One row too many? Argentina upsets Brazil in oil dispute

April 6, 2012 at 6:15 AM
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BUENOS AIRES, April 6 (UPI) -- Did Argentina take a step too far by targeting Brazilian oil giant Petrobras in its campaign to pressure companies to invest more into producing more oil?

Latin American oil industry experts were left wondering this week if Argentina's surprise suspension of Petrobras Argentina licenses, after similar measures against Spanish-controlled YPF, was the straw likely to break the camel's back.

Enraged Brazilians sought to play down the dispute and insisted contracts unilaterally canceled by Argentina would hold good regardless of the measure.

Petrobras entered Argentina in 1993 and expanded operations in 2003 by purchasing the oil assets of billionaire Gregorio Perez Companc after Argentina's record $95 billion debt default in 2001.

The company's Argentine assets are its biggest holdings outside Brazil, encompassing oil and natural gas, petrochemicals and electricity generation.

Petrobras Argentina is the second largest energy company in Argentina, after YPF.

Similar cancellations have put a question mark on YPF oil concessions across Argentina and raised anxiety about Argentina's energy security, as YPF grapples with the challenge of continuing production amid the row with President Cristina Fernandez de Kirchner's administration.

Fernandez stirred up the dispute after questioning YPF's operations and accused the company of not investing enough of its profits to boost oil production.

YPF is Argentina's largest oil producer.

A diplomatic impasse between Argentina and Spain persists despite interventions by Spanish King Juan Carlos and the government of Mariano Rajoy, which is preoccupied with more pressing issues of restoring the economy and reducing Spanish unemployment.

Fernandez aides have blunted criticism of their actions against YPF by using populist rhetoric with references to Spain's colonialist past in Latin America.

The situation regarding Brazil is different, however, and follows a tense standoff in winter over Argentine government curbs on Brazilian exports that soured relations between the countries.

Petrobras said it was surprised to be told its oil exploration contract in Argentina's Neuquen province was terminated and intended to continue operations. The contract is valid to 2027 and remains in force, Petrobras said.

The criticism leveled at Petrobras Argentina, owned 67.25 percent by the Brazilian energy giant, is similar to charges made against YPF -- that the companies aren't reinvesting enough profits to produce better results in exploration or production.

The YPF controversy has battered the company's shares and Argentine actions against Petrobras Argentina are causing concern in Brazil.

Argentina says the company isn't trying hard enough to find proven energy reserves.

"We have complied with all the requirements and as we see it, the exploration and exploitation contract we signed three and a half years ago remains in force," Petrobras said in a statement.

It said investments in Argentina totaled $10 million over the past three years and involved investigation of all possible sources for hydrocarbons, including non-conventional resources.

"I was surprised by the news," Petrobras Chief Executive Officer Maria das Gracas Foster said. "We were not expecting it. We have very positive relations with Argentina and we were analyzing future opportunities to remain in that country."

Most of Petrobras Argentina's operations concern the Puesto Hernandez oil field in Neuquen and the Medanito and El Tordillo oil fields in the provinces of La Pampa and Chubut.

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