A dramatic ruling by a U.S. court ordering Argentina to hand over the 51% stake it holds in state energy firm YPF has cast a shadow over the country’s plans for its huge Vaca Muerta shale formation and hopes to return to global markets. U.S. District Judge Loretta Preska said on Monday that Argentina must transfer its YPF shares within 14 days to partially satisfy an earlier $16.1 billion court judgment against the country over its 2012 nationalization of the firm.
The government of pro-market libertarian Javier Milei said it would appeal the ruling to “defend national interests.”
The judgment adds uncertainty to Argentina’s plans to turn Vaca Muerta, the world’s No. 2 shale gas reserve and No. 4 for shale oil, into a key global energy-producing region that would help bring in foreign currency needed to prop up the economy.
YPF leads development of Vaca Muerta, often partnering with other local and international firms including Shell and Chevron. Vaca Muerta has hit production of over 400,000 barrels per day of oil and some 70 million cubic meters of gas per day. “Control of YPF is important for Milei; that’s why an appeal is the only option for him,” said Marcelo Garcia, director for the Americas at New York-based risk consultancy Horizon Engage. “It should bring in the U.S. dollars the economy lacks.” The legal dispute arose from Argentina’s 2012 seizure of the 51% YPF stake held by Spain’s Repsol, without tendering for shares held by minority investors Petersen Energia Inversora and Eton Park Capital Management.
In 2023, Preska awarded $14.4 billion to Petersen and $1.7 billion to Eton Park in the same case, which Argentina is also appealing. The plaintiffs are represented by litigation funder Burford Capital, which expects to receive some 35% and 73% of Petersen’s and Eton Park’s respective damages.
LEVERAGE TO NEGOTIATE
The legal ruling could also dent Argentina’s ability to tap global markets, something the country is keen to do to bolster its depleted reserves after years of currency crises, regular fiscal deficits draining state coffers and high inflation.
“These unresolved disputes could hinder, or even block, Argentina’s return to the international capital markets,” BancTrust & Co said in a note on Tuesday.
Argentine economist Agustin Monteverde said the uncertainty could also limit YPF’s own fundraising and strategic planning.
“A firm whose majority shareholder is unclear is in the midst of a crisis; it’s difficult to make decisions,” he said.
Analysts and officials pointed out that surrendering the shares in YPF would constitutionally need the approval of Argentina’s Congress, which was unlikely to happen. A more realistic outcome was that it would force Milei to negotiate.
“I find it unthinkable that a vulture fund would take over 51% of YPF’s shares,” said Victor Bronstein, director of the Center for Energy, Politics, and Social Studies and a professor at the University of Buenos Aires.
“This ruling allows them to negotiate, because I don’t really think they are interested in being YPF shareholders.”
Argentina’s government must urgently build up foreign currency reserves to pay its debts and meet targets as part of a $20 billion loan program agreed with the International Monetary Fund in April, the indebted country’s 23rd IMF program.
YPF’s U.S.-listed shares slumped more than 5% on Monday, while Burford’s stock price jumped. Both steadied on Tuesday. YPF’s current market capitalization is around $12.5 billion.
(Reporting Eliana Raszewski, Leila Miller and Jorge Otaola; Writing by Adam Jourdan; Editing by Marguerita Choy)