Argentine Government Halting Oil Growth at Home?

in Economics

In the past three years, Spain has been experiencing extreme economic woes, highlighted by the 2 recessions the country has already experienced in those 3 years. The country is struggling to recover and throttle another recession in order to avoid being the second country on the euro to require a "bailout." For this reason, as profits decline at home, Spain's companies are looking toward international markets to increase company profits.

One of Spain's major energy companies, Repsol, has been turning to international markets as a means to counteract the decline in profits experienced at home. One of the markets, credited with generating the International title now associated with Repsol, is the growing Argentine oil industry. In 1999, Repsol took control of the YPF unit in Argentina becoming a major international player in the energy industry. YPF is Argentina's largest oil company; it was established in 1920 and publicized in the 1990s. Today, Repsol relies on the YPF unit, which accounts for 2/5 of the company's crude oil reserve estimates and 1/3 of its profits.

As of April 2012, Repsol's relationship with and success in Argentina was drastically altered. The President of Argentina, Cristina Fernandez de Kirchner, nationalized the YPF Unit; the Chief CEO of YPF was fired and replaced with two of the President's top aides. Shocking and upsetting both Spain and the European Union, the Argentine government's decision took away Repsol's majority-owner stake (57%) in the unit splitting it between the country's central government (51%) and the country's provinces (49%). Despite Spains efforts to work with the Argentine government to come to a mutual agreement, no meetings have been made to discuss the matter.

Although arguments by the Argentine government insist that this will re-instate control and profits to Argentina that were lost when YPF was publicized in the 1990s, in the last few years, Argentina shale reserve estimates have steeply increased. In turn, companies like ExxonMobil and Total have been investing in the country's growing oil market. However, the Argentine government's decision has provided a breif glimpse of the country's current political view regarding foreign investment potentially halting the anticipated oil industry boom in Argentina before it begins. Moreover, perception of financial risk in Argentina has increased just as YPFs shares plunged upon the heels of the government takeover announcement.

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MK Pharis

Learn where Repsol hopes to move next -!/notes/mary-kate-pharis/argentina-to-australia/231267656982512

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Argentine Government Halting Oil Growth at Home?

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This article was published on 2012/05/17
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