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Repsol threatens to sue firms that help Argentina

Published:Wednesday | April 25, 2012 | 12:00 AM

Spanish energy firm Repsol warned Monday that it would consider legal action against companies or investors that help Argentina exploit oilfields Repsol had planned to tap before its Argentine unit YPF was nationalised.

Repsol discovered vast shale oil and gas deposits under the 'Vaca Muerta' ('Dead Cow') basin of Neuquen province that could dramatically increase Argentina's oil reserves.

Experts say Argentina will need strategic partners to tap the world's third-largest unconventional reserves, and Argentine officials have wasted no time in lining up potential investors.

They met last week with executives of French-owned Total Austral and Brazil's Petrobras, announcing afterwards that both planned to expand production.

They reportedly met Monday with executives from Chevron and ExxonMobil, which have their own shale stakes in Argentina, and Apache, which began drilling through shale there last year.

Repsol YPF SA spokesman Kristian Rix says the company "is reserving the rights to take legal action against any investor in YPF or its assets following the unlawful expropriation of that company".

Share price sank

Repsol's share price sank nearly six per cent to €14.03 each in Madrid on Monday, underperforming the benchmark Ibex index, which fell 2.8 per cent. The shares were around €18 before Argentina announced the move to take over formerly state-owned YPF.

The Spanish government, meanwhile, adopted a carrot-and-stick approach.

Foreign Minister Jose Manuel Garcia-Margallo sounded conciliatory, saying Spain historically had very good relations with Argentina and wants to recover them.

He said Spain would try to convince Argentina it needed to reach agreement with Repsol on fair compensation for nationalising YPF, which he nonetheless said was a mistake that would scare off foreign investors.

"It is in Argentina's interest not to end up isolated in the world," the minister said.

At the same time, he said, Spain has proposed to EU partners a series of retaliatory measures against Argentina, such as filing a complaint with the World Trade Organization or downgrading trade relations.

The EU could strip Argentina of trade benefits provided to developing countries or halt free-trade talks between the EU and the South American bloc called Mercosur. That would mean dealing bilaterally with Mercosur's non-Argentine members, which are Brazil, Uruguay and Paraguay, Garcia-Margallo said in Luxembourg.

While Argentine President Cristina Fernandez's move on YPF has infuriated Spain, the country's largest foreign investor, it has elated many Argentines.

Only two months earlier, Repsol had increased its estimate for the shale oil and gas it found in Argentina to nearly 23 billion barrels, enough to double the country's output in a decade.

But the Spanish company said it would cost US$25 billion a year to develop, and warned that Argentina would need to overhaul its energy policy to attract the necessary investment.

Instead, Fernandez simply seized the company, giving her government access to billions of dollars' worth of cash, enough energy to answer domestic demand in the short term, and potentially even solving Argentina's chronic money woes in the future. The move has been overwhelmingly popular in Argentina, whose Senate will likely approve it on Wednesday.

Compensation uncertain

Repsol has valued the shares Argentina seized at US$10.5 billion, but it's unclear when - if ever - the company will get compensation. A report Monday in Argentina's La Nacion newspaper said Deputy Economy Minister Axel Kicillof, named by Fernandez to help run YPF, assured her that Repsol would not get "one penny".

She accused Repsol of draining YPF since gaining control in the 1990s, underinvesting in its oil and gas fields and failing to keep pace with the needs of Argentina's growing economy even as it paid huge dividends to shareholders.

Repsol blames Argentina's ever-changing mix of subsidies, price caps and export taxes for depressing production as the country's demand for energy soared since 2003, when her husband, President Nestor Kirchner, came to power.

Argentine oil production plunged 22 per cent from 2000 to 2010, even as demand surged more than 40 per cent, according to data from the Argentine Oil and Gas Institute and the Energy Ministry compiled by a former energy secretary, Emilio Apud.

Argentina's production has fallen so low that the government now spends billions of dollars a year on expensive imported fuels that it provides at a loss to companies and consumers.

- AP