Argentina hopes Repsol deal will dispel investor doubts

Wed Feb 26, 2014 4:20pm EST
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By Alejandro Lifschitz

BUENOS AIRES (Reuters) - Two years after seizing the country's biggest energy company from Spain's Repsol, Argentina hopes a new compensation deal will lure more foreign investment to what many believe to be some of the world's most promising shale oil and gas prospects.

But the deal ending a bitter dispute between Argentina and the Spanish oil company may prove only a first step in dispelling investor concerns about economic conditions and energy policy in the South American country.

Repsol on Tuesday announced that its board of directors had approved a $5 billion settlement with Argentina after President Cristina Fernandez expropriated 51 percent of Repsol's stake in energy company YPF (YPFD.BA: Quote).

"The world can accept that a government takes an oil company into state hands, but only if you pay for it," said Victor Bronstein, a Buenos Aires-based oil analyst.

Fernandez is betting the settlement will clear the way for Argentina to pursue investments from international oil companies to develop Vaca Muerta, Spanish for "Dead Cow," a formation in the country's Patagonia region that potentially holds one of the world's biggest shale reserves.

"The agreement was absolutely necessary but it's not enough to unleash a boom in investments," said Jorge Lapena, president of the Institute of Energy General Mosconi and a former Argentine energy secretary. "What's needed is a long-term energy plan, and the country doesn't have that right now."

Argentina is seeking financing and technological expertise to develop Vaca Muerta, but international investors, some worried about possible legal threats from Repsol before the announced agreement, have been reluctant to participate in large-scale development.

The success that Argentina achieves in attracting more companies to the mega field will depend on what steps the government takes to improve the country's economic conditions.   Continued...

A man walks past a petrol station owned by Spanish oil major Repsol in central Madrid November 26, 2013. REUTERS/Sergio Perez