Argentina Names Former Schlumberger Executive to Run YPF

BUENOS AIRES - Argentina's President Cristina Kirchner on Friday named a former executive from oil-services giant Schlumberger Ltd. to run the recently nationalized oil and gas company, YPF SA.

The new chief executive, Miguel Galuccio, is a petroleum engineer by training who worked for years at Schlumberger, Kirchner said.

"The idea is to have a YPF that's absolutely competitive and professional, but with political direction," she said in a nationally televised speech.

Moments before her speech, Kirchner signed into law a bill expropriating 51% of YPF's stock from its majority shareholder, Spain's Repsol YPF SA.

YPF's shares traded in New York jumped almost 8.5% to close at $15.35 Friday, apparently on speculation that Kirchner would name an experienced oilman to run the company or announce a major joint venture with a foreign investor.

Even after Friday's surge, YPF's American depositary shares are still down about 56% so far this year and its market capitalization has shriveled to about $6 billion.

Kirchner sought to convince investors that YPF will be a well-run company and not a poorly managed state firm.

"I want to assure you we're going to do a professional job," she said.

YPF's nationalization presents the company, and the government, with staffing, technical and corporate-governance challenges that could be hard to solve in the near term.

"Repsol brought a lot of personnel to the company. We'll have to see if they stick around and if this is enough," said Gerardo Rabinovich, an oil and gas expert at the Argentine Energy Institute.

Kirchner fired YPF's top management team immediately after announcing plans to nationalize the company in mid-April.

Kirchner appointed Planning Minister Julio De Vido and Deputy Economy Minister Axel Kicillof to temporarily manage YPF. Neither had experience running an oil company.

Kirchner has made raising output a top priority for YPF.

Indeed, she blamed Repsol for not investing enough in Argentina to reverse years of declining oil and gas production that has turned the country into a net energy importer. Repsol, which invested $3 billion in Argentina last year, denies the charges and says the government singled it out even though its production has faired better than other firms.

Turning around YPF's production numbers will not be easy given its aging fields. In its most recent 20-F filing with the U.S. Securities and Exchange Commission, YPF described all of its largest fields as "mature."

The Planning Ministry recently said it had already increased YPF's gas production by 5% and its oil output by 0.7%.

"That's propaganda. It's a bad joke," said Rabinovich. "It's too early to have done such a thing. It's going to take several years to see a significant increase."

Carlos Pierro, a former YPF president, said the only way to significantly boost output is to invest massively in potentially vast unconventional oil and gas trapped in shale rock formations, mainly in Neuquen province.

In February, YPF said it would require $25 billion a year for a decade to put its estimated 23 billion barrels of shale oil and gas resources into production. That's a bill that no single company, let alone the government, can afford to pay.

"To do that, you need the latest technology and help from companies experienced in using it," Pierro said. "But the question is: Who wants to invest in Argentina now?"

If history is any guide, the government may struggle to meet high standards of corporate governance and transparency.

A Planning Ministry spokesman didn't respond to a request to comment for this article.

The administration jealously guards financial information about other state-run companies. Even something as critical to the economy as reliable statistics are suspect in Argentina. Most private-sector economists say the government has reported bogus inflation, growth and employment data since early 2007.

Corporate-governance rules are largely meant to benefit investors, according to Professor Charles Elson, an expert on the subject at the University of Delaware.

"Once a company has been nationalized, you basically devalue the investors' holding," Elson said. "Governments have different interests than investors. Governments are notorious for putting their interests over others."

Copyright (c) 2012 Dow Jones & Company, Inc.


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