Sinopec, Nabors to Replace YPF Frankenstein Rigs, Official Says

YPF SA (YPFD), Argentina’s biggest energy company, signed contracts with oil services providers including Nabors Industries Ltd. (NBR) and China Petroleum & Chemical Corp. (386) to rent 14 drilling rigs for its shale exploration program, a YPF official briefed on the matter said.

The contracts, awarded through private auctions, will increase the number of rigs used by the Buenos Aires-based company by 47 percent from the first half of 2012, the YPF official said.

Starting next year, YPF will add 10 more rigs annually to reach the 1,200-well a year target pledged by Chief Executive Officer Miguel Galuccio in the company’s five-year business plan on Aug. 30, the official said. Galuccio also introduced a $37.2 billion investment plan until 2017 seeking to boost oil and gas output by 29 and 23 percent, respectively.

YPF should accelerate plans to rent additional rigs so the company can stop using outdated, inefficient rigs from the 1970s, known internally as Frankensteins, the YPF official said.

The one- to three-year rental accords will cost an average $10 million a rig each year, he said. YPF will invest $70 million in the second half of 2012 to rent the equipment in addition to $150 million for its 30 existing rigs, he said.

YPF will offer incentives to oil services companies to produce rigs in Argentina, the official said, declining to elaborate.

“Each drilling rig cost between $18-20 million, so, if we will need 50, it makes sense,” he said.

Cost Reductions

YPF will be able to reduce well costs that average 60 percent more than U.S. expenses with better equipment, the official said.

Besides Nabors, the world’s largest land-rig drilling contractor, and China’s Sinopec, the other companies that signed contracts for the 14 rigs are Italy’s Trevi Group SpA, Estrella International Energy Services Ltd. (EEN), Venver SA, Emepa SA, Lupatech SA (LUPA3)’s San Antonio Internacional Ltda., and DLS Drilling Logistics and Services Corp., the YPF official said.

“We do not comment on any customer matters unless initiated or approved by the customer as a matter of policy,” Denny Smith, a Nabors spokesman, said in an e-mailed response from Houston.

Sinopec, Trevi

Sinopec signed two contracts, according to the YPF official. One of the rigs is working in the Vaca Muerta shale formation in Argentina’s Neuquen province and the other is scheduled to arrive from China next month, the official said. Trevi will send three rigs in March 2013, he said.

Alejandro Di Lazzaro, a spokesman for YPF in Buenos Aires, didn’t immediately respond to telephone calls or an e-mail. A Sinopec official in Argentina declined to comment. Trevi- Petreven Argentina President Ruben Moleon didn’t respond to telephone calls and e-mails seeking comment.

The Vaca Muerta region in southern Argentina is estimated to hold at least 23 billion barrels of oil in resources, according to a survey by Ryder Scott.

Estrella Vice President Luis Aviles didn’t respond to a telephone call or e-mail. Emepa spokesman Marcos Aguilera didn’t reply to telephone calls or e-mails. Venver General Manager Cristina Ojeda didn’t respond to an e-mail seeking comment.

DLS, a part of Archer Ltd. (ARCHER), the Norwegian oilfield services provider based in Hamilton, Bermuda, didn’t respond to telephone calls and e-mails seeking comment. San Antonio didn’t respond to e-mails and telephone calls.

To contact the reporter on this story: Pablo Gonzalez in Buenos Aires at pgonzalez49@bloomberg.net

To contact the editor responsible for this story: James Attwood at jattwood3@bloomberg.net

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