Argentina Stifles Shale Oil Interest With Seizure Threat: Energy

Argentina will struggle to attract investors to develop shale fields, holding an estimated 23 billion barrels of oil equivalent, after revoking licenses from YPF SA (YPF) and Petroleo Brasileiro SA (PETR4) over an investment dispute.

Developing resources at the Vaca Muerta formation, an area the size of Connecticut in Argentina’s Neuquen province, is “paramount” for the country to revive its century-old oil and gas industry, Buenos Aires-based YPF (YPF) said in February when it announced the find. The country may double output in a decade by investing $25 billion a year to develop the fields, it said.

Argentina is seeking help to develop resources about half the size of Brazil’s 50 billion barrels of so-called pre-salt reserves after revoking YPF and Petrobras licenses and freezing oil prices at $42 a barrel for the past decade. President Cristina Fernandez de Kirchner may announce a YPF takeover after meeting the heads of oil-producing provinces today, Jorge Sapag, governor of Neuquen, said April 10. Argentina will take as much as 50.01 percent of YPF, newspaper Clarin reported, citing a copy of legislation that’s being sent to Congress.

“None of the majors would want to step into a field that’s been expropriated from a fellow major,” said Peter Hutton, an analyst at RBC Capital Markets in London. “The shale is on everybody’s radar, but it’s bumpy at the moment.”

Photographer: Renzo Gostoli/Bloomberg

Argentina will struggle to attract investors to develop shale fields, holding an estimated 23 billion barrels of oil equivalent, after revoking licenses from YPF SA and Petroleo Brasileiro SA over an investment dispute. Close

Argentina will struggle to attract investors to develop shale fields, holding an... Read More

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Photographer: Renzo Gostoli/Bloomberg

Argentina will struggle to attract investors to develop shale fields, holding an estimated 23 billion barrels of oil equivalent, after revoking licenses from YPF SA and Petroleo Brasileiro SA over an investment dispute.

Brufau Trip

Vaca Muerta could revive Argentina’s oil industry in the same way discoveries of non-conventional fields in North Dakota and Texas provided new opportunities for the U.S., YPF said in February. The company is owned by Madrid-based Repsol YPF SA. (REP)

YPF, Argentina’s largest energy company, became a pioneer in exploration of unconventional oil resources in “record time” by learning from U.S. companies how to tap deposits that require horizontal drilling in a process known as hydraulic fracturing, or fracking, it said.

Repsol Chief Executive Officer Antonio Brufau traveled to Buenos Aires this week to request a meeting with Fernandez, according to the company. Six Argentine provinces revoked YPF licenses over the past two months. The Manantiales Behr field, which produced about 10 percent of YPF’s oil last year, is among four licenses the Patagonian province of Chubut plans to revoke.

‘Hostile Gestures’

The Spanish government said that it considers “hostile gestures” against local companies to be acts of hostility against the nation.

“If in some part of the world there are hostile gestures against the interests of Spanish companies, the government interprets it as hostility against Spain and the Spanish government,” Industry Minister Jose Manuel Soria said in comments aired on state broadcaster RTVE today. “If there are gestures of hostility, they have consequences.”

YPF’s American depositary receipts rose 9.5 percent to $23.12 at 2:42 p.m. in New York trading, bringing their year-to- date loss to 33 percent. Its owner Repsol, Spain’s biggest oil company, dropped 0.9 percent to close 17.96 euros in Madrid trading after falling as much as 3.3 percent, the most in two weeks. Repsol has declined 24 percent this year, the worst performer on the global benchmark Dow Jones Oil & Gas Titans 30 Index, which gained 1.1 percent in the period.

Statoil, Apache Talks

Neuquen, which holds most of the Vaca Muerta shale-oil formation, will continue to attract investors even amid a YPF takeover, Sapag said in comments posted on the province’s website yesterday. He met representatives of Petrobras, Brazil’s biggest energy company, earlier this week and will also hold talks with Norway’s Statoil ASA (STL) and Apache Corp. (APA) this week, he said. Foreign companies that pledge to invest in oil reserves in the province are “welcome,” he said.

The government’s decision to take control of YPF “will be putting off other companies and it’s not a good way to attract investment when the country needs foreign expertise,” Andrea Williams, who manages the 1 billion-pound ($1.6 billion) European equities fund at Royal London Asset Management, said in a telephone interview yesterday. “The fear is they will take away more licenses.”

Williams owns Repsol shares and has added to the position recently.

Kirchner has demanded more investment from oil companies in an attempt to boost sagging production and reduce fuel imports that doubled to $9.4 billion last year. Argentina’s Santa Cruz province revoked three YPF oil concessions pending legislative approval, state news agency Telam said yesterday.

Replicate Revolution

Argentina oil investments dropped over the past decade as oil prices have been capped by the government since 2002. Oil exporters receive $42 per barrel, with the government retaining the rest, while oil sold domestically is paid at about $60.

The government also ordered oil producers and miners last year to repatriate all export revenues, as part as government policy’s to stem capital flight.

U.S. oil production has gained for three consecutive years as producers accelerated drilling in unconventional deposits. North Dakota output almost tripled to a record 546,000 barrels a day in January from three years earlier, the Energy Department reported April 2.

“Argentina has the chance to replicate the revolution that unconventional hydrocarbons have meant for the United States by a development of resources at the Vaca Muerta formation,” Repsol said in a Feb. 8 statement.

Argentina’s government doesn’t have the capital to develop the resources alone, Jason Kenney, an analyst at Banco Santander SA (SAN) in Edinburgh, said in a telephone interview.

“Argentina needs someone to invest in its energy provision, both conventional as well as the shale opportunity,” Kenney said. “The longer this goes on, the less chance you get of anyone doing anything in Argentina.”

To contact the reporters on this story: Matthew Craze in Santiago at mcraze@bloomberg.net; Brian Swint in London at bswint@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net

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