Spanish-based multinational Repsol filed a complaint against Argentina before the International Centre for Settlement of Investment Disputes (ICSID) today.

According to the oil company, Argentina violated an agreement for mutual protection of investments with Spain when it expropriated 51% of Repsol’s shares in YPF. Repsol called this expropriation “unlawful and discriminatory”.

The complaint does not specify the compensation amount being sought by Repsol, which will be detailed later on in the process. The company, however, has valued its 51% stake in YPF on US$10 bn.

In a statement submitted to the Spanish stock exchange, Repsol explains that it has already been six months since they notified the Argentine government of their claim. That now opens the possibility of going before the ICSID, the World Bank’s international arbitration forum, to resolve the dispute. The Spanish company, however, has not ruled out the possibility of a direct negotiation with the Argentine government. Repsol has also sued the Argentine state over YPF’s expropriation in Argentine and US courts.

The Argentine congress passed the expropriation bill submitted by the government in early May by a broad majority, on the basis that Repsol had not made the necessary investments to avoid a decline in oil and gas production, causing a sharp rise in fuel imports between 2010 and 2011.

Repsol denied these accusations and blamed the expropriation on alleged government’s plans to retain YPF’s non-conventional fuel deposits.

Legal specialists told news agency Reuters say it could take more than a year to complete the ICSID arbitration process.

Antonio Brufau, president of Repsol since 2004 gave his first extended interview since the Argentine government expropriated the Spanish company in April of this year to Miguel Jiménez of El Pais. In it he spoke extensively of the Spanish companies’ point of view of the expropriation and the legal battle that has followed it.

Extracts:

Q: What possibilities are there of reaching an agreement with Argentina over YPF?

A: It’s very difficult. A negotiation depends on the will of both parties and that both recognise the true value of what’s been expropriated. Am I optimist? I am reasonably realist. We are going to us all the legal tools to the limit and will refer to the CIADI (International Centre for Settlement of Investment Disputes, under the World Bank’s jurisdiction) when we deem it most convenient. I hope we will be aware that this is not good for Repsol, but above all else it is not good for Argentina, and that we will be capable of reaching an agreement. The legal path should be the last resort to obtain that the value of what’s been expropriated be recognised.

Q: There are those who say that you, who has had a confrontation with the Argentine government, might not be the best person to negotiate an agreement.

A: This isn’t a personal issue, it’s between Repsol and the Argentine state, and the priority is that this company recovers what it owns. But if that’s true, the day we recover what is ours, that same day I’ll summon the board and let them decide what they want to do with my position. That day.

Q: Is Repsol considering legal action against the individuals responsible of the expropriation?

A: Right now we are not going against the people but the institutions, we are not considering at the moment.

Q: At what point did the relationship with Argentine break?

YPF logo

A: It’s hard to know. Until November 2011, we were one of the favourite companies for Argentina and it’s authorities, according to what they were saying publicly. In the last quarter of last year, after several years of efforts, we unveiled the huge discovery of crude and non-conventional gas in Vaca Muerta, these discoveries could represent a new energy paradigm for Argentina. Something so positive ended up being the trigger of the expropriation. It wasn’t good that it was a private company, in this case YPF, that would have the responsibility of developing such a deposit. Today, at YPF, all the talk is about Vaca Muerta. That’s were the origin of the problem is, in my opinion. There were no other problems. If last November, the president, the ministers, and even the representative of the Argentine government on the YPF board were saying that everything was going to the satisfaction of the government, I can’t understand how in January, after the re-election of the president, what occurred came to be.

Q: Is there something you regret, something you could have done differently?

A: If thought over it a lot. Today, I can’t figure out what we could have done differently. I spent three months trying to talk with the president and with the ministers when we started to see the crisis coming. There was no way. Surely other things may have been, but to the day, I don’t know what they could have been.

Q: Did Argentina take advantage of a moment of weakness from Spain, with a Government that had just taken power?

A: The Spanish government was on top of the problem and I feel very supported by it. I don’t they could’ve done much more either. The protection of investments across the world is not easy. There are bilateral treaties and safety mechanisms, but they aren’t immediate, contrary to what happens with international commercial rules. This is a problem that Europe is reflecting on at the moment: how to protect more efficiently investments in a third country.

Q: Repsol still has a 12% share in YPF. How is the company doing?

A: Yes we are the largest shareholders after the state. We want to act professionally. Our representative tries to defend our interests and those of the minority shareholders. The company isn’t doing too well. It’s value has dropped from US$18bn to 3 or US$4bn, which shows that the world doesn’t see what Argentina is doing with YPF well. When you analyse investments and production, the numbers are lower than last year. And the counting of results is also very harmed when you mix public with private. They [the results] are the fruit of an absolutely erroneous decision. There were other solutions through negotiation.

The YPF tower in Puerto Madero, Buenos Aires (Luis Argerich, Wikimedia)

Q: In what other countries does Repsol perceive there is a risk for its investments?

A: We are present in more than 30 countries and we’ve seen many nationalisation processes or negotiations in Venezuela, Ecuador, Bolivia, Libya… In all these cases we have sat down and negotiated. […] If the Argentine government had wanted to participate more actively in Vaca Muerta, we would have sat down to see how we could incorporate their interests in the development of this new area of crude or non-conventional gases. We were willing. But that’s one thing and another is to say: “Go away, I’ll replace you”.

Q: You have called it a robbery.

A: I don’t like using those words because in the end we are in court to see how to be compensated for the damage that was caused. And I still believe, and hope, that both parties will reach agreements over YPF. It would have been earlier before, but I hope we will reach an agreement for them to compensate us for what was ours. Every country has a right to nationalise what it believes is important, but that involves a faire price and payment. A fair payment, not what the nationalising side decides.

Q: Are there at the moment any concrete negotiations taking place?

A: Discretion is very important. We are using all necessary channels.

Q: Hugo Chavez’s government recommended not taking the judicial route. How are relations with the Venezuelan government ?

A: They couldn’t be better. When that appeared in the media, I met with the corresponding minister and the people responsible in Venezuela, and they suggested, among other things, that PDVSA (the Venezuela national oil company) participate in the resolution of the case. I would be more than happy with that, and so I told them, for PDVSA, that is a friend of both Repsol and Argentina, to participate.

The state-controlled oil company YPF reported on Wednesday a net income of $756 million for the third quarter. This was 51% lower than the same period of 2011 and well below market expectations.

YPF was partly nationalised last May, when the Argentine government decided to expropriate 51% of YPF that was owned by the Spanish company Repsol, since they found they were not making sufficient investments to avoid a persistent decline in oil production.

Reuters reported, having consulted four independent analysts, an expected profit with a median of $902.5 million, with estimates ranging from $877.7 million to $932 million.

YPF said in conjunction with an application to the stock market regulator ”a delayed tax payment of $408 million affected the net income result”.

In the press release they also explained: “the comprehensive result, which considers the effects of the implementation of International Financial Reporting Standard (NIIF), reached $1,980 million, 3.2% lower than the result of 2011.”

Another reason, claims YPF, is the fact that the revenue for oil in the third quarter this year increased by $17,378 million: a 15.7% raise from the same time period 2011.

The higher costs were mainly due to “an increase in production with higher fuel prices and increased cleared volumes of fuel oil,” said the YPF, adding that “the cost of sales in the third quarter of 2012 were higher by 26.3% than the same period last year.”

During the last few years Argentina’s production of raw material and natural gas has collapsed due to the maturity of deposits and the lack of stimulating investments, despite economic growth, according to Reuter’s polled analysts.

Spain’s Ministry of Industry has announced it will not implement the import restrictions on Argentine biofuels it put forward less than six months ago.

Spanish Industry Minister José Manuel Soria said “the measure can have a negative effect on oil prices” and explained that “in order not to harm those affected” by a price hike the measure had been scrapped.

“This announcement goes in the right direction, it is positive because it leaves the implementation of quotas without effect,” Gustavo Idígoras, adviser to the Argentine Chamber of Biofuels, told La Nación.

Five months ago the Argentine government, under President Cristina Fernández de Kirchner’s lead, expropriated 51% of YPF, the Argentine branch of Spanish owned oil company Repsol. The Spanish government initially retaliated by announcing it would impose restrictions on the import of biofuels, a measure that would mainly affect Argentina and Indonesia, the two main exporters of biofuels to the Iberian country.

President Fernández had reacted to the restrictions by saying that “if the Spanish government wanted to pay biofuels at a higher price it was their sovereign decision”.

The Spanish government was due to make public the import quotas it would ask from EU producers next Monday, and Spanish energy companies were anxious for an announcement of the nature that took place today.

Spain is the destination of approximately 50% of the biofuel Argentina exports, a market that amounted to €750m in 2011.

According to Pagina 12 Spain’s announcement comes after pressure had been applied by the World Trade Organisation to reach an agreement of this nature during talks held earlier this month.

Argentina’s largest oil company YPF announced it is ready to join the New York Stock Exchange in a statement today after almost two months of being found in non-compliance.

The company said they will no longer work under the indicator of Below Compliance. With the appointment of a new board, its work to comply with US market regulations is now complete.

YPF was removed after President Cristina Fernández de Kirchner seized 51% from Spain’s Repsol. The government renationalised the oil company after a dispute over investment and production in which they claimed Repsol was forcing Argentina to import costly fuels.

Repsol has denied these claims and is still fighting the expropriation in court.

In another statement made today, YPF said it would immediately repay a US$125m loan from the former controlling shareholder.

The loan expires in November of 2013 but Repsol requested the payment of the principal and accrued interest. YPF says it will start paying even though “the lender has not complied with the formalities required.”

YPF’s other major investors include companies owned by Mexican billionaire Carlos Slim, with an 8.4% stake, and Brazilian banking company Itau Unibanco Holding with 3.6%.

The announcements come a few weeks after new executive Miguel Galuccio, disclosed a five-year US$35bn investment plan aimed at increasing oil and gas output.

The new chief executive of YPF, Miguel Galuccio, said on Tuesday the company will need to invest $7 billion a year between 2013 and 2017 to reverse Argentina’s energy deficit.

Galuccio gave a speech yesterday to launch the corporate plan of the company and hinged the model on the exploit of the Vaca Muerta shale resource.

“We need to be realistic. Although I’d like to be able to double the production of (natural) gas and fuel overnight, I’m not a magician. In this industry, every barrel requires investment, technology and above all, hard work” said Galuccio.

President Cristina Fernández de Kirchner had promised to reverse the country’s energy deficit by seizing control of the energy company. Galuccio’s statements indicate that this may be more difficult and costly than thought.

Most of the US$ 7 billion will have to come from the company’s own resources, Galuccio mentioned tapping the country’s Vaca Muerta shale resource.

The Vaca Muerta is a formation of unconventional hydrocarbons in Neuquén Province, located in the west of the country in the northern end of Patagonia. Repsol, the former major shareholder of YPF before the company was nationalised, announced the discovery of the oil field last year.

The new chief executive said 1,000 wells would be drilled next year, a number the company has not met since 1996.  In order to meet target, production will have to increase by 26% a year reaching 216 million barrels of oil annually in 2017.

“We’re going to have to go out and look for partners. For that reason, we’re designing business models that allow us to accommodate different types of partners” Galuccio said.

Analysts agree that YPF will need to find wealthy investors. Repsol reported it would cost US$ 25 billion a year to develop the Vaca Muerta find.

Tuesday’s report stated the exploit of only 15% of the Vaca Muerta shale resource would cover the country’s energy deficit.

For the first time since the expropriation and partial renationalisation of oil company YPF, a general meeting with special shareholders took place to confirm the company’s general manager and directors.

The meeting, led by Alejandro Vanoli, head of the National Securities commission, confirmed Miguel Galuccio as the General Manager of YPF, while two economists, Eduardo Basualdo and Hactor Valle, have been confirmed as YPF directors as well.

Of the 17 confirmed YPF directors, nine correspond to the national government, with five of those nine going to the representatives of the provinces.

A director’s seat will also be occupied by a representative of the workers, Guillermo Pereyra, general secretary of the Union of Petroleum and Private Gas of Río Negro.

Repsol, the Spanish company previously holding YPF’s majority stake, criticised the meeting for failure to comply with the expropriation process. By acquiring 6% of the shares of minority stakeholder the Petersen Group, however, Repsol secured the confirmation of Luís García del Río as a director. Repsol now has a 12% stake in the company.

In a meeting called for tomorrow afternoon at the Sheraton Hotel, President Cristina Fernández de Kirchner will formalise plans for YPF’s next several years of operation.

The German company Wintershall, the oil and gas arm of chemicals group BASF, said on Monday that it was not concerned by the nationalisation of oil company YPF, having just been awarded another oil and gas licence in Argentina.

A spokesman for the company said there was no indication that Argentina had plans to seize control of other companies.

Wintershall is the fourth largest oil producer in the Ranquil Norte area of Argentina. The permit gives them ‘exploration’ permits to search for oil and gas in the region.

Wintershall already has stakes in 15 Argentine oil and gas fields. It produces 27 million cubic meters of oil equivalents per annum in the country.

The Spanish government has decided not to allocate any development aid for Argentina and other various Latin American countries over the remainder of 2012.

Despite accusations from various media, Spain did not relate the cessation of funding to the YPF/Repsol case. In addition to Argentina, Spain will cease to fund Brazil, Mexico, and Chile.

The amounts received by these countries have been reduced significantly over the past by the gradual elevation of their income level, and, for example, Argentina in 2011 spent only four million euros for this purpose.

The Spanish Foreign Minister, Jose Manuel Garcia Margallo, appeared before the committee for cooperation of Congress last March. He said the cut back on cooperation is “an extremely painful option” for the government.

At the hearing, Margallo explained that in addition to the poorest countries in Latin America, development aid will focus on North African countries, especially those in transition to democracy in sub-Saharan Africa and the Western Horn of Africa.

The Spanish oil giant Repsol has written a letter to Argentina’s president, declaring the country’s 51% share takeover a “dispute.”

The letter, written to President Cristina Fernández de Kirchner, says Argentina’s new law expropriating Repsol’s shares of YPF – giving Argentina majority shareholder status of the company at 51% – is against the Treaty on the Promotion and Protection of Investments between Spain and Argentina.

The company said in the letter it wants to take the dispute to the International Centre for Settlement of Investment Disputes, an institution of the World Bank.

“Repsol formally announces the immediate commencement of legal action under international law for [ ... ] Argentina should be condemned to pay for reintegration and/or reparation for the damages they have caused,” the letter reads, according to Página12.

This is the first step to open the process. Argentina and Repsol have six months to try to resolve the issue on their own.

On 3rd May, the bill passed in the Chamber of Deputies with 207 votes in favour, 32 against and six abstentions. The presidents signed the bill into law on 4th May.

President Cristina Fernandez de Kirchner will formally sign the law declaring the expropriation of 51% of YPF at 6 pm tonight at Casa Rosada.

After many long weeks of deliberation, the bill to nationalise YPF Oil has been passed in the Chamber of Deputies. The Bill gained almost unanimous support, with 207 in favour to only 32 votes against.

The nationalisation represents the latest in a string of such moves, which many suggest may scare away international investment in Argentina.

Repsol has requested US$ 9.3 billion for the shares but it is still unknown whether Argentina will meet this number.

The current breakdown of ownership now stands at 26.03% of shares owned by the federal government, 25.46% by the Group Petersen (owned by the Argentine Ezkenazi family), 24.99% by the oil-producing provinces and 6.43% by Repsol, and the remaining 17.09% listed on the stock exchange.

At the moment there is no suggestion as to who will be leading the company, as the bill states it will have professional management.  There is speculation that Michael Galuccio, an engineer who now works for Schlumberger, but others point to oil expert Marcelo Guiscard.

The signing ceremony will be at 6 pm in the Women’s Hall of Casa Rosada. Governors, legislators, and businessmen will be in attendance.