Argentina's oil takeover riles investors

By Michael Warren

Associated Press

Published: Tuesday, April 17 2012 12:00 a.m. MDT

"We're going to see where they threw out each cubic meter of contaminated water," Kicillof vowed.

Kicillof also accused Repsol of hiding the true value of its Argentine unit, and said a thorough review of its books after seizing control of its offices in Buenos Aires will affect the compensation paid to its shareholders.

The measure is likely to win swift approval in Argentina's congress, where Fernandez counts on a majority in both houses. But analysts say the government lacks the resources to pay what Repsol is demanding while also maintaining a populist spending spree. The state may turn to central bank reserves or state pension funds to pay off Repsol, but will likely need deep-pocketed partners to exploit its shale reserves.

The move spoils Argentina and Spain's good relations and "greatly affects the international reputation of Argentina," Spanish Prime Minister Mariano Rajoy said at a World Economic Forum meeting in Puerto Vallarta, Mexico.

Argentina's move also affects Mexico's state-owned Petroleos Mexicanos, which owns 10 percent of Repsol and is among many shareholders around the world who watched the announcement with dismay.

"I am absolutely convinced that the road to economic growth and development is not the road of expropriations," said Mexican President Felipe Calderon, though his country each year celebrates the 1938 nationalization of its own oil industry.

Spain's government prepared retaliatory measures, the European Commission indefinitely postponed a bilateral trade meeting between the European Union and Argentina, and other countries were considering diplomatic, legal and economic counter-measures.

"This creates an uncertainty which is not helpful to our economic relations and to the economy as a whole," European Commission President Jose Manuel Barroso said.

Repsol shares closed down 6 percent to €16.42 ($21.43) in Madrid, far underperforming the benchmark Ibex index. Analysts were concerned that Argentina has not stated any compensation terms for the nationalization of YPF, which has 42 percent of Repsol's global reserves, estimated at 2.1 billion barrels of crude.

Spain's government is lining up allies to contest the nationalization and possibly isolate Argentina economically. Rajoy was already finding support during his trip to Mexico. Venezuela, meanwhile, pledged to use all means necessary to support Argentina.

Contributors include Al Clendenning in Madrid, E. Eduardo Castillo in Puerto Vallarta, Mexico, and Almudena Calatrava in Buenos Aires.

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