YPF to Lose Three Oil Licenses Representing 11% of Output

YPF SA (YPFD), Argentina’s largest oil producer, may lose three more licenses for fields where it extracts 11 percent of its crude as provincial governments step up pressure on the company to boost investments.

Santa Cruz province is considering revoking the permits because YPF is unlikely to invest enough to reverse a decline in output, the provincial government said on its website, citing Governor Daniel Peralta. The province, which removed three concessions from YPF last month, hasn’t decided whether to revoke the other three or reject their renewal in 2015.

Santa Cruz and five other provinces have already withdrawn 12 of YPF’s 104 concessions since last month and threatened to revoke at least five more, echoing demands from the national government for increased output to curb fuel imports. The company has lost about 5 percent of its crude output because of removed permits, according to estimates by Banco Itau BBA.

“Should the government set a precedent with YPF, investors are likely to be fearful of where this cycle may end,” Michael Henderson, a London-based economist for Capital Economics, said in a research note today.

Neuquen province in southwest Argentina yesterday revoked an oil concession belonging to Brazil’s Petroleo Brasileiro SA. (PETR4) The province also withdrew a license owned by Tecpetrol SA, a unit of Techint Group.

Revised Outlook

Standard & Poor’s (SPY) revised its outlook for Madrid-based Repsol YPF SA (REP), which owns 57.4 percent of YPF, to negative from positive in a note today.

“The country’s operating environment has worsened,” Stockholm-based credit analyst Per Karlsson said in the report. The ratings agency may downgrade Repsol by one level “if the Argentine operating environment worsens,” he said.

S&P assigns a BBB long-term credit rating to Repsol.

YPF’s American depositary receipts fell 2.4 percent to $22.48 at 3:10 p.m. in New York. They have slumped 35 percent so far this year.

YPF would need to invest $1 billion to reverse declining production in the Canadon Vasco, Los Perales-Las Mesetas and Pico Truncado-El Cordón concessions that Santa Cruz may remove, Peralta said.

Output in the three areas, which currently produce 25,000 barrels of oil a day, has dropped since 2006, according to the statement.

Main Field

The Manantiales Behr field, which produced about 10 percent of YPF’s oil last year, is among four licenses the Patagonian province of Chubut plans to revoke.

Argentine oil output has declined to 35.3 million cubic meters in 2010 from 45.4 million in 2001, according to the most recent data published by the Buenos Aires-based Argentina Oil and Gas Institute.

Production has stagnated because the government caps export prices at $42 a barrel, Henderson said.

“The official version of events hides some inconvenient truths,” he said. “A difficult operating environment has restricted investment and productivity growth.”

Chubut has been the only province so far to withdraw concessions with significant production. On March 14, it removed the Escalante-El Trebol and Campamento Central-Canadon Perdido concessions, where YPF produced about 5 percent of its oil in 2011. The other provinces have revoked licenses in areas with marginal or no production.

Argentina plans to nationalize YPF or take over management through the purchase of a controlling stake, Newspaper Pagina/12 reported March 31, citing officials it didn’t identify.

Planning Minister Julio de Vido denied a report by Buenos Aires newspaper Clarin that the government is working on a plan to use state-controlled pensions to buy a stake in YPF.

To contact the reporters on this story: Rodrigo Orihuela in Rio de Janeiro at rorihuela@bloomberg.net; Matthew Craze in Santiago at mcraze@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net

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