Argentina is making few friends in the oil and gas industry these days

Interview with Sam Logan (*) Angering Spain by seizing and nationalizing a majority of Repsol's shares in YPF and ramping up the rhetoric over the Falkland Islands as exploration deals promise to make the territory a major oil player overnight, Argentina is making few friends in the fossil fuels industry these days.

Logan does not see the Argentine government taking any definitive action on the Falklands Logan does not see the Argentine government taking any definitive action on the Falklands

Sam Logan, owner of the Latin America-focused private intelligence boutique, Southern Pulse, speaks to Oilprice.com about the politics of populism behind Argentina's energy aggression.

In the interview Sam Talks about: Why Carlos Slim bought shares in YPF; Why Argentina won't take any definitive action in the Falklands; Why things will get worse for energy firms in Argentina; Argentina's brewing political crisis and Argentina's future relationship with Spain

The Interview conducted by Jen Alic of Oilprice.com

Oilprice.com: In April, Argentina nationalized Spanish Repsol's shares in YPF and now shareholders have approved a move that could see sharp cut in dividend payouts and a redirection of profits to investment. This is in line with President Cristina Fernandez justification for nationalizing Repsol's shares in YPF. She had accused Repsol of fleecing YPF by using too much of its profits for shareholder benefits rather than investing in exploration and turning Argentina into an importer of fuel. Will this essentially political and economic populism help or harm Argentina?

Sam Logan: While there are certainly short-term gains to be realized, the long-term effects of the Argentina-Spain relationship and Argentina's relationship with other oil majors will result in significant setbacks in investment confidence and overall appetite for working with the Argentine government.

Oilprice.com: What we would like to know is what is missing from this story and what role certain vested interests, such as the Eskenazi family (minority YPF shareholders brought on by the Kirchners who later defaulted on their Repsol loans) and Carlos Slim have played in the YPF saga.

Sam Logan: The Eskenazi family really took a hit from this action. When brought on board by the Kirchners, they took out loans to buy their stakeholder position in YPF. The payback on those loans was based partially on dividend payments. So the Kirchner nationalization and subsequent decision on dividends has left them in default. Carlos Slim, who got 8% of YPF when Eskenazi defaulted, was simply making a personal investment, not a political statement. When you're the world's richest man, it's not particularly risky to make low-value purchases and hold them long term to see if they pan out.

Oilprice.com: Populism is also at play in Argentina's renewed push over the Falkland Islands. Last week, Premier signed a $1 billion deal develop Rockhopper Exploration's Sea Lion field in the Falkland Islands and Argentina is threatening to sue Premier for illegal activity. How will this play out for Argentina, and for big oil? What can we expect in the near- medium-term?

Sam Logan: The Argentine lawsuit will move forward and the UK firms will ignore the action, but BP could get caught in the crossfire as a UK firm with holdings in Argentina. Already we've seen Cristina Fernandez’ administration apply pressure to BP.

Oilprice.com: How are oil and the Falklands used as symbols of national sovereignty in Argentina?

Sam Logan: The Falklands have long been used as symbols in Argentina, and this is an issue that crosses party lines so there is more political currency available for the Falklands issue across the Argentine political spectrum. There could be more saber rattling, but at this point I don't see the Argentine government taking definitive action.

Oilprice.com: Would you agree that at the heart of the matter is Argentina's misguided energy policy, in place since 2003?

Sam Logan: It's not just energy. This is more about Argentina's overall economic policies and the steadily increasing economic pressures the Cristina Fernandez government is facing. Inflation, currency controls and price controls on gasoline all play a huge role in this market, which extends well beyond the recent actions with YPF. Let's not forget that until recently Argentina was a natural gas exporter. Due to a longterm political negligence and mismanagement of infrastructure, Argentina is dependent on multinational energy firms to develop deposits and other known reserves - not to mention the potential for hydraulic fracturing. Ultimately, the irrational behavior Argentina has shown against multinational energy firms underscores a brewing political crisis that shows little to no sign of abatement in the near-term. It's likely to get worse for energy firms in Argentina before it gets better.

(*) Samuel Logan is the founding partner of Southern Pulse, a private human intelligence organization focused on investigating security, politics, energy, and black market economics in Latin America. Southern Pulse investigators operate from hubs in Mexico, El Salvador, Colombia, Brazil, and Chile to leverage Southern Pulse's HUMINT network, unique access, and deep understanding of the region to mitigate risk for public and private sector clients with exposure to political, security, financial, or legal risk in Latin America.

The Village Idiot & Fool Chavez in a veiled threat tells Spain’s Repsol to seek agreement with Argentina

Venezuelan President Hugo Chavez advised Repsol to seek a friendly agreement in its dispute with Argentina and noted that the Spanish energy company held important assets in his country.

Repsol faces a long legal battle after the government of President Cristina Fernandez nationalized its Argentine energy unit, YPF, in April. It has sued for 10 billion dollars in compensation and taken steps to file for World Bank arbitration.

Cristina Fernandez, an ally of the socialist Chavez, said Repsol had not invested enough in YPF and had allowed crude production and exploration to decline.

“I would advise them to think about it very carefully. They should look for a friendly agreement with this brother nation of ours, of South America,” Chavez said in a televised speech during a visit to Caracas by Argentina's planning minister Julio De Vido.

Chavez a vocal critic of Washington has nationalized almost all Venezuela's oil industry during his 14 years in office.

“Repsol has big investments here and we want it to continue having them, in an atmosphere of cordiality, understanding and respect for our sovereignty” Chavez said.

Repsol and Italy's ENI signed a major deal last year with Venezuela's state oil company, PDVSA, to develop the Perla offshore natural gas field, where they have certified more than 15 trillion cubic feet.

Repsol also has an 11% stake in Carabobo Project 1 in Venezuela's extra heavy Orinoco crude belt, where reserves are seen at 31 billion barrels and output at 400.000 barrels per day. The company has said it expects to invest 15 billion dollars in Carabobo.

Earlier this year, Chavez strongly backed Cristina Fernandez's move to take over YPF, saying the rest of South America had a duty to support her as well. In 2007, he nationalized four Orinoco projects, prompting US majors Exxon Mobil Corp and ConocoPhillips to sue for tens of billions of dollars.

Brazilian bank purchases 3.6% stake in nationalized YPF – ARGENTINIAN THEFT!

Brazilian bank Itaú Unibanco purchased a 3.6% stake in Argentina’s nationalized oil company YPF, an operation involving 157.8 million dollars.

In a communiqué sent to the Buenos Aires stock exchange YPF said on Tuesday that Itaú Unibanco through one of its affiliates in Grand Cayman last June 12 acquired a 3.609% stake in the company.

According to YPF, which last month was seized from Spain’s Repsol, the Brazilian bank said that its purpose “is not a greater share or to take control of the company”

The Itaú-Unibanco follows last week’s announcement by a subsidiary from the Mexican tycoon, Carlos Slim, Inbursa and Inmobiliaria Carso which acquired 8.36% of YPF’s shares for 340 million dollars.

The Argentine government took over a majority stake in YPF, 51%, from Spain’s Repsol following the congressional approval of a bill to that effect.

Likewise Repsol executed YPF shares in guarantee for unpaid credits from the Argentine group Petersen, thus increasing the Spanish group’s participation in the now nationalized oil and gas company to 12%.

In 2008 the Petersen Group was granted a loan of 1.018 billion dollars from a group of banks which included Crédit Suisse, Goldman Sachs, BNP Paribas and Banco Itaú Europa plus a further 1.015 billion dollars from Repsol to purchase 14.9% of YPF.

The Petersen group was chosen and sponsored at the time by the Kirchner couple (Nestor and Cristina) to take hold of a quarter of the company, thus increasing the local share of the iconic oil and gas corporation which is also Argentina’s largest. The Petersen group belongs to the Ezkenazi family, close friends of the Kirchners.

Repsol CEO Antonio Brufau is claiming 10 billion dollars in compensation for the seized 51% of shares, but the Argentine government has said it would not pay the sum claimed by the Spanish company.

Last June 5, YPF announced it is planning to invest 7 billion dollars per annum from 2013 to 2017 with the purpose of increasing reserves and extraction helping Argentina to overcome its growing fuels deficit that in 2011 soared to over 9 billion dollars.