Chevron Corporation's Vote of Confidence for Argentina and YPF S.A.

With a $1.6 billion investment in Argentina, Chevron gives beleaguered Argentina a vote of confidence and helps YPF realize its potential.

Apr 17, 2014 at 8:32AM
Chevron (NYSE:CVX) recently signed a deal with YPF S.A. (NYSE:YPF) to invest $1.6 billion in Argentina's Vaca Muerta shale formation. The $1.6 billion investment is in addition to the $1.2 billion investment the super-major made in Argentina last year. 
 
When all is said and done, Chevron's joint venture with YPF should produce 50,000 barrels of shale oil and 3 million cubic meters of shale gas per day. 

A vote of confidence for Argentina
Chevron's investment is great news for YPF. The Argentine company has great potential but lacks the capital to develop that potential. YPF, for example, owns 40% of the total acreage in Vaca Muerta, which is estimated to have as much as 21 billion barrels of prospective oil equivalent, but YPF's 2013 capital expenditure budget was only 29.8 billion pesos, or $3.72 billion using current exchange rates. 

Many experts believe fully developing Vaca Muerta's reserves will require an investment numbering in the tens of billions of dollars, something that YPF simply does not have.    

With Chevron's $1.6 billion investment this year, YPF now has the capital to develop Vaca Muerta faster -- which means YPF will realize profits faster. 

Chevron's investment is also good news for the Argentine government, which owns 51% of YPF. 

The Argentine government ostracized many oil producers by nationalizing a significant part of Repsol YPF S.A.'s (NASDAQOTH:REPYY) stake in YPF in 2012. 

That nationalization arguably led to much of Argentina's current troubles. Because of that nationalization, foreign investors withdrew their capital and the country's balance of payments worsened. As a result, Argentina's currency depreciated and inflation spiked. With Chevron's investment, foreign capital is going into Argentina rather than away from it. While this deal is too small to solve Argentina's balance of payments problems, it may lead to other oil super-majors investing in Argentina. If enough foreign investors invest in Argentina, the country's macro problems will turn around. 

Finally, the investment represents good risk/reward for Chevron. The Energy Information Administration estimates that Argentina has the third largest reserves of shale gas in the world at 802 trillion cubic feet. If things work out, Chevron will have access to a substantial percentage of that resource for a relatively low price. If things deteriorate, $1.6 billion is just a small part of Chevron's total capital expenditure budget of $39.8 for 2014.   

The bottom line
YPF is a very controversial stock. Given its large energy reserves, it could eventually be worth many multiples of its current price. Given that Argentina nationalized part of that company before, it could also be worth very little if the government nationalizes it again.

In my opinion, the probability that Argentina nationalizes YPF in the near future is low. Argentina has much more to gain by working with foreign oil producers rather than against them. Chevron's deal represents a vote of confidence in Argentina and could yield substantial dividends for everyone involved in the long term.

OPEC is absolutely terrified of this game-changer
Imagine a company that rents a very specific and valuable piece of machinery for $41,000... per hour (that's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report reveals the company we're calling OPEC's Worst Nightmare. Just click HERE to uncover the name of this industry-leading stock... and join Buffett in his quest for a veritable LANDSLIDE of profits!

 

Jay Yao has no position in any stocks mentioned. The Motley Fool recommends Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers