Slippery Oil

The thought of oil usually conjures up visions of Texas spindletops and the sands of remote sheikdoms of Arabia. But nowhere is there more drilling than in Argentina, where half the land has oil potential and almost 1,800 wells have been sunk in the past five years.

All Argentines talk heatedly about oil. At one time, in a burst of nationalist fervor, foreign firms were forbidden from prospecting--only to have the government monopoly (Y.P.F.) do so poorly that most of Argentina's unfavorable trade balance came from importing oil. President Arturo Frondizi allowed foreign oilmen back in 1958. They have saved the nation some $170 million a year in imports by more than doubling oil production to 96 million bbl. annually. But there is also a feeling among many local Latins that contracts with foreign oilmen are too generous.

Last week the subject was very much in the limelight as Y.P.F. signed a new contract with Oklahoma's Kerr McGee Oil to drill an additional 350 wells. Two days later, Argentina's electoral college chose a new President, Arturo Illia, who has vowed to annul all the oil contracts.

The case against the contracts is that Frondizi was in such a rush to expand oil output that he signed some sour deals and brushed aside legal niceties. His legislature never ratified the contracts, which oblige Y.P.F. to buy the oil that the foreign contractors produce. Critics also argue that Y.P.F.'s deals involved excessive prices.

That some of the fees paid by Y.P.F. for drilling have been too high was tacitly conceded by Kerr McGee in last week's new contract, which calls for a fee of $16 per meter drilled, v. up to $26 in the old deals. But companies (such as Esso, Shell, Marathon) that got contracts to prospect point out that they have invested $60 million more than they got back so far.

Most of the foreign oilmen sense great potential for Argentina and want to invest even more now that the nation's worst political crisis seems to be abating (see THE HEMISPHERE). As for the contracts, Dr. Illia last week was sounding less fiery as president-elect than he did on the stump. He was beginning to talk about renegotiation instead of outright annulment.

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