CASE: P-90 (B)

DATE: 04/12/17

REPSOL AND YPF (B):

CONSIDERING OPTIONS
Repsol determined the value of its expropriated 51 percent share of YPF to be $10.5 billion. But
what to do about this loss was not obvious; options included arbitration, lawsuits, diplomacy, or
simply writing it off.

ARBITRATION

Under the bilateral investment treaty between Spain and Argentina, Repsol could take the case to
the International Center for the Settlement of Investment Disputes (ICSID). ICSID was a World
Bank organization established to create a binding forum in which investors and governments
could settle disputes.1 The arbitration tribunal would hear arguments from each side and decide.
If it found for the government, the process ended; if it found for the company, the tribunal would
then determine compensation, usually aiming to leave the company in the same economic
position as prior to the dispute. Governments that lost could attempt to annul the decision based
on specific circumstances. Arbitrations often took four to five years and were costly. Even
under a favorable ruling for the company, retrieving compensation from the government was
difficult. A record 47 cases had been brought against Argentina in the wake of the 2001
economic crisis; as of 2012, Argentina had lost four cases, won five, and settled 14, with the
others annulled, vacated, or still pending.2 However, as of May 2012, it had not actually paid

1
This section on arbitration draws closely on a case study by Noel Maurer and Gustavo Herrero, “YPF-The
Argentine Oil Nationalization of 2012,” Harvard Business School Case 9-713-029, June 26, 2013.
2
Ibid, pp. 9-10.

Sheila Melvin and Professors Katherine Casey and Ken Shotts prepared this case as the basis for class discussion
rather than to illustrate either effective or ineffective handling of an administrative situation.

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 Repsol and YPF: Considering Options P-90 (B) p. 2

any compensation in the cases it had lost.3 (Argentina at the time insisted that any ICSID
arbitration awards be enforced through its own federal court system.)4

COURT ACTION

Repsol could bring legal action against Argentina. Its options included:

 Filing an unfair competition claim in Madrid against YPF over the exploration of Vaca
Muerta.
 Filing claims in U.S. federal courts in New York, where YPF had raised money in an IPO.
 Filing claims against any international companies who opted to do business with YPF.
Chevron, for example, signed an MOU with YPF to invest in Vaca Muerta on September
14, 2012.5
DIPLOMACY

Repsol could also try to put political pressure on the Argentine government. Indeed, some
analysts had previously noted that “Madrid frequently uses Repsol—Spain’s largest oil company
and a heavily state-influenced entity—as a foreign-policy tool.”6

After the expropriation was announced, the Spanish government held an emergency cabinet
meeting and the foreign minister declared that his government condemned Argentina’s move,
which “broke the climate of cordiality and friendship that presided over relations between Spain
and Argentina.”7 As the Argentina Independent explained, “Amid speculations of a potential
lawsuit, the Spanish government stepped in on Repsol’s behalf. The country has made their
support of Repsol abundantly clear, warning that “hostile gestures” against Spanish companies
could mean ‘economic and fraternal rupture’ between the two countries.”8

However, while the Spanish government supported Repsol, it also had other issues to consider.
In May 2013, Reuters reported that “The Spanish government, eager to protect the investments
of other companies like Telefonica in Argentina, has also said it would listen to options to settle

3
“Repsol sues Argentina over YPF seizure,” Financial Times May 15, 2012, https://www.ft.com/content/99d1ead0-
9e9d-11e1-9cc8-00144feabdc0, (March 31, 2017).
4
“Argentina settles five investment treaty awards,” Allenovery.com, November 7, 2013,
http://www.allenovery.com/publications/en-gb/Pages/Argentina-settles-five-investment-treaty-awards.aspx
(March 31, 2017).
5
Gavin Broady, “Chevron, YPF Agree To Pilot Program For $15B Shale Deal,” Law360.com, December 20, 2012,
https://www.law360.com/articles/403113/chevron-ypf-agree-to-pilot-program-for-15b-shale-deal (March 13, 2017).
6
“Repsol in Bolivia: When Business Serves Foreign Policy,” Stratfor, April 25, 2006,
https://www.stratfor.com/analysis/repsol-bolivia-when-business-serves-foreign-policy (March 15, 2017).
7
Simon Romero and Raphael Minder, “Argentina to Seize Control of Oil Company,” The New York Times,
April 16, 2012 http://www.nytimes.com/2012/04/17/business/global/argentine-president-to-nationalize-oil-
company.html (March 15, 2017).
8
Megan Cassidy, “YPF and Argentina: The Return of National Sovereignty,” Argentina Independent,
April 18, 2012, http://www.argentinaindependent.com/currentaffairs/ypf-and-argentina-the-return-of-national-
sovereignty/ (March 13, 2017).

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 Repsol and YPF: Considering Options P-90 (B) p. 3

the YPF dispute.”9 And two of Repsol’s biggest shareholders—La Caixa, a Catalan savings
bank that held 12.2 percent of Repsol shares, and Pemex, the Mexican state oil group that held
9.37 percent10—were eager for a settlement. Mexico began to push for a deal too, because it was
generally believed that a settlement would boost Repsol’s share price, thus benefiting Pemex as a
shareholder, and because Pemex wanted access to develop Vaca Muerta.11 As time went on,
reported the Wall Street Journal, “Pemex gave Spanish officials a reason to get more active. The
Mexican company told the Spanish government that it would buy a 51% stake in struggling
Spanish shipbuilder Hijos de J. Barreras only if Repsol reached an agreement with Argentina.”12

The World Bank condemned the expropriation and its president called Argentina an “outlier” in
Latin America, while the European Union trade commissioner said his organization “will do
everything in our power” to support Spain in its dispute with Argentina.13

WRITE-OFF

Although energy companies decried expropriation of their assets, they frequently chose to write
off the assets rather than aggressively challenge the decisions of sovereign governments.
Companies often chose to move on to new projects rather than getting mired in disputes over
past investments.

In 2007, Exxon Mobil and Conoco Phillips both wrote off their Venezuelan operations, with
Conoco Phillips taking a $4.5 billion charge in its second quarter.14

Repsol itself had in 2005 conducted what it called “a rigorous program of provisions and write-
offs,” including $891 million for “tax contingencies” in Argentina. Then, in 2006, amid
nationalization and tax uncertainty in Bolivia, Repsol again resorted to a write-off while
announcing a 25 percent reduction in its reserves in that country.

9
Tracy Rucinski and Karina Grazina “Argentina, Repsol struggle to bridge gap over YPF compensation,” Reuters,
April 19, 2012, https://uk.reuters.com/article/us-argentina-repsol-idUSBRE94M0KL20130523 (April 4, 2017).
10
Miles Johnson and Jude Webber, “Investors press Repsol to strike deal over YPF expropriation,” Financial Times,
June 24, 2013, http://www.ft.com/cms/s/0/3f284060-dcd7-11e2-9700-00144feab7de.html (March 14, 2017).
11
Ilan Brat, Juan Montes and Taos Turner, “Repsol, Argentina Reach Tentative Deal,” The Wall Street Journal,
November 27, 2013 https://www.wsj.com/articles/SB10001424052702304017204579224332496037134
(March 15, 2017).
12
Ibid.
13
Eliana Raszewski, “Argentina Congress Backs Takeover of YPF From Repsol,” Bloomberg, May 4, 2012.
14
Judith Levy, “ExxonMobil and ConocoPhillips: Adios, Venezuela,” Seeking Alpha, June 27, 2007
http://seekingalpha.com/article/39453-exxonmobil-and-conocophillips-a dios-venezuela (March 15, 2017).

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