Argentina dangles a deal for developing its oil, but foreign concerns are leery
Although Argentina concedes that its oil fields will never make it another Mexico, it thinks it is ready to give foreign oil companies a deal worth signing. But the foreign companies don't see the Argentine terms for exploration as being irresistible, nor do they see the economic and political climate of the country as stable enough to erase their doubts about sinking money here -- yet.
Still, bankers keeping a close eye on the world's third most indebted nation are cheered by the move within the oil industry to bring in foreign money. They believe that if President Ra'ul Alfons'in can keep a grip on the economy as he has done since late June, it will set a precedent that will give the country quite a boost in its effort to dig its way out of the red.
Mr. Alfons'in announced late last year that foreign companies would be invited to form joint ventures with the national oil company, Yacimientos Petroliferos Fiscales (YPF), to prospect for oil. He wanted not only to discover oil but also to attract foreign investment, since there is no money within the country to reactivate the indebted economy.
YPF president Rodolfo Otero said the contracts for these ventures are now ready and that he expects a ``reasonable response'' to the offer.
``Argentina is self-sufficient in hydrocarbons, but the recession here has not hit bottom yet, and if the oil industry doesn't reactivate before the rest [of the economy], Argentina will have to import oil,'' said an American oilman who asked not to be named.
Only 10 percent of potential fields have been explored, and foreign firms believe that within six to eight years the fields could yield moderate amounts. ``I don't think we will find huge fields,'' the American said. ``More likely, medium and small ones.''
But to make this happen, both Alfons'in and the foreign firms have some hurdles to clear. There is a strong, traditional resistance to allowing foreigners in, which is reflected in the contract YPF is offering.
Alfons'in has to get around that suspicion of his countrymen, and the potential foreign explorers have to get around a contract that pales in comparison with others available around the world.
The President won more leverage in elections early this month, which boosted his Radical Party majority. Foreign oilmen hope that will allow him to soften terms for foreign investment.
One of the problems foreigners see with the contract is that it gives YPF the power to decide whether fields are commercially viable, a decision normally made by the company that has done the exploration. It also allows the Argentine government to choose to pay foreign contractors in dollars, australs, or in oil products, the latter being hard to sell.