional areas that have already exceeded their initial production peak, and are located mainly in the provinces of Chubut, Santa Cruz, Mendoza and Neuquén.
“Today YPF wants to free itself from the very mature areas that it currently has because they require additional investment. There are smaller companies that can take over with a lower cost structure while YPF is dedicated to the development of areas that are larger and require greater “backs”, but that also reduce the geological risk,” Fernández clarifies.
Likewise, Bronstein points out that many of these fields are a century old and their low productivity is due to the fact that it is not profitable for a large oil company to invest in fields that handle meager figures of 300 barrels per day. “It's like assigning a supermarket chain to manage a kiosk: it is not going to manage it well, because it has an operating structure that is not compatible with the scale of what a kiosk sells. And therefore, it is very expensive.”
The eventual sale of these assets would allow YPF to reinvest the funds in the exploitation of shale oil and gas. So, eyes point to the Vaca Muerta Formation, located in the Neuquén basin. “The most important thing is its natural gas production. It is essential that they build a liquefaction plant, because when one processes this resource, two ways of transporting it appear: through a pipeline or by means of transportation. It is something that they cannot do yet,” remarks Jorge Pérez Taiman, a Peruvian lawyer specializing in oil contracts, for AméricaEconomía .
Although Vaca Muerta's proximity to Chile allowed YPF to build three partial pipelines, Argentina's economic vices prevailed once again. “Unfortunately, the price controls that were implemented at the time, due to the populist policies of previous governments, prevented more natural gas drilling from being done and in the end, those pipelines ended up being used the other way around. Chile, which is not a producer of natural gas, imported it and then some surpluses were labeled as Argentine,” Pérez denounces.
A NEW PROJECT AND THE LATEST LOSS REPORT
Regarding oil reserves, on January 30, YPF announced the Vaca Muerta Oil Sur project: a 570 km pipeline that will transport crude oil from the heart of Vaca Muerta to the coast of Río Negro, where Sourth America's largest export port will be built. With three stages and an investment of more than US$2.5 billion, the initiative seeks to boost the shale oil industry, somewhat relegated to the importance of natural gas from Vaca Muerta.
“It is an area with many possibilities for exploitation. It all depends on the price of crude oil. Additionally, near Vaca Muerta, there is another formation called Las Montes, which is a little smaller. In general terms, Argentina produces today just over 600,000 barrels per day. In three years, it could reach one million and perhaps in a decade, two million barrels. Much is related to the fact that Vaca Muerta has 30,000 square kilometers and currently, less than 300 have been developed. There are still many resources to be developed,” Bronstein advances.
The latest news regarding YPF occurred on March 7, when the company revealed its 2023 financial report with discouraging results. Losses went to US$ 1.31 billion, in contrast with the US$ 2.23 billion net profits achieved in 2022. EBITDA and revenue also fell in 2023.
For Bronstein, the factors behind this trend are found in the global market and Argentina itself. On one hand, oil prices stabilized after the Ukrainian War started. We cannot forget the freezing of gasoline prices that the then Minister of Economy and presidential candidate of the Justicialist Party, Sergio Massa, applied in August 2023. “On the other hand, there were a series of exploration development strategies in the offshore area of the Buenos Aires province that also generated investments, but that have not yet produced results,” adds Fernández.
