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4-Traders Homepage  >  Equities  >  Mercado Continuo Espanol  >  Repsol SA    REP   ES0173516115

REPSOL SA (REP)

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Argentina's YPF Move Risks Deterring Oil Investment

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04/28/2012 | 08:00am CEST

--YPF expropriation raises concerns about Argentina's energy policies

--Investment key to developing unconventional oil and gas

--Some oil companies upbeat about the country

(Adds new last paragraph.)

 
   By Taos Turner 
   Of  
 

President Cristina Kirchner's nationalization of oil company YPF SA (YPF, YPFD.BA) has exacerbated concerns about Argentina's energy industry and its ability to develop vast unconventional oil and gas deposits.

Exploiting those resources will require billions of dollars a year in foreign capital, and Kirchner's no-holds-barred expropriation of a 51% stake in YPF from Spain's Repsol YPF SA (>> Repsol YPF SA) could jeopardize those investments.

Deputy Economy Minister Axel Kicillof, the intellectual architect behind the YPF nationalization, hinted last week in congressional testimony that Repsol might not get any financial restitution once YPF's alleged liabilities are considered, and derided Repsol's demand for $10 billion in compensation.

Nomura Securities strategist Boris Segura said Argentina is sending "a very bad message regarding the rule of law and the sanctity of contracts. This is going to deter foreign direct investment in the energy sector, where Argentina has huge potential."

That investment is crucial to Argentina's future. Argentina ranked third in the world, behind China and the U.S., in potentially recoverable shale-gas reserves, with 774 trillion cubic feet, according to a study last year by the U.S. Energy Information Administration.

In February, YPF said it would require $25 billion a year for a decade to put its estimated 23 billion barrels of shale oil and gas resources into production, a bill that no single company, let alone Argentina's cash-strapped government, can afford to pay.

The nationalization of oil companies hasn't always deterred producers from investing in risky parts of the world, as was seen in Venezuela when Chinese, Indian and Russian oil companies invested there after President Hugo Chavez expropriated assets from ConocoPhillips (>> ConocoPhillips) and Exxon Mobil Corp. (XOM). But their presence hasn't added much to Venezuela's output in recent years, and the country's production level remains roughly what it was when Chavez ramped up his nationalization drive half a dozen years ago.

Nonetheless, Venezuela is still a major oil exporter, while Argentina's priority is to provide cheap energy to its domestic market.

To drum up investment, Kicillof and Planning Minister Julio de Vido have met recently with executives from Exxon Mobil, Chevron Corp. (>> Chevron Corporation), ConocoPhillips, France's Total SA (TOT, FP.FR), Brazil's Petroleo Brasileiro SA (PBR), and Apache Corp. (>> Apache Corporation).

The expropriation has left executives at several oil companies thinking twice before committing more money to Argentina, while others plan to tread cautiously.

Exxon Mobil spokesman Patrick McGinn said the company is prepared to make the necessary investments in Argentina to expand oil and gas production if its exploration efforts for unconventional resources in Neuquen Province are successful.

"However, given the long-term nature of our business, our investment must be supported with fiscal terms and product pricing that provides a return commensurate with the risk we are undertaking and must be underpinned by stable fiscal and regulatory policy," he said in an email.

Brazil's Petrobras said it would invest $500 million in Argentina this year, in line with previous years. The other companies either couldn't be reached or declined to comment specifically about their meetings with the government.

Government critics have said onerous price caps and unpredictable policies--such as the recent suspension of tax breaks for drilling--have discouraged investment in the sector.

While local natural-gas producers can charge only $2 to $3 per million British thermal units, the government pays around $16 per MMBtu for imported liquefied natural gas, or LNG.

Such policies have led to declining production and reserves, turning Argentina into a net energy importer for the first time in 17 years. This year, Argentina's energy deficit is set to more than double to $7 billion.

Even if investment pours in and the government manages YPF well, these problems are "irreversible in the short and medium term," said the Argentine Energy Institute. The institute described YPF's expropriation as "confiscatory" and said it will likely spur lawsuits and "discredit Argentina internationally."

Some oil companies are more sanguine.

Barclay Hambrook, president of Americas Petrogas Inc., a junior Canadian exploration company operating in Neuquen, said in a phone interview that his company is moving "full-steam ahead."

The company and its joint-venture partners plan to drill 30 conventional wells and 10 shale wells mainly in the Vaca Muerta formation, home to massive shale oil and gas resources.

Paal Kibsgaard, chief executive of oil services giant Schlumberger Ltd. (>> Schlumberger Limited.), which moved "a fair bit" of capacity into Argentina in the last 12 months, is upbeat.

"We are still quite positive on the medium to long term on Argentina, and I think that whatever way they are going to develop these resources--and they will--there is going to be a strong need for our expertise and our products and services there," he said during a conference call last week.

Kirchner is betting big by nationalizing YPF. But for the gamble to pay off oil companies will have to bet big on Argentina.

-By Taos Turner, Dow Jones Newswires; 5411-4103-6728; taos.turner@dowjones.com

--Ken Parks contributed to this article.

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Financials (€)
Sales 2016 39 656 M
EBIT 2016 2 013 M
Net income 2016 1 321 M
Debt 2016 12 057 M
Yield 2016 5,68%
P/E ratio 2016 12,57
P/E ratio 2017 10,70
EV / Sales 2016 0,74x
EV / Sales 2017 0,64x
Capitalization 17 478 M
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Average target price 12,4 €
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