MercoPress. South Atlantic News Agency

Another Argentine province cancels oil concessions to Spain’s held YPF

Mendoza governor Francisco Perez making the announcement

The Argentine province of Mendoza joined on Friday other oil producing areas of the country in cancelling concession contracts which has been awarded to the Spanish owned oil corporation Repsol-YPF, with which the government of President Cristina Fernandez is involved in a controversy over long term investment.

Mendoza governor Francisco Perez made the public announcement during a press conference in which he said YPF would be refused the right to extract crude oil from the Ceferino oilfield in Rivadavia and Cerro Molar 3 oilfield in Malargüe.

“I have made the decision, due to the failure of compliance to the rules of conservation, production, maintenance and work, therefore officially ending these contracts, passing the mentioned areas to become property of the province,” Pérez stated.

Mendoza joins the provinces of Neuquen, Chubut and Santa Cruz which recently adopted similar decisions cancelling concessions to YPF and following on a strategy displayed by the government of President Cristina Fernandez.

“In Ceferino for example we are talking of five production wells and 13 abandoned and paralyzed. This started in 2007 with an output of 20.000 cubic metres and now we are down to 4.000” said Governor Perez. “This only shows the lack of interest and investments from the company”.

Perez admitted that the decision was coordinated with the Argentine Executive and other oil production provinces and “this situation is not sustainable and we can witness it everyday at gasoline stations with no fuel to sell”.

Earlier in the week Perez met with Federal Planning minister Julio De Vido with whom they analyzed the YPF situation in the province. Mendoza had summoned YPF to increase investments and local production.

Perez announcement comes on the same day that the union of gasoline station workers blocked 192 YPF outlets throughout Argentina during four hours demanding compliance with work contracts and the full provision of different fuels.

This week also there was a major controversy at the YPF board of directors meeting where the Argentine government representative demanded that the company create a development fund with the earnings of the last two years for long term investment and increase in oil and gas production.

However the board decided to recapitalize earnings (approx 1.3bn dollars) to avoid dollars leaving Argentina or putting pressure on the local money exchange market. However the decision was also challenged by Argentine delegates since they argue that YPF shares can be cashed overseas, which also means a drain of hard currency from Argentina.

Argentina still suffering the consequences of the 2001/02 default has no access to voluntary money markets and therefore needs a sustained trade surplus. This has been achieved so far given the strong prices for commodities, mainly soybeans, but the government of Cristina Fernandez has also sponsored a policy of subsidies which meant freezing oil and gas prices.

Companies understandably limited investments in exploration and production while the Argentine fuels bill soared to almost ten billion dollars in 2011.

Since then Argentina launched an aggressive campaign against oil companies demanding they invest more and revert the situation. The main target of the policy is the former Argentine state oil company, YPF, of which currently Repsol Spain holds 57%.

This has led to clashes with Spain, since De Vido has argued that the Spaniards are mere managers of the company whose assets are in Argentina and belong to Argentina.