Argentine Provinces Threaten To Pull O&G Concessions

BUENOS AIRES - Argentine provinces that are the biggest sources of oil and gas said Friday they will force energy companies to boost output by 15% or revoke their concessions.

The ultimatum from 10 provincial governments is the latest salvo in an increasingly tense standoff between President Cristina Kirchner and the oil and gas industry, which she blames for declining production and reserves.

"We've established a series of [production] floors and conditions that oil companies in the country must meet," said Chubut Governor Martin Buzzi, who leads the group of provinces rich in oil and gas.

Buzzi said the provinces are satisfied with the performance of such companies as Pan American Energy LLC, in which BP PLC owns a 60% stake, and Tecpetrol. But others, including Argentina's biggest oil and gas company, YPF SA, will have to increase production quickly or risk losing concessions.

"We don't have any problem in taking over fields...," Buzzi said. "We can't permit oil and gas production to keep falling. The geology says Argentina shouldn't have trouble meeting its energy needs. Time is running out [for the companies]."

YPF declined to comment on Buzzi's comments. The company has said it invested $3 billion in its operations last year.

In recent weeks, provincial governors have joined the administration in demanding that producers raise output amid a growing energy deficit that has forced the federal government to import billions of dollars in natural gas and fuel.

The governors have the most to gain from higher output as Argentina's constitution grants them control over oil and gas concessions and royalties in their provinces.

Since 1998, oil production has fallen almost 32%; since 2004, natural gas output has declined almost 13%, according to Energy Secretariat data.

The Kirchner administration accuses oil and gas companies of failing to invest enough in exploration, production and refining. But critics, including eight former energy secretaries, say price caps and heavy government regulations are to blame for the current situation.

The fact that Argentina has gone from being a net energy exporter a decade ago to a net importer today is even more startling given that Argentina is thought to have some of the largest shale oil and gas reserves in the Americas.

While those shale resources have attracted some investment from global giants like Chevron Corp. Exxon Mobil Corp., and Total SA, Argentina is still a long way from enjoying the same energy boom that unconventional oil and gas has brought to the U.S.

Planning Minister Julio De Vido, who oversees energy policy, has demanded several times this year that companies bring their unconventional resources into commercial production. But he has made only vague assurances that producers will get an adequate return on their investment.

Adding to the uncertainty gripping the industry, the newspaper Pagina 12, which has close ties to the administration, said in late January that the government might nationalize YPF.

Government officials have fueled the takeover speculation by refusing to comment about the Pagina 12 report.

Kirchner's broadside against the energy industry has rattled executives' nerves and led many to wonder what the government has in store for the sector.

A high-ranking executive at one of Argentina's leading oil and gas producers said he and other industry bigwigs have "no clue" what the government's plans are or how its policies might change.

A spokesman for De Vido could not be reached for comment.


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