(E&Pmag, Brunno Braga, 25.Jun.2018) — Argentina is working to increase its attractiveness in the energy sector in a region where other countries such as Brazil, Guyana and Mexico have lured investment from major oil companies.
The South American country is about to launch its first round of offshore licensing after nearly three decades. Argentina’s Energy Minister Juan Jose Aranguren recently told investors during an event in Houston that the goal is to expand exploration for long-term production growth in what is considered one of the world’s practically unexplored offshore areas.
Argentina plans to launch the licensing round in July when officials will also announce when bids will be awarded. Expectations are that the auction, which will cover roughly 240,000 sq km in three areas, will be held by the end of the year.
The areas include:
— 5,000 sq km in the Austral Basin, the southernmost basin in the country;
— Roughly 80,000 sq km in the western Malvinas Basin; and
— 170,000 sq km in Plataforma del Norte Argentino.
Due to the greater risks associated with offshore drilling, the licensing contract will grant 10 years for exploratory activities.
“The round offers risky but attractive frontier exploration acreage. An oil system has been proved in shallow waters with over 100 offshore wells drilled to date,” said Horacio Cuenca, research director, upstream Latin America, for Wood Mackenzie. “The majors and independent explorers will be attracted by the large block size, competitive fiscal regime and low upfront entry cost. We expect the majority of the blocks to receive bids.”
In the short term the round will have a limited impact on the oil industry and the wider economy despite Argentina’s need to expand its oil and gas industry, according to Cuenca. Yet, he believes the round will enlarge the footprint of majors and bring back focus to the offshore after years of little activity. “Only in the medium term, if significant commercial discoveries are made, it would have the potential to significantly change the upstream landscape of the country.
The oil and gas regulatory framework in Argentina can be seen as an advantage for oil companies that want to do business in the country. As Reuters reported recently, oil firms, including Norway’s Equinor, U.S.’ Anadarko Petroleum Corp., China’s CNOOC and Malaysia’s Petronas, have shown interest in Argentina’s auction, indicating that offshore areas in the region could be on the verge of expanded E&P activities.
But Cuenca asserted that some of the offshore specific terms will need updating.
“There are some questions remaining around unitization. But the government designed the contractual and fiscal regimes with the high level of competition for investment in mind,” he said. “Companies’ exploration budgets have been halved, on average, from their highest levels in 2014. And countries and governments are competing for that reduced investment, so only the most attractive terms will drive exploration investment.”
Attractiveness
The fact that Brazil has been successful in attracting investments in the offshore segment does not pose a threat to Argentina’s ambitions to create opportunities off its coast, according to Cuenca.
“It is not possible to do a direct comparison between discovered resources (fields) with exploration potential,” he said. “Brazil has very mature areas and proven basins like the Campos and Santos basins, and other untested basins with frontier exploration potential (like Pelotas) similar to the ones on offer in the Argentina bid round.”
He said that attractiveness, in the end, depends on the type of company. “Some companies are looking to grow their portfolios through high-impact exploration, and to them Argentina’s offshore acreage presents an attractive opportunity given the size of the blocks and the low cost of entry.”
In addition, Argentina is home to the Vaca Muerta shale play, one of the largest and most prospective onshore fields in the world, and its players could be drawn to the country’s offshore segment, according to Cuenca.
According to the U.S. Energy Information Administration, Argentina’s Vaca Muerta makes up about 60% of the country’s 27 billion barrels of technically recoverable shale oil reserves, making it the fourth largest shale oil reserve in the world.
Majors such as Exxon Mobil, Royal Dutch Shell, Total, BP and Wintershall are making larges investments in the area seeking to take advantage of Vaca Muerta’s giant resources.
“It has definitely been an advantage for the country to have most of the majors already present in the Vaca Muerta play,” he said. “The offshore and unconventional play offerings are complementary offerings for the majors. With the companies already present in country, they can go after both opportunities with the same overhead and established operational base.”
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