How is Argentina’s nationalization of the YPF oil company panning out?
In short, the nationalization has so far had the salubrious (and rather ironic) effect of getting the Fernández administration to roll back some of the more counterproductive bits of Argentine energy policy, but its confused quasi-Bolivarian foreign policy is now coming back to bite the government via the ruling against Chevron. Fortunately for Argentina (and also ironically) an imperialist foreign court in the Netherlands seems to have tossed the country a lifeline.
Start with Argentine energy policy. YPF’s stock price jumped on November 29 ... because the Argentine government agreed to allow companies to sell natural gas from new developments at $7.50 per MMBTU, more than three times the previous controlled price. YPF shares then rose throughout December as it became clear that Argentina was going to raise the export price of oil from $42 to $70.
In one sense, then, YPF is doing well because the Argentine government has stopped doing some ... er ... counterproductive things. This validates a hypothesis I ventured about the expropriation in a case I wrote about it: nationalization gave the Fernández administration cover to lift some unaffordable subsidies.
What about attracting capital into the oil industry? In August, YPF laid out an ambitious $37.2 billion investment plan. Most of the cash is supposed to come from the company’s own earnings. (Those earning would not have materialized without the decision to raise oil and gas prices.) But it also calls for $4.5 billion from international partners and $6.7 billion in bond issues.
And that is where it gets sticky. YPF’s chosen partner, Chevron, keeps getting bogged down in legal trouble. In part, that is due to the YPF nationalization. On November 20, YPF’s former owner, Repsol, sued Chevron in Spain. Repsol asked the Spanish court to issue a cease-and-desist order under Spain’s “disloyal competition law.” (“Disloyal competition” sounds weird in English; a better translation would be “unfair business practices” or “antitrust.”) On December 4, Repsol hit Chevron with a second lawsuit in New York.
These lawsuits were not enough to stop Chevron. It isn’t that Repsol has no case. It is that the case is uncertain; moreover, Chevron might not be liable at all unless Argentina refuses to pay some future arbitration judgment against it, and such a judgment is unlikely before 2017 or 2018. Chevron is taking a legal risk in jumping into the Vaca Muerta oil shale, but it is a reasonable one. (For what it is worth, “reasonable” does not mean “If I were the head of Chevron, I would take the risk.” I would not.)
Chevron’s real problem is the lawsuit Ecuador launched against Chevron in Argentina. That one seems to have brought Chevron’s plans in Argentina to a halt. YPF is now on a roadshow in the UAE looking for partners. YPF has also received a pledge of $1.5 billion from Bridas Holdings. (Here is another description of the deal.) Bridas is half-owned by the Bulgheroni family of Argentina, and half-owned by CNOOC. Repsol, of course, has announced that it plans to sue Bridas.
There is something odd in the Chevron travails. The courts in Argentina are not fully independent, but as Setty has pointed out, the Fernández administration has had some trouble lately getting them to rule its way. (This Economist article gives more details.) In addition, Fernández herself is probably torn between needing Chevron’s money and wanting to support her Ecuadorean ally. What you smell is confusion.
My guess is that the Argentine supreme court will use the recent decision by the Permanent Court of Arbitration in the Hague (PCA) to overturn the lower court ruling and unfreeze Chevron’s assets. The PCA ruled that it had jurisdiction over the case and had previously ordered Ecuador to halt foreign enforcement actions until it made its final decision; it now holds Ecuador responsible for any damages imposed on Chevron by foreign courts. The ruling provides a basis for the supreme court to throw out the case. At that point, the action will shift to the courts in Spain.
That case, unlike the one in Buenos Aires, is a black box from where I sit. It will be fun to watch.