President Elect Milei set to shake up Argentina’s oil industry

Addressing the election of Javier Milei as President of Argentina, Adrian Lara, principal analyst, said “Elected President Javier Milei and his advisors are signalling the importance the oil and gas sector has in their plans for the overall Argentinian economy, however, their success in deregulating the sector and attracting more investment is still predicated on an effective and timely correction of the macroeconomic imbalances of the country.”

According to Wood Mackenzie analysis, Milei’s administration will focus on the importance of unlocking Vaca Muerta volumes and will approach this from a platform of slashing public spending, dollarizing the economy and privatizing state companies, in particular, YPF. During the last week, shares of YPF have gained about 40% in value.

“For YPF, domestic operators and foreign IOCs, Milei’s market-oriented policies are likely to be a net positive,” said Raphael Portela, principal analyst. “Lifting of capital controls, for instance, will help with the import of rigs and related equipment, which has been a development bottleneck for some time. Removal of import-export taxes and oil price caps is also expected, potentially helping unlock sales and future investments. Other campaign promises, such as a lower tax burden, would improve the industry’s bottom line.”

However, despite the business-friendly agenda, Portela notes that an outright sale of YPF is unlikely.

“A parallel can be drawn with Brazil’s president Bolsonaro, who also promised the privatization of Petrobras," said Portela. "In practice, many political hoops stand in the way. Instead, we expected an emphasis on disposals to be the middle ground. The sale of non-upstream assets is more likely, especially in the fertilizer, gas & power, and downstream segments. Smaller, non-core upstream assets could also be considered, though finding buyers could prove challenging.”

Other challenges will persist noted Portela, such as the loss of gas subsidies from the previous administration and continued difficulty in infrastructure debottlenecking.

Recently, Milei appointed Horacio Marin as the new CEO and President of YPF.

“The CEO and president roles are united again in one person,” said Lara. “In the past, the president role had more of a political role and with last week’s appointment of Marin, a seasoned technical executive as CEO and president, the message can be interpreted as making the company more executive and project-oriented, and less subject to political logics.”

Added, Portela, “The devil is in the details, it is susceptible to timing and, and is bound to test the patience of voters. And one does not have to go too far back for an Argentine example. Former right-leaning president Macri (2015-2019) improved the investment climate for the upstream sector, but was largely unsuccessful. The volatile macroeconomic backdrop and social pressures persisted, forcing many policies to be reverted.”

YPF NPV10 value by resource theme

Source: Wood Mackenzie Lens Upstream