Bloomberg News

YPF Shale Quest Seen Withstanding Argentina’s Debt Debacle

July 31, 2014

Argentina’s efforts to become self-sufficient in oil and natural gas by tapping vast shale reserves will stand up to a second default in 13 years, according to Seaport Group and the state energy company YPF SA. (YPF:US)

YPF will generate enough cash to finance operations for the next 12 months and has access to new funding sources, the Buenos Aires-based company said in an e-mailed response to questions yesterday. Since Argentina missed a July 30 payment on $13 billion of debt, the yield on YPF’s $1 billion of bonds due 2024 rose 0.15 percentage point to 8.2 percent. Similar sovereign yields rose 0.83 percentage point to 9.97 percent.

The company, control of which was seized from Spain’s Repsol SA in 2012, will be resilient in gaining access to financing operations to develop shale deposits in southern Argentina and boost production, according to broker-dealer Seaport Group. YPF is the country’s largest company.

“Argentina’s shale oil and gas reserves, overseen by YPF, make the company a key institution and it will have continuous access to financial markets,” Michael Roche, an emerging-market strategist at Seaport, said in a telephone interview from New York. “The company may structure securities where its earnings are escrowed outside of Argentina for use in repaying debt and receive attractive terms.”

In its first international bond sale in 15 years, YPF sold $150 million of floating-rate notes due 2018 in September 2013. The notes, which yield at 7.13 percent, are backed by grain sales deposited in a foreign escrow account.

Cash Position

“YPF doesn’t see problems in the short-term,” the company said when asked about access to financing after default.

Oil production in the Neuquen basin shale formation known as Vaca Muerta more than tripled in the first quarter from a year earlier, according to data compiled by Bloomberg Intelligence, boosted primarily by a joint venture with Chevron Corp. (CVX:US) Vaca Muerta, dead cow in Spanish, is the world’s second-largest shale gas deposit and fourth-largest shale oil field.

Argentine central bank reserves have tumbled 21 percent from a year ago mainly because of a widening energy deficit. Energy imports surged to a point that YPF Chief Executive Officer Miguel Galuccio called the deficit a serious problem in August 2013, and said only developing non-conventional energy resources would reverse the trend. YPF has said it needs to fund a $35 billion investment plan over the next five years.

Tenaris SA Chief Executive Officer Paolo Rocca said he views the energy deficit as an opportunity.

“There are very strong fundamentals in investing in oil resources or gas resources, especially in Vaca Muerta as the country is importing expensive gas, so development of Vaca Muerta will happen,” Rocca said yesterday in an earnings conference call with investors.

To contact the reporter on this story: Pablo Gonzalez in Buenos Aires at pgonzalez49@bloomberg.net

To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net Robin Saponar


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Companies Mentioned

  • YPF
    (YPF SA)
    • $35.18 USD
    • -0.09
    • -0.26%
  • CVX
    (Chevron Corp)
    • $115.71 USD
    • -0.44
    • -0.38%
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