The government’s seizure of Spanish giant Repsol’s assets in Argentina could slow down foreign investments in the country’s shale reserves.  The Argentina government took a 51% stake in YPF SA, accusing the company of failing to invest sufficient money to develop the country’s shale assets.
YPF held a 40% stake in Vaca Muerta field in Argentina, which could hold around 20 billion barrels of oil equivalent in shale deposits. The IEA has said that the move by the government could have a negative impact on private investments in the region. Lower activity could hurt Halliburton‘s (NYSE:HAL) plans to expand its leadership position in shale to the Latin American country. The adoption of shale exploration in countries in Europe, Latin America and Asia is expected to boost the earnings of oilfield services providers like Halliburton and Schlumberger (NYSE:SLB) over the next few years.
We have a $42.93 price estimate for Halliburton, which is at a 30% premium to its current market price.
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Latin American market
Argentina holds significant deposits of unconventional oil and gas. Over the past couple of years, the government has taken steps to develop the shale reserves in the country by involving private players such as Repsol. Recently, the government accused Repsol of not undertaking enough investment to develop local reserves and seized control of its subsidiary YPF. Repsol demanded $10.5 billion in compensation,  but the government has contested the figure and set up a tribunal to decide the claims. Argentina is not the only South American country to nationalize oil assets in the recent past. In neighboring Venezuela, the Chavez government also nationalized some assets in heavy oil fields held by majors like Exxon Mobil and ConocoPhillips.
The IEA said that the government’s move could force other players to increase investments in the short term to avoid similar action. However, companies could be deterred from major investments in the region to boost oil and gas output and to improve recovery levels. Lower private participation could lower the overall exploration and production activity in the country, impacting the long term rig count growth outlook for the region. Latin America is an important market for Halliburton’s unconventionals exploration and production technology.
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- Argentina’s YPF Seizure Jeopardizes Vaca Muerta Funds, IEA Says, Bloomberg [↩] [↩]