Global Insight Perspective | |
Significance | Although the possible sale of ExxonMobil's assets in Argentina is not directly connected to the problems currently facing Shell, both companies share the same difficult operating environment including government pressure to keep fuel prices down and the threat of sanctions over domestic fuel shortages. |
Implications | The exit of majors such as Shell, Chevron, and now possibly ExxonMobil from the retail fuel business in South America is opening up opportunities for expansion by local state oil companies Petrobras, PDVSA and ENAP; although, in the case of Argentina preference maybe given to a local investor should the sale be confirmed. |
Outlook | Although the publication of more conciliatory comments from the head of Shell in Argentina in the local press yesterday will reduce speculation that a possible withdrawal of ExxonMobil from the downstream sector will encourage a fresh attempt by Shell to sell its service stations in Argentina, the possibility cannot be completely be ruled out especially if the operating environment does not improve. |
ExxonMobil subsidiary Esso has hired JP Morgan to handle the sale of its assets in Argentina, according to a report by Clarin. The assets include the Campana refinery, a network of 90 service stations owned by the company and over 500 service stations operating under franchise. ExxonMobil also has interests in gas fields in the country and a lubricant plant. Esso through a spokesperson said that it could neither confirm nor deny the sale. According to the report, the assets could be worth up to US$200 million. It has had a presence in Argentina since 1911.
The report comes as another company present in the downstream sector has been engaged in a war of words with the Argentine government. Anglo-Dutch oil company Shell brought a legal challenge against fines imposed by the government that claimed that Shell failed to ensure adequate supplies of diesel to its service stations (see Argentina: 29 August 2007: Argentine Government Defends Position on Oil-Firm Penalties). Shell executives in Argentina also face the threat of imprisonment. Shell denies the allegations and claims that it is being discriminated against. Neither Shell nor ExxonMobil have any participation in oil fields in Argentina.
Several other foreign companies have reduced their presence in Argentina since the financial crisis, which was followed by a freezing of prices and more frequent rule changes. A notable example was France's EDF. Repsol-YPF is also in negotiations to sell a 25% stake in its Argentine subsidiary.
Outlook and Implications
If confirmed, the divestment of ExxonMobil's downstream operations in Argentina would be in line with a broader trend that has seen majors sell off service station networks in the region, opening up new opportunities for national oil companies like Venezuela's PDVSA, Chile's ENAP, and the Brazilian state oil company Petrobras to expand their regional presence (see Special Report: Latin America: 8 August 2007: The International Reach of State Oil Companies in Latin America).
Royal Dutch/Shell reached an agreement in December 2005 to sell all of its downstream businesses in Uruguay and Paraguay and certain assets in Colombia to Petrobras, and a deal to sell its retail business in Ecuador to a group including ENAP, although it backed down on rumoured plans to also sell its service station networks in Chile and Argentina (see Latin America: 23 December 2005: Shell Sells Downstream Assets in Uruguay, Paraguay and Colombia to Brazil's Petrobras and 7 February 2005: Shell Has Second Thoughts About Sale of Assets in Chile and Argentina).
Shell has not been the only major reducing its presence in the downstream sector in South America. In April 2005, Chevron announced the completion of an agreement to sell its fuel-marketing business in Peru to Peruana de Combustibles (PECSA) for an undisclosed sum. The sale included its service stations in Peru, but the U.S. company planned to retain its lubricants business in the country. Chevron also announced in March 2005 that it had struck a deal to sell 15 petrol stations in Colombia to Combustibles de Colombia, an investment group and service station retailer and, last year, Chevron sold its network of 65 petrol stations in Ecuador to Colombia's Terpel S.A. (see Colombia: 28 March 2005: ChevronTexaco Agrees to Sell 15 Petrol Stations in Colombia and Ecuador: 6 July 2006: Chevron Sells Service Stations in Ecuador to Colombian Firm).
In this context, the possibility that ExxonMobil may also be re-evaluating its downstream operations in part of the region will not come as a surprise. Nonetheless, speculation that it could be directly connected to the difficult operating environment currently facing downstream operators in Argentina is inevitable and should provide a warning to the Argentine government that more needs to be done to make the sector attractive for investors.