Desperate Argentina Now Seen Begging for Oil Investment

Thursday, May 10, 2012 – by Staff Report

Argentine Vice President Amado Boudou on Tuesday urged US companies to invest in YPF, the nationalized oil company that Argentina recently expropriated from Spain’s Repsol … “We are very optimistic in terms of what is coming for the Argentine economy in general and the hydrocarbons sector specifically” Boudou said at a Conference on the Americas at the US State Department in Washington. Far from scaring off foreign investment because of the expropriation, the government of President Cristina Fernandez has set the framework for “excellent opportunities for those who want to invest in joint ventures and possibilities of joint work in the energy sector,” he said. The Cristina Fernandez administration is gambling that the discovery in May 2011 of a giant oilfield in Argentina’s Patagonia would be too tempting for foreign oil giants to ignore. YPF needs the know-how and the capital to fully exploit the oil fields in the south-western Nequen province, known as Vaca Muerta (Dead Cow), which according to official estimates holds 150 million barrels of oil. YPF is “open to capital and the possibility of working together with public or private companies in Argentina or abroad,” Boudou said. – Merco Press

Dominant Social Theme: Don’t cry for Argentina. It’s all under control …

Free-Market Analysis: Are Argentina’s top officials having second thoughts about their expropriation of Spain’s Argentine oil-producer? It would seem that way from the above news report via Merco Press.

If the move was as wildly destructive as people think it may have been, then this posture would tend to confirm the idea that one of the world’s more powerful and influential states is simply spinning out of control.

The results may be truly catastrophic, not just for Latin America but for the larger, struggling world.

This boom may well be ending – or certainly growing long-in-the-tooth after a decade or more.

Although the Argentine expropriation of Repsol made major shock waves, the Argentine government under President Cristina Fernandez has portrayed it as a judicious and necessary gambit.

Many other observers regardless of political affiliation have branded the move as a shallow populist one that will bring disaster to Argentina and environs.

As the predictions of damage mount, there is more speculation that Fernandez’s action may bring down not only her own government but other regional governments as well.

These predictions involve inevitably a peso devaluation that will set off a dollar-withdrawal frenzy in big regional banks. Real estate prices – radically inflated after a decade of monetary expansion – may well plunge. The results could affect large swaths of South America.

Countries that could be affected include Uruguay, Brazil, Chile and Peru among others – all countries that have pursued moderate market-based policies and have benefitted from the South American industrial and monetary boom.

Meanwhile, Repsol doesn’t seem apt to surrender. Here’s more from the article.

YPF is “open to capital and the possibility of working together with public or private companies in Argentina or abroad,” Boudou said.

Last week the Argentine president signed a bill expropriating 51% of YPF stock from Repsol, its majority shareholder, sealing a measure that has roiled the country’s trade ties with Europe.

Cristina Fernandez has argued that the move was justified because Argentina faces sharp rises in its bill for imported oil, and Repsol has failed to make agreed investments needed to expand domestic production.

In Madrid, a Repsol spokesman Tuesday said the company has warned its competitors that they will face legal action if they invest in YPF.

“The idea is to protect the assets that were confiscated in Argentina until the situation is resolved in a satisfactory way for the parties that are involved,” the spokesman said.

Conclusion: A cascading crisis in South America may still seem likely …

Source

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Argentina: Vaca Muerta – Argentina’s oil and gas seizure poses new dilemma

By Vladimir Hernandez BBC Mundo

It is a grim name, though it has nevertheless brought hope of a better future for many in Argentina: Vaca Muerta – translated from the Spanish – means “Dead Cow”.

Vaca Muerta’s barren landscape covers some 30,000 remote sq km of the Patagonian province of Neuquen, in the west of Argentina.

And it was here where energy giant Repsol-YPF struck gold last year. Black gold.

Buried in 250-million-year-old rocks, almost 3km beneath the surface here, are some of the world’s largest reserves of shale oil and gas.

According to the Spanish energy giant Repsol, there are prospective resources equal to more than 21 billion barrels of oil underneath the ground in Vaca Muerta.

Much of it could be shale oil, rather than gas, according to an independent Ryder Scott audit commissioned by Repsol, though this has yet to be proven.

But the presence of shale gas is proven, and it is clear that the reserves found here will make up a big proportion of the country’s estimated 22 trillion cubic-metre total.

That makes Argentina the world’s number three in terms of shale gas reserves – hot on the heels of the US, which has reserves of some 24 trillion cubic metres, and China, which has reserves of some 36 trillion cubic metres, according to the American Energy Information Administration.

Failure to invest

Getting the reserves out would obviously require massive investment.

Argentina’s government believes Repsol – which has been active here ever since it took over YPF when it was privatized during the 1990s – should have done this.

But instead, it says, Repsol has been dragging its feet, invested too little and thus failed to get the resources out of the ground as quickly as it should have done.

The government has even accused Repsol of pulling YPF’s profits out of the country to finance its businesses abroad.

President Cristina Fernandez said:

“If such a situation continued, we would have had big energy problems in the country because of the drop in production and the increasing reliance on fuel imports.”

Renationalized resource

So the government has stepped in to take control of what it sees as a vital, national asset.

Rodrigo Alvarez Argentine economist:

This is the real reason behind the renationalization of YPF”

Renationalizing YPF has in effect helped the government regain control of the Vaca Muerta energy reserves, since the rights to exploit more than a third of the area were held by Repsol-YPF.

The move, and the manner in which it was made, has obviously created a great deal of controversy.

Repsol and others believe the government was motivated by a desire to secure the country’s energy requirements for decades to come, and thus reduce its gas import bill which shot up to $10bn in 2011 and is expected to surge to $14bn this year.

“This could help cope with between 30% and 40% of the gas demand within Argentina, which has been covered with costly imports in the last two years,” says Eduardo Barreiro, an energy consultant and a director at the Society of Petroleum Engineers in Argentina.

Argentine economist Rodrigo Alvarez Litre agrees:

“This is the real reason behind the renationalization of YPF,” he wrote in a column in the Argentine newspaper, Perfil.

“With such shale gas reserves, Argentina could position itself as a nation with cheap and abundant energy, and profit from the high prices in the international market.”

Investment required

Argentina’s government might describe its move as a step towards self-reliance, which it believes is clearly in the nation’s interest.

“Vaca Muerta could be a very important area in the future,” Mr Barreiro says.

“But it needs investment.”

Some $3bn would be required over the next three years to get the shale gas extraction started.

And then, he added: “You’ll need to be excavating constantly to keep the production levels high enough to justify the investment and to make a profit.”

According to Repsol, more could be achieved with more investment. The firm insists that some $25bn per year would be needed to exploit Vaca Muerta’s shale oil and gas potential. This, the company believes, could double the Argentine production in 10 years.

But this would require some 3,000 shale oil and gas wells in an area where there are only 28 at the moment.

Costly subsidies

Without Repsol, the government might well look to other foreign investors for help to make it happen.

But Daniel Kokogian, a geologist who works as an advisor for several foreign energy companies in Argentina, said some companies would be concerned about how they might be treated in the future, following the renationalization of YPF.

“What private investor would put money into a business where national interest will come first, then profits?” he asks.

Others are far more optimistic about Argentina’s chances to attract foreign investors.

The government says it has already had talks with energy giants such as Total of France and Petrobras of Brazil – and local energy analyst Victor Bronstein expects deals to be struck.

“Oil companies are constantly operating in turbulent environments, in problematic countries,” he says.

“If they think there’s a business opportunity, that there’s a possibility of resources, they’ll dive in.”

Besides, cash-rich states may well be keen to get involved, according to Mark Routt, a senior consultant with KBC Advanced Technologies in Houston, Texas.

“Argentina is going to have to look for government-government relationships, particularly with China,” he says.

Polluting process

But Mr Kokogian says he believes the main concern of most investors will be whether or not Vaca Muerta is going to deliver decent margins.

“The main issue here is to determine if these estimated resources can actually be called reserves,” he said.

“A resource becomes a reserve when it is proven that the investment can be recovered with an acceptable profit. In Vaca Muerta, I don’t think that has happened yet.

“If this area was truly the main reason behind the nationalization of YPF, then Argentina may have shot itself in the foot over an unproven source of energy,” he adds.

And if that turns out to be the case, the Argentine efforts to control “Dead Cow” could be a bit like flogging a dead horse.

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Argentina’s shale potential at risk

April 14, 2012 10:27 pm by Jude Webber

Any hostile moves on YPF, the Spanish-controlled oil company, by the pro-nationalisation government in Buenos Aires could have implications that go way beyond the companies and investors at the heart of this bitter tug-of-war.

Why? Because Argentina is sitting on what geologists and energy experts widely agree is one of the world’s most attractive reserves of unconventional gas and oil – known as shale – which are trapped deep in the bedrock below ground.

Shale is potentially a very big deal indeed. It turned the US from energy importer to exporter – something that Argentina, which spent $9bn importing fuel last year, ought to take note of.

Argentina has about a third of the US shale reserves, but they are less deep (which makes them cheaper and easier to access), seams are two to three times thicker than in the US and, for now at least, Argentine shale is concentrated in the Vaca Muerta (Dead Cow) formation, rather than being spread out across the country.

So all other things being equal, shale producers should be brushing up their Spanish and heading south. Several big players – including ExxonMobil, Total and Apache – and smaller companies already have. But it is YPF which has the biggest acreage, and it estimates that as much as $250bn will be needed to develop a viable shale industry over the next decade.

No one’s pockets are that deep, so partnerships are the way to go. Except that regulatory concerns are raising red flags before investors’ eyes now.

YPF has been publicly criticised, stripped of a string of concessions after being accused of underinvestment and now the government is analysing how to give the Argentine state a bigger role in the company – something that, according to some proposals circulating in the government, could translate into the expropriation of as much as 50.01 per cent of the company.YPF is currently controlled by Repsol of Spain, which has 57.43 per cent, and 25.46 per cent is in the hands of the Eskenazi family’s Petersen Group. Just over 17 per cent is traded on stock markets.

So enthusiasm among potential new players in the shale sector – where some were prepared to invest as much as $10,000 to $12,000 per hectare, according to industry sources – is screeching to a halt. “This is damaging shale (prospects), of course,” Alieto Guadagni, a former energy secretary, told beyondbrics.

The government has been berating YPF for what it perceives as a failure to invest enough, yet the concerns its nationalization dream are raising risks reducing investor appetite – which is perverse. And if concerns over contracts were not enough to dampen investors’ spirits, the prospect of partnering with a state that likes fast results and dislikes repatriation of dividends may give pause for thought.

What is worse is that the shale prospects represent energy that Argentina badly needs. Underinvestment in the sector, analysts and industry players say, is the direct result of a regulatory regime that keeps prices in Argentina well below the international market.

As Guadagni put it, Argentina pays domestic gas producers some $2.8 per million British Thermal Units, yet shells out some $11 per million BTU for gas from Bolivia (produced, ironically, by Repsol YPF), and some $17 for liquefied natural gas to plug its huge energy deficit.

Meanwhile, the cost to Argentines for their domestic gas is about 50 US cents per million BTU of gas, and drivers of vehicles that run on compressed natural gas pay around $1.

“The big question is whether these plans for YPF will improve or worsen Argentina’s prospects for recovering its energy self-sufficiency,” Guadagni said.

Argentina had a $3bn energy surplus in 2006. This year, Guadagni reckons the deficit will be $6bn to $7bn, ballooning to $12bn in 2013. Argentina’s policy of cheap domestic energy to stoke demand and economic growth worked well after the country’s default of nearly $100bn in 2001. But it isn’t working now.

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Repsol YPF ups Argentine shale potential

Posted on February 8, 2012 at 6:08 pm by Associated Press

SANTIAGO, Chile — Repsol YPF on Wednesday raised the estimate for potentially recoverable oil and gas in its part of Argentina’s “Vaca Muerta” (Dead Cow) basin to the equivalent of nearly 23 billion barrels, indicating a total shale deposit big enough to enable Argentina to challenge the United States in non-conventional petroleum production.

But it cautioned that exploiting the formation would need a huge expansion in Argentina’s oil and gas industry, requiring thousands of wells, hundreds of drilling rigs and a national push to attract the necessary talent, equipment and investment at a time when other countries are competing to increase energy resources.

The company’s shares traded on the Buenos Aires stock exchange jumped 8 percent after the announcement.

Repsol YPF SA, a majority-Spanish-owned company, issued the statement from Madrid shortly after its president, Antonio Brufau, returned from a series of closed-door meetings in Argentina with government officials who have been pressuring the company to increase exploration and development.

The pro-government newspaper Pagina12 in Buenos Aires said Repsol YPF has been paying out more in dividends than it has made in profits in Argentina, and suggested President Cristina Fernandez might consider nationalizing the company’s Argentine operations so the money could instead be used to increase Argentina’s energy capacity.

Juliette Kerr, a Latin America energy analyst at IHS in London, discounted the possibility of nationalization, saying Argentina can’t afford a buyout. The idea was never openly endorsed by Fernandez or her Cabinet ministers.

Company spokesmen and government officials declined to comment on the talks this week.
But Wednesday’s statement, made as a filing to Spain’s securities regulator, provided a stark analysis of Repsol YPF’s commitment to Argentina and how much would have to change for the country to realize its energy dreams.

“If exploration proves successful in the Vaca Muerta formation and immediate intensive development began in the area, in 10 years its capacity could double Argentina’s existing gas and oil production. This would require a vast investing effort that would reach $25 billion per year in order to develop all the existing prospective resources,” it said.

Repsol YPF said in November that it had discovered 927 million barrels of recoverable oil and natural gas in the shale deposit. But even 23 billion barrels ranks below Brazil’s recent deep-sea oil discoveries, which experts estimated at up to 55 billion barrels, or the 296 billion barrels of proven crude reserves that Venezuela claims.

Argentina currently has only 80 drilling rigs and would need at least 100 more, along with upgrades in all sectors of its oil and gas industry, to capitalize on the potential of the deposit in western Neuquen province, the company said.

Repsol YPF currently is the leader in exploring in this area, having invested $300 million in exploration, mapping and initial development, but has claims on less than half of the formation, which stretches over 7.4 million acres. Many other companies would need to make substantial investments for the area to achieve its potential, it said.

So far, only a tiny fraction of the Vaca Muerta foundation has been developed, producing 700,000 barrels as of December, and the statement suggested that Brufau didn’t give in to the pressure for huge new investments right away.

“The company aims to drill 20 wells in 2012, solely and jointly with several partners, to continue investigating prospective resources,” it said.

The statement suggested international investors may be holding back until they have confidence that Argentina will guarantee government policies and labor unrest won’t get in the way of eventual profits. Instead, Argentina has been withdrawing energy exploration subsidies, dealing with a punishing oil workers strike and making it more difficult for multinational companies to move their gains out of the country.

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