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Argentina’s decision to seize control this year of leading energy company YPF from Spain's Repsol outraged European trade partners and foreign investors.MARCOS BRINDICCI/Reuters

Politics, prices and prospects can prove a combustible combination for international oil companies eyeing Latin America.

But the resource nationalism that has flared among some left-leaning governments in the region, especially during record high oil prices from 2006-08, now appears to be giving way to increasing pragmatism – even in Argentina, where the country's biggest oil company YPF (Yacimientos Petroliferos Fiscales) was expropriated in May in the name of energy sovereignty.

Indeed, from Mexico down to Argentina, the growing trend is for national energy companies in Latin America to open up to international investors to help develop big, deep or unconventional resources with foreign cash or sophisticated technology.

"Resource nationalism tends to ebb and flow, a lot has been linked to oil prices," says RoseAnne Franco, upstream analyst at consultancy Wood Mackenzie. "There has been a bit of a resurgence, but overall, the regional trend is to reach out to foreign companies. To be sure, not always on the best of terms, but still, reaching out."

Argentina shocked investors with the expropriation of YPF from former Spanish owners Repsol after painting the company and its declining production, as well as the country and its ballooning fuel import bill, as innocent victims of foreign greed.

The move was very popular and Cristina Fernández, the country's president, swiftly followed by putting the state in charge of assessing production, investment and profitability of private companies.

Unfortunately, the newly state-controlled YPF was at the same time hunting for deep-pocketed investors to help it find some $7-billion a year to boost output and develop its shale resources, believed to be the third-biggest in the world.

But as Argentina tightens its grip on the sector, the cradle of the region's resource nationalism – Mexico – may be poised to make a historic move the other way.

Pemex (Petroleos Mexicanos), the state oil company that was nationalized in 1938, is still constitutionally barred from bringing in private capital, but incoming president Enrique Pena Nieto, who takes office in December, has promised to change that.

Upcoming tenders at Mexico's Chicontepec field and a deepwater prospect could give clues to the willingness of U.S. companies to look south, though analysts expect changes to be gradual.

Meanwhile, says Michael Warren, executive director for research at Hart Energy, a consultancy, "what is really surprising is the way Mexico has looked at production-sharing agreements by allowing technical providers to make higher margins. This has attracted companies that traditionally weren't looking at Mexico."

The industry is also seeing some more positive signals from Bolivia and Ecuador, two countries where, like Venezuela under Hugo Chavez, populist policies reign.

Though nationalization has happened in all three – 10 foreign companies in the Bolivian gas sector, Occidental Petroleum of the U.S. in Ecuador and ExxonMobil in Venezuela, for example – there is a growing realization that "they just can't do it alone," says Ms. Franco, citing joint service contracts such as in Ecuador's South Oriente basin.

"So you are seeing governments realizing there is space for foreign investment – but under their terms," she says.

That said, foreign companies often feel they come out of any state tussles rather badly: Chevron has been ordered to pay $19-billion by an Ecuadorean court for environmental damage attributed to Texaco, which Chevron bought more than a decade ago.

And, while Brazil's Petrobras is often hailed as the model for a modern, state-controlled, but open-for-business company, government policies requiring more in-country investment by partners, and a perceived tougher line against outside companies over oil spills, are "not setting a good tone," Mr. Warren says.

"Brazil isn't going into resource nationalism but … it will cost more money to get into Brazil and there are worries about how foreign companies will be treated," he notes.

Even Colombia, one of the region's sweetest spots for investment, with booming production, good geology and a favourable policy framework, has been blighted by pipeline attacks and kidnappings that can turn investors off.

And in Peru, where Ollanta Humala, the president, has shed a "Hugo Chavez-light" image in favour of a more pro-business approach, his handling of social conflicts remains in the spotlight.

Politics has not stopped resource-hungry China from investing in the region – it has poured billions into Ecuador and Venezuela, for example. But as Argentina seeks partners to develop YPF's huge Vaca Muerta shale plays, Beijing is so far absent.

"I don't think even Chinese companies are looking at Argentina," said Mr. Warren. "I was told on a recent visit to Beijing that they didn't look favourably on what happened to YPF."

The Argentine company is, however, talking to Chevron of the U.S. and Russia's Gazprom, though contacts are at a very early stage and it remains unclear how real the threat of lawsuits against any investors in YPF or its assets by Repsol will prove.

Buenos Aires faces a Catch-22: "Argentina has the best rocks in the world but it doesn't have the money and it doesn't have the technology and it doesn't have the policies to attract investors at this time," says Mr. Warren.

"It isn't as if everyone is fleeing Argentina," counters Ford Tanner, an analyst at consultancy PFC Energy. Nevertheless, some are adopting a wait-and-see attitude as they navigate tensions that are part of the scenery of investing in Latin America.

Ultimately, businesses may not like the policies, but the region's energy prospects make Latin America hard to ignore.

"The sheer resource potential will keep people coming," says Mr. Tanner. "But a lot of companies don't have the view of above-ground risk that I do. A lot just count the risk as the cost of doing business."

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