Renationalization of YPF
| Company type | State-owned enterprise |
|---|---|
| Industry | Energy |
| Founded | 1922 |
| Headquarters | Argentina |
| Products | Oil, natural gas, refined fuel |
| Revenue | US$13.7 billion (2011) |
| Parent | Government of Argentina (majority ownership since 2012) |
President Cristina Fernández de Kirchner of Argentina proposed legislation on April 16, 2012, aimed at partially renationalization of YPF, the country’s largest energy corporation. The plan involved the state taking ownership of 51% of YPF, with the national government controlling the majority 51% portion of that stake, while ten provincial governments would collectively hold the remaining 49%. This bill received strong bipartisan support in both chambers of the Congress and was enacted into law on May 5.
Subsequently, the Argentine authorities agreed to compensate Repsol, YPF’s former principal shareholder, with US$5 billion.
Background
Established in 1922, YPF holds the distinction of being the world’s first oil company created as a state enterprise. It grew to become Argentina's foremost energy provider. Despite significant asset sales during its privatization in 1993, YPF still controlled 52% of the country’s refinery capacity by 2012 and commanded a 57% share of the domestic gasoline and motor fuel market. In 2011, YPF was responsible for producing 34% of Argentina’s oil and 23% of its natural gas, generating revenues amounting to US$13.7 billion.
The privatization process commenced in 1993 under President Carlos Menem and Economy Minister Domingo Cavallo, following the State Reform Law enacted in 1989 that granted presidential authority to initiate privatizations. In 1999, Madrid-based Repsol acquired a majority ownership stake. However, after this acquisition, oil and gas production steadily declined while internal demand increased, resulting in Argentina experiencing its first energy trade deficit since 1987 in 2011—a shortfall that continued through 2022.
Renationalization
Investment levels in exploration at YPF, relative to profits, were notably lower than those seen in most other Repsol subsidiaries, decreasing from drilling 30 new wells in 1998 to only eight by 2010. Meanwhile, French energy company Total S.A. overtook YPF as Argentina’s top oil drilling operator. Between 1999 and 2011, YPF’s reserves of crude oil and natural gas fell by approximately 60% and 67%, respectively. This reduction in output accounted for more than half (54%) of the nation’s lost oil production and nearly all (97%) of its natural gas decline.
Repsol and some industry experts attributed these decreases to government-imposed export restrictions, limits on exploration leases, and price controls on oil and gas products domestically. Despite shrinking production volumes, YPF remained profitable under Repsol management, posting close to US$16.5 billion in net income from 1999 through 2011.
The Kirchner administration criticized YPF for maintaining high dividend payouts while reinvesting relatively little compared to its profits. Economy Minister Hernán Lorenzino accused YPF of extracting assets primarily to finance Repsol’s global expansion efforts. Repsol contested these allegations of underinvestment, highlighting the discovery of the Vaca Muerta as evidence supporting their position against nationalization.
Discovered by RepsolYPF in November 2011, Vaca Muerta is an unconventional oil formation spanning roughly 30,000 km2 with proven recoverable reserves estimated at up to 927 million barrels. Executives from Repsol stressed that changes in government policies were essential to facilitate further investment in production capabilities. After six provinces producing fossil fuels revoked YPF leases covering more than one-fifth of its output during early 2012, Argentina declared on April 16 its intention to take a controlling interest in YPF. Shortly thereafter, Repsol YPF Gas—a liquefied natural gas subsidiary majority-owned (85%) by Repsol—was also brought under state control.
Before this nationalization announcement, Chinese state-owned oil firm Sinopec had been engaged in negotiations to purchase Repsol’s stake in YPF; however, these discussions ceased following Argentina’s decision to reclaim majority ownership.
Resulting dispute
Repsol representatives maintained that the company's bylaws required the compulsory acquisition of Repsol's full 57% ownership if any entity obtained at least 15% of shares held by Repsol, rather than merely the 51% stake targeted. They determined compensation by applying YPF's highest price-to-earnings ratio from the previous two years to its 2011 earnings per share, resulting in a valuation of US$10.5 billion for the 57% holding. Argentine Deputy Economy Minister Axel Kicillof dismissed this figure, highlighting nearly US$9 billion in outstanding debts. At the close of 2011, YPF's book value stood at US$4.4 billion, while its market capitalization on the announcement date reached US$10.4 billion. Repsol contended that the Argentine government had suppressed YPF’s share price prior to the announcement—shares dropped over 50% between February and April—and chairman Antoni Brufau estimated potential losses around €5.7 billion (US$7.5 billion).
In response, Repsol halted nine shipments of liquefied natural gas destined for Argentina’s state energy company Enarsa, accusing them of contract violations following the expropriation. On May 15, Repsol initiated legal action through the World Bank’s International Center for Settlement of Investment Disputes. The Spanish government sought intervention from the European Commissioner for Trade to enforce sanctions against Argentine exports and independently reduced biodiesel imports from Argentina and Indonesia. These boycotts were eventually lifted by January 2013 after complaints were lodged with the World Trade Organization and rising costs impacted Spanish biodiesel distributors.
An audit conducted in May by Kicillof and Planning Minister Julio de Vido exposed what they termed a "debasement of the company and a policy aimed at generating shortages to elevate domestic prices to international levels." Their findings were detailed in the June Mosconi Report. Investigations in Santa Cruz Province revealed that of 13,000 inactive YPF wells, 8,000 were leaking, causing environmental damage estimated at a minimum of US$3.5 billion; provincial law had mandated well inventory and upkeep since 2010. Additional liabilities emerged from environmental damage claims across five provinces, tax arrears in Chubut Province, and a judicial injunction against Repsol related to an unlawful 2011 sale involving 45 million shares from an employee severance fund—together potentially amounting to US$15 billion.
On November 27, 2013, a settlement was finalized compensating Repsol with approximately US$5 billion in ten-year corporate bonds for its 51% stake in YPF. Subsequently, in May 2014, Repsol divested its remaining 12% interest by selling it to Morgan Stanley.
The Petersen Group
As the largest minority shareholder at the time of renationalization, the Petersen Group owned a 25% stake and initially acquired a 15% share in 2007, financed through a €1.5 billion vendor loan extended by Repsol. Chairman Enrique Eskenazi, closely allied with President Néstor Kirchner, secured influence to become YPF’s leading Argentine shareholder. The Group capitalized on YPF’s high dividend payout ratio—around 90%—which facilitated repayment of the loan in installments. A contract signed in 2008 obligated Repsol to repurchase Petersen’s shares and assume responsibility for the loan should it lose majority control; however, CEO Sebastián Eskenazi later stated that the Group would relinquish this right.
In May 2012, Petersen defaulted on a Credit Suisse loan that had been used to raise its YPF stake from 15% to 25%. Credit Suisse along with other creditors including Banco Itaú, BNP Paribas, and Goldman Sachs announced plans to reclaim Petersen’s shares held as collateral. Repsol also repossessed shares during this period, increasing its own YPF holding to 12%; following a significant rebound in YPF’s share price, Repsol sold this stake one year later.
Procedural and corporate advancements
The takeover received approval from the Argentine Senate on April 26, with 63 senators supporting, three opposing, and four abstaining. Subsequently, the Chamber of Deputies ratified the measure on May 4, securing 208 votes out of 257. The president enacted the renationalization into law on May 5. Miguel Galluccio, an Argentine petroleum engineer with prior experience at YPF and Schlumberger, was appointed as the company's CEO.
On June 5, 2012, Galluccio unveiled a US$39 billion investment strategy designed to expand oil exploration by ten times and gas exploration by twenty times. The objective was to achieve annual growth rates of 6% in oil and gas production and over 7% in refined fuel output within five years. This initiative was primarily funded internally, with additional capital contributions from Chevron Corporation and periodic issuance of high-yield corporate bonds at an 8.75% interest rate. By April 2015, the volume of bond issuances had grown to US$1.5 billion per series amid investor demand reaching US$4 billion.
In November 2012, YPF secured a controlling interest in Metrogas, the country’s largest distributor of natural gas. From the lows experienced following nationalization, YPF’s stock price surged by 190% up to the announcement of a compensation arrangement with Repsol in November 2013. The production declines seen during Repsol’s tenure were reversed; total output increased by 3% in 2013, followed by rises of 8.7% in oil and 12.5% in gas production throughout 2014, and an additional growth of 3% in 2015.
The Vaca Muerta shale formation, estimated in 2014 to hold at least 23 billion barrels of oil equivalent, attracted major joint ventures involving Chevron, Dow Chemical, and Petronas. By 2014, the Vaca Muerta block operated in partnership with Chevron was producing approximately 35,000 m3 daily.
Miguel Galluccio stepped down from his role as CEO effective April 30, 2016.