Are you sure?

Exxon follows Shell in divesting from South America

Following recent compensation disputes with the Venezuelan government, Exxon Mobil Corporation seems intent on leaving South America and selling its Argentine and Uruguayan units.

Although Exxon Mobil has declined to comment on the matter, Argentine newspapers reported that the company set a deadline for offers for Esso assets that include a refinery and a network of some 500 directly owned and franchised service stations. Esso also owns gas fields in the Argentine provinces of Neuquen and Salta, although they would likely be sold separately.

In Uruguay, it was announced that Venezuela’s PDVSA was interested in purchasing the over one hundred service stations owned by Esso, information confirmed by government authorities. Just a few months ago Uruguay’s government-owned oil corporation Ancap took over Texaco service stations for an estimated $22 million, definitively closing the American firm's representation in the country.

Argentine and Brazilian newspapers reported last week that the plan extends beyond Argentina, with Exxon Mobil looking to also unload assets in Brazil, Uruguay, Paraguay, and Chile. Those reports were in line with comments from an Argentine industry official who said “Esso doesn’t just want out of Argentina, it wants out of Latin America.”

“Shell did the same thing,” said another Argentine industry official, referring to Royal Dutch Shell’s move begun three years ago, to sell off refineries and service stations worldwide. Among sales in the region, Shell offloaded service stations in Venezuela and Peru in 2004, selling retail operations in Colombia, Paraguay, and in Uruguay a year later to Brazil’s Petrobras.

Exxon Mobil decided to leave Venezuela after President Hugo Chavez launched a nationalization campaign earlier this year that would have forced the company to take a minority position in a heavy oil project in the Orinoco River belt. Abandoning Venezuela essentially means leaving South America altogether, since the world’s fifth-largest oil exporter must be part of the investment package in the region for any large oil and gas corporation.

Last month, Exxon Mobil announced its bid for international arbitration after compensation talks with the Venezuelan government failed to produce results. Prior to leaving Venezuela, Exxon Mobil sold its 70-some service stations in Peru to Spanish oil company Repsol YPF last year for $35 million.

Media reports in Buenos Aires have figured a $200 million price tag for the Argentine refinery and service station assets, although some industry analysts talk of a $500 million minimum.

According to recent Argentine and Brazilian media reports, Brazil’s Petrobras is the top candidate to buy Exxon Mobil’s Argentine assets. Newspaper reports suggest that Petrobras wants to bid on all of Exxon Mobil’s regional units. Exxon Mobil, and Petrobras officials in Argentina and Brazil preferred not to comment “on any particular opportunities” that might be under consideration at this time.

And the road ahead is arduous: Even if Exxon Mobil wants to get rid of its Argentine assets quickly, pulling off the deal would require regulatory approval from Argentine President Nestor Kirchner’s administration. Argentine media reports last week have suggested that the Kirchner administration wants Petrobras to invest more in Argentine oil exploration and production before it buys fuel retail assets.

The price of government approval, say some, would be to have the government’s energy firm, Enarsa, brought on as a partner with any eventual buyer. However, Enarsa is thus far a “paper company” with two dozen employees and no real operations.

Another candidate for Esso.Mobil assets, given the close links between the Kirchner administration and Venezuela’s Hugo Chavez, could be government-owned PDVSA, which shares a few joint operations with Enarsa. Argentina’s retail fuels market is almost entirely supplied by four companies, with Repsol YPF accounting for just over half of supply and Shell, Esso and Petrobras with roughly equal shares of the remainder.

Whatever their global strategies, Exxon-Mobil and Shell have been hit hard in their downstream operations in Argentina because of the Kirchner administration policy of keeping energy prices and supply under control with the cheapest fuel prices in the region, in turn forcing imports of dearer refined hydrocarbons to be retailed at a loss. (petrolplaza)