Argentina’s gas and oil fields are risky but lucrative for Big Oil

BUENOS AIRES, Argentina — Argentina’s hostile takeover of YPF, a Spanish-owned oil producer that is the largest energy company here, was to many economists a blunder that would only curtail foreign investment in a country starving for cash.

But as Argentina’s congress on Thursday night approved the expropriation of Repsol’s prized affiliate, President Cristina Fernandez de Kirchner’s government was gambling that the recent discovery of what could be billions of barrels of oil and gas in Patagonia would be too big a lure for energy companies to pass up. Unable to muster state money and lacking in technology, the government needs oil companies to spend $25 billion a year to bring cutting-edge technology and unlock the bounty from an oil and gas formation, dubbed Dead Cow, in the huge Neuquen basin.

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For those companies with the capital and know-how — including such giants as Exxon Mobil and Chevron — the possibilities may prove irresistible, said economists and oil analysts here and in the United States.

“There are a lot of companies that still want to do business there, and the good thing for those companies is that Argentina needs the capital and the know-how and the technology,” said Larry Goldstein, director of the industry-supported Energy Policy Research Foundation in New York. “Argentina, on the energy side, is going to get away with it. It won’t necessarily backfire on them.”

On the surface, Argentina’s move against YPF — which included cutting off phone lines to the company’s headquarters and forcing executives out — has shaken investors and solidified Argentina’s place as a financial rogue. A decade ago, Argentina recorded the biggest debt default in history, $100 billion. Argentina also refuses to pay its debts to the Paris Club of nations and, according to the Obama administration, has repeatedly ignored judgments made against it by the World Bank’s arbitration body in favor of U.S. companies.

Now, Argentina’s image, at least to foreign investors and markets, has been further tarnished with a lopsided 207-32 vote in the lower house that legalized the expropriation of a controlling stake in Repsol’s $18 billion affiliate.

Still, Roberto Lavagna, a former Argentine economy minister credited with lifting Argentina from economic calamity after its default, said the Dead Cow fields could be developed if Argentina works to show that it will honor contracts and create favorable conditions for energy companies.

“The key from now on is that YPF show that it is capable of playing by the rules of the game, to attract big international companies with capital and technology,” Lavagna said. “What we can be sure of today is that American companies are showing interest, Exxon and Chevron, Total of France, and the Chinese.”

The government, though, is not taking chances. Soon after the president announced the YPF takeover in a rousing, nationalistic speech on April 16, officials said that their intention was to pursue deep-pocketed investors to help Argentina develop a vast shale basin not unlike the boom fields of Texas and North Dakota. That has meant meetings with representatives from some of the dozen companies that have been investing or had plans to invest in Patagonia.