The illegal exploitation of the offshore Sea Lion field in the northern basin of the Malvinas Islands faces crucial circumstances to obtain financing that will determine whether the operation is completed or delayed again.
Offshore Magazine has reported that the consortium (65% Navitas Petroleum of Israel and 35% Rockhopper of the United Kingdom) has hired “a leading international technical bank” to structure the debt estimated at 1,650 million dollars, a figure that could reach 2,058 million at the end of the first phase loan is planned.
In general, financing projects in disputed areas presents banks with sensitive challenges. The examples of the South China Sea (China and Japan), the Caspian Sea (Kapaz/Serdar) or the Ambalat bloc (Indonesia and Malaysia) show that financial institutions tend to intensify risk analysis because the very existence of mutual claims forces them to examine the legal validity of concessions, regulatory stability and the possibility of diplomatic conflicts. In many cases, particularly in Asia, economic viability depended on extraordinary guarantees, government risk policies or diplomatic agreements between the states involved.
In the past, Navitas Petroleum worked with Société Generale as lead arranger for offshore projects in the Shenandoah field in the Gulf of Mexico. Rockhopper Exploration, a company collaborating with the British occupation, received financial support from the Royal Bank of Scotland. And in 2018 both companies appointed Standard Chatered Bank (with a branch in the Malvinas) as a “scout bank” for the Sea Lion project and the UK would sponsor it as a “co-lender” through the ministerial organization UK Export Finance (UKEF). Alternatively, it could also be considered that the role of “lead arranger” falls to institutions that are more tolerant of geopolitical instabilities and are less exposed in Latin America.
However, it is likely that the scale of funding will force them to also rely on traditional companies (Société Générale, ING, JP Morgan Chase, Mizoho Financial Group, BNP Parisbas, Barclays and HSBC, among others). In this hypothesis, and given the sensitive political implications of the project, these banks will have to maintain strict compliance standards with their national regulators. Therefore, the application of Argentina’s firm and consistent diplomatic stance towards financial companies in this case may increase the risk perceived by lenders, complicate debt syndication and affect the profitability and security of financing.
In this framework, diplomatic management becomes a tool to warn about the contingencies of a company whose location is part of a controversy recognized by the international community. In doing so, Sea Lion Argentina offers a new opportunity to influence those who dare to take part in an illegitimate and illegal British unilateral action aimed at exploiting a deposit in the disputed area.
Global experience shows that with political will and international support, it is possible to create pragmatic mechanisms that prevent economic opportunities from distancing both parties from the environment necessary for the resumption of sovereignty negotiations on the Malvinas issue.
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