YPF Sociedad Anónima
YPF Sociedad Anónima
Incorporated: 1977 as Yacimientos Petrolíferos Fiscales Sociedad Anönima
Sales: A31.41 trillion (US$6.05 billion)
A government team first found oil in Argentina by chance in 1907, when drilling for water near the Patagonian town of Comodoro Rivadavia. Fifteen years later, Direcciön Nacional de los Yacimientos Petrolíferos Fiscales (YPF) was founded as a government supervisory board for state oil.
From YPF’s birth, the state, nationalism, politics, and oil became closely intertwined. YPF evolved into an oil exploration, production, refining, and retailing conglomerate. By law, YPF holds title to all Argentina’s hydrocarbon reserves. It is Argentina’s largest company, controlling over half the local oil market. YPF’s 1989 turnover of US$6.11 billion was equivalent to 7% of gross domestic product. YPF’s six distilleries account for 64% of the country’s total capacity. Its network of oil and gas pipelines stretches for over 18,000 kilometers.
YPF also assumed a wider role in national affairs, playing an important part in government industrial and regional development policies. It helped populate remote regions of the country and provides social services for employees and local populations.
The historian David Rock wrote that the leading role of the Argentine state in the oil industry reflected “a strong determination to prevent oil resources from falling into foreign hands.” In 1910 legislation created a state reserve of 5,000 hectares in Comodoro Rivadavia. In 1918, the government extended its control over reserves found in the southern province of Neuquén. In 1922, YPF was created to operate the Neuquén and Patagonian oilfields.
The company’s early years were marked by a struggle to assert itself. Although production boomed, YPF had to compete with private companies and Argentina still imported 93% of its oil. Despite ardent nationalism, the government found it could only increase oil production with foreign—particularly American—participation. YPF lacked sufficient technology, drilling equipment, refinery capacity, staff, and capital.
Tension between the political aspiration of self-sufficiency in the face of rapacious oil multinationals, and the reality of YPF’s generally disappointing performance is a recurrent theme in its history. Economic growth requires a rising oil supply, but makes Argentina dependent on foreign investment.
National control over the oil industry through YPF came into its own under the company’s first head, the vigorous and independent General Enrique Mosconi.
Mosconi was perhaps the only YPF chief to stand out as a personality in his own right. Argentina’s turbulent politics and powerful military meant that YPF suffered incessant meddling. It had 47 presidents or administrators, 16 of them soldiers, with an average tenure of less than 18 months in 69 years of history. Invariably, colorless political appointees executed company policy established by heads of government. Sudden shifts in YPF strategy were invariably the result of changing government policy, usually produced by military coups.
In 1925 Mosconi built the company’s first oil refinery at La Plata, close to Buenos Aires, and developed a retail network, creating the first vertically-integrated state petroleum industry outside the Soviet Union. Nonetheless, private companies, led by Standard Oil of the United States, still controlled most of the country’s oil market. Public opinion against foreign oil interests grew as a highly publicized battle for supremacy broke out between YPF and private foreign companies.
Oil dominated the election campaign of 1928. The predominantly middle-class Uniòn Civica Radical (UCR) which had first created YPF, campaigned successfully to transform YPF into a monopoly.
A coup put an end to the UCR’s plans and the new government treated YPF and its foreign competitiors evenhandedly. Oil output increased, but YPF’s market share fell. In 1932, however, the government reversed its policy, favoring YPF. It allowed YPF to import equipment free of duty, but in return imposed a 10% tax on its profits. Three years later a similar tax was imposed on foreign companies. The following year, the government intervened in a price war, establishing market quotas for YPF and its competitors.
In 1935 the government declared most of Neuquén a national reserve to be developed exclusively by YPF. Over the subsequent years, the company made important discoveries in the south, and later in the north and west of Argentina.
Colonel Juan Domingo Perón’s rise to power in 1945 marked an important new stage in YPF’s history. Perón nationalized British and American interests and extended state control over broad sectors of the economy. In the oil industry, this had the effect of further strengthening YPF’s share of oil production.
The founder of Perónism, a corporatist alliance of labor, capital, and the state, transformed YPF into a virtual monopoly. If it produced 68% of all Argentina’s oil in 1945, it accounted for 84% of production in 1955, Perón’s last year in office.
Perón also expanded YPF’s infrastructure, building a pipeline that runs the length of Argentina from Comodoro Rivadavia to Buenos Aires. Under Perón, YPF was granted numerous privileges denied foreign companies, such as importing oil duty-free. In 1949, Perón promulgated a new constitution instituting national ownership of natural resources, including oil.
Although YPF raised output by more than a fifth during Perón’s first term as president, it failed to increase production sufficiently to meet demand during the postwar economic boom. It suffered from American trade embargoes imposed to punish the government for interfering in American business interests.
Dependence on oil imports and foreign companies grew as YPF failed to meet rising demand. Economic recession forced Perón to strike a deal in March 1955 with Standard Oil of California, allowing it to develop oilfields in Patagonia. When Perón was removed from office in the coup of 1955, Argentina still relied on imports for 60% of its oil.
YPF discovered huge gas fields in Neuquén in 1957, transforming Argentina, and YPF, into a major gas producer. Gas reserves are now about 50% greater than oil reserves.
Liberalization continued during the 1958-62 government of President Arturo Frondizi. He encouraged private companies to explore and produce oil under contract to YPF. Under Frondizi, of the Intransigent Radical Civic Union, private contractors produced one-third of YPF’S oil. However, the policy was deeply controversial, because Frondizi had previously espoused ultranationalist oil policies.
Frondizi reacted to a deepening balance of payments crisis with a policy of rapid industrialization. He banned oil imports—which provided 40% of consumption in the early 1960s. Inflation subsided, the economy grew as foreign investment increased, and oil output surged. By 1963, the year Frondizi was toppled by a coup, local production supplied 90% of demand.
But it was a Radical, Arturo Illia who became president in 1963, who rescinded Frondizi’s oil contracts and strongly favored YPF, invoking his party’s traditional policy of an independent oil industry. But Illia was swept from power by yet another army coup in 1966. Seven years later, Argentina—once again heavily dependent on imports—was rocked by the 1973 oil shock, when its annual oil import bill rose tenfold to US$586 million.
Argentina’s last military administration of 1976-1983 adopted free market policies to encourage foreign investment in Argentina, particularly in the oil and gas industries. In 1976 it introduced risk contracts and oil production began to increase.
Under these contracts, the private sector explored for oil at its own risk, and YPF was committed to buying the output from any successful project. Production reached a record 496,000 barrels per day (b/d) in 1981, but declined in the face of recession and greater reliance by the electricity generating industry on hydro and nuclear power than thermal generation. Nonetheless, Argentina became self-sufficient in oil by the 1990s.
The role of the government and YPF in the oil industry changed further in 1985 under the civilian government of President Raúl Alfonsín. Alfonsín both broadened the scope of private oil companies’ exploration and allowed them to sell part of their oil to YPF at international prices, rather than at government-controlled prices. Alfonsín announced his liberalization policies in Houston, Texas, and they became known as the Houston Plan. Initial response was disappointing, since it coincided with a decline in world oil prices.
Later, a modified plan, Houston II, was introduced, reducing YPF’s power to decide the economic viability of projects and determine forms of payment. Five years later, the Houston Plan had attracted 45 local and foreign companies, which produced 43% of Argentina’s oil at free market prices.
Despite the apparent commitment to a greater role for private capital, the oil companies accused YPF of keeping the most promising regions to itself. Houston II eliminated many of these complaints, such as YPF’s right to take 50% of oil production from a new well if it were found to be richer than originally expected.
Carlos Menem took over as president from Alfonsín in 1989. Nominally a Perónist, Menem embarked on an aggressive liberalization and privatization policy. YPF became an integral part of his plans. On January 1991, Menem implemented a sweeping deregulation of the oil industry.
In essence, the reforms ended YPF’s right to buy and sell oil at government-determined prices, with the exception of oil from Houston Plan projects, allowing all companies to produce, buy, and sell oil at market prices. Exposure to competition was intended to make YPF more efficient. Deregulation and a thorough restructuring of YPF were planned as the first steps to the company’s eventual privatization. Also in 1991, Yacimentos Petrolíferos Fiscales Sociedad Anönima officially became YPF Sociedad Anónima.
Like most other Argentine state companies, YPF became characterized by inefficiency, a bureaucratic corporate culture, overstaffing, and heavy indebtedness. Severe financial problems made YPF constantly undershoot investment targets. In
1990, YPF invested US$1.04 billion—31% less than planned. Government auditors listed 4.5% of YPF’s record 37,047 strong work force as superfluous. Despite overlapping tiers of management, the auditors found that YPF “lacks internal control systems . . . needed for decision-making by senior management.”
The company’s figures for reserves are unreliable. At the end of 1989, it claimed that proven oil reserves fell by 5% to 2.1 billion barrels, equivalent to 14 years’ consumption. Gas reserves grew by 4.3% to 744 billion cubic metres, it said. However, independent analysts say that YPF’s figures are inflated by over 20%.
YPF has closely reflected trends in Argentine history. In its early years, it faced government policies that alternated between outright support and indifference, and fought aggressive foreign competitiors. It benefitted from a rising tide of nationalism in the 1930s, which culminated in the rise of Juan Perón. He extended YPF’s reach, although he was forced to reach agreement with U.S. oil interests. Subsequent governments flirted with liberalization. By the 1980s, YPF’s inefficiency and heavy losses forced Alfonsín, followed by Menem, to take liberalization further than any presidents had dared. In 1991, Menem deregulated the industry as a prelude to YPF’s total privatization. Also in 1991, Yacimentos Petrolíferos Fiscales Sociedad Anönima officially became YPF Sociedad Anónima.
Deregulation left the company disoriented. José Estenssoro, YPF’s respected administrator, admitted as much in El Cronista Comercial, in January 1991: “There will be a process of reorganization ... to make it more competitive. Meanwhile, we are working with estimates and surely our margin of profit is very thin or almost nil.”
Lewis Paul H., The Crisis of Argentine Capitalism, Chapel Hill, University of North Carolina Press, 1990.