Wednesday, September 17, 2014
Drill Baby Drill!!! - YPF SA
News quietly emerged this week from Argentina that the federal government has agreed to amend a 1967 energy bill in the cash strapped South American country. The revisions will allow foreign and domestic oil companies, like YPF (which we've owned since 2012), to export some quantities of oil into international markets. Argentina, under the current leadership of Christina Fernandez de Kirchner, has been quite restrictive allowing only a few foreign players into the domestic oil patch - under onerous conditions. Kirchner, since expropriating YPF from Spanish oil giant Repsol in 2012, has realized they need foreign expertise to develop the massive Vaca Muerta shale oil/gas fields - as the country has been struggling with falling production and stubbornly high development and production costs. YPF has recently signed partnerships with U.S. based Chevron and Petronas - Malaysia's state oil company. Why all the fuss over oil/gas in Argentina? Well, the Vaca Muerta fields, the size of Belgium, hold the worlds fourth largest shale oil and the second largest shale gas deposits - some 27 billion barrels of oil equivalent and 800 Million TCF of nat gas. Despite the political and economic uncertainty (including 8 debt defaults since 1894) we think the value of YPF's oil in the ground will likely remain relatively constant - which is currently north of $50/share of YPF, well above the current stock price. We are also pleased to learn that legendary hedge fund manager George Soros's family office, is new owner of YPF, with a 3.5% stake valued at some $450 million. We would add to YPF on a meaningful pull-back in the low $30's.