[Serial_Worrier]

Good for Argentina. Those bloodsucking oil corporations have done enough damage!

[Shaved Monkey]

I imagine its not a good move for your country owning the profits from its resources.
Just see what happened to Iraq,Libya and Iran soon

...this is how the supply will dry up quickly, as nations gain control of their resources for domestic use.
Maybe Norway might be next.

Sit back and eat the popcorn

[Outcast_Searcher]

Yeah, this kind of thing ALWAYS works.

For example, just look at how the "rent control" fiascos, stealing people's rental property has "helped" affordable housing in NY and California! Oh...wait. There IS little to no affordable housing in NY or CA, except for the fortunate few living in NY rent controlled apartments (those effectively STOLEN from their owners).

If Argentina can make this stick, this can ONLY greatly lessen the amount for foreign investment willing to produce oil there.

But hey, for the next 5 minutes (or weeks) expensive gasoline can be blamed on the evil YPF. How nice for everyone buy YPF, of course.

[radon]

If Argentina can make this stick, this can ONLY greatly lessen the amount for foreign investment willing to produce oil there.

But hey, for the next 5 minutes (or weeks) expensive gasoline can be blamed on the evil YPF. How nice for everyone buy YPF, of course.

We'd really need to look at the details in order to understand what is happening there. I've heard in the news that Argentina has some strange import/export balance, with YPF exporting substantial amounts of oil while the government having to import substantial amounts of oil lately. Eg. with the significant price disparities between various grades of crude emerging recently, the government may well be a substantial loser with the existing import/export balance standing as it is.

"Foreign investment" is not some kind of an almighty good god, it is mostly an actively propagated euphemism for a foreigner, usually western, taking an equity stake. Whether they really need to give up an equity stake to develop their oil is not at all given. Hardly, in the world of tight oil supplies. There all sorts of interested parties outside the western world that have the capacity to provide the assistance with the oil development irrespective of the expropriations history. Like BRICs.

[rockdoc123]

I'm pretty close to this situation and have been for sometime. The issue in Argentina is that in 2008 the Kirshner gov't imposed a tax on all oil exports such that oil price for anyone wanting to export oil was capped at $44/bbl. This was a great cash grab for the gov't as oil was trading quite high, the country was a net exporter and the difference put tons of money in their coffers. The Kirshner gov't under Nestor was extreme leftist and felt that they should keep natural gas prices in the country extremely low so that everyone could have air conditioning. The problem with this was both of these did contribute to the average person doing much better and through increased purchasing power the economy improved but it also contributed to a complete exodus of foreign oil companies...why should they look for gas that was uneconomic, why look for oil when you could find it in Colombia and get 3 times the price?
YPF was bought by Repsol in 1999 and a portion was sold to the Ezkanazi family through a deal in which they would pay for their portion through dividends from production. Given that there was really no incentive to look for any new oil and gas Repsol did exactly what anyone would have done in their situation, they concentrated on spending on their producing fields where they were dealing mainly with operating cost investment moreso than capital investment. The lower costs made it possible for them to be quite profitable. The government has argued over the past that YPF was not exploring on their blocks, that they weren't producing new oil and gas and that is true. But the country was doing OK so the gov't didn't get too upset. But the artificially low prices on oil and gas for consumers increased internal demand as the economy boomed post default. By late 2010 Argentina had become a net importer of oil and internal demand continued to soar. The idea that by capping export prices would also keep internal prices low no longer was viable and last year oil prices internally rose quite rapidly from around $50 to $70/bbl. The gas story is even worse. Because prices were kept artificially low in country no one was exploring or bringing on stream additional gas. Gas became scarce and the only way the country could be supplied during the Austral winter was to import, first from Bolivia and then when that wasn't enough LNG from whoever would sell it to them. The bizarre situation ensued where the country was paying around $9/Mcf from Bolivia and as much as $14/Mcf LNG and then turning around and selling it to consumers for $1.00/Mcf.
The one ray of hope that surfaced last year was the discovery by YPF of what could be the best shale gas/liquids story in the world, the Vaca Muerta. This discovery plus the fact that internal demand for oil was high lead to a bit of a land rush with Exxon, EOG, Apache, Total and a host of Canadian companies grabbing up prospective areas in the trend. Left alone to their devices these companies would have over the next few years increased internal gas and oil production precisely in the manner that Christina Kirshner wanted. But from a political standpoint this didn't work for her. Free enterprise is not in the Peronist operating manual and rather than try to fix the economy by removing unnecessary roadblocks to investment she looked for someone to take the fall for the gov'ts bad economic policies. Hence YPF goes under.
The sad part of this is that by taking back YPF illegally the Kirshner gov't has effectively sterilized the outside investment in the oil and gas industry that they need. Large companies like Exxon will now have second thoughts about investing large sums of money, they have been through similar events in Venezuela. The smaller public companies suddenly have found themselves without support from their investors...why would I invest in your stock when your company will be nationalized? And YPF does not have the capital to do what Kirshner wants them to do.
It is unfortunate that Kirshner hasn't learned from the Venezuela experience. There Chavez nationalized and stopped required reinvestment in the producing oil fields. Production dropped throughout his rule and their economy is now effectively in the toilet. The same has happened in Ecuador and to a lesser extent Bolivia. Christina Kirshner seems to fancy herself a modern day Evita but in attempting to help the downtrodden she has effectively set up the scenario where they will be hurt worse than anyone can imagine. In deference to Andrew Lloyd Webber...I cry for Argentina.

[radon]

But poetry aside, still not clear how is Argentina worse off from the nationalization. Well, the poor might be hurt because the subsidies could no longer be afforded, but that would happen anyway regardless of whether YPF is nationalised.

If they need capital investment in the development of shales they can buy services from Exxon et. al instead of giving them equity or seeking investments in stock. Everyone hates giving up equity, it is just so very expensive. If Exxon plays hard-ball, then they can turn to the Chinese.

For an outside observer, it does not really matter whether the money (read energy) is pissed over the wind by an "inefficient" government or by an "efficient" foreign private investor. From the Argentinian government's perspective, however, the domestic government employees are obviously preferred to foreigners.

On the other hand, if Argentina is fond of reclaiming the Falklands, they might need reliable fuel source to back up their military. They might dislike the prospect of being told by Repsol: "Oh, we cannot give you that oil, it has been contracted for the years ahead to exports somewhere else".

[rockdoc123]

I think you have some misconceptions. The amount of money that is required to develop the shale reserves is immense. The Argentine gov't even with YPF 100% could not afford it, especially since they seem bound and determined to stick with a subsidized economy. That is why countries opened up their oil industries to foreigners in the first place...explore with someone elses money letting them take the risk and then participate in a share of the production through royalties and taxes. The country is then free to take profits and invest elsewhere. The oil industry has traditionally quite low profit margin. This is because you have to invest a lot of money to get a bit more money out. Governments do not like the idea that they have to invest that much, it leaves them little for social programs etc.
Who exactly would pay Schlumberger? Who would pay the Chinese? They aren't going to do this for free.
The foreign investors are far from inefficient....they have shareholders to answer to and if they can't turn a profit (which in this business requires efficiency).
And you also missed the notion that Repsol does not export much in the way of oil anymore anyway. They would rather sell it internally to avoid the export tax. They get $44/bbl net exporting whereas they can get around $70/bbl internally.

[radon]

That is why countries opened up their oil industries to foreigners in the first place...

This is why we have Aramco, Statoil, Gazprom, Sinopec etc. But maybe the numbers add up in such way that Argentina finishes up worse off. Bad for them then.

[rockdoc123]

This is why we have Aramco, Statoil, Gazprom, Sinopec etc. But maybe the numbers add up in such way that Argentina finishes up worse off. Bad for them then.

completely unrelated. It is why countries like the UK, the US, Algeria, and most recently Colombia have been so successful whereas Venezuela, Ecuador and Bolivia have what amounts to failed economies. They use other peoples money to develop their resources while taking the lions share of the income whereas the latter take the profits from production and use it to support their government and social programs.

Aramco functions because they had more money than you could imagine coming from Ghawar and they were in a position where they could reinvest what was necessary and still be stinking wealthy, especially given there was about one person per thousand square miles resident in the country. Statoil is a national company but they do not own all of the licenses, they have to compete on an equal footing with all of the other oil companies and the government has been adamant that they will not allow them to be a monopoly. There are numerous Chinese companies, Sinopec is one but CNOOC is larger. And China allows foreign participation. Of these NOC's you mention Aramco is the only one that has a current structure resulting from nationalization. Having an NOC in a country is a good thing, but if it owns all the resources and has no competition it had better have the size of resource that Aramco does and the access to technology and skill set they have.
But lets look at Latin America in total. The main hydrocarbon bearing countries are Venezuela, Colombia, Peru, Brazil, Argentina, Bolivia and Chile. Of these Venezuela nationalized back in the mid-seventies, found they had destroyed their economy and oil industry and re-opened it to foreign investment in the early nineties. That move resulted in increased discoveries and eventual large investment in heavy oil. Since Chavez has effectively nationalized there has been almost no reinvestment in the existing producing fields by PDVSA and zero exploration. Their economy is in the toilet because Chavez feeling that he needed the support of the people took all of the oil production receipts and put them into social programs. Sounds like a good thing to do but who then is investing the huge capital needed to sustain production? In Ecuador they are in a similar bind. The national company has not even close to the funding necessary to explore of develop and are struggling with maintaing production. They decided to go to Service agreements with companies which are untenable for any company which is private and listed on any of the major exchanges. In Boliva the same story. An anecdote I have is that a few years back not more than 6 months after Morales had nationalized the industry I had a call from a government representative who wanted the company I worked for then to consider coming to the country and helping out as they had realized the nationalization model wasn't working. On the other hand Colombia has been the real gem as a success story in hydrocarbon discovery and production over the past few years. This is despite the huge security issues due to the FARC activities and the reason is that the government has been adamant that they stick to the laws they set, they have never changed the agreement provisions and they have never taken back acreage illegally. And the national company in Colombia Ecopetrol has been successful beyond belief...they went public, they entered into other markets, they will soon be a force to be reckoned with in the international O&G business. Foreign companies need to be confident their investment won't get nationalized. This is precisely why Peru, Colombia, Chile and up until last week Argentina have seen a large amount of activity by foreign companies.
It is very clear from recent history that nationalizing an oil industry almost never works. The only case where it did was because the resource was so large as to allow for huge reinvestment at the same time as creating huge cash surplus for the country. This is not possible in Argentina where the overall resources are relatively small and accessing the new shale plays will be tremendously expensive.
Controlling your own resources sounds great in theory until you figure out how much it is going to cost you. I regularly used to run economics on projects and the standard litmus test was that the discounted profit to investment ratio had to be around 0.3 to make sense. That means to make 100 billion dollars I need access to 30 billion dollars to make it happen. This simple math is what Argentina will face as they try to nationalize.

[radon]

Lots of valid points, but they relate to some perfect energy-abundant model world where the forces of absolute Good are vested in the private foreign (western) investors, and the forces of absolute Evil are vested in the domestic public government.

...as the [Argentinian] economy boomed post default.

Interesting quote from your earlier post. Have you noticed that this - an economic boom - is a typical situation for a country "defaulting" on its IMF's or IMF-solicited debt? YPF was privatized in 1999, the default took place in 2002. Interesting timeline.

It is why countries like the UK, the US, Algeria, and most recently Colombia have been so successful whereas Venezuela, Ecuador and Bolivia have what amounts to failed economies.

Whose judgment is this? Of The Economist, the "influential weekly", years late with their valuable insights? How do you measure success and why you think that a country's success owes solely to giving up effective resource ownership to foreigners? A foreign investor may be thinking that him growing rich sitting overseeing his shareholding may be sign of a success of the country in which he invests, but a poor peasant in this country may have a totally different take on the things. Not to say that either of them is right or wrong.

Take Lybia. Oil state-owned. Welfare state at its best. Some untold amounts given to whoever wanted to go to a European university, with no selection competition whatsoever. I wish I would have had this. Virtually, any person is a stakeholder in the country's riches. Gone.

The notion that the US is an open economy is an utter nonsense. The US resource/resource company ownership would have been swept away by the Chinese and others long ago had it been the case. Much better option than holding zillions in crappy treasuries. Any attempt at a trivial acquisition of any tiny bit of property in the US by a Russian company leads to a scandal in the US Congress.

Not to say that the domestic politicians are any good. Politicians are politicians everywhere. Usually, their actions oscillate between the outside (foreign), domestic public and their own interests. The vector of the action is defined by the relative group forces (foreign, domestic public, themselves) pre-dominant at a specific point in time.

Normally, it makes sense for the governments to privatize when the resource prices are low and falling, because this situation necessitates cost reduction programs that the politicians hate. Instead, they privatize and blame the austerity hardships on the evil "investors", thus re-directing the public backlash from themselves and making themselves viable (or electable). When the prices grow, they impose taxes and nationalize. This is just how the political process works.

Statoil is a national company but they do not own all of the licenses, they have to compete on an equal footing with all of the other oil companies and the government has been adamant that they will not allow them to be a monopoly. There are numerous Chinese companies, Sinopec is one but CNOOC is larger. And China allows foreign participation.

Argentina does not prohibit foreign participation. It nationalizes a foreign-held stake in a domestic resource company. Exxon or whoever may come and join the shale gas bonanza, weighing all the connected risks, if the Argentinians let them in.

An anecdote I have is that a few years back not more than 6 months after Morales had nationalized the industry I had a call from a government representative who wanted the company I worked for then to consider coming to the country and helping out as they had realized the nationalization model wasn't working.

Did he literally tell you that "the nationalization model wasn't working" and asked you to come and take ownership of their resources and sit on them? Or did he ask you for advice? These are two absolutely different things.

And the national company in Colombia Ecopetrol has been successful beyond belief...

Don't hear about this one a lot, but lots about Pemex, PetroChina etc. Again, what is the measure of success? Shareholder profitability? Or some super-objective uber-expert hyper-precise Index of Company's Success developed by an "influential weekly"?

I regularly used to run economics on projects and the standard litmus test was that the discounted profit to investment ratio had to be around 0.3 to make sense. That means to make 100 billion dollars I need access to 30 billion dollars to make it happen. This simple math is what Argentina will face as they try to nationalize.

You are somehow confusingly playing with the numbers. You are again into abstract models - describing a situation where the resource is unlimited and the boundary condition is that the economically recoverable portion is extracted at 0.3 or less Investment/Revenue ratio, and - importantly - Argentina goes for these recoverable resources all at once. It does not have to. It may go for the most profitable portion once - say, recoverable at 0.05 ratio, - then they will only need 5 billion to earn their first 100 billion, and then use these proceeds for re-investment for development of less profitable resources. But these are technicalities.

What Argentina can do in today's real world is to bi-laterally contract future extracted volumes for the years to come with some resource-hungry cash rich country (China) at "the future predominant market prices", "with a price floor" if they want to hedge, borrow from this country for the development of the resources, and then have Shlumberger or whoever working on the development by paying them from the borrowing proceeds, and then sit down doing nothing enjoying the cash flows and observing other people's work. No need to give up any (quasi-) equity stakes. They may well get away with that kind of a deal or alike as the energy has become scarcity and they enjoy the sellers' markets advantages. Unless, of course, an outside interest (Exxon's? Chinese?) cleverly manages to advance itself somehow.

Having said that, Argentinians may have made a miscalculation on this specific YPF occasion. Doubtful though, given the market and defense realities. Time will tell.

[dissident]

The notion that the US is an open economy is an utter nonsense. The US resource/resource company ownership would have been swept away by the Chinese and others long ago had it been the case. Much better option than holding zillions in crappy treasuries. Any attempt at a trivial acquisition of any tiny bit of property in the US by a Russian company leads to a scandal in the US Congress.

Indeed, when CNOOC tried to buy Unocal there was a sh*tstorm in the USA: http://www.china.org.cn/english/2005/Aug/137165.htm

Then these hypocrites scream whenever other countries block their access.

[mattduke]

The BRICS are dropping dollars because they have something better. The Argentine government on the other hand wants to force its tax slaves to bear the brunt of their deficit spending.

http://in.reuters.com/article/2012/07/0 ... BF20120706
http://www.reuters.com/article/2012/05/ ... H720120524

[Fishman]

Argentina has had numerous financial disasters. Ferfal has a great blog about Argentina's disasters.

[EnergyUnlimited]

These days fewer and fewer citizens in increasing number of countries (including Argentina) give a slightest damn about collection of garbage commonly known as a "law".
That is also one of hallmarks of societal collapse.
It is less and less important what is legal and what not and all what count is *probability of getting caught*.

[smiley]

The Argentine government on the other hand wants to force its tax slaves to bear the brunt of their deficit spending.

Perhaps the Argentinean govenment doesn't want their taxpayers to bear the brunt of the US deficit spending.

Argentina: debt/GDP 42% defict 2%,
USA: debt/GDP 130%, (105 +25 unacc.), deficit 8%

If you look at the raw figures, investing in the US$ seems a much riskier proposition, and the argentineans could tell you a thing or two about the risk of running deficits.

[rockdoc123]

No point in surmising what is going on because the first article linked to is quite factual. It is all about the Kirshner gov't trying to stop the flight of currency out of the country. For nearly a decade inflation held pretty steady at 4% or so and then in 2010 it jumped to 20% and currently sits around 25%. For most Argentines that means there is no point in saving as your peso is continually depreciating, hence trying to lock in some value by buying foreign currency. Part of the problem is that gov't spending has been quite high due to the desire to subsidize natural gas prices for the consumer. As a consequence they buy gas from Bolivia at $10/MMBTU and LNG from various places at $14/MMBTU and then sell it to consumers for $1.50/MMBTU. This results in gov't spending of several hundred million dollars each year. As well the Peronist party which is quite socialist has let the unions run roughshod over the economy. Just recently one of the unions shutdown all trucking in the entire country, demanding a 30% wage increase on top of the 25% wage increase they recieved last year. And even though the gov't declared the strike illegal they didn't stop it and eventually bartered for a 25% wage increase.
All pretty crazy and it doesn't help matters that the gov't second in command Kicilof is a self acclaimed Marxist.
My view is there will have to be a serious change in the next year or two. The gov't will be forced to let energy prices rise to unsubsidized levels, they will have to devalue the peso and they will have to legislate strongly union activities. The surprising part of this is that Argentina has all of the ingredients to be a world economic power. They have a very strong agricultural industry with large Soya exports and the ability to export beef and wine. The natural gas resources are very large as is the remaining oil reserves and the potential for a strong tourist industry is there as well. Just poor management by the Peronists.

[smiley]

For most Argentines that means there is no point in saving as your peso is continually depreciating...

My view is there will have to be a serious change in the next year or two ....they will have to devalue the peso

This part I don't get. If I read this correctly part of your proposed solution is the same as your problem statement, namely depreciation of the currency and all its side effects.

As well the Peronist party which is quite socialist ...
...it doesn't help matters that the gov't second in command Kicilof is a self acclaimed Marxist.

Bit of a low blow don't you think? Fox level of news reporting.

(Disclaimer: Not a member of any socio/religious/philosopical/economical stream, and for all I care a government could be a member of the church of the flying spagetti monster as long as their policies are sound.)

[rockdoc123]

Bit of a low blow don't you think? Fox level of news reporting.

I'm actually stating a fact....Kicilof has said on numerous occassions that he is a marxist (an area he studied in university) and the Peronists are certainly a socialist party.
I think this is what is referred to as fair comment.

This part I don't get. If I read this correctly part of your proposed solution is the same as your problem statement, namely depreciation of the currency and all its side effects.

It's not my solution but it is pretty much a guaranty they will do this, it won't be the first time.

[Tanada]

YPF SA Chairman Miguel Angel Gutierrez, a former JPMorgan Chase & Co. banker, won the battle to control Argentina’s biggest energy company after Ricardo Darre resigned.

Darre, who lasted 13 months as CEO, will be replaced by a six-person committee and Gutierrez, Buenos Aires-based YPF said in an emailed statement. Only two of the six people on the new leadership board have experience in oil drilling.

"We are starting a new phase of YPF," said Sebastian Mocorrea, one of the members of the committee, by phone from Buenos Aires. "The focus will be on achieving greater efficiency in oil and gas production and becoming an integrated-comprehensive energy company, with a strong development of our business in the electricity sector, including renewable energy projects. "

Darre’s exit shows that experience in oil drilling isn’t necessary to lead Argentina’s state oil producer, especially as the company focuses on growing other businesses, including electricity generation. Argentina wants to boost renewable energy consumption to 20 percent by 2025 and reduce its dependence on crude oil while expanding natural gas production.

Darre came to YPF in July last year from Texas, where he was the head of the U.S. exploration and production unit of Total SA, in order to speed up development of Vaca Muerta, the world’s second-biggest shale deposit. Since being appointed in 2016, Gutierrez has slashed the company’s capital expenditure to almost half its peak of $7 billion, slowing Darre’s efforts.

https://www.bloomberg.com/news/articles ... ve-officer