Añelo Population Growth Part Of Region’s Shale Boom

(Energy Analytics Institute, Ian Silverman, 20.Oct.2018) — Añelo’s population is expected to reach 25,000 by 2023 compared to nearly 8,000 today and just 2,000 in 2011, reported the media outlet Río Negro.

“80% of the city has basic services such as water, electricity, gas and sewage,” reported the daily, citing Deliberative Council President Milton Morales.

In October 2018, the city will inaugurate its first level 3 hospital with assistance from the YPF Foundation and Chevron’s Baylor Foundation.

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YPF Personnel Try To Mitigate Gas Leak In Bandurria

(Energy Analytics Institute, Ian Silverman, 19.Oct.2018) — YPF personnel conducted operations today to mitigate a gas leak located at the Bandurria deposit in Neuquén.

No injuries were reported, and the location was evacuated for security reasons to initial contingency work, reported the media outlet Río Negro.

YPF didn’t reveal details about the incident.

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Argentina Plans To Close LNG Importing Facility

(Bloomberg, Jonathan Gilbert, 17.Oct.2018) — Argentina plans to close a facility for importing liquefied natural gas (LNG), according to people with direct knowledge of the matter, after booming production from shale deposits in the Vaca Muerta region turned the country into a seasonal exporter.

A contract with Excelerate Energy, which has a regasification ship moored at the Atlantic port of Bahia Blanca, won’t be renewed when it expires at the end of the month, said the people, who asked not to be named because the decision isn’t yet public. Argentina will continue to import LNG at another facility in Escobar, on the River Plate estuary, the people said.

YPF SA, the state-run oil company that manages the contract, declined to comment on the decision. A spokeswoman for Excelerate didn’t immediately comment.

The decision not to renew the decade-old contract comes as output from Vaca Muerta, the nation’s answer to the Permian basin, has created an oversupply of gas during the summer. Shale gas production soared to 205 million cubic meters a day in August, more than triple the level seen a year earlier. The government has negotiated exports to Chile to help solve the problem. It has also initiated talks to receive less gas from neighboring Bolivia, with which it has a contract through 2026.

Three Cheniere Energy tankers were set to unload at Bahia Blanca this year through May, according to the latest official import schedule.

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YPF Inaugurates Phase I Of 99-MW Wind Park In Argentina

(Renewables Now, 17.Oct.2018) — Argentine state-run oil company YPF inaugurated on Wednesday a portion of a 99-MW wind park in Chubut province that will produce clean power for its deposits and refineries.

The first 50-MW phase of Manantiales Behr, as the park is named, has been switched on. The whole wind farm is comprised of 30 wind turbines in total, spread over an area of 2,000 hectares (4,942 acres), with 25 installed and five nearing completion.

Through YPF Luz, the oil company invested some USD 200 million (EUR 173.82m) in Manantiales Behr. Once fully operation it will be producing as much power as Comodoro Rivadavia city consumer, offsetting 241,600 tonnes of carbon dioxide (CO2) per year.

Currently, YPF Luz has 1,800 MW of operational assets in its portfolio, and it plans to double its capacity in the upcoming years. It also has 800 MW of green projects under evaluation or construction, it noted.

(USD 1 = EUR 0.87)

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Argentina’s Vaca Muerta Looks to Attract $7 Bln in Investments in 2019

(Energy Analytics Institute, Jared Yamin, 6.Oct.2018) — Investors could inject $7 billion into the Vaca Muerta in 2019, announced Neuquén Governor, Omar Gutiérrez.

“In 2019, we will have 15 new drilling rigs conducting unconventional activity and reach an investment record with $7 billion,” reported the Argentine daily newspaper Clarin, citing comments from the official made during the International Oil & Gas Exhibition in the capital of Neuquén. “Each team requires a workforce of 200 people, therefore we will be generating 3,000 new jobs,” he add.

According to projections for next year, new extraction numbers could also be established.

In 2019, Argentina’s natural gas production is expected to reach 90 million cubic meters per day (MMcm/d), while crude oil production is expected to reach 140 thousand barrels per day (Mb/d). This compares to current Neuquén production of 68.6 MMcm/d and 113 Mb/d, the daily reported, without citing its sources.

The Neuquén basin generates 50% of Argentina’s gas, of which 61% of this figure currently comes from the Vaca Muerta, according to the daily. Additionally, 50% of the oil produced in Neuquén is also extracted from Vaca Muerta.

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YPF Updates On Oil Combustibles S.A. Bankruptcy Proceedings

(YPF, 3.Oct.2018) — YPF S.A. received notice of the decision adopted by the judge in charge of Oil Combustibles S.A.’s bankruptcy proceedings, which awarded the industrial assets of the bankrupt company to YPF and Destilería Argentina de Petróleo S.A. (DAPSA), pursuant to the local and international bidding process carried out in connection with the sale of Oil Combustibles S.A.’s assets.

The total price of the transaction amounts to $85,000,000, and such amount will be allocated in a manner to be agreed upon by YPF and DAPSA.

The assets that YPF will acquire, especially the docks and fuel storage tanks located in the Paraná River fluvial terminal, will allow YPF to expand its logistics capacity for future fuel imports and exports, as well as to achieve possible regional expansion.

DAPSA will be in charge of the management and supply of Oil Combustibles S.A.’s gas stations that were part of its commercial network.

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Argentina: The Energy Challenge

(YPF, 1.Oct.2018) — Argentina’s unconventional oil & gas resources are among the world’s largest. YPF is working and investing to increase production with the aim of meeting the challenge of regaining energy self-sufficiency.

The importance of hydrocarbons

Energy is the basis of our society and our way of life. We depend on it for food production, transportation, heating, electricity, lighting, telecommunications and technology.

The economic development of the country depends on the availability of oil and gas, the main sources of energy which do not only generate electricity.

90% of the objects we use every day are derived from petroleum products. Petroleum is also essential for producing bottles, bags, cell phones, watches, clothing, paint, detergents, fertilizers, toothpaste, hair conditioner and much more.

Moreover, in Argentina, 1,800 million liters of diesel are used to produce 100 million tons of grain annually.

It is estimated that by 2040 renewable energies will occupy nearly 15% of the world’s energy matrix. However energy from fossil fuels will continue to occupy a high percentage of more than 80%.

Resources to regain self-sufficiency

Due to the natural decline of conventional hydrocarbon reserves and a sustained increase in demand for fuel and the thousands of products derived from it, in addition to alternative energies it is also necessary to explore and add new resources. Shale is a sedimentary formation with low permeability which contains unconventional hydrocarbons housed in the micropores of the rock. To extract oil and gas from this rock conventional perforations are performed similar to those used in Argentina over the past 70 years, and with the addition of a next-generation technology known as hydraulic stimulation. The highest safety standards are applied in this technique and this ensures both efficiency and environmental care.
Our country has an enormous worldwide potential to obtain large hydrocarbon reserves from unconventional resources.

Vaca Muerta

It is a geological formation of 30,000 km² (12,000 km² in concession to YPF) located mainly in the province of Neuquén and containing oil and gas found at a depth of more than 2,500 meters, far from the groundwater that in this region is located at a depth of between 300 and 400 meters.

The relevance of Vaca Muerta is so significant that the development of only a small part of this formation could cover the country’s energy deficit.

Read he full story online here.

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Argentina’s Conventional Oil and Gas Attract Explorers

(Ft.com, Charles Newberry, 23.Sep.2019) — Fresh discovery indicates life beyond Vaca Muerta.

A few years ago, when the giant shale play of Vaca Muerta was starting to lure oil majors such as Chevron, ExxonMobil and Shell to Argentina’s south-west, a small company called Roch struck oil far away at the country’s southern tip.

The result surprised Ricardo Chacra, the company’s president. Roch had found oil in Tierra del Fuego, traditionally a source of natural gas, in a formation that had not been thought to hold much promise after more than a century of exploration in Argentina.

“We found something new,” Mr Chacra says. The find has fuelled optimism that Argentina’s mature conventional oil and gas reservoirs may have more to give. “When you drill into a mature field, you expect to drill into a squeezed lemon,” Mr Chacra says. “You take out what you can. But sometimes you find a virgin lemon.”

Argentina first struck oil early last century on the mainland of southern Patagonia, about 1,000km north of Tierra del Fuego, and exploration and production spread to the west and north-west. Argentina has the fourth-largest proven oil reserves in South America, trailing Venezuela, Brazil and Ecuador and equal with Colombia. But production and reserves sagged under the populist Peronist governments of 2003-15, as price controls and other regulation deterred exploration.

President Mauricio Macri has been removing such constraints to bring capital back to Argentina and his policies have attracted several oil majors. Most of them, however, are going to exploit Vaca Muerta’s shale, the source of unconventional oil and gas that is promising to make Argentina an energy powerhouse for the Americas as a whole.

While a handful of smaller companies has wanted to invest in Vaca Muerta, “it’s incredibly expensive”, says Fiona MacAulay, chief executive of London-based Echo Energy. Instead her company is exploring three conventional blocks in the south of the country at what she estimates to be a 100th of the cost of Vaca Muerta acreage.

Thanks to Argentina’s long history of oil activity, talent, services and infrastructure are available. Gas is delivered by pipeline to Buenos Aires and there are ports to handle oil storage and deliveries.

“The big conventional finds have already been made in Argentina,” says Hugo Giampaoli of local energy consultants GiGa. Even so, they have more to offer. Luciano Fucello, country manager for Houston-based services company NCS Multistage, estimates that only 20 per cent of Argentina’s oil has been recovered.

Daniel Kokogian, a director of Argentina’s Compañía General de Combustibles, says his company has more than doubled its gas output over the past two years in the south, and expects to find “a lot” of conventional oil to recover.

Such potential may not be enough to attract the big guns away from Vaca Muerta but a number of small independents are still taking a shot at a more conventional oil and gas approach.

Canada-based Madalena Energy, for example, is using the cash flow from conventional output to finance drilling in costly Vaca Muerta, says its chief executive, José Penafiel. He estimates that while it takes five to six years to generate a positive cash flow in Vaca Muerta, conventional projects pay back in two to three years.

For companies such as his, which are on far tighter budgets than the majors, he says, “you have to make sure you have the sufficient cash flow to stay in the game long enough to see the value creation of the bigger shale plays”.

An alternative is to push offshore. Several small UK companies, such as London-based Premier Oil and Rockhopper, of Salisbury, Wiltshire, in the south of England, have explored waters around the Falkland Islands that are claimed by Argentina. While still in the pre-development phase, these companies’ finds could spur bids for acreage in Argentine waters in a bidding round, the first in two decades, proposed for this year. “Pretty much every major I know is looking to bid in that offshore round,” Ms MacAulay says.

“Offshore is the last big question mark for exploration in Argentina,” says Mr Kokogian. Much hope is being pinned on waters about 300km-400km from the coast in depths of more than 1,500m. “We have to go to see what is there,” Mr Kokogian adds. “The prize could be big, or very big.”

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Argentina Owes Bolivia $250 Million for Natural Gas Sales

(Energy Analytics Institute, Ian Silverman, 14.Sep.2018) — Argentina owes Bolivia $250 million, which corresponds to two-months of natural gas sales.

“Hopefully they can honor the debt,” reported the daily newspaper La Razón, citing Bolivia’s Hydrocarbons Minister Luis Alberto Sánchez.

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YPF Board Names María Luján Bianchi As Chief Compliance Officer

(YPF, 7.Sep.2018) — The Board of Directors YPF S.A. announced, at its meeting held on September 6, 2018, approval of appointment of María Luján Bianchi as Chief Compliance Officer. Luján will report to the Audit Committee.

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Argentina: Exploration And Production Snapshots

(Deloitte, 31.Aug.2018) — In the wake of a decade-long slump in Argentina’s oil and gas industry, the country is now well positioned to resurrect international investment and exploit its world-class resources to their full potential. With the support of a new pro-business government and the discovery of massive shale potential in the Vaca Muerta basin, the road to revitalizing Argentina’s natural gas-based economy is clear: attract skilled workers, upgrade its infrastructure, and adopt new technologies to spark the first shale revolution outside of North America.

Read the full report here by Deloitte.

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Argentina Re-Ignites Deal To Spur Investment In Vaca Muerta

(Reuters, Eliana Raszewski, 28.Aug.2018) — Argentina relaunched a one-year-old agreement between the government, companies and workers on Tuesday to drive competition and spur development in the Vaca Muerta shale play, the government said in a statement.

The original agreement, signed just over a year ago, sought to boost production by incentivizing competition among oil and gas drillers in the region. The government is now looking to bring in other business sectors like construction and mid-stream service providers.

“We are not going to stop until we export $30 billion in gas and oil from Vaca Muerta,” President Mauricio Macri told employees of state-controlled energy company YPF during a meeting with them in the southwestern province of Nequen.

Argentina is trying to double production in the region, aiming to pump 260 million cubic meters of gas daily within five years, the government said in the statement. Of that, 100 million cubic meters per day would be destined for international markets, according to the government’s plans.

YPF presented its proposal to small and medium-sized businesses involved in the oil and gas supply chain earlier this year, in an effort to drive competition, the statement said.

“We want to increase production by 100 to 130 fractures per month, which can be achieved by working with unions and supply companies,” YPF President Miguel Gutierrez said.

YPF, with its partners, has invested $8.4 billion in the region. It is the leading investor in Vaca Muerta, one of the largest non-conventional oil and gas formations in the world.

In June, companies in Vaca Muerta increased oil production by 5 percent compared with the same month last year. Gas production increased 8.2 percent over the same period, according to data from the Energy Ministry.

(Reporting by Eliana Raszewski Writing by Scott Squires Editing by Leslie Adler)

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Argentina Re-ignites Labor Deal to Spur Investment in Vaca Muerta

(Reuters, Eliana Raszewski, 28.Aug.2018) — Argentina relaunched a one-year-old agreement between the government, companies and workers on Tuesday to drive competition and spur development in the Vaca Muerta shale play, the government said in a statement.

The original agreement, signed just over a year ago, sought to boost production by incentivizing competition among oil and gas drillers in the region. The government is now looking to bring in other business sectors like construction and mid-stream service providers.

“We are not going to stop until we export $30 billion in gas and oil from Vaca Muerta,” President Mauricio Macri told employees of state-controlled energy company YPF during a meeting with them in the southwestern province of Nequen.

Argentina is trying to double production in the region, aiming to pump 260 million cubic meters of gas daily within five years, the government said in the statement. Of that, 100 million cubic meters per day would be destined for international markets, according to the government’s plans.

YPF presented its proposal to small and medium-sized businesses involved in the oil and gas supply chain earlier this year, in an effort to drive competition, the statement said.

“We want to increase production by 100 to 130 fractures per month, which can be achieved by working with unions and supply companies,” YPF President Miguel Gutierrez said.

YPF, with its partners, has invested $8.4 billion in the region. It is the leading investor in Vaca Muerta, one of the largest non-conventional oil and gas formations in the world.

In June, companies in Vaca Muerta increased oil production by 5 percent compared with the same month last year. Gas production increased 8.2 percent over the same period, according to data from the Energy Ministry.

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PentaNova Energy Provides Financial, Ops Update

(PentaNova Energy Corp., 24.Aug.2018) — PentaNova Energy Corp. filed its financial and operating results for the three and six months ended June 30, 2018. All dollar values in this news release and the Company’s financial disclosures are in United States dollars, unless otherwise stated. All production figures are measured in barrels of oil equivalent (boe).

Financial Statements

Revenues for the periods presented were obtained from the working interest in the Llancanelo, Mariposa, and Sur Rio Deseado assets which represent 90 and 92 days of production during Q1 2018 and Q2 2018, respectively.

Highlights

Llancanelo

The Llancanelo net production recorded for each of the periods is for the 39% working interest held during Q1 2018 and Q2 2018. Subsequent to the closing of the Roch acquisition on October 27, 2017, which included an additional 10% working interest in Llancanelo, the Company’s Llancanelo net production increased to 39% working interest.

During Q2 2018, the Llancanelo concession produced a total of 41,057 net boe (105,302 gross boe) compared to 43,827 net boe (111,024 gross boe) in Q1 2018, representing roughly a 5% decrease in production. This equated to average daily production of 451 net boe/d in Q2 2018 compared to 481 net boe/d in Q1 2018. The reduction in production can be attributed to scheduled maintenance that required certain wells on the concession to be shut in during the maintenance period.

Impairment Loss

During the six months ended June 30, 2018, the Company recognized impairments relating to the Llancanelo Asset of $25.0 million. These impairments were the result of the difference between the period‐end net book value and management’s assessment of the recoverable amount of the Llancanelo Asset as of June 30, 2018 on account of the formal notification received from YPF regarding the relinquishment of the Company’s working interest in the Llancanelo Asset and the termination of the YPF Farm‐In. Following completion of the write‐down, the Llancanelo Asset had a carrying value of approximately $10.6 million.

Mariposa

The Company holds a net working interest in the Estancia La Mariposa block of 18%, entitling it to 18% of the oil, natural gas and condensate sales, while the operator carries 100% of the capital expenditures and field operating costs. The net revenue figures associated with the Mariposa Asset are presented net of any applicable royalties and certain operating costs of transportation, treatment and processing. Oil and natural gas production is sold on behalf of the Company, for which the Company receives proceeds from the operator, net of the aforementioned royalties and operating costs. The net revenue generated from this asset has not been included in any “per barrel” pricing herein. Mariposa revenue, net of royalties, of $189,049 and $351,606 were realized in Q2 2018 and Q1 2018, respectively. These revenue amounts were derived from net production of 11,653 boe and 16,210 boe during the respective periods. Reduction of net revenue in Q2 2018 is the result of decreased production from the Mariposa Asset due to a workover campaign on some of the wells that was carried out by the operator during the quarter.

Financial Results & Balances

— The Company had a working capital deficiency of $12.6 million as of June 30, 2018

— Impairment loss of $25.0 million was recognized during the three months ended June 30, 2018

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PDVSA Leaves Argentine Gas Station to Fend for Itself

(Reuters, Luc Cohen, 15.Aug.2018) – As Venezuela’s state-owned oil company PDVSA saw its finances devastated by low oil prices and mismanagement, it funneled millions of dollars to Petrolera del Conosur (PSUR.BA), a loss-making Argentine gas station operator it controls.

PDVSA decided to cut off the support payments late last year, according to a person familiar with Petrolera del Conosur’s operations, as the once-proud icon of Venezuelan oil production struggled with declining output aggravated by a worsening economic crisis.

The transfers had totaled $89 million between 2013 and 2017, according to a Reuters review of filings with Argentina’s securities regulator, years that coincided with a frustrated effort by Venezuela to extend the petro-diplomacy it employed in the Caribbean to the southern cone of Latin America.

Profitability was likely never the true goal of Venezuela’s Argentina foray, said David Mares, a political science professor at the University of California, San Diego. In 2006, late President Hugo Chavez unveiled a plan to transform PDVSA from a commercial company to a domestic and international political tool.

Before oil prices crashed in 2014, Venezuela’s government used PDVSA to fund social programs at home and provide countries in the region with cheap fuel to promote its socialist model and push back on United States influence.

The most well-known example is Petrocaribe, a program through which Venezuela sends crude and fuel to Caribbean countries on generous credit terms or through barter deals. But Chavez also signed deals with governments elsewhere in the region, including Argentina and Uruguay, to sell fuel and invest in energy infrastructure.

“The idea of having a series of gasoline stations in Argentina would fit in that context. It’s to show the Bolivarian revolution benefits people at the ground level,” Mares said. “The surprise is that they’ve lasted so long, because PDVSA is broke, the country is broke.”

PDVSA in 2006 purchased a 46 percent stake in Conosur from Uruguay’s ANCAP, which it boosted to a controlling 94 percent in 2010. PDVSA’s website still boasts of a goal to run 600 stations in Argentina to gain a market share of 12 percent in the country.

Conosur’s struggles come as some of PDVSA’s other overseas ventures, most launched through a wave of overseas expansion in the 1980s or as part of Chavez’s attempts to use “oil diplomacy,” have been scaled back or shuttered.

One of the most emblematic is Hovensa, a refinery in the U.S. Virgin Islands operated jointly with Hess Corp (HES.N), that filed for bankruptcy in 2015.

‘STRATEGIC ALLIANCE’

Since 2013, Conosur has posted hundreds of millions of pesos in annual losses. Fuel sales at its PDV Sur and Sol-branded stations have plunged 86 percent, as it struggled to compete with rivals like state-owned YPF (YPFD.BA), which produce their own crude and refine their own fuel.

PDVSA also strove to become an integrated player in Argentina, but efforts to acquire upstream and refining assets never worked out, the person said.

Neither PDVSA nor PDVSA Argentina, the subsidiary that owns the Conosur stake, responded to requests for comment.

And in a sign of how Venezuela’s economic crisis has derailed its ambitions to challenge U.S. diplomatic and financial power through regional energy integration, Conosur has not notified Argentina’s stock watchdog of any payments from PDVSA since Dec. 29, 2017.

The choice to cut off support amounts to a formal abandoning of the upstream goals in favor of strengthening the existing network as part of a restructuring of the company, said the person, speaking on condition of anonymity because they were not authorized to speak publicly.

“The supports were rational when the goal was the whole supply chain,” the person said, adding the company was in talks for a strategic alliance with a fuel supplier to access cheaper refined products, rather than depending on the spot market.

That deal could be necessary to keep the company alive without PDVSA’s support.

The company posted a 177.5 million peso loss in 2017, and warned on Dec. 20 that PDVSA’s transfers had helped it avoid being dissolved in accordance with the requirements of an Argentine corporate law for companies that run out of capital.

Since then, losses have accelerated, to the tune of 226 million pesos in the first half.

Conosur’s struggles have dashed many employees’ hopes that PDVSA’s takeover would signal a new era of prosperity at the chain, which had also struggled under Uruguayan ownership.

“We saw it as a panacea,” said one former employee, laid off earlier this year with around a dozen others. “But it was more or less the same.”

Additional reporting by Alexandra Ulmer in Caracas and Marianna Parraga in Mexico City; Editing by Bernadette Baum

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YPF to Sell Bonds Ending 2-Mth Debt Drought

(Bloomberg, Pablo Rosendo Gonzalez, 18.Jul.2018) – Argentine’s state-controlled oil company YPF SA has asked banks to submit proposals for a bond sale in the second half of the year to fund an aggressive growth plan for its power unit.

YPF Energia Electrica SA will try to sell at least $500 million of bonds as it seeks to double its generation capacity by 2020, according to two people with direct knowledge of the plan, who asked not to be named as talks are private.

YPF declined to comment.

This is the latest step in the company’s plan to turn its power unit, which will be re-branded as YPF Luz in the coming days, into Argentina’s third-largest energy generator. In March, YPF sold a 24.99 percent stake in the business for $275 million to General Electric Co. Negotiations for a third partner — previously identified as Blackstone Group by people familiar — have so far failed to materialize.

YPF Chairman Miguel Angel Gutierrez said in June there were no active talks for another partner, though one could be brought in as YPF Luz grows, adding that a stock-market listing was also a possibility.

Business Plan

YPF Luz is looking to invest $2 billion in renewable and thermal projects through 2020. The company is currently the fifth-largest producer in Argentina, with 1,800 megawatts generation capability with 270 employees. The two largest generators are Central Puerto SA and Pampa Energia SA.

Once YPF Luz receives offers from banks, a debt sale may take place as soon as August, the people said. The company may seek to sell more than $500 million of bonds, two of the people said, adding that market conditions for Argentine companies right now make sales that large difficult.

“It’s good to be ready to issue, but going out right now doesn’t seem a good alternative for the company,” TPCG analyst Florencia Mayorga Torres said by phone. “I can imagine they will wait until at least the fourth quarter to sell, hoping the market sentiment regarding Argentina improves.”

Most Prolific

YPF is Argentina’s most prolific bond issuer, with 35 debt securities currently outstanding, according to data compiled by Bloomberg. Its most actively traded bond, $1.5 billion of 8.5 percent senior unsecured notes maturing in 2025, yields around 8.9 percent after spiking to a high of 9.74 percent last month. With $1.2 billion in dollar-denominated bonds and other financing due in 2018, YPF may also have to come to market with another bond offering soon.

If YPF’s bond sale takes place, it may put an end to a company-debt drought that started after Transportadora de Gas del Sur SA sold $500 million of seven-year bonds to yield 6.8 percent on April 26. The drought has been so severe that Argentina’s biggest company, Telecom Argentina SA, has postponed a $1 billion bond sale four times on market volatility.

The increase in borrowing costs has also been a result of the decision by Argentina, Latin America’s third-largest market, to go to the International Monetary Fund to request a $50 billion credit facility to insure debt repayment. On June 13, the lender of last resort summarized its view on Argentina’s repay ability saying “the federal debt is sustainable but not with a high probability.”

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PentaNova, YPF Discuss Llancanelo Issues

(PentaNova Energy Corp., 3.Jul.2018) – PentaNova has been attempting to negotiate a payment plan for cash call balances with YPF without success to date.

As part of the various Argentina acquisitions completed by PentaNova in August and October 2017 relating to the Llancanelo heavy oil asset, the company, through its wholly-owned subsidiary Alianza Petrolera Argentina SA (Alianza) initially acquired a 39% working interest in the Llancanelo block, and assumed cash call balances owed to YPF, and in November 2017, the company farmed-in to acquire an additional 11% working interest from YPF, subject to regulatory and administrative approvals and to the satisfaction of certain terms and conditions.

The company recently received formal notification from YPF advising that, under the terms of the governing agreement of the Llancanelo joint venture project, oil production pertaining to the company’s participating interest in the concession will be retained by YPF, with sales of such oil production, net of operating costs, being credited towards PentaNova’s outstanding cash call balances. Furthermore, the governing agreement of the Llancancelo joint venture states that a failure to pay the outstanding cash call balance may result in the defaulting party losing it’s working interest. The company is currently holding discussions with YPF in order to find a solution to retain the 39% working interest in addition to exploring financing options to cover the cash call balance. YPF is the operator of the Llancancelo concession.

In relation to the Farm-in agreement, Alianza has not been able to satisfy certain conditions precedent, including securing financing for its farm-in obligations and obtaining regulatory and administrative approval before the longstop date of June 22, 2018, and is consequently engaged in discussions with YPF.

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Free Oil Market to Reign in Argentina

(Bloomberg, 2.Jul.2018) – Argentina’s move to a free market for energy prices remains on track.

A recent decision to cap crude oil prices and limit fuel price gains in order to stem inflation was an outlier, according to Javier Iguacel, the nation’s new energy minister. Restricting crude price increases only extinguishes competition and, in turn, the possibility of cutting costs, he said.

“There’ll be no more agreements,” Iguacel said in an interview. “It’s a free market. Companies can set the fuel prices they consider best for business. And they shouldn’t expect a lower domestic oil barrel either.”

Investors had become jittery because of the agreement from May to July, which capped oil at $68/bbl this month and constrained fuel price hikes in a bid to shield Argentines from a peso devaluation and a rally in crude. Inflation is running at more than 25%. Argentina had moved to a free market in October after years of interventionism.

State-run YPF SA raised fuel prices at the weekend for July by more than was originally agreed with Iguacel’s predecessor, ex-Royal Dutch Shell Plc executive Juan Jose Aranguren. That demonstrates the free market already reigns, he said.

In a sign Argentina is committed to deepening its market shift, Iguacel confirmed the government will eliminate the role of a state intermediary in future power contracts, starting in September. Now, Compania Administradora del Mercado Mayorista Electrico SA — Cammesa for short — sets the prices power generators pay for fuel and natural gas, and sell electricity. But not for much longer.

“We’re going to get out of the current system,” Iguacel said. “Generators will buy direct from producers, and large-scale consumers and distributors will buy direct from generators.”

Completing the move to a deregulated power market will take up to 18 months. Companies will be able to use an auction process to procure the best prices.

In the utilities sector, however, plans to end most subsidies for natural gas and electricity consumption by the end of next year might extend into 2020, the International Monetary Fund’s deadline for the government to balance its books, Iguacel said.

President Mauricio Macri’s Cambiemos alliance will campaign for re-election in 2019 and the removal of subsidies has been unpopular.

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Macri’s Reverse Unnerves Shale Investors

(Financial Times, Benedict Mander, 25.Jun.2018) – The collapse of the Argentine peso and the government’s struggle to tackle soaring inflation are causing disquiet among companies developing Vaca Muerta, one of the world’s largest deposits of shale oil and gas.

In his drive to liberalise Argentina’s energy markets, President Mauricio Macri phased out consumer subsidies and increased tariffs. Local oil prices rose and late last year converged with those of international crude, providing an important stimulus for companies in Vaca Muerta, Argentina’s star investment attraction.

But the government has now capped the price at which companies producing oil in Argentina can sell to refineries, along with the price of petrol at the pump, to shield consumers from rising global oil prices and prevent inflation soaring even further.

Companies now must sell at prices considerably below the international level, which on Thursday was above $77 a barrel for Brent crude, the global benchmark. This, as well as the devaluation of the peso, is hitting profitability and forcing companies to reassess their plans in Vaca Muerta.

“Suddenly from moving in the right direction, it feels like the country is taking a step back,” said Anuj Sharma, chief executive of Phoenix Global Resources, a mid-sized oil company investing in Vaca Muerta. “If there’s one thing markets hate, it is uncertainty. It makes planning very difficult.” He added that it was hard to plan more than 3-5 months ahead.

As little as four years ago, the state oil company YPF estimated that the break-even oil price for wells in Vaca Muerta to be economically viable was about $80 a barrel. Wood Mackenzie, the energy consultants, now estimates the break-even price to be $56 a barrel. After the first well began producing commercially in 2013, Vaca Muerta is now producing 120,000 barrels a day, or more than 10 per cent of national production.

“Just 5 years ago Vaca Muerta was a dream. Now it is starting to become a reality. It is at an inflection point where you can actually make money drilling it,” said one senior executive whose company is investing in Vaca Muerta.

“You can argue that at $67-68 a barrel you can make more than the break-even price, but you are not obliged to drill Vaca Muerta. Elsewhere you get 75 or even higher if oil prices go up . . . if there’s no [price] visibility, it’s very hard to deploy billions into Vaca Muerta.”

With Javier Iguacel replacing Juan José Aranguren as energy minister as part of a shake-up last week, the government’s plans remain unclear. Mr Aranguren, a former executive at Royal Dutch Shell, was widely applauded by the private sector for increasing the tariffs that consumers pay for electricity and natural gas, which enabled the government to cut subsidies in its effort to rein in the fiscal deficit. But he is unpopular with voters.

How Mr Iguacel, a petroleum engineer who also has a private sector background, proceeds depends on a precarious political scenario for Mr Macri, who is seeking re-election next year. Tariff hikes — as well as a $50bn bailout from the IMF in response to the currency crisis — was one of the main motives for trade unions on Monday holding their third national strike since Mr Macri took power.

Freezing prices at petrol pumps may go some way to keeping voters happy, even if it is debatable what impact it might have on inflation, which is running at more than 25 per cent annually. But international companies are not keen on effectively financing Mr Macri’s “gradualist” economic reform programme, which seeks to cushion the impact of austerity on poorer Argentines.

“If prices remain uncoupled, that would be negative. Without doubt, investment would fall, production too, and we would have to import more,” said Daniel Gerold, an energy consultant in Buenos Aires. “If it becomes clear that prices do not follow clear rules or the law is not respected, even if costs are low in Vaca Muerta, investments are not going to come.”

Nevertheless, analysts are broadly optimistic about the prospects for Vaca Muerta, which has seen a sharp fall in costs in recent years, while production has jumped dramatically. Argentina might even have an oversupply of natural gas this summer, when demand is lower, said Amanda Kupchella, an analyst at Wood Mackenzie.

“There are a lot of things that just come with the territory in Argentina — like price controls, working with unions and so on. They are things that operators are used to dealing with,” said Ms Kupchella. “Productivity in Vaca Muerta is so good that it doesn’t seem to be keeping [investors] away . . . wells just seem to be getting better and better.”

Alejandro Bulgheroni, chairman of Pan American Energy Group, expects that in 2-3 years it will be as cheap to drill wells in Vaca Muerta as it is in the US.

“Let’s hope this is resolved and that we return to international prices,” said Mr Bulgheroni. Although it was a “difficult moment”, he recognised that under this government, negotiations had always ended in mutual agreements, with no impositions. “We have lived through much worse times.”

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Why Mexico’s Energy Reform Needs AMLO

(The Council on Foreign Relations, Amy Myers Jaffe, 20.Jun.2018) – Mexico’s energy reform has taken important first steps but to come to full fruition, several additional critical reforms remain to be designed and implemented, including another constitutional reform. The task of adopting and implementing new reforms is all the more difficult because not only did the government of Enrique Peña Nieto oversell the short-run benefits of the package of reforms, including energy, adopted at the beginning of his term but also his administration is linked with other, broader political failures, including corruption scandals and the mishandling of the economy. Peña Nieto’s missteps have wrested credibility from the political system and make it unlikely that a mainstream candidate could put together a governing coalition with sufficient political support to adopt the next stage in Mexico’s energy reform. That’s why a political outsider would be more uniquely positioned to further energy reform, should that be a credible political choice. Once Andrés Manuel López Obrador (AMLO) wins the election, he could have the credibility to put together a coalition with the support of the Mexican people that could justify the next stage in Mexico’s energy reform. Whether he will do so remains an open question, but the next stage of the energy reform is unlikely to happen without him.

Stage III of the Mexican Energy Reform

The first stage of the energy reform in Mexico was President Calderon’s 2008 reform that was designed to strengthen Pemex without breaking Pemex’s monopoly position. After a fractious national debate, the reform was adopted because it was promised it would make Pemex an effective national oil company. The failure of that reform led to stage two in Mexico’s energy reform, which was the constitutional reform instituted under President Peña Nieto. This constitutional reform was intended to make Mexico’s energy sector more efficient and able to meet the power, gas and oil needs of a growing economy, with a small nod to generating more clean energy. By design, it allowed Pemex to lead the process by permitting the national oil company (NOC) to select the best properties for its own exploitation in Round Zero before opening the bidding process to companies other than Pemex.

The first auctions for oil and gas blocks did not go well, partly due to falling oil prices and partly because terms reflected Mexico’s relative inexperience with auctions. However, more recent auctions have gone extremely well. Foreign capital has committed to investment over the life of their contracts of almost $150 billion, and some new fields have already been discovered. Winning bids including seventy-three companies from twenty countries attest to the interest in Mexico’s energy future. There’s been less success in developing the infrastructure to get new energy and more imported energy to end users and the government has not solved the theft from Pemex oil pipelines or Pemex’s CAPEX and its pension liabilities.

Given Pemex’s dominant position, the company needs to develop a better business model. To generate capital, it needs to take the steps taken in Brazil, Colombia, authorized in Peru, and maintained in Argentina after the renationalization of YPF: privatize some stock in the NOC. The sale of the stock would require a constitutional amendment, but would not put Pemex in the hands of private equity holders and its stock price would provide a basis for evaluating how well Pemex was reforming. The government and Pemex have already modified the weight of the Petroleum Workers’ Union on Pemex’s governing structure and balance sheet, but the pension obligations that were made with Pemex need to be restructured and funded through other mechanisms.

Building a New Political Coalition for Energy Reform

While these necessary reforms have a technocratic nature, they cannot be adopted by technocrats or political leaders by simple decree. The first two stages of Mexico’s energy reforms rested on the backs of strong political coalitions behind them. The next stage will also require a political coalition. Unfortunately, the political system that generated the first two reforms has been discredited in the eyes of the Mexican people by actions both within and outside the energy sector. The clearest sign of disappointment with the process is AMLO’s widely expected victory in a few weeks. AMLO represents a new political coalition. López Obrador will need to convince that new coalition that when his government continues to attract private capital into Mexico’s energy sector, the benefits of a strong and efficient energy sector will benefit the Mexican people and not go into the hands of corrupt officials or the economic elite. His restructuring of Pemex needs to emphasize that the company is a means to promote the country’s interests in a rejuvenated energy sector, not to benefit oil workers and the PRI party at the expense of Mexican society.

So What Will AMLO Do?

The three pillars of the Mexican economy over the past decades have been manufactured exports under NAFTA, remittances from Mexican migrants to the United States, and oil exports. AMLO has an ambitious agenda for generating public goods as well as rewarding the groups who supported his victory. The income earned from manufactured exports under NAFTA will likely stagnate, if not actually decrease, even if NAFTA is successively renegotiated, and could decrease more substantially if NAFTA is terminated. Remittances have probably peaked because Mexico’s demographics and growing economy result in fewer Mexicans going to the United States for work; U.S. policy will likely enhance that decline. Oil exports have fallen as reserves and production have been falling, and it will take up to ten years for significant new reserves to be discovered and produced. Those efforts will require companies following through on their promised investments as well as new investment. AMLO will need an energy sector that generates revenue during his six-year term and credibly paves the way for greater future benefits that will be distributed to the Mexican people. Such nationalist messages could strengthen his political coalition as he implements his reforms of what has become an illegitimate political system.
AMLO’s political discourse radicalized when López Obrador and half the Mexico electorate believed that he had been deprived of previous presidential election victories in the extremely close and controversial election in 2006 and a close second in 2012. But when López Obrador was mayor of Mexico City from 2000-2005 he was pragmatic, worked with the private sector, and was perceived as an effective leader. Analysts say lack of technology and funds required to modernize Mexico’s oil sector could lead to an additional output plunge of 700,000 b/d by 2020, unless the next administration takes some definitive action. Output is expected to rebound slightly this year and is currently averaging 1.9 million b/d, down roughly 5 to 10 percent from 2017. Pemex is targeting 1.95 million b/d for 2018. Pemex’s natural gas production has also been declining, and fuel theft has plagued the country’s refining sector.

López Obrador has said he will not seek a constitutional change to reverse the 2014 energy reform and will respect the legitimate contracts signed under the reform. There is hope that AMLO can be like President Lenín Moreno of Ecuador and implement reforms from the left with a significant role for the private sector. Will AMLO take this path? We won’t know until he begins to govern, but the Mexican economy and the Mexican people need him to enact reforms that allow Mexico to reap the benefits produced by their energy sector.

Editor’s Note:

This is a guest post by David R. Mares, the Institute of the Americas chair for Inter-American Affairs and professor for political science at the University of California San Diego and the Baker Institute scholar for Latin American energy studies at the James A. Baker III Institute for Public Policy at Rice University.
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Rick Perry Wants Argentina be More Like Texas

(Bloomberg, 17.Jun.2018) – The U.S. government is getting in on a shale boom 5,000 mi (8,000 km) from home.

Energy Secretary Rick Perry will help Argentina connect with U.S. companies that have shale oil and gas expertise as President Mauricio Macri — facing a natural gas trade deficit — hurries to replicate the success of the Permian basin, in Perry’s home state of Texas.

Fostering energy production from a regional ally will bolster the geopolitical influence of the U.S., Perry told reporters in Bariloche, Argentina.

“One of the things that I offered Juan Jose is U.S. technology partnerships, to make the introductions with the private sector,” Perry said, referring to Juan Jose Aranguren, Macri’s energy minister. “The technology that has allowed for the shale gas revolution in America we want to make available to Argentina.”

Perry was meeting Aranguren and other G20 counterparts in snow-covered Bariloche to discuss a global transition to cleaner energy — especially gas. Argentina is ramping up production of the fuel in Vaca Muerta, the Patagonian shale play where Chevron Corp. and DowDuPont Inc. were among the first to get drilling going.

Argentina’s state-run YPF SA, the biggest operator in Vaca Muerta, sees the next phase of shale development driven by mid-cap independent companies lured from the Permian. Their arrival will increase competition and, in turn, slash costs, Aranguren told reporters in Bariloche.

Now, Perry wants to add to that, bringing in U.S. pipeline developers to expand the play’s infrastructure and petrochemical companies to process the hydrocarbons once they’ve been moved out of the isolated shale fields.

Boosting output in Vaca Muerta, one of the world’s largest shale plays that remains largely untapped, will help the U.S. to direct geopolitics amid fractious relationships with major oil producers Russia and Venezuela, Perry said.

“Being able to not be held hostage by countries who don’t share our values is really important,” Perry said. “President Macri’s policies are right in line with U.S. values.”

Perry will advise Argentina — already facing transportation bottlenecks as YPF and billionaire Paolo Rocca’s Tecpetrol SA spur gas production — on avoiding pipeline capacity issues that have begun to plague the Permian, he said.

Transportadora de Gas del Sur SA recently announced it will build a $300-million gas pipeline in Vaca Muerta.

Perry will visit Vaca Muerta in the near future, Aranguren said.
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Uruguay to Adopt Process for Offshore Oil Blocks

(Reuters, Luc Cohen, 15.Jun.2018) – Uruguay will move toward a permanent offer process for offshore oil blocks as other Latin American countries have done, after an April auction failed to attract bids, Industry, Energy and Mining Minister Carolina Cosse said in an interview this week.

The tiny South American country had offered up 17 blocks in its first oil auction in seven years, as rising oil prices were renewing companies’ interest in the region. But the legacy of a crash in oil prices that began in 2014 still weighed on their willingness to bid in little-explored areas, Cosse said.

“The oil and gas industry has its cycles and it has demonstrated that predictions are very difficult,” Cosse said on Thursday on the sidelines of the G20 Meeting of Energy Ministers in Bariloche, Argentina.

“Precisely because of those surprising cycles, Uruguay will keep promoting exploration,” she said.

Under the new bidding system, the country will set consistent conditions and leave blocks permanently open to bids from companies. That would differ from previous “rounds” of bidding which each had different conditions, meaning companies had to win approval to present an offer each time, Cosse said.

Companies including Argentina’s YPF, Portugal’s Galp Energia, BP Plc, Royal Dutch Shell , Tullow Oil, Norway’s Statoil and Exxon Mobil are among the companies currently exploring in Uruguay after winning blocks in previous auctions, but so far have not found hydrocarbons.

That lack of success was also a factor in the absence of interest in the most recent round.

With more than 1,000 oil and gas blocks on offer in Latin America – mostly in Brazil – 2018 has been a competitive year for countries seeking energy investments.

But the results of what some analysts have dubbed “Latin America’s energy reform” have so far been mixed, with some countries reaching record bids and others failing to attract bids at all. Few companies have the appetite for the level of geological risk present in a country like Uruguay.

Colombia said earlier this year it would open up a permanent bidding round after completing its first offering of new areas in four years. Brazil has also started moving to a similar process.

(Reporting by Luc Cohen Editing by Frances Kerry)

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Chile and Argentina to Boost Gas, Oil Output

(Santiago Times, 6.Apr.2018) – The state-run energy firms of Chile and Argentina have inaugurated a US$ 354 million project to increase production of natural gas off the southern tip of South America.

The project, east of Magellan Strait, operated by Chile’s state-run ENAP in partnership with YPF, will boost production of natural gas to 4 million cubic meters daily from the current 2.4 million, while increasing petroleum production by nearly 25% at the site, the firms said in a statement.

“This ambitious project contributes to the supply of energy in Argentina and bolsters regional integration,” ENAP General Manager Marcelo Tokman said in the statement.

YPF’s Pablo Bizzotto said the project is part of the company’s strategic project “providing funds, technology and innovations with the purpose of achieving the maximum energy development for Argentina”

The project, which includes five oil platforms, is at the Faro Virgenes zone, in the mouth of the eastern end of the Strait of Magellan in Argentina’s Santa Cruz province.

Chile’s Hydrocarbons secretary Marcos Pourteau was present at the inauguration ceremony together with Santa Cruz province governor, Alicia Kirchner, YPF Upstream Operations chief Pablo Bizzotto, ENAP’s General manager Marcelo Tokman and the General Manager of ENAP Argentina, Eduardo Tapia.

As part of the ceremony officials from both countries were flown by helicopter to one of the oil rigs, 18 kilometers offshore, for a tour of the facilities. Precisely one of the rigs is connected to land deposits in Faro de Virgenes via an 18km pipeline at the bottom of the sea.

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Tecpetrol Opens Gas Treatment Plant in Vaca Muerta

(ARPEL, February 6, 2018) — Tecpetrol, an oil company of the Techint Group and member of ARPEL, opened a gas treatment plant located in the vicinity of Añelo, Neuquén, with Governor of the Province of Neuquén Omar Gutiérrez and Minister of Energy and Mines of Argentina Juan J. Aranguren. This plant will process the unconventional gas produced in the Fortín de Piedra deposit of the Vaca Muerta formation. 1st plant

Also present at the opening ceremony were Senator Guillermo Pereyra, Secretary General of the Union of Private Oil and Gas Workers, and Manuel Arévalo, General Secretary of the Union of Oil and Gas Professional and Senior Staff. Representatives of Tecpetrol present were Carlos Ormachea, President and CEO of Tecpetrol, Horacio Marín, Director General of Tecpetrol Exploration and Production (E&P), and Pablo Iuliano, Technical Director of the Neuquén Basin.

With an investment of more than US$ 30 million, the plant has a processing capacity of 6.5 million cubic meters of gas per day (m3/d). The new facilities will allow increasing the production of gas from 1.5 million m3/d to 6.5 million m3/d. With this, the first phase of the Fortín de Piedra project will be completed. A total investment of US$ 2,300 million is planned up to 2019 for this project.

To date, Tecpetrol has invested approximately US$ 700 million in the Fortín de Piedra project, which has already created more than 3500 direct jobs. During the last quarter of 2017, the gas production was 1.5 million m3/d, and it is estimated that it will reach 5 m3/d by the end of February. At present, the activity is performed with six oil drilling units.

Techint Engineering and Construction

The construction of the gas treatment plant of Tecpetrol was carried out by Techint Engineering and Construction, which is also part of the Techint Group. It was completed in six months, a record time for works of these characteristics; it involved more than 280 thousand man-hours with peaks of 120 people working. The design, construction and assembly was fully modular, with around 60 modules provided locally by companies of the value chain of the Techint Group in Argentina.

At the same time, the company is moving forward with the construction of the Central Gas Plant of Tecpetrol, whose startup is estimated for June 2018. With a treatment capacity of more than 14 million m3/day of gas, the final investment for this plant will be around US$ 280 million. In addition, Techint Engineering and Construction is working in the water intake and gas pipelines for Tecpetrol production.

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Tecpetrol to Invest $2.3 Bln in Vaca Muerta

(Reuters, Eliana Raszewski, 23.Mar.2017) — Argentina’s Tecpetrol, part of the Techint Group, said on Thursday it would invest $2.3 billion in the Vaca Muerta shale fields through 2019, the largest announcement in the formation in years.

Tecpetrol said in a statement the investment was made possibly due to measures from President Mauricio Macri’s government, including a deal with labor unions earlier this year and a definition of price supports this month.

Tecpetrol will aim to produce an average 14 million cubic meters (494 cubic feet) of shale gas per day by 2019 said Guillermo Pereyra, a union leader and senator who participated in a Thursday meeting where executives communicated the plan to Macri.

That is half the amount of gas Argentina currently imports, Pereyra said, and will help Macri’s government reach its goal of energy self efficiency. An energy deficit is a major contributor to Argentina’s fiscal deficit.

About the size of Belgium, the Vaca Muerta formation is one of the largest shale reserves in the world but it has been mostly unexplored due to high production costs and lack of labor flexibility.

The investment would eventually result in 1,000 new jobs, Pereyra and Tecpetrol said.

“We are going to arrive in September with five or six drilling teams, each one with about 100 people, this is very important,” Pereyra said in a telephone interview.

Macri’s government in January announced an agreement with oil companies and unions to lower labor costs and stimulate investments, which until now have been slow to arrive.

YPF said it reached a preliminary deal with Royal Dutch Shell Plc last month to develop oil and gas assets in Vaca Muerta involving a $300 million investment from Shell.

Earlier this month the government said it would gradually lower the price it guarantees for gas drilled from new wells, currently $7.50 per million British thermal units of gas, to encourage investment sooner rather than later.

Vaca Muerta contains 308 trillion cubic feet of shale gas and 16.2 billion barrels of shale oil, according to the U.S. Energy Information Administration.

Tecpetrol has been carrying out a pilot project in the Fortin de Piedra area and will now move on to the development phase, Pereyra said.

The company said it planned to drill 150 wells in the next three years, with $1.6 billion of the investment going toward the wells and $700 million to be used for treatment and gas transport installations, Tecpetrol said.

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Moody’s Changes Outlook on Argentine Cos

(Moody’s Investors Service, 7.Mar.2017) – Moody’s Investors Service revised to positive from stable the outlook for several companies operating in Argentina, while all ratings were affirmed. The companies’ outlook change follows the revision of the Argentine government’s B3 rating outlook to positive from stable on March 6, 2017.

ISSUERS AND RATINGS AFFIRMED — OUTLOOK CHANGED TO POSITIVE

Arauco Argentina S.A.: the Corporate Family Rating (CFR) was affirmed at B1 and the rating of the senior unsecured notes, guaranteed by Celulosa Arauco y Constitucion S.A. (Baa3 stable), was affirmed at Baa3. The outlook of the issuer was changed to positive from stable and the outlook of the notes remains stable.

Arcor S.A.I.C.: the CFR and the rating of the senior unsecured global bonds was affirmed at B1.

Pan American Energy LLC, Argentine Branch: the ratings of the backed senior unsecured medium-term notes programs were affirmed at (P)B1 and the rating of the backed global medium-term notes was affirmed at B1. The outlook was changed to positive from stable.

Pan American Energy LLC: the CFR was affirmed at B1. The outlook was changed to positive from stable.

YPF Sociedad Anonima: the senior unsecured notes were affirmed at B3. The rating of the medium-term notes program was affirmed at (P)B3. The outlook was changed to positive from stable.

RATINGS RATIONALE

The rating outlook revision for these companies follows the outlook change of Argentine government’s B3 Issuer rating outlook to positive from stable on March 6th, 2017, supported by the rising likelihood that the recently policies introduced, which have laid the ground for future improvements to Argentina’s economic and fiscal strength, and the improvements in Argentina’s institutional strength will be sustained and bring improvements in Argentina’s credit profile.

Moody’s expects that Argentina’s economy will return to growth in 2017 and 2018, supported by the government’s improved policy mix which has sought to reduce inflation and increase investor confidence.

The positive outlook for the affected companies reflects Moody’s view that the creditworthiness of these companies cannot be completely de-linked from the credit quality of the Argentine government, and thus their ratings need to closely reflect the risk that they share with the sovereign. Moody’s believes that a weaker sovereign has the potential to create a ratings drag on companies operating within its borders, and therefore it is appropriate to limit the extent to which these issuers can be rated higher than the sovereign, in line with Moody’s Rating Implementation Guidance.

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Andes Energía, YPF to Develop Vaca Muerta

(Energy Analytics Institute (EAI), Clifford Fingers III, 16.Feb.2017) – Andes Energía and YPF plan joint investments to boost hydrocarbon production in the Vaca Muerta in Argentina.

“We have projects to drill hundreds of wells,” reported the daily Clarín, citing Andes General Manager Alejandro Jotayan. “The great potential is in shale oil in the Vaca Muerta where we have 250,000 net acres (1,000 square kilometers), both in Neuquén as well as in the south in Mendoza.”

In 2016, we invested almost all our cash flow in Chachahuen (Mendoza) in a block in partnership with YPF, announced Jotayan during an interview with Télam. Both companies invested $100 million on 90 exploration and development wells as well as production management and treatment facilities. In 2017, Andes plans to deepen its work in Chachahuen and continue with development of the Vaca Muerta, said Jotayan.

“YPF and Chevron are producing 50,000 barrels per day on 60,000 acres,” said Jotayan. “You can imagine what we could do with 250,000 acres.”

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Big Oil Flocks To Argentina As Permian Land Prices Skyrocket

(Oilprice.com, Charles Kennedy, 15.Sep.2016) — The Permian Basin has become so hot that some oil companies are starting to stay away, instead looking at frontiers that are less picked over.

BP is one such company. The British oil giant’s CEO Bob Dudley said that land in the Permian has become too expensive, and instead he is looking to expand operations in Argentina, where the vast Vaca Muerta shale basin offers appetizing opportunity.

In an interview with Bloomberg TV from Buenos Aires, Dudley said BP is planning on acquiring more assets in the Vaca Muerta. And it isn’t just the “enormous potential” from the oil and gas reserves in the shale basin, but also the friendly policy put forth by the new Argentine government led by President Mauricio Macri. “I’m really encouraged by what I see,” Dudley said. “There’s a lot of future here.” BP has a joint venture with Bridas Corp. – BP owns 60 percent of Pan American Energy LLC and Bridas controls the other 40 percent. BP will expand its presence in Argentina through this JV.

Argentina is quickly becoming one of the few countries that has achieved shale development outside of North America. One of the biggest incentives the government has offered is regulated oil prices, set at levels higher than the international price. Several of BP’s peers are already drilling in the Vaca Muerta, including Chevron, ExxonMobil, and Royal Dutch Shell.

The state-owned YPF said that it would need investments totaling about $200 billion to fully exploit the Vaca Muerta.

Exxon said earlier this year that it might spend more than $10 billion in Argentina, building on several pilot projects. The investments would span decades. “I am very encouraged by the changes that have occurred here in Argentina, with the change in government,” Exxon’s CEO Rex Tillerson said in June. More and more companies are starting to build up their presence in Argentina.

Meanwhile, back in Texas, land prices are shooting through the roof. SM Energy recently spent more than $39,000 per acre for land in the Permian, which some are calling the “hottest zip codes in the industry.” That is pricing out some companies and forcing many to look elsewhere. With West Texas saturated with drillers, Argentina stands to benefit.

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Energy Analytics Institute (EAI): #LatAmNRG

Next Hot Spot for Shale Drilling? Argentina

(CNN Money, 28.Jul.2016) – Argentina has exceptional hydrocarbon reserves, but politics has greatly affected its development.

The economy in Argentina is best described as a “pendulum”, going from loose economic policies in the ’80s to Washington-consensus liberalisation in the ’90s and back again under the Kirchner regime.

Since the current president Macri took office in December 2015, he has been reversing the policies of his predecessor and has focused on boosting the economy with free-market measures through eliminating currency controls and lowering utility subsidies.

In March, the government also announced a $7.50 per barrel subsidy on exported oil while Brent remained below $47.50 per barrel to attract foreign investment.

Argentina’s recoverable shale oil reserves are estimated at 27 billion barrels and hold the third largest shale gas and fourth-largest shale oil reserves in the world. Appearing in the spotlight is the Vaca Muerta formation with technically recoverable shale gas of 308 trillion cubic feet and 16 billion barrels of oil.

The Vaca Muerta Shale spans across four provinces – Neuquén, La Pampa, Mendoza and Rio Negro and is almost double the size of the Eagle Ford shale.

Current production from the Vaca Muerta formation is about 50,000 bbl/day, an amount that is expected to double by 2018. IHS Energy research indicates that the Vaca Muerta is characterized by favourable traits such as thick, high-quality, organic-rich shale, similar to the Permian Basin.

While the American consumer basks in low oil prices, the Argentinean consumer is helping to fund the oil industry. Government regulated oil prices were imposed to protect citizens from market fluctuations, although consumers currently face the reverse effect by paying a premium on Brent and WTI.

For 2016 the price of oil in Argentina is frozen at $67.50, with gas prices of $7.50—almost 4 times that of the United States.

The recent nationalization of YPF has opened doors for foreign investments, making Argentina’s oil industry more attractive. Chevron (CVX) has decreased drilling costs in Vaca Muerta by 20% this year. Chevron’s Argentinian drilling costs dropped from $14 million per well to $11.2 million per well in the last three months of 2015.

One major source of savings stemmed from the discovery of a sand deposit in Chubut enabling YPF to eliminate the use of imported sand. Sand is the main ingredient in hydraulic fracturing treatments, which are essential in the completion process in shale oil and gas wells.

In the current environment of low oil prices, Argentina’s regulated crude prices combined with 27 billion barrels of recoverable oil and 802 trillion cubic feet of gas is one of the most attractive ventures for oil companies.

While the U.S. experienced severe cuts in spending by as much as 40%, YPF increased spending by about 4%.

In 2013, Chevron and YPF signed a $1.6 billion exploration deal to develop tight shale oil and gas resources through drilling 132 wells. Dow Chemical Company (DOW) and Shell Argentina followed shortly thereafter by drilling 16 horizontal natural gas wells and a $500 million investment.

YPF also signed a memorandum of understanding with Malaysian oil company PETRONAS in a $550 million pilot project in 2014. Russia’s Gazprom, the world’s largest natural gas producer also engaged in a confidential deal for the development of the Vaca Muerta field.

Exxon Mobil (XOM) has announced the initiation a $250 million pilot project, which if successful would lead to the further development and an excess of $10 billion in additional investment.

Although Argentina is becoming an increasingly attractive investment for oil companies, Vaca Muerta remains vastly untapped. Analysts estimate that YPF is expected to need up to $200 billion to fully exploit the formation.

The rich geological characteristics of Vaca Muerta is only a piece of the puzzle, the recent change in government and the economic policy reforms have set the stage for a more favourable business environment in Argentina.

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Executive Profile: YPF New CEO Ricardo Darré

(Energy Analytics Institute, Jared Yamin, 6.Jun.2016) – Ricardo Darré will assume the position of CEO at YPF on July 1, 2016, taking over the helm from the interim CEO.

Darré graduated from the Buenos Aires Technology Institute (ITBA by its Spanish acronym) with a specialization in mechanical and industrial engineering, reported the daily newspaper La Nacion.

After finishing university he worked for Schlumberger in Angola, Zaire in the Neuquén basin.

In 1987, he began work with Total, where he has worked until now. With Total he worked in Tierra del Fuego, France and Thailand in various roles related to offshore exploration.

From 1998, he started to assume roles related to operations in Norway, Russia, the United Kingdom, France and the United States.

Currently, he continues to work as managing director of Exploration and Production with Total in Houston, Texas.

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YPF, Enap Sipetrol to Invest $165 Mln in Magallanes

(Energy Analytics Institute, Jared Yamin, 3.Jun.2016) – YPF and Enap Sipetrol plan to invest $165 million to boost production in the Magallanes field offshore.

The companies plan to increase natural gas production by 60 percent to 4 million cubic meters per day from 2.4 million cubic meters per day, and petroleum production by 25 percent to 1,000 million cubic meters per day, reported the daily newspaper iEco.

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YPF Announces Plans for 20 Areas in Río Negro, Chubut

(Energy Analytics Institute, Jared Yamin, 7.May.2016) – YPF plans to divest of as many as 20 areas in Argentina where the company has a partial interest or where the areas do not offer important earnings.

YPF has put up on the market 6 areas in Río Negro, including some with good returns, reported the daily newspaper iEco.

In Chubut, the company has already identified 20 areas it plans to divest, according to the daily. The company plans to follow a similar strategy in Neuquén and Santa Cruz, although details about these areas have yet to be revealed publicly.

In Neuquén in the Vaca Muerta there are plans in discussion regarding 20 rigs. According to industry data, activities in the area are estimated to fall by 30 percent and by as much as 50 percent in the reservoir exploited by YPF and Chevron.

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Argentina to Pay Galuccio $72 Mln Pesos to Leave YPF

(Energy Analytics Institute, Jared Yamin, 5.May.2016) – The government of President Mauricio Macri will pay 72 million Argentine pesos to Miguel Galuccio as part of an offer to the executive to depart the company.

Board of Director members with YPF, controlled 51 percent by the government, came to agreement at the April 29, 2016 assembly meeting in Argentina.

“The compensation for all of his functions and other concepts as CEO of the company will total 72,000,000 and include an agreement for him to leave the company,” reported by the daily newspaper iEco, citing an official statement from the company.

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Elevated Corporate Risks in Argentina

(Moody’s Investor Service, 16.Jul.2015) – Economic stagnation, a difficult political environment and heightened volatility in financial markets with the approach of presidential elections will be elevating pressures on non-financial companies in Argentina through mid-2016, says Moody’s Investors Service. Most of the 20 companies that Moody’s rates in Argentina, however, will not see significant deterioration in their credit metrics during this period.

“Weak economic activity and high double-digit inflation will diminish companies’ ability to pass cost increases to their customers, limiting their operating margins,” says Martina Gallardo Barreyro in the report “Corporate Credit Quality in Argentina: Economic Woes Elevate Argentina’s Corporate Risk Through Mid-2016.”

“In addition, a complicated macro environment will keep intensifying liquidity risks for most Argentine companies,” says Moody’s Gallardo Barreyro.

Some rated companies, however, have significantly improved their overall liquidity profile through refinancings of their foreign-denominated maturities. For examples in Jul.2015 Raghsa S.A. pushed back 58% of its $100 million maturities due in 2016-2017 until 2020-2021.

Moody’s expects consumer-related companies to face a slight deterioration in their credit metrics as demand stabilizes.

“Long-term demand growth will require a recovery in real available income, employment levels and general consumer financing conditions, all of which depend on government policies,” says Gallardo Barreyro.

Moody’s expects a sluggish recovery in Argentina only in 2016.

In other sectors, Moody’s expects marketing campaigns designed to capture new customers interested in 4G technology to strain the operating margins of the fixed telephony operators, while a strong increase in public-works spending in 2015 will support revenue growth among construction and infrastructure-related companies.

Commodity driven companies will have slow revenue growth because of falling commodity prices, while the impact of high inflation among them will vary. For example, oil companies such as YPF S.A. will be able to pass along most of their cost increases through to their prices.

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Moody’s Rates YPF’s Proposed Global Notes

(Global Credit Research, 4.Feb.2015) – Moody’s Investors Service assigned a Caa1 global foreign currency rating to YPF Sociedad Anonima’s (YPF)’s proposed $750 million in aggregate in addons to its outstanding 8.875% $587 million notes due in 2018 and 8.750% $1,000 million notes due in 2024. Both series were issued in the global capital markets.

The outlook on the ratings is negative.

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Non-Conventional Extraction Process Explained [Video]

(Energy Analytics Institute, Ian Silverman, 16.Jan.2014) – Argentina’s Vaca Muerta formation in the Neuquén Basin is best known for its shale oil and gas.

The process related to the extraction of non-conventional hydrocarbons, or in this case, shale deposits, is explained in this short video in Spanish from YPF.

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