Argentinean Central Bank to Sustain Oil and Gas Exploration Fund

One of Argentina’s long-time ambitions is to become an energy independent nation. Recently, it has taken another step towards this goal by earmarking about $2 billion solely for its oil drilling and development fund. According to reports, the amount will be sourced from the country’s central bank reserves.

This fund, known as Hydrocarbon Fund, is sanctioned by the state to offer loans, provide funds for gas and oil investments, and to purchase securities of energy firms wholly or partially-owned by the state.

Argentina’s budget for the current year indicates that some $8 billion of total reserves will be used to settle debts. However, the state is not obliged to release a considerable amount of dividends to holders of securities where returns are based on past financial performance. A year ago, Argentina’s economy grew by less than 2%, a very poor performance that may bring disappointment to these securities investors.

The country’s central bank is running low in reserves, so it’s now trying to grow that amount. According to some economists, the continuous drawings from reserves, primarily for debt servicing and the purchase of gasoline from abroad, partly drained its funds.

In March, a fire damaged Argentina’s YPF oil refinery, prompting the government to buy larger volumes of gas from foreign suppliers using funds drawn from central bank.  YPF is a state-controlled oil company which produces about a third of the country’s overall oil production.

Argentine President Cristina Kirchner took over the reins of YPF from Repsol of Spain. According to her administration, hefty dividend payouts during Repsol’s reign left YPF with very little funds for reinvestment. Moreover, it pushed Argentina into becoming a mere oil and gas importer. Repsol, however, says that Kirchner’s allegations are baseless.

YPF has opened its doors to foreign companies willing to invest in exploration in the country’s Neuquen region.  According to reports, the oil firm was already holding discussions with Chevron Corporation and that the latter initially agreed to invest in oil well drilling in said region. The agreed investment amount will run to about $1 billion.