Argentina's Rapidly Rising Oil Fortunes
By CLIFFORD KRAUSS
Argentina -- For decades after its founding in
1922 as the world's first state-owned oil company outside the
Soviet Union, Yacimientos Petroliferos Fiscales was the butt of one of
Argentina's most enduring jokes as "the only oil company in the world
that knew how to lose money."
chosen for their loyalty to a series of military dictators,
even if they did not know the difference between crude and kerosene. It
didn't matter: the union made key management decisions anyway.
Meanwhile the rest of the government's agencies, including the railroad
and gas distribution company, balanced their books by neglecting to pay
their fuel bills.
oil company is no longer a joke. It was privatized
between 1990 and 1993 in an overhaul that cut the payroll of YPF,
as it is widely known here, from 50,000 to fewer than 10,000
employees. The company sold off marginal fields, got rid of a rickety
tanker fleet, and dumped useless movie theaters and money-losing
hospitals that had nothing to do with its basic business. It introduced an array
of cost controls and employee incentives.
YPF, leaner if
not meaner, has since catapulted itself into the second tier of
world energy companies by acquiring exploration fields, gas stations and
pipelines in the most unlikely places, from Peru to Indonesia to the Texas
"We now act like
an American company," said Roberto Monti, the
company's chairman, who spent most of his career at Schlumberger, the
global oilfield services giant based in Paris.
YPF is already
the largest private oil company in Latin America and the
largest private company of any kind in Argentina -- representing better
than 20 percent of the total market capitalization of the local Merval
stock exchange. It is among the most actively traded Latin American
companies on the New York Stock Exchange, with 51 percent of its
stock controlled by institutional holders.
Now the company,
with its $11 billion in market capitalization, is poised
to take advantage of the expected privatization and selloff of the Brazilian
government's energy holdings and the continuing opening of Venezuela's
huge oil patch in the next few years. Consequently, Wall Street analysts
say, the blue and white YPF logo should cast an ever wider shadow in
the years to come. A huge billboard over a YPF filling station on Avenida
Libertador in Buenos Aires trumpets a new company slogan: "YPF: Here
That is, unless
YPF is acquired first, making the trophy seeker a trophy
itself. "YPF could be bought by Repsol today or by Shell tomorrow,"
said a senior Argentine oil executive who spoke on the condition he not
The Spanish oil
company Repsol, another formerly state-owned concern
beginning to expand its repertoire on the world stage, became the largest
YPF shareholder in January when it bought a 14.99 percent stake in the
company from the Argentine government at a premium price of $2 billion.
at $38 a share raised eyebrows in the investment
community because no other company would bid anywhere near that
level: the price was about $10 a share higher than the market quote at the
time. But over the last two months, with Latin American stock markets
and the international oil price beginning to recover, YPF's shares have
risen to $32.95, up about 18 percent for the year.
If Repsol acquired
YPF, the merged company would be the
eighth-largest integrated oil company in the world as measured by asset
value. But Repsol's takeover prospects appear increasingly unlikely since
YPF's bylaws prohibit a stock swap. Raising the necessary cash would
not be easy. Moreover, many analysts say the Spanish company
underestimated the spirited resistance the YPF board would put up to
avoid being caught up in the consolidation trends that have seized the
international oil industry. Under pressure from relatively low prices, even
such giants as Exxon and Mobil and British Petroleum and Amoco have
agreed to merge.
"I have mixed
feelings when we talk about consolidation," Monti said in
an interview. "Size can impede speed to react. What we are looking for
is YPF to be one of those dynamic companies, one that can make use of
opportunities faster than anybody else."
At age 60, Monti
is a dour man who goes to bed at 10 p.m. so he can
get to the office before 8 a.m. He is so precise about scheduling he is
known to cancel appointments with people who are five minutes late.
Monti would speak little about the proposed Repsol takeover beyond
saying, "You are better off being the owner of your own destiny."
Associates say he thinks YPF would be better off with another partner --
a junior one.
himself as a collector, one who has assembled a
collection of 60,000 stamps from every corner of the world since his
childhood. At age 40, he bought a 1929 Chevrolet Phaeton and over the
last 20 years he has acquired a slew of vintage cars including a Jaguar, a
Mercedes-Benz and a Porsche.
He said his internationalist
collections say a lot about his personality and
the way he views YPF. "I know my way abroad," he said. "Two years
ago we were not exporting any gas. Now we are exporting to the south
of Chile and to the Santiago area. We were importing gas from Bolivia,
now we are going to reverse the flow and send it Brazil via Bolivia. We
are going to Uruguay and from there extend to Porto Alegre and Sao
Monti said he
intended to continue to dominate the Argentine market:
YPF controls nearly 50 percent of Argentina's production of 908,000
barrels a day (the country ranks 21st among oil producers) and operates
almost half of Argentina's 6,000 filling stations. But the core of his
strategy for growth is expansion abroad, particularly into the growing
neighboring markets of Brazil and Chile.
no foreign operations only four years ago, YPF now has
17.5 percent of its 3.2 billion barrels in reserves and 16.4 percent of its
production outside Argentina. More than 38 percent of its $5.5 billion in
revenues in 1998 came from exports or operations in other countries,
while a honeycomb of gas pipelines reaching into Chile, Uruguay,
Paraguay, Bolivia and Brazil are under construction.
YPF's push abroad
began in earnest in 1995, when it spent $1.7 billion
to buy Maxus, an independent exploration and production company with
50 percent of its properties in Indonesia. It also has a joint gas venture in
the Texas panhandle with BP Amoco. (YPF has a 65 percent interest in
a field that yielded 144,000 cubic feet of gas a day in 1997.) The
acquisition of Maxus originally received negative reviews from
international investors because of the company's history of cost overruns
and debt, but that has changed as YPF improved its operations.
Monti said his
concept of targeted, measured growth was designed to
raise the return on capital from just below 11 percent when he took over
the company in 1997 to 15 percent by 2002. Last year he reached 13.2
percent -- just above the current standard for international oil companies
-- even as oil prices and revenues dropped.
The company reported
net operating income in the final quarter of 1998
ending in December of $115 million, or 33 cents a share, a decrease of
42.5 percent from the corresponding period in 1997. But Wall Street
analysts said results would have been far worse had the company not
reduced exploration and production costs by as much as 30 percent over
the last two years, and they are predicting that considerably higher profits
will come with higher oil prices.
head of Santander Investment's equity research team in
Buenos Aires, said one yardstick for YPF's improved operations was
that while the company needed an international price of $11 a barrel of
oil to break even in 1995, it only needs a price of $7 a barrel to break
even this year. "They have done an outstanding job," he said.
With the help
of two management advisers contracted from Chevron and
a $56 million modernization project, for instance, YPF's largest refinery
in La Plata has decreased the cost of processing a barrel of oil from
$4.69 to $2.66 a barrel since 1995, according to management. A tour of
the 1,000-acre operation leaves a visitor with a strange sensation akin to
visiting a ghost town of flare towers and storage barrels. Only 690
employees work there (over several shifts 24 hours a day), down from
1,350 at the time the company was privatized.
"In the past
YPF knew how to meet production targets but had no idea
about efficiencies," said Abraham Zarzur, director of the La Plata refinery
and a holdover from the pre-privatization days. "Now we make money,
lots of money."