29 November 2012
Buenos Aires, Argentina – Chevron Corp.'s Argentina subsidiary ran full-page ads in the nation's leading newspapers Thursday saying that its operations have been complicated by a court order freezing its earnings.
A judge in Buenos Aires embargoed Chevron's Argentina earnings, acting on behalf of plaintiffs in Ecuador who are trying to collect a $19 billion judgment they won over oil spills in the Amazon. Both Chevron and the Ecuadorean plaintiffs have accused each other of committing fraud in the case.
The environmental judgment is only the latest trouble Chevron is facing in Argentina, where it has become a leading partner of the state-controlled YPF SA oil company since President Cristina Fernandez expropriated it from Grupo Repsol in Spain.
Repsol has sued in Madrid accusing Chevron and YPF of unfair competition, for drilling for shale oil and gas in the "Vaca Muerta" basin that was discovered when Repsol ran the company.
Repsol also is suing Argentina at the World Bank's International Center for the Settlement of Investment Disputes, seeking $10 billion in compensation for the controlling stake in YPF that Fernandez seized, and said it would sue any other international oil company that tries to partner with YPF.
"I don't see the future of Chevron in Argentina as very auspicious under these conditions. They can turn it around, but it's difficult," said Emilio Apud, a former Argentine energy secretary who now works as a consultant. "The numbers just won't add up, and if they had a hope of future profits in Argentina from Vaca Muerta, that too is in doubt."
Chevron's ad called the Ecuadoran judgment fraudulent, and said that "we are seeking the lifting of this embargo as soon as possible, to avoid its negative impacts on the country, the government, the company, and the energy future of Argentina."
The Ecuadorean plaintiffs have denied Chevron's accusation and have filed a lawsuit in a U.S. court accusing the oil company of fraud.
Pablo Fajardo, the lead lawyer for the plaintiffs, issued a statement Thursday saying: "Now that the law has again caught up with Chevron in Argentina, the company is buying newspaper advertisements to improperly pressure the court system to rule in its favor. Argentina is too strong a country to fall for Chevron's game of tricks."
Chevron, based in San Ramon, California, has had a collaborative relationship with YPF since the early 1990s. The companies signed a memorandum of understanding in September to jointly develop Argentina's shale reserves, the world's third largest after the U.S. and China. But Chevron hasn't announced new investments since then, and the Ecuador suit is only complicating matters.
"The judicial embargo limits the capacity of Chevron Argentina to operate and reinvest, since the order affects more than 90 percent of the income from crude sales," the company said. This money pays salaries for 1,500 employees, as well as royalties to the provinces of Neuquen and Rio Negro, taxes to the national government and investments needed to develop unconventional oil reserves.
"This income is a resource that has been generated in Argentina and should be applied to productive investment and the recovery of the country's energy self-sufficiency," it argued.
YPF needs billions of dollars to go after this unconventional oil and natural gas, but major oil companies have held back from investing. Repsol's threat to sue any company that steps forward is one major disincentive; another has been Argentina's elaborate system of keeping consumer energy prices far below international market rates.
Fernandez announced a three-fold increase in well prices for natural gas on Thursday, to $7.50 per million BTU, for any company making new investments in energy development. YPF CEO Miguel Galuccio, who appeared with the president, said the new price should motivate more shale development. But even that price remains far below the $12 per million BTU that Argentina now pays to import gas from Bolivia.
In Canada on Thursday, the Ecuadorean plaintiffs ran into a judge's skepticism when they sought to have the $19 billion judgment enforced against Chevron's Canadian subsidiary.
Ontario Superior Court Justice David Brown did agree to hear the case, but he questioned whether he could issue a ruling since an appeal of the judgment is pending in Ecuador's constitutional court.