Energy and Natural Resources

Argentine President sends Congress Bill to expropiate YPF, biggest local energy corporation

Argentine President Cristina Kirchner announced her submission of a bill for Congress to declare hydrocarbon self-sufficiency and upstream-downstream activities to be in the country's national interest to guarantee the economic and sustainable development of local provinces and regions.

To enable the fulfillment of these goals, it would instruct the expropriation of a 51% controlling stake of YPF held by Spain’s Repsol, that would be acquired by the federal state (51%) and the hydrocarbon-producing provinces (49% pro rata their individual hydrocarbon production and proven reserves).

Despite a public federal and provincial controlling ownership of the company, the bill would open a call for joint ventures and other forms of association with domestic and international players as a way to make the aforementioned goals possible, promoting the incorporation of new technology, industrialization and marketing models.

A Federal Council of Hydrocarbons formed by the Ministers of Finance, Planning, Labor and Industry and with the participation of the provinces would be created in order to guarantee compliance with the purposes stated in the bill and setting forth the national hydrocarbon policy.

Should a bill be passed and the expropriation be made, Repsol would keep 6.4% of YPF’s stock while the Argentine Eskenazi family’s 25.5% portion and the floating 17% share listed in Buenos Aires and New York would remain untouched. The company would continue to be a private corporation governed by Argentine Companies’ Law.

The project would call for Repsol’s stake to be priced at a value to be determined by the Federal Appraisal Tribunal.

Notably, YPF’s bylaws require making an offer for all outstanding shares even if the intention of the purchaser were to acquire a 51% stake only.

Since the process for actually passing the bill, appraising YPF’s shares value, completing payment and takeover would take time, the bill invokes the Expropriation Law No. 21,499 enabling the “Temporary Occupation” of the company in the meantime. In other words, this tool grants the federal state the ability to run the company with immediate effect as a response to an abnormal and exceptional situation as that qualified by the President.

A bill would likely be approved because the government’s party has control of both houses of Congress.

Along these lines, in her speech given today the President announced the enactment of a Necessity and Urgency Decree intervening YPF, appointing the Minister of Federal Planning trustee and the  Deputy Economy Minister as Trustees for them to run YPF day-to-day operations until the bill is passed into law.

As background information it is worth mentioning that YPF produces a third of the country's 570,000 barrels of oil per day, almost a quarter of its 125 million cubic meters per day of natural gas and has a approximately 55% of fuel sales on a national basis. Oil and gas reserves in Argentina have dropped sharply in the recent years causing the country to start importing energy after it had reached self-sufficiency in the 1990s. Energy imports amounted to more than $9 billion in 2011. The President indicated that YPF will focus on boosting exploration and production of both conventional and very promising unconventional hydrocarbons.

For further information on this topic please contact Juan Martín Allende