Agreement would mark an end to multiple legal battles Repsol has launched
The potential agreement bet- ween state-controlled YPF and Repsol came as a surprise considering that the numerous legal battles between the Spanish company and its former subsidiary have been at fever pitch since last year.
Tensions only seemed to increase last week when the CNV securities regulator said it had launched an investigation against YPF board members who represent Repsol’s minority stake in the company, following an accusation by the Argentine firm of potential “conflicts of interests.” Repsol still holds an 11.9 percent stake in YPF.
The move came after a Buenos Aires appeals court refused to hear a lawsuit filed by Luis García del Rio, a Repsol representative on the YPF board, who had demanded to see a copy of the controversial US$1.24-billion upstream contract the company signed with Chevron last July.
YPF accused García del Rio of a conflict, saying he wanted a copy of the agreement in order to sabotage the deal.
Ever since President Cristina Fernández de Kirchner signed a law in May of last year approving the expropriation of a 51 percent stake in YPF from Repsol, its previous controller — the Spanish firm — has launched numerous lawsuits in Madrid, New York and Buenos Aires to obtain the US$10.5 billion it says it is owed for the expropriation. It has also filed a complaint with the World Bank’s arbitration body, the International Center for Settlement of Investment Disputes.
In addition to pursuing legal action against YPF and Argentina, Repsol has also vowed to file lawsuits against any company that filed exploration deals with YPF, saying they would be taking advantage of illegally seized assets. Repsol filed lawsuits against Chevron in New York and Spain after it announced it was negotiating a shale exploration contract with YPF.
What the doctor ordered
A negotiated agreement between Repsol and YPF could be what Argentina’s energy sector needs to boost investments in the country’s promising shale fields. The country has been trying to woo foreign investors with its potential for unconventional production ranked among the highest in the world by the US Energy Information Administration.
When Fernández de Kirchner signed the expropriation of 51 percent of YPF’s shares from Spain’s Repsol on May 4, 2012, she vowed it would mark a new era for Argentina’s oil and gas production after years of steady declines.
A key part of this strategy involved the massive Vaca Muerta shale formation, mostly located in the Patagonian province of Neuquén. In late 2011, Repsol seemed to give new life to Argentina’s stagnant hydrocarbons exploration when it announced its “largest ever oil find” in Vaca Muerta. The company said that the resources in Vaca Muerta could double Argentina’s gas and oil production within 10 years.
It could prove to be one of the biggest shale fields in the world. But in order to free the hydrocarbons trapped in rocks, a technique involving drilling with a practice called hydraulic fracturing must be used. And it’s far from cheap. At the time, Repsol said it would require an investment of around US$25 billion a year.
When YPF unveiled an ambitious five-year plan shortly after the state take-over, it placed particular emphasis on shale exploration, saying it planned to partner with international oil companies to explore Vaca Muerta.
Yet Repsol’s threat of legal action, and the continuing uncertainty of how it could affect investments in Argentina, has left many investors on the sidelines, wary of getting involved in a bilateral dispute.
A question of compensation
How much Repsol should receive for its stake in YPF has long been a key question with some saying the Spanish company should not receive more than a symbolic dollar, while others have said it should get close to US$20 billion.
Argentine officials have said they will subtract Repsol’s alleged environmental liabilities from the compensation for the expropriation. These alleged liabilities have led to increasing calls from lawmakers and provincial officials for the state to pay nothing for the nationalization.
Repsol has long disputed the Argentinian government’s claims, saying that its investments since 2006 had been higher than earnings, and that other companies had seen much steeper drops in production.
Earlier this year Repsol rejected a compensation offer that had been pushed by Pemex, which holds a minority stake in the Spanish firm.
The national appraisal tribunal, which is part of the Planning Ministry, has yet to issue a public declaration on how much, if anything, the government would pay for the YPF takeover. Yet under the law, a determination of the value of an expropriation has to be made within two years of the seizure of assets or it risks becoming void and returning to the original owners.
Source: Buenos Aires Herald