YPF Shale Quest Seen Withstanding Argentina’s Debt DebaclePablo Gonzalez
Argentina’s efforts to become self-sufficient in oil and natural gas by tapping vast shale reserves will stand up to a second default in 13 years, according to Seaport Group, the state energy company YPF SA and its joint-venture partner Chevron Corp.
YPF will generate enough cash to finance operations for the next 12 months and has access to new funding sources, the Buenos Aires-based company said in an e-mailed response to questions yesterday. Since Argentina missed a July 30 payment on $13 billion of debt, the yield on YPF’s $1 billion of bonds due 2024 rose 0.32 percentage point to 8.34 percent. Similar sovereign yields rose 1.29 percentage point to 10.43 percent.
The company, control of which was seized from Spain’s Repsol SA in 2012, will be resilient in gaining access to financing operations to develop shale deposits in southern Argentina and boost production, according to broker-dealer Seaport Group. YPF is the country’s largest company.
“Argentina’s shale oil and gas reserves, overseen by YPF, make the company a key institution and it will have continuous access to financial markets,” Michael Roche, an emerging-market strategist at Seaport, said in a telephone interview from New York. “The company may structure securities where its earnings are escrowed outside of Argentina for use in repaying debt and receive attractive terms.”
In its first international bond sale in 15 years, YPF sold $150 million of floating-rate notes due 2018 in September 2013. The notes, which yield at 7.01 percentage points over the London interbank offered rate, are backed by grain sales deposited in a foreign escrow account.
“YPF doesn’t see problems in the short-term,” the company said when asked about access to financing after default.
Oil production in the Neuquen basin shale formation known as Vaca Muerta more than tripled in the first quarter from a year earlier, according to data compiled by Bloomberg Intelligence, boosted primarily by a joint venture with Chevron. Vaca Muerta, dead cow in Spanish, is the world’s second-largest shale gas deposit and fourth-largest shale oil field.
George Kirkland, vice chairman of the San Ramon, California-based producer, said the company’s Argentine shale contracts are structured in such a way as to protect them from turmoil in sovereign debt markets. He declined to comment beyond that.
Argentine central bank reserves have tumbled 21 percent from a year ago mainly because of a widening energy deficit. Energy imports surged to a point that YPF Chief Executive Officer Miguel Galuccio called the deficit a serious problem in August 2013, and said only developing non-conventional energy resources would reverse the trend. YPF has said it needs to fund a $35 billion investment plan over the next five years.
Tenaris SA Chief Executive Officer Paolo Rocca said he views the energy deficit as an opportunity.
“There are very strong fundamentals in investing in oil resources or gas resources, especially in Vaca Muerta as the country is importing expensive gas, so development of Vaca Muerta will happen,” Rocca said yesterday in an earnings conference call with investors.
YPF’s American depositary receipts, which represent one ordinary share, fell 3.4 percent to $34.17 at the close in New York. The stock earlier slid as much as 7.7 percent after the International Swaps & Derivates Association said Argentina’s failure to pay interest on its bonds is a credit event that will trigger settlement of $1 billion of credit-default swaps.
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