Chevron May Be Playing With Firehttp://www.fool.com/investing/general/2012/09/21/chevron-may-be-playing-with-fire.aspx David Lee Smith
September 21, 2012
Could Chevron (NYSE: CVX ) be the proverbial moth circling a flame? You know how it is with those critters: They fly ever closer to the fire until they recklessly singe their wings, and then its over for them.
The incessant South American meandering of the second-largest of the U.S.-based oil companies -- behind only ExxonMobil (NYSE: XOM ) -- has me shaking my head to the extent that my better half is convinced I've developed a permanent tic. That's not the case, but it's tough to understand a giant oil company figuratively flirting with a flame.
An Argentinean flame
The specific acreage involved spans Vaca Muerta basin, which is thought to contain about 23 billion barrels of oil. Indeed, there are those who believe that Argentina ranks third only to China and the U.S. in the magnitude of its shale reserves. So, you're thinking that this is a terrific deal for Chevron, right?
Maybe, but maybe not. For starters, the state-controlled status of YPF stems from the expropriation last spring of 51% of the company from Spain's Repsol (NASDAQOTH: REPYY.PK) by Argentina's government. Before that move, the Spanish company had held a 57% stake in YPF. That stake has subsequently been forcefully whittled to 12%. Add to that Chevron's own dicey track record in South America -- Venezuela, Ecuador, and Brazil -- and you're apt to conjure up images of moths on suicide flights.
Not a terrific history
In Ecuador, while it has nothing to do with its own operations, Chevron continues to be involved in litigation that seems to have become slightly older than dirt. Unless you've been held incommunicado for a couple of decades, you know that the company is defending itself against allegations that Texaco, which it bought in 2001, was responsible for severe environmental