MercoPress. South Atlantic News Agency

Pan American Energy, --partly Chinese owned--, keeps expanding in Argentina

By acquiring Esso gasoline stations Pan American Energy becomes a fully integrated oil and gas producer.

Argentina's Pan American Energy will sign a deal later this month to buy Exxon Mobil local downstream unit Esso, turning the company into a fully integrated oil and gas producer. Pan American Energy is a unit of Bridas Corp., which is jointly owned by Argentina's Bulgheroni family through Bridas Energy Holdings and China's Cnooc Ltd.

The deal, between 800 million and 850 million US dollars will be signed Feb. 28 in London, according to a person close to the matter. Cnooc executives asked that the signing be delayed until after the end of Chinese New Year celebrations.

Esso is Argentina's third-biggest fuels retailer after YPF and the local unit of Royal Dutch Shell. Esso operates a network of 450 service stations and an 85,000-barrel-a-day oil refinery.

Acquiring Esso's retail and distribution business will allow Pan American to better compete with YPF, the country's largest integrated oil company, analysts said. YPF controls more than 60% of the retail fuel market, compared with Esso's 14%.

Esso has been operating in Argentina since 1911. Pan American already supplies most of Esso's crude oil, making a merger of the two companies a good fit.

Meanwhile, Pan American's purchase of Esso may put an end to speculation that the Bulgheroni family will buy a significant amount of stock in YPF if its parent company, Spain's Repsol-YPF, sells shares in the unit.

Repsol-YPF last year said it will sell up to 15% of YPF as part of its plan to trim exposure to Argentina in favour of growth opportunities elsewhere. Those plans dovetail with the expressed desire of Argentine President Cristina Fernandez de Kirchner to increase the participation of Argentine companies in the industry.

Argentina's Grupo Petersen, which has a 15.4% stake in YPF, has said it plans to increase that to 25%.

But purchasing Esso seems to make it unlikely that the Bulgheroni family would now buy part of YPF, according to Carlos Pierro, former president of YPF.

“My impression is that they won't do this now,” Pierro said. “This is an important deal. Pan American becomes an integrated company that produces, refines and sells oil and gas. And it's got major backing from the Chinese.”

Exxon Mobil is the latest Western oil and gas company to exit Argentina amid widespread industry complaints about price caps and heavy government intervention in the sector.

Occidental Petroleum Corp. said in December that it was selling local assets to China Petroleum & Chemical Corp., known as Sinopec Group, for 2.45 billion USD. Just before that, BP Plc agreed to sell its 60% stake in Pan American Energy for 7 billion USD to Cnooc and Bridas.

Petrobras also agreed last year to sell part of its refinery and distribution business to Oil Combustibles SA, controlled by local casino owner Cristobal Lopez, for 110 million USD.

Price caps and state regulation have discouraged investment in exploration and production, industry executives said.

Since 1998, Argentina's crude-oil output has fallen by 25%, and it faces the prospect of becoming a net importer, according to a 2010 report from a group of former energy secretaries.

But Pan American has bucked the trend and has been the fastest-growing oil company in Argentina. Between 2001 and 2010, it boosted oil and gas output in Argentina to 241,000 barrels a day of oil equivalent from 142,000 barrels a day. It also doubled its share of total domestic oil and gas production to 18%, while investing 6.7 billion USD in exploration and output.

By the end of 2009, its proven oil and gas reserves totalled around 1.4 billion BOE, compared with 993 million BOE in 2001.