OTTAWA
Argentina's move to take control of YPF rattles foreign investors
SHAWN McCARTHY
RTGAM






OTTAWA - Argentina is planning to nationalize control of the country's largest oil company, a move that could discourage foreign investors in one of the world's hottest emerging oil and gas plays.

President Cristina Fernandez on Monday sent a bill to the country's Congress to expropriate 51 per cent of the shares of YPF, the Argentine subsidiary of Spain's Repsol, complaining the company is failing to meet its investment obligations in the country.

The move has heightened concern among investors in companies exploring for oil and gas in the country - including several Canadian plays.

In addition to U.S. giants such as Exxon Mobil Corp. and Apache Corp., Calgary-based companies that have properties in the South American country include Americas Petrogas Inc., Gran Tierra Energy Inc., and ArPetrol Ltd.

"The issue that scares investors is not knowing how far the government participation will go, if it's only YPF or if it is going to include other petroleum companies in Argentina," said Joe Amador, Latin America director for Scotia Waterous, the Bank of Nova Scotia's oil and gas arm in Houston.

Ms. Fernandez has also seized a $24-billion (U.S.) pension fund and airline Aerolineas Argentinas SA since taking office in 2007.

The Argentine government had been threatening to expropriate YPF shares for weeks, and Monday's move sparked angry reactions from the government in Spain and the European Union.

Executives at several Canadian-based companies active in the South American country, however, are unfazed by the aggressive state intervention, and said Monday they're confident their investments are secure.

Argentina is enjoying an investment boom as it has tremendous shale gas and tight oil formations, similar to the unconventional resources that have reversed declining production in North America.

YPF was an Argentine company until it was taken over by Repsol in 1999, creating the largest privately owned energy company in Spain and Latin America.

It represents 42 per cent of Repsol's total reserves, estimated at 2.1-billion barrels of oil equivalent.

Analysts say the latest government move could set back Argentina's efforts to reduce its growing reliance on imported oil and gas because the country needs foreign investment to develop its tough-to-extract resources.

"They are going to be closing the country as an investment destination," said Anish Kapadia, an analyst at Tudor Pickering Holt & Co. in London.

Peter Hutton, an analyst with RBC Capital markets in London, suggested the Argentine government may not carry out its threat, but instead force Repsol to dramatically increase its capital expenditures in the country, which would dry up cash for dividends and reduce return on the investment.

YPF recently announced that it would increase spending in Argentina by $4.4-billion over the next five years.

Mr. Hutton said new entrants into Argentina are in a much different situation, because they are investing fairly aggressively. However, one Canadian junior, Azabache Energy [[entity]]Azabache Energy [[/entity]]AZA-X, was recently told to step up its spending or lose its lease in the Neuquen Basin.

Gran Tierra CEO Dana Coffield said his company, which is looking to invest $53-million in Argentina, will not be affected by the spat between Buenos Aires and Repsol.

"We've been actively investing in Argentina since we entered the country and continue to do so, and continue to grow reserves and production," Mr. Coffield said.

"So we don't see any direct impact from this. There will be indirect impact from an investor point of view in terms of what this means for the industry."

Calgary-based Americas Petrogas plans to invest $150-million over the next year and is partnering with both Exxon and Apache in the Vaca Muerta shale gas play. CEO Barclay Hambrook said the Argentine government remains keen to attract foreign investment.

The Argentine government remains keen to attract foreign investment, but its recent move has unnerved people.

"Looking down the road, these Vaca Muerta shales do require a lot of investment and in order for Argentina to get that investment, they're going to have to do something positive to change things around and re-encourage investors to come back," Mr. Hambrook said.



With a file from Bloomberg News