Billionaire Plots to Beat Chevron to Largest Latin Shale: Energy

Bloomberg.com
Apr 29, 2013

By Pablo Gonzalez

Argentina's Eurnekian family, after becoming billionaires from media
and airports, is planning to become the government's first shale oil
and gas partner.

Eduardo Eurnekian, tapping a fortune of at least $1.3 billion, has
pledged $700 million in two deals to hasten a definitive partnership
with Argentine government-owned YPF SA to develop its Vaca Muerta
fields. After his $500 million preliminary accord with YPF in October,
the 70-year-old last week paid about $200 million for 81 percent of
Cia. General de Combustibles SA, an oil producer and shareholder in
pipelines to YPF's first operating shale-gas well.

`This acquisition is strategic and a clear sign our shale deal with
YPF will be accelerated and signed soon,' Hugo Eurnekian, nephew of
Eduardo, said in an April 24 telephone interview from Buenos
Aires. `We'll come up with a signed deal before the end of the year
for sure.'

Energy investors from around the world have lined up partnerships to
tap Vaca Muerta, holder of Latin America's largest shale reserves,
with an estimated 23 billion barrels of oil equivalent. None has
signed a binding agreement in the year since YPF was expropriated from
Repsol SA. (REP) Madrid-based Repsol has followed through on threats
to sue anyone that attempts to develop the deposits until it's paid
back $10.5 billion.

Shares in YPF, which tumbled 45 percent in the second quarter last
year when it was expropriated, have gained 52 percent since then on
prospects that government backing and joint ventures with major oil
companies will push up output.

First Step

`Finally signing a definitive agreement with a new investor would
boost YPF shares,' Carlos Aszpis, an analyst at Schweber &
Cia. Sociedad de Bolsa, said by telephone from Buenos Aires.

Through Corporacion America, the Eurnekians operate 49 airports in
Latin America and Europe; produce wine, grains and oilseeds on 250,000
acres of land; and are working on a $3 billion tunnel through the
Andes connecting Argentina and Chile. In December it acquired Banco
Interfinanzas. The group's energy holdings were limited to Unitec,
whose oil output accounted for less than a 1 percent share of the
Argentine market.

Cia. General de Combustibles, known as CGC, and the Vaca Muerta accord
represent the Eurnekians' first step toward becoming a major Latin
American oil and gas producer, Hugo Eurnekian said. Should Argentina's
second-richest family behind the Bulgheronis turn the December
memorandum of understanding with YPF into a binding deal it would see
the group overtake Chevron Corp. (CVX) and Bridas Corp., whose YPF
partnerships are delayed by lawsuits.

`Dead Cow'

YPF Chief Executive Officer Miguel Galuccio, appointed after President
Cristina Fernandez de Kirchner seized control of the company a year
ago, is seeking partners with deep pockets to help finance a $37
billion plan to develop the shale formation. Repsol said at the time
YPF was expropriated in April 2012 it had 15 non-binding agreements
with potential partners.

The Connecticut-size area in southern Argentina's Patagonia, whose
name translates to Dead Cow, is estimated to hold at least 23 billion
barrels, according to a Ryder Scott survey. Fernandez seized YPF on
the grounds that Madrid-based Repsol under-invested since buying the
company in the 1990s.

The CGC acquisition was Argentina's biggest this year, according to
data compiled by Bloomberg. The Buenos Aires-based company produced 5
million barrels of oil equivalent last year from five conventional
fields in Argentina and two in Venezuela, and has 37.7 million barrels
of proven reserves, according to the company's website. It has a 15
percent stake in Transportadora de Gas del Norte, which operates
pipelines including from YPF's Orejano X-2 shale-gas field in Vaca
Muerta.

Asset Freeze

TGN shares have surged 49 percent this year to 88 centavos after last
year's 27 percent slump. Argentina's Merval stock index is up 34
percent this year and gained 16 percent in 2012.

Chevron, which signed a $1 billion tentative deal Dec. 21 with YPF,
said March 12 that the shale venture depends on lifting an embargo
ordered by Buenos Aires Civil Judge Adrian Elcuj Miranda on
Nov. 7. The San Ramon, California-based company is fighting the
Argentine asset freeze related to a $19 billion award over pollution
in Ecuador.

Chevron spokesman Jim Craig declined to comment on the status of the
MOU with YPF in an e- mailed response to questions.

YPF's $1.5 billion shale accord with Bridas, controlled by Argentina's
Bulgheroni brothers, was delayed after Repsol filed a lawsuit against
the venture in Madrid and Bridas countered by filing a case in New
York.

New Acquisitions

Mario Calafell, a spokesman for the Bulgheroni brothers, didn't return
a phone call or an e-mail seeking comment. YPF spokesman Alejandro Di
Lazzaro declined to comment.

Repsol, based in Madrid, hasn't sued the Eurnekians.

`We will closely examine the terms of any agreement to protect our
illegally confiscated assets from third-party profiteering,' Kristian
Rix, spokesman for Repsol in Madrid, said in an interview.

CGC's stake in pipelines connecting Vaca Muerta and other gas fields
with other markets in the region was another reason for the
acquisition, Eurnekian said. Also last week, Argentine holding company
Soc. Comercial del Plata SA bought an 11 percent stake in CGC at the
same share price paid by Eurnekian. SCP is reentering CGC after
selling an 81 percent stake in 2004 for $24 million as it battled to
remain a going concern.

`It's a great time to grow in the oil sector and we will increase
investments in upstream like the agreement to be sealed with YPF and
also with new acquisitions we are currently analyzing,' Eurnekian
said. `When we get into a sector, we always work hard to become the
top players.'

Diversification

Eduardo Eurnekian, the son of an Armenian immigrant, founded the
group. With no children, he is handing over operations to his nieces
and nephews. Hugo, the son of Eduardo's deceased brother Alberto, is
leading the diversification into oil and gas as well as the Andes
tunnel, part of initiative to connect the Coquimbo port on the Pacific
with Brazil's Porto Alegre port on the Atlantic.

Eurnekian is worth at least $1.3 billion, according to the Bloomberg
Billionaires Index, based on his ownership of Aeropuertos Argentina
2000 SA. Last year, the Buenos Aires-based airport operator generated
738 million pesos ($142 million) in earnings before interest, taxes,
depreciation and amortization, 250 million pesos in profit and had 1.3
billion pesos in net debt, according to financial statements on the
website of Argentina's securities regulator.

Self-Funded

The operation is valued at $1.3 billion, according to data compiled by
Bloomberg, when comparing the results to the average enterprise
value-to-Ebitda and price-to-earnings multiples of four emerging
market peers: Mexico's Grupo Aeroportuario del Pacifico SAB and Grupo
Aeroportuario del Centro Norte, China's Shanghai International Airport
Co. and Bangkok-based Airports of Thailand Public Co. Enterprise value
is defined as market capitalization plus total debt minus cash.

`We bought this company with our own cash flow, we don't need to
borrow money to grow,' said Eurnekian. =80=9CI don't know how much
money we have -- it's certainly well over $1 billion. Our main goal,
though, is not to be billionaires, but become top players to change
the region.'


To contact the reporter on this story: Pablo Gonzalez in Buenos Aires
at [email protected]

To contact the editor responsible for this story: James Attwood at
[email protected]