Billionaire Plots to Beat Chevron to Largest Latin Shale
Argentina’s Eurnekian family, after becoming billionaires from media and airports, is planning to become the government’s first shale oil and gas partner.
Eduardo Eurnekian, tapping a fortune of at least $1.3 billion, has pledged $700 million in two deals to hasten a definitive partnership with Argentine government-owned YPF SA to develop its Vaca Muerta fields. After his $500 million preliminary accord with YPF in October, the 70-year-old last week paid about $200 million for 81 percent of Cia. General de Combustibles SA, an oil producer and shareholder in pipelines to YPF’s first operating shale-gas well.
“This acquisition is strategic and a clear sign our shale deal with YPF will be accelerated and signed soon,” Hugo Eurnekian, nephew of Eduardo, said in an April 24 telephone interview from Buenos Aires. “We’ll come up with a signed deal before the end of the year for sure.”
Energy investors from around the world have lined up partnerships to tap Vaca Muerta, holder of Latin America’s largest shale reserves, with an estimated 23 billion barrels of oil equivalent. None has signed a binding agreement in the year since YPF was expropriated from Repsol SA. (REP) Madrid-based Repsol has followed through on threats to sue anyone that attempts to develop the deposits until it’s paid back $10.5 billion.
YPF tumbled 45 percent in the second quarter in Argentine trading last year when it was expropriated. While the stock has gained 52 percent since then, helped by prospects that government backing and joint ventures will boost output, it is still 30 percent below early 2012 levels. YPF rose 2.2 percent to 119.6 pesos at 1:04 p.m. in Buenos Aires today.
“Finally signing a definitive agreement with a new investor would boost YPF shares,” Carlos Aszpis, an analyst at Schweber & Cia. Sociedad de Bolsa, said by telephone from Buenos Aires.
Through Corporacion America, the Eurnekians operate 49 airports in Latin America and Europe; produce wine, grains and oilseeds on 250,000 acres of land; and are working on a $3 billion tunnel through the Andes connecting Argentina and Chile. In December it acquired Banco Interfinanzas. The group’s energy holdings were limited to Unitec, whose oil output accounted for less than a 1 percent share of the Argentine market.
Cia. General de Combustibles, known as CGC, and the Vaca Muerta accord represent the Eurnekians’ first step toward becoming a major Latin American oil and gas producer, Hugo Eurnekian said. Should Argentina’s second-richest family behind the Bulgheronis turn the December memorandum of understanding with YPF into a binding deal it would see the group overtake Chevron Corp. (CVX) and Bridas Corp., whose YPF partnerships are delayed by lawsuits.
YPF Chief Executive Officer Miguel Galuccio, appointed after President Cristina Fernandez de Kirchner seized control of the company a year ago, is seeking partners with deep pockets to help finance a $37 billion plan to develop the shale formation. Repsol said at the time YPF was expropriated in April 2012 it had 15 non-binding agreements with potential partners.
The Connecticut-size area in southern Argentina’s Patagonia, whose name translates to Dead Cow, is estimated to hold at least 23 billion barrels, according to a Ryder Scott survey. Fernandez seized YPF on the grounds that Madrid-based Repsol under-invested since buying the company in the 1990s.
The CGC acquisition was Argentina’s biggest this year, according to data compiled by Bloomberg. The Buenos Aires-based company produced 5 million barrels of oil equivalent last year from five conventional fields in Argentina and two in Venezuela, and has 37.7 million barrels of proven reserves, according to the company’s website. It has a 15 percent stake in Transportadora de Gas del Norte, which operates pipelines including from YPF’s Orejano X-2 shale-gas field in Vaca Muerta.
TGN shares have surged 49 percent this year to 88 centavos after last year’s 27 percent slump. The Merval stock index is up 34 percent this year and gained 16 percent in 2012.
Chevron, which signed a $1 billion tentative deal Dec. 21 with YPF, said March 12 that the shale venture depends on lifting an embargo ordered by Buenos Aires Civil Judge Adrian Elcuj Miranda on Nov. 7. The San Ramon, California-based company is fighting the Argentine asset freeze related to a $19 billion award over pollution in Ecuador. Chevron spokesman Jim Craig declined to comment on the status of the MOU with YPF in an e- mailed response to questions.
YPF’s $1.5 billion shale accord with Bridas, controlled by Argentina’s Bulgheroni brothers, was delayed after Repsol filed a lawsuit against the venture in Madrid and Bridas countered by filing a case in New York.
Mario Calafell, a spokesman for the Bulgheroni brothers, didn’t return a phone call or an e-mail seeking comment. YPF spokesman Alejandro Di Lazzaro declined to comment.
Repsol, based in Madrid, hasn’t sued the Eurnekians.
“We will closely examine the terms of any agreement to protect our illegally confiscated assets from third-party profiteering,” Kristian Rix, spokesman for Repsol in Madrid, said in an interview.
CGC’s stake in pipelines connecting Vaca Muerta and other gas fields with other markets in the region was another reason for the acquisition, Eurnekian said. Also last week, Argentine holding company Soc. Comercial del Plata SA bought an 11 percent stake in CGC at the same share price paid by Eurnekian. SCP is reentering CGC after selling an 81 percent stake in 2004 for $24 million as it battled to remain a going concern.
“It’s a great time to grow in the oil sector and we will increase investments in upstream like the agreement to be sealed with YPF and also with new acquisitions we are currently analyzing,” Eurnekian said. “When we get into a sector, we always work hard to become the top players.”
Eduardo Eurnekian, the son of an Armenian immigrant, founded the group. With no children, he is handing over operations to his nieces and nephews. Hugo, the son of Eduardo’s deceased brother Alberto, is leading the diversification into oil and gas as well as the Andes tunnel, part of initiative to connect the Coquimbo port on the Pacific with Brazil’s Porto Alegre port on the Atlantic.
The family has the connections to make a success of its push into energy, said Tom Mullen, a partner at TWM Capital, who helps manage about $200 million including SCP shares.
“Secondly, when you effectively get the blessing of YPF’s board you are getting the blessing of the entire government and that’s a big deal,” Mullen said by phone from San Diego, California. “These guys are really smart.”
Eurnekian is worth at least $1.3 billion, according to the Bloomberg Billionaires Index, based on his ownership of Aeropuertos Argentina 2000 SA. Last year, the Buenos Aires-based airport operator generated 738 million pesos ($142 million) in earnings before interest, taxes, depreciation and amortization, 250 million pesos in profit and had 1.3 billion pesos in net debt, according to financial statements on the website of Argentina’s securities regulator.
The operation is valued at $1.3 billion, according to data compiled by Bloomberg, when comparing the results to the average enterprise value-to-Ebitda and price-to-earnings multiples of four emerging market peers: Mexico’s Grupo Aeroportuario del Pacifico SAB and Grupo Aeroportuario del Centro Norte, China’s Shanghai International Airport Co. and Bangkok-based Airports of Thailand Public Co. Enterprise value is defined as market capitalization plus total debt minus cash.
“We bought this company with our own cash flow, we don’t need to borrow money to grow,” said Eurnekian. “I don’t know how much money we have -- it’s certainly well over $1 billion. Our main goal, though, is not to be billionaires, but become top players to change the region.”
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