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YPF SA (YPFD), the Argentine oil producer that will lose 7 percent of its output after operating licenses were revoked, will sue the province of Chubut as a dispute with the government escalates over investments.
The provinces of Chubut and Santa Cruz yesterday pulled four oilfield licenses, saying YPF hasn’t invested enough. Mendoza province also yesterday told the producer to retract fuel price increases within five days or face “severe” sanctions. YPF lowered prices after it was told to do so, the company said in a separate statement.
YPF, based in Buenos Aires, is facing mounting pressure from President Cristina Fernandez de Kirchner’s government and oil-producing provinces to boost investments amid output declines and rising fuel imports. The company, controlled by Spain’s Repsol YPF SA (YPF), said March 13 it invested about $1.3 billion in the two provinces from 2007 to 2011.
“We got tired of policies created in Spain to take away our oil,” Santa Cruz Governor Daniel Peralta said. “You don’t play with oil because it’s a public asset.”
YPF has up to 90 days to return the fields to Chubut, said Martin Buzzi, governor of Chubut, at the same press conference. The fields for which the licenses were withdrawn represented about 7 percent of YPF’s 2011 oil output, according to Argentina’s Energy Secretariat data.
YPF may lose another 5 percent of its output in Argentina if the province of Neuquen withdraws concessions at the company’s Don Ruiz, Chihuido de la Salina and Rincon del Mangrullo fields, Dominique Patry, a Paris-based analyst at Cheuvreux said in a research note today.
Chubut “doesn’t have the legal framework to allow YPF and its partners to operate normally,” the company said in an e- mailed statement. It plans to sue Chubut and is analyzing terms from Santa Cruz before deciding whether to sue the other province, YPF said in another statement, adding that Santa Cruz didn’t provide a timetable.
“The federal government supports this decision by the provinces because it’s about enforcing the law,” Argentina’s Energy Secretary Daniel Cameron said at the press conference. President Fernandez supports the measure, he said.
Argentina’s Planning Minister’s Coordination Undersecretary Roberto Baratta, who represents the government on YPF’s board, also participated in the press conference in Santa Cruz.
A decade-long freeze on oil prices, which set the maximum producers could charge for exports at $42 a barrel, cut investment. Production dropped to 35.3 million cubic meters in 2010 from 45.4 million in 2001, according to the most recent data published by the Buenos Aires-based Argentina Oil and Gas Institute. In the past three years, international crude prices have more than doubled to about $107 per barrel.
Yields on YPF’s dollar bonds due in 2028 rose 50 basis points, or 0.5 percentage point, to 10 percent at 5:08 p.m. local time. YPF’s American depositary receipts climbed 4.5 percent to close at $27.97. The ADRs have slumped 19 percent this year. Repsol gained 1.1 percent to 19.18 euros in Madrid.
Repsol’s current share price “embeds no value” for its interest of YPF, Stuart Joyner, an analyst at Investec Securities in London, said in a note to clients today.
Argentine fuel imports more than doubled in 2011 from a year earlier to $9.4 billion, contributing to the narrowing of the country’s trade surplus to a one-year low of $280 million in December. Kirchner and oil-producing provincial governments are demanding that companies from YPF to Pan American Energy LLC raise investments to reduce the rising dependence on imports.
The government is looking for legal ways to acquire control of YPF, Buenos Aires-based newspaper Ambito Financiero reported on Feb. 29. A month earlier, Pagina 12 newspaper said government officials had discussed re-nationalizing YPF, which was sold to investors in 1993. Madrid-based Repsol YPF SA (REP) acquired control of the company six years later.
Spain “sees it is positively that the federal government of Argentina hasn’t taken decisions that run counter to the interests of YPF,” the country’s industry minister Jose Manuel Soria said in a televised press conference today.
YPF delayed a decision on its dividend after it allowed Cameron and Deputy Economy Minister Axel Kicillof to attend a March 8 board meeting.
Cameron and Kicillof were barred from accompanying Baratta, who represents the Argentine government on YPF’s board, in a Feb. 23 meeting. Six days later, Argentina’s securities regulator annulled decisions made during the meeting by declaring it “irregular” and “inefficient” because the officials weren’t allowed to participate. YPF appealed the ruling March 5.
The government wants the company to halt dividend payments and reinvest the cash in exploration, production and refining, the Planning Ministry said March 8.
YPF invested a record 13.3 billion pesos ($3.1 billion) in 2011, 50 percent more than in 2010, the company said in a Feb. 8 regulatory filing. The oil producer said the following day that $25 billion a year will be needed over a decade to develop shale oil resources at the Vaca Muerta formation in southwest Argentina, which probably holds 23 billion barrels.
YPF is 57 percent owned by Repsol, Spain’s largest oil producer, while the Eskenazi family’s Petersen Group controls 25 percent.
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