By Eric Watkins
LOS ANGELES, April 23 – Argentina’s nationalization of Repsol Yacimientos Petroliferos Fiscales continues to raise eyebrows around the globe, with Spain sounding a call for the imposition of international sanctions in an effort to win proper compensation for the firm.
Spain’s Foreign Minister José Manuel García-Margallo said that his country would push other European Union members to impose sanctions on Argentina that include removing its preferential trade treatment.
The EU is Argentina’s second-largest export market after the South American trading block Mercosur. No less important, Europe also accounts for more than 50% of foreign investment in Argentina.
García-Margallo said Spain would seek further help from the World Bank, the International Monetary Fund and the World Trade Organization to pressure Argentina to rejoin negotiations with Repsol over proper compensation for forcefully taking control of YPF.
It remains to be seen whether Spain will ever see anything like proper compensation for YPF, but there can be little doubt that the firm represents exceptional value on today’s market.
BIGGEST OIL DISCOVERY
Repsol YPF began to attract attention late last year when reporting “its biggest ever oil discovery” following initial exploratory efforts in the Vaca Muerta formation in Argentina’s Neuquén province, which it described as “one of the world’s largest non-conventional reservoirs.”
The company confirmed recoverable resources of 927 million barrels of oil equivalent (boe) of non-conventional hydrocarbons, of which 741 million boe are high quality oil (40-45º API), in Neuquén province.
At the time, Repsol YPF cited the highly respected consultants Wood Mackenzie as identifying the Vaca Muerta shale as “one of the best in the world” in comparison with other areas it examined in Australia, China and Europe.
In February, Repsol released further information concerning YPF’s Vaca Muerta (“dead cow”) find, calling it “a successful reflection” of investment in exploration.
“Noteworthy is the reserve replacement rate which reached 112% in 2011 compared with 84% in 2010, with the crude reserve replacement rate climbing to 169% from 100% in the previous year,” Repsol said.
YPF’s investment was 2.182 billion euros in the period, 1.499 billion spent on exploration and production. It said that development projects represented 72% of the total and 18% was spent on exploration, with 128 million euros spent on the Vaca Muerta formation alone.
The results were telling. On February 8, Repsol YPF announced an increase in the estimate of reserves and resources in the Vaca Muerta formation, citing an evaluation carried out by Ryder Scott.
Repsol said the Ryder Scott evaluation determined that in an area of 1,100 square kilometers there are 1.115 billion bbl of oil in associated contingent resources, and 410 million boe of gas, making a total 1.525 billion boe.
Repsol said that YPF’s share of the contingent resources would amount to 883 million bbl of oil and 330 million boe of gas, resulting in a total of 1.213 billion boe.
“The encouraging results obtained so far have prompted Repsol YPF to continue exploring the area to determine the play’s full extension and productivity in oil, gas and wet gas,” Repsol said, adding that it planned to drill 20 wells in 2012 to continue investigating “prospective resources.”
But the real clincher came when Repsol put the Vaca Muerta discovery into perspective: “With the current results, Argentina has the opportunity to reproduce the revolution in non-conventional hydrocarbons seen in the United States by developing the resources contained in the Vaca Muerta formation.”
Remarks like that made Repsol YPF an inevitable target of government interest, an interest that was clearly heightened by the published rumors of negotiations between Repsol and Chinese firms for the purchase of the firm.
Those reports said China Petroleum Corp. reached an agreement to pay more than $15 billion for Repsol YPF, while others said that China National Offshore Oil Corp. was in talks to pay $9.16 billion.
Whether $15 billion or $9.16 billion, those are enormous figures and represent untold wealth for the largely cash-strapped populace of Argentina. Just imagine how such a sale would have played to the country’s vast majority of people, many of whom cannot afford to buy cooking gas.
In justifying her government’s takeover just days after those rumors became public, Argentina’s President Cristina Fernandez cited Repsol’s business policies.
“The worst thing is that if we don’t do this, we’ll turn into an unsustainable country, because of its business policies and not because of a lack of resources,” she said, accusing Repsol of failing to invest locally even as it paid huge dividends abroad.
But Repsol YPF was not short on investment or plans to develop the country’s oil production. With rumors of a sale of up to $15 billion, Vaca Muerta was clearly a cash cow, and Fernandez simply locked the barn door before it departed.
© Glamma Productions 2012