The Argentine expropriation of YPF is now resolved. Congress has approved the deal. Here are the details. (And right here is the actual text of the agreement.) Repsol will receive bonds with a face value of $5 billion. $500 million will be in a 3-three bond paying a 7% coupon. $3.25 billion will be in 10-year bonds paying a 8.75% coupon. The final $1.25 billion will be in 19-year bonds paying 8.28%. Repsol is free to sell its holdings on the open market. Should the value of the bonds fall below $4.67 billion for a 90-day period, then Repsol can ask Argentina to issue up to $1 billion in additional bonds. On the flip side, if Repsol sells its holdings for more than $5 billion (not including the coupon payments that it will receive) then it promises to return the additional profits to the Argentine government. (Repsol plans to sell its bonds in 2016. The link also contains some information about Repsol’s point of view. They apparently expected to get $7 billion from arbitration, uncoincidentally close to what we predicted on this blog.)
What effect has all this had on YPF’s ability to develop the Vaca Muerta fields? Well, so far, not so much. First, Chevron has now promised to invest an additional $1.6 billion in the fields (on top of its existing $1.24 billion plan) taking the number of projected wells up to 331. Ultimately, the Chevron-YPF team expects to drill 1,500 wells to produce 50,000 barrels of oil and 3 million mcf of associated gas per day. At $7.5 million per well (which seems rather low) that’s an anticipated investment of $11.25 billion.
So Chevron is still interested. But they have to accept YPF as a partner. Has YPF been weakened by the controversy?
Apparently not. In February, it successfully issued $1 billion in ten-year bonds (at a coupon of 8.75%, about what the Argentine federal government borrows at) in international markets. A year earlier, the company issued five-year bonds at 8.875%. Meanwhile the company has upped its number of rigs in operation from 25 to 69 with 15 more slated to come on-line this year.
A lot can still go wrong in the Vaca Muerta. Argentine regulation is a mess and both YPF and Chevron are certainly betting on changes in the price and export rules. Neuquén province has infrastructure but it’s old, and geology get a vote.
All that said, now that compensation has been arranged, the expropriation appears to having remarkably little effect.