YPF: Going the “Argenzuela” Way
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The term “Argenzuela” is used by Argentineans to describe the many similarities growing between the economic and political systems in Argentina and Venezuela. Similar policies are yielding similar results, unfortunately for investors in Argentinean companies and the country´s citizens.
In the picture above, published by the online edition of La Nacion newspaper, the influential Argentinean minister Julio de Vido seems to be having plenty of fun during a meeting with Venezuelan president Hugo Chavez. The meeting, which took place last week, was to explore possible alliances between expropriated oil company YPF (NYSE: YPF) and state owned Venezuelan energy conglomerate PDVSA.
Behind the two politicians, in the middle, Miguel Gallucio looks more circumspect, almost worried. Gallucio was appointed as CEO of YPF after the nationalization; coming from the private sector, he left his position in Schlumberger to become CEO of YPF in May of this year. There have been rumors of strong conflicts between Gallucio and De Vido - the private sector executive and the politician - regarding the strategic direction of the company.
Judging by the expressions on their faces and the recent flow of news about YPF, it looks like the company is going the “Argenzuela” way. During a public exposition when he had just become CEO of the company, Gallucio expressed his intentions to implement partnerships with different international oil companies in order to get access to the financial resources required to explore and develop the very promising Argentinean soil.
Total (NYSE: TOT) was believed to be a potential partner for YPF, the company already has operations in the Argentina and its management was quick to outline their investment plans for more exploration in the country after YPF was nationalized.
Lack of new investments was one of the main reasons pointed out by the Argentinean government to expropriate YPF from Spanish Repsol. For this reason, many believe Total announced its new investments in order to avoid expropriation, as opposed to a business focused decision. In any case, these potential alliance didn´t go much further than a short lived rumor.
De Vido had meetings with executives from Exxon (NYSE: XOM) and Chevron (NYSE: CVX) during last April, but there has not been much concrete news on the subject. According to some press comments, both American companies were interested in exploring shale oil and gas opportunities in the country, but they wanted a law to protect their right to export at international prices and repatriate their money back home freely.
Argentina has a heavily regulated energy market, and the country implemented over the last few months a series of strict controls on foreign currency purchases and capital flows by corporations and individuals. It is impossible for companies to transfer their earnings or dividends abroad unless they get a – very infrequent – approval from government authorities.
These kinds of measures make the Argentinean economic model more similar to those in Venezuela and Bolivia, in a clear contrast to what happens in the rest of Latin America. It is almost impossible to get fresh international capital to partner with YPF if the local government doesn´t guarantee minimal conditions for certainty regarding energy prices and capital flows.
Majority owned by the Brazilian government, Petrobras (NYSE: PBR), is another of the companies approached by Argentinean authorities. After all, Brazil is an important commercial partner of Argentina, it already has assets in the country, and state owned companies can sometimes put political considerations above economic principles.
But so far there has not been much progress with Petrobras either. The Brazilian company is in need of abundant capital to explore and develop its offshore projects, and that is clearly a priority over investing in Argentina. The political relations between Argentina and Brazil are also going through a complicated stage due to import restrictions imposed by Argentina and reciprocated by Brazil.
Argentinean political authorities have chosen to move closer to Venezuela in terms of macroeconomic policies and political affinities. This makes Chavez the most natural – perhaps the only – potential partner for YPF.
That´s not good news for investors: Argentina and Venezuela have tried alliances in the energy sector before, and they produced no material results aside from suspicion of corruption and political favors. Even if the alliance between YPF and PDVSA goes through and increases production, international investors have no reason to believe their rights will be respected under such conditions.
acardenal has no positions in the stocks mentioned above. The Motley Fool owns shares of ExxonMobil. Motley Fool newsletter services recommend Chevron, Petroleo Brasileiro S.A. (ADR), and Total SA. (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
