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YPF Slumps on Loss of Most Productive Field in Argentina

YPF SA, Argentina’s largest oil producer, plummeted to the lowest in more than two years after Chubut province said it plans to revoke the company’s most productive field.

YPF’s American depositary receipts dropped as much as 16 percent to $23.77, the lowest intraday since June 15, 2009, and were down 15 percent to $24.10 at 3:25 p.m. in New York.

The oil producer has lost 12 licenses in five provinces since March 14 after President Cristina Fernandez de Kirchner’s government demanded higher investment to curb output declines and help cut imports. The Manantiales Behr field, which produced about 10 percent of Buenos Aires-based YPF’s oil last year, is among four more licenses Chubut plans to revoke.

“Our level of comfort with short-term investment prospects in general is diminishing by the day,” Banco Itau BBA analysts Ricardo Cavanagh and Paula Kovarsky said in an April 1 report to clients. “We expect an adverse market reaction to this news, which could lead to YPF revisiting its recent market lows.”

Chubut decided to end four more concessions because of YPF’s failure to comply with contracts in the province, Governor Martin Buzzi said in a March 31 statement on the government’s website.

“We are gathering very precise information on the company’s failure to comply with contracts in our province, due to which we have decided to continue with the license withdrawal process,” Buzzi said, according to the statement.

Takeover Speculation

Newspaper Pagina/12 reported March 31 that Argentina is preparing to take control of YPF, citing officials it didn’t identify. That followed similar local media reports that the government is weighing a takeover.

Manantiales Behr produced about 1.09 million cubic meters of oil in 2011, compared with YPF’s total crude output of 11.25 million cubic meters, according to the secretariat data.

Argentine oil licenses are assigned by provincial governments and divided into one or more fields.

Prior to March 14, YPF, which accounts for about 30 percent of Argentina’s crude output, held 104 licenses in the country, Energy secretariat data show.

YPF on March 28 filed a lawsuit with the Supreme Court against Chubut for having revoked two licenses, according to a company official who can’t be named because the lawsuit wasn’t yet announced publicly. The province has taken away the most productive fields from YPF.

Neuquen province announced March 30 that it would withdraw the Don Ruiz license after having ended two licenses earlier last month. Don Ruiz, an area of 109 square kilometers (42.1 square miles), has the potential to produce shale oil because it sits on the Vaca Muerta formation, according the Neuquen government.

Vaca Muerta

On Feb. 9 YPF said an independent audit by Ryder Scott showed that an 8,000 square kilometer area of Vaca Muerta holds at least 23 billion barrels of shale oil, of which about 13 billion belong to YPF.

YPF invested $330 million dollars in Manantiales Behr in 2011, up from $180 million in 2010, to increase annual production by 9 percent, a company official, who cannot be named, said in a telephone interview from Buenos Aires yesterday. The official declined to comment on Chubut’s announcement.

On March 29, YPF said it discovered an estimated 1 billion barrels of shale oil in a part of the Vaca Muerta formation in Mendoza province. The resources are additional to those included in the Ryder Scott survey.

Share Decline

Before today, YPF’s ADRs fell 20 percent this year, compared with a 4.5 percent increase in Argentina’s benchmark Merval index. The country’s securities regulator said March 30 it will investigate recent YPF trading because of increased volatility.

The government’s requests for YPF to increase investments included demanding last month that instead of paying semi-annual dividends, the company use the cash to invest in exploration and production. The company’s board, on which the government has a seat, voted against the proposal and decided to use the cash to issue new shares that will be handed for free to shareholders. The proposal requires approval from a general shareholders meeting, scheduled for April 25.

YPF is controlled by Spain’s Repsol YPF, which holds a 57.4 percent stake. Argentina’s Eskenazi family own 25.5 percent and operate the company. The government has a 0.2 percent stake and holds a so-called golden share, which entitles it to block certain decisions, such as takeovers.

Fitch Ratings March 26 downgraded YPF’s to B from B+ following the withdrawal of concessions because it “suggests a greater degree of government interference in the energy sector.”

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