Page 5 - LatAmOil Week 20 2020

LatAmOil COMMENTARY LatAmOil
 It has also stipulated that these companies must uphold all existing service contracts and keep the number of employees stable at the levels reported on December 31, 2019. Additionally, it has limited their access to foreign exchange markets, except in cases of necessity to sustain daily operations, in order to prevent domestic producers from transferring profits out of the country.
The government has indicated that it is willing to offer oil operators some leeway with respect to output levels, in light of the impact that the coronavirus (COVID-19) pandemic has had on energy demand. But it has also stated that it will fine producers that do not comply with the new requirements.
High-profile supporters
The introduction of the new pricing policy came as no surprise. The administration of President Alberto Fernandez began considering calls for a minimum reference prices last month, and support for the measure has grown since the collapse of world crude prices on April 20.
The governments of oil-producing provinces such as Chubut, Neuquén and Santa Cruz have been especially enthusiastic. They have been lobbying for a price floor because they hope that higher wellhead prices will increase the amount of revenue flowing in from fields in the Vaca Muerta shale formation and other basins.
Omar Gutierrez, the governor of Neuquén Province, described the policy as overwhelm- ingly beneficial. “This new scheme gives pre- dictability, security and trust. It puts forward clear, agreed-upon rules to develop hydrocar- bon activity,” he was quoted as saying by Argus Media.
Guillermo Pereyra, the secretary of the Pri- vate Oil and Gas Union of Neuquén, Río Negro
and La Pampa, also responded positively. “[For] me, what the criollo barrel has done is satisfy the needs of all sectors partially and logically, because you can’t have everything,” he told the provincial newspaper Diario de Río Negro.
YPF, the national oil company (NOC), has
also been broadly supportive of the minimum
reference price, as have smaller upstream opera-
tors such as Pluspetrol and Vista Oil & Gas. This
stance makes sense, given that the price floor
allows them to sell their output at above-market
rates. Moody’s Investors Service has warned,
though, that higher earnings from oil sales may
not be enough to offset YPF’s challenges in other
areas, such as a heavy debt load and low natural
gas prices. “
Challenges for YPF
In the long run, YPF is likely to find the new pol- icy somewhat challenging.
Because the NOC is vertically integrated, the minimum reference price will have a mixed impact. On the upside, its upstream production units will be able to earn more from oil sales, even if they have to ramp down operations because of planned cuts to investment spending. But on the downside, its downstream refining units will have to pay more for feedstock – even though they have no guarantee that fuel demand will recover fully, and the government is trying to keep domestic fuel prices down.
Under these conditions, YPF is likely to have a hard time meeting its financial obligations. As Fitch Ratings noted earlier this week, the state- owned company is due to see $1.3bn worth of debt mature this year.
It may therefore find itself at odds with the government, especially if privately owned refin- ery operators also start to complain about the burden they will now face. ™
Thus far, refineries have only restored some of their shuttered capacity
Raizen refinery in Buenos Aires (Photo: Royal Dutch/Shell)
Week 20 21•May•2020 w w w . N E W S B A S E . c o m P5