BUENOS AIRES, Argentina – The CEO of Argentina's state-controlled YPF oil company has mapped out ways to woo foreign investors willing to take expensive bets on the nation's vast unconventional oil and gas reserves in a plan he's releasing on Thursday.
The state-run news agency Telam said Miguel Galuccio's 1,000-page plan also lays out how he intends to squeeze more oil and gas out of aging wells and increase domestic oil and gas production in Argentina's refineries, recovering the country's capacity to provide for its own energy needs.
Few governments have intervened so deeply and directly in the energy business as Argentina has since it expropriated Repsol's controlling stake in YPF on April 16 without paying a single centavo of the $10.5 billion the Spanish company has demanded in compensation.
Galuccio has already made a series of presentations in his first 100 days aimed at attracting foreign investors. In June, he promised to reverse 15 years of declining oil and gas production at YPF and achieve 6 percent annual growth by drilling 1,000 new wells at the cost of $7 billion a year for the next five years.
"I am going to defend your investment. Believe me that we can grow while making money," he told potential investors last week at a Council of the Americas symposium on Argentina's economy.
His high-profile meetings with leaders of Brazil's Petrobras, U.S.-based Chevron Corp. and other leading oil companies have led to general promises of cooperation and praise for Argentina's potential, but to date, none have committed to investing the many billions of dollars necessary to develop the world's third-largest shale reserves, behind the U.S. and China.
Galuccio's main challenge is that investors outside Argentina don't trust the government to keep its promises, says energy analyst Jean-Baptiste Bruny with BBVA Bancomer in Mexico.
"What's happening with the controls of the government, not only in oil but in mining as well, doesn't provide much confidence. Now people have more fear about investing long term, which is what they need to achieve this potential. The investor needs to be 100 percent sure that they can make a profit before putting down the money," Bruny said Wednesday.
Galuccio, 44, is an Argentine engineer who got his start at YPF but quit after Grupo Repsol bought it in the 1990s. Before he was picked by President Cristina Fernandez to lead YPF, he rose through the ranks of Houston, Texas-based oil services giant Schlumberger Ltd. to become president of its production division, which works with many of the world's state-run oil companies.
Fernandez also named Axel Kicillof, her 41-year-old economic guru who pushed for the takeover, to the company's board. Kiciloff then unveiled an elaborate system of price controls over nearly every aspect of the domestic energy industry, aimed at determining what companies operating in Argentina can "reasonably" make in profits.
YPF laid out its challenges in black and white in a 400-page legal filing to the U.S. Securities and Exchange Commission in April. It ended 2011 nearly $1.8 billion short of "working cash," and most of its $12 billion in debt is due in less than a year. Much of this debt, the company said, has "acceleration clauses" that can require immediate repayment if control of the company changes. Disputes over much of that money, such as the $10.5 billion Repsol is demanding for its controlling shares, may end up in international courts.
Still squeezed for cash, YPF plans to issue billions of dollars worth of peso bonds to be sold within Argentina, and the government has delayed the company's tax debts and other commitments to entities within the country. Galuccio put the best face he could on the challenges last week in a pair of public presentations in Buenos Aires, vowing to make Argentina an energy exporter again.
"I think the potential does exist in Argentina and is really big," Bruny said. "Now they need to find long-term partners by offering guarantees of profit. Until now there have been only rumors that foreign oil companies are interested, businesses from the BRIC (Brazil, Russia, India and China). But until now we haven't had anything concrete."