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Jim Letourneau's Blog

Investing, Technology, Travel, Geology, Music, Golf. I think that covers it.

Crying for Argentina?

I'm not crying for Argentina because I have no investments there. However, if you are invested in a company with ties to Argentina it is just a matter of time before you'll feel some pain. There is much to like about Argentina including its natural resources, late night dinners with steak and wine, the tango, and wonderful places like Iguazu Falls and the Perito Moreno Glacier. 

Beneath the sophisticated European exterior lies some very messy politics which impact all levels of business. My first hint of the risks of doing business in Argentina came while I was visiting the place in the summer of 2010. The papers were running headlines of the nation's third largest Internet service provider, Fibertel, was having its license canceled. Wow! I thought. I even brought the paper home with me (my pack rat issues will follow me to my grave) as a reminder to not invest in the place.

I was recently re-reminded of the challenges of trying to make money in Argentina during an energy panel discussion at the Calgary Energy and Resource Investment Conference in Calgary. Casey Research analyst, Marin Katusa put it bluntly - Argentina is where dreams go to die.

Argentina has a very nice developing shale oil play with "billions and billions" of barrels of oil to be had. Except for a few details. 

From David Pescod's April 4th Stocktalk Late Edition...

 

Rich in natural resources, particularly the potential for their shale, Argentina still has its own weird pricing for oil and gas, has to import $9 billion worth of oil and gas a year for a country that should be exporting, and the government there is currently in a hissy-fit with Repsol.  The corporate biggie just announced a huge dividend from profits in Argentina, something the Kirchner’s didn’t like as they want the money invested back int o the ground to grow Argentinean production and produce jobs. Now all of a sudden, some of the provincial governments are withdrawing licenses from Repsol and one wonders how much to trust the Argentinean governments.  

The oil and gas potential is there in spades, but also is the government’s ability to do something that liberals did in Canada many years ago...bring in their own form of a National Energy program. 

 

The consequences of being in Kirchner's crosshairs are dire indeed. Headlines like YPF Slumps on Loss of Most Productive Field in Argentina (source) give you a clue as to the future prospects for Canadian juniors like  Americas Petrogas (BOE.V), Madalena Ventures (MVN.V), Crown Point Ventures (CWV.V), Azabache Energy (AZA.V), and ArPetrol Ltd. (RPT.V). These companies could have substantial gains in the short term but in the background, a game of musical chairs is going on and nobody can predict when the music will stop.