From: Oil & Gas Financial Journal
A net energy importer for the first time in almost 20 years, Argentina is looking to boost output, in part, by seeking foreign partners to help unlock what the country sees as its vast unconventional oil and gas resources.
A few large oil and gas companies including ExxonMobil, Apache, Total, EOG, and Chevron have already acquired large blocks prospective for shale oil and shale gas in the country, but with a recent shake up in management at YPF SA, the stage may be set for additional developments.
In May, following allegations that YPF’s largest owner, Spain’s Repsol, invested insufficiently in production, the Argentine government moved to seize control of the company, appointing former Schlumberger executive Miguel Galuccio as CEO.
Repsol denies the allegations and analysts speculate capped prices and cloudy governmental policies as known obstacles for foreign investors. In fact, Bloomberg recently cited Argentina as “the most-sued nation on earth.” Still, the country looks forward. In its line of sight—sizeable, mostly untapped shale gas reserves.
Argentina’s Neuquen Basin, with its proven oil and gas in widely distributed and extremely thick shales, has become a key target for development. The current shale target is the Vaca Muerta, but the Los Molles and Agrio are prospective targets, as well. Tight sandstone formations such as the Mulichinco are also being explored.
As the Vaca Muerta is reportedly similar to the Eagle Ford and Haynesville plays in the US, it stands to reason that companies finding success in those plays may swap their expertise in return for a chance at repeat successes internationally. A few North American companies are already looking to Argentina as a source for unconventional resources.
In November 2010, Canada’s Americas Petrogas Inc. entered into an agreement with subsidiary of US-based Apache Corp. to explore the Huacalera block in the western region of Argentina’s Neuquen Basin. During its annual investor day in June, Apache provided details about its liquids-rich portfolio, including a reference to its 450,000 acres in the Vaca Muerta and estimates of net potential recoverable resource in the play of nearly 800 million boe.
America’s Petrogas also has an agreement with US-based supermajor ExxonMobil. In late August 2011, ExxonMobil signed a farm-in agreement with America’s Petrogas for a 45% stake in the company’s four ‘Los Toldos’ blocks in the Vaca Muerta. The US company committed to fund $53.9 million in the exploration phase, along with a further $22.4 million should the block reach the exploitation phase.
Argentine state-run YPF SA is looking monetize its interests in unconventional resource plays through similar partnerships, and it appears that the company will begin its effort in China.
According to a recent YPF statement, CEO Galuccio will travel to China in September to discuss potential partnerships as a means to increase conventional and unconventional output.
Eagerly working to secure its energy future, China has already shown interest in Argentine assets. In 2010, China Petrochemical Corp. paid $2.45 billion for US-based Occidental Petroleum Corp.’s unit in Argentina. The deal came after CNOOC’s $3.1 billion purchase of a 50% stake in Argentina-based Bridas Energy Holdings.
Officials at an initial meeting to discuss the visit expressed a common point of view. The officials considered it “very important to move forward with YPF’s enormous potential in its shale oil and shale gas reserves, at its Vaca Muerta field, with the international development vision of Chinese companies,” the statement said.
In June, YPF outlined a 5-year, $7 billion plan—to be funded mostly with cash flow, but with the help of strategic partners—to increase production.
Roughly $1.36 billion is expected to test unconventional oil and gas extraction techniques in the short-term, with an additional $12 billion earmarked for the five years following should the tests prove successful.
According to KPMG, Argentina has a “well-developed gas distribution infrastructure from natural gas operations, which has sufficient spare capacity to support new investments in shale gas. However, it lacks the technology, equipment and services required to support large-scale production. The industry’s success hinges on the availability of capital, the development of a supplier base, and the growth of a skilled labor pool.”
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