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Argentina Prepares for Oil IPO As Milei Reform Gets Underway
There are growing signs that Argentine credit and equity markets are starting to open up as President Milei--a libertarian--moves to deregulate the country’s tightly controlled economy in his first year in office. Aconcagua is hardly alone in its quest to go public. Last year, New York-listed Corporación América Airports SA (NYSE:CAAP) filed a prospectus that allows it to sell up to US$250 million of new stock in one or several offerings. CAAP stock has jumped 66% over the past year to give the company a valuation of $2.9B.
Blowing Up The System
Four years ago, Javier Milei made his debut in politics with a mission to"blow up" the system. However, few predicted he would have a chance to do the shake-up from the highest office in the land. But that’s exactly what the economist and former TV pundit is now doing. Last December, Milei sent a wide-ranging omnibus reform package containing more than 300 articles to Congress, seeking to enforce shock economic policies, such as lifting import controls, undertaking sharp spending cuts, and devalue the peso by more than 50%.
As you would expect with such a sweeping reforms package, the bill has had mixed success, with Argentina’s Chamber of Deputies giving it a nod of approval in general terms in February before the Senate rejected it the following month with Milei describing the vote in a tweet as "the political caste versus the Argentine people." The decree has, however, yet to be repealed because it needs to be rejected by both the upper and lower house of Congress for that to happen.
It remains to be seen what parts of the bill will be approved or rejected by Argentina's Congress. However, the bill in its original form was set to have far-reaching implications for the country's energy sector. At a time when a wave of nationalization is sweeping through Latin America, Milei has gone in the opposite direction and has proposed to privatize 41 state-owned companies, including national oil firm YPF SA, nuclear power company Nucleoeléctrica Argentina and energy infrastructure player Energía Argentina.
Milei is also seeking to unshackle crude exports and leave local fuel prices at the mercy of market forces. His bill contains free-market provisions that aim to replace old rules that date back to the 1960s that prioritize securing affordable fuel supplies for the average citizen. Those rules allow the government to get directly involved in crude and gasoline pricing and also gives refiners the right to first refusal on export cargoes. However, the rules have come under increasing criticism for holding back the country’s vast shale patch known as Vaca Muerta.
“Energy prices will couple with international values. The most radical change is eliminating the requirement to satisfy the needs of the local market — it’s an historic rupture with a century of Argentine tradition,” Juan Jose Carbajales, energy consultant and former oil and gas undersecretary, wrote in a report.
Gasoline prices in Argentina have skyrocketed since Milei was elected as president in November to $3.68 per gallon currently from $2.62 in September 2023.
Milei’s energy reforms are, however, viewed as a big win for YPF SA as well as dozens of Vaca Muerta oil and gas companies such as Chevron Corp. (NYSE:CVX), Shell Plc (NYSE:SHEL) and Vista Energy (NYSE:VIST) whose shale investments have been curtailed by low oil prices and protectionist policies that primarily favor national energy companies. Last year, Bloomberg reported that Exxon Mobil Inc. (NYSE:XOM) was seriously mulling an exit from Vaca Muerta with repeated efforts to ramp up development of its flagship Bajo del Choique-La Invernada site having hit a wall at just 15K boe/day. The company confirmed in February that it’s still seeking to sell assets in the Shale Patch worth $1bn (838.97bn pesos) although no timeline for a decision was set. The report, however, says Exxon does not intend to sell its three Argentine offshore exploration blocks.
Located in the oil-rich Neuquén province, Vaca Muerta is a massive shale play estimated to hold 16 billion barrels of oil and 308 trillion cubic feet of natural gas in recoverable hydrocarbon resources, making it the second-largest shale gas deposit in the world. Indeed, Vaca Muerta is similar to the prolific U.S. Eagle Ford shale but on steroids because its dry gas window has proven to be commercially viable.
By Alex Kimani for Oilprice.com
