YPF paid Exmar US$150mn to walk away from its Tango FLNG bet

In November 2018 Argentina's state oil company YPF signed a contract with Belgium's Exmar Energy to use the Tango FLNG liquefier barge at Bahía Blanca port, committing to pay US$1.1bn over ten years for LNG production and export — economics built on an assumed sale price of US$10.5 per MMBTU. The pilot was YPF's entry point into a much bigger ambition: monetising Vaca Muerta gas, with industry players expecting US$4-5bn of investment and even a 600km pipeline from Neuquén.

The bet collapsed from both ends. Alberto Fernández took office in December 2019 and the plans were relegated to the back burner; the international LNG price then fell to US$3.50/MMBTU, exacerbated by the pandemic, making the barge unfeasible. Between September 2019 and October 2020 YPF had expected around US$200mn from commercialising the Tango barge's output but billed only US$40mn while bearing operating costs.

In October 2020 YPF agreed to pay Exmar US$150mn to cancel the contract: US$22mn paid immediately, the rest in 18 instalments of US$7.11mn to April 2022, including US$35.3mn of debt accumulated before YPF notified Exmar of the cessation. Econojournal calculated the real cost at US$259mn once foregone LNG sales were counted. YPF pivoted to the government's Plan Gas and exporting surpluses to Chile, Paraguay and Brazil.

The contract's ten-year economics rested on a single price assumption — US$10.5/MMBTU — with no cushion for a downside that arrived within a year.

Cancelling did not cap the loss at the settlement: foregone sales and operating costs took the real cost to about US$259mn.

The pilot bet was sized against a US$4-5bn build-out that depended on political continuity a change of government ended.

A ten-year take-or-pay style contract is a leveraged bet on a price assumption; when the assumption dies, the exit costs more than the project ever earned.

YPF said it expects to be a main player and beneficiary under Plan Gas if it resumes developing Vaca Muerta; CEO Sergio Affronti pointed to 45 rigs drilling in Neuquén by March 2021. The settlement instalments run to April 2022.