YPF CEO Says Not Waiting for Chevron to Explore Shale

YPF SA (YPF), Argentina’s largest oil company that was nationalized 11 months ago, is planning to boost capital investments by 60 percent as it “aggressively” explores shale, the chief executive officer said.

“We’re not waiting for Chevron” Corp. to develop shale, CEO Miguel Galuccio told reporters at company headquarters yesterday after reporting fourth-quarter profit that almost doubled to 1.02 billion pesos ($207 million), or 2.59 pesos a share, from 535 million pesos, or 1.36 pesos, a year earlier. Galuccio said YPF and Chevron have been meeting weekly to hammer out final details of their accord. The second-largest U.S. oil company has almost two months to seal the deal.

President Cristina Fernandez de Kirchner’s government seized a 51 percent stake from Spain’s Repsol SA in April to halt declining oil output and stem fuel imports that doubled to $9.4 billion in 2011. YPF, which signed preliminary accords with Chevron and Bridas Corp., is seeking more partners for a $37 billion expansion plan to develop the Vaca Muerta shale formation, a Connecticut-sized area in southern Argentina that contains at least 23 billion barrels of oil.

Fourth-quarter oil output fell 4.8 percent to 481,000 barrels a day from a year ago, gas production slid 2.7 percent, the Buenos Aires-based company said in the earnings report released after regular trading yesterday. The decline was halted in November, Galuccio said.

Exclusive Rights

YPF’s American depositary receipts gained 4.1 percent to close $15.37 in New York, after gaining as much as 4.5 percent. The ADRs had dropped 46 percent in the past year.

While the deal with Chevron is “progressing,” terms may need to be adjusted because of a lawsuit faced by the San Ramon, California-based company in Argentina, Galuccio told investors today on a conference call. Chevron’s request to revoke a court embargo on its assets in the country related to a $19 billion award over pollution in Ecuador was denied by a judge in Argentina.

Any deal to join with YPF in exploring the nation’s shale formations must be preceded by a lifting of the embargo on Chevron’s assets, Chairman and CEO John Watson said in a meeting with reporters in New York today.

“We need access to our funds,” Watson said.

Chevron signed a deal with YPF on Dec. 19 that paved the way for it to become the first major oil company to partner with YPF since its nationalization.

Chevron’s Wells

Chevron plans to drill exploration wells in the Vaca Muerta formation this year, according to a presentation Vice Chairman George Kirkland delivered to analysts in New York today. The acreage is separate from the drilling agreement being negotiated with YPF and doesn’t involve the Argentine company, Kurt Glaubitz, a Chevron spokesman, said today.

Chevron has an exclusive right for four months to negotiate final terms for YPF to transfer a 50 percent interest in Loma de la Lata Norte and Loma Campana, YPF said in December. The fields comprise an area of 290 square kilometers (180 miles) in southwestern Argentina, YPF said.

YPF will need to raise $500 million in extra financing this year, Chief Financial Officer Daniel Gonzalez told reporters yesterday in Buenos Aires. This money, plus the company’s cash flow, will be enough to finance an increase of 60 percent in capital expenditures.

YPF would only consider selling bonds if market conditions improved, Gonzalez said.

YPF, which has sold 11.3 billion pesos of bonds since September, needs $1 billion in financing this year, Galuccio said on the call.

New Rigs

Galuccio said the increased expenditure budget may be reduced to 50 percent or 40 percent if the company can’t find rigs at fair prices. The company’s spent $3.3 billion on investments last year.

“We will pay fair prices or wait,” he said.

YPF’s board yesterday approved 15 new rigs for the second half of this year, Galuccio said on the call, adding that the local rigs are outdated.

A budget increase doesn’t depend on Chevron, Galuccio said. The company is targeting 130 wells in 2013.

Bringing another partner by giving them equity is another financing option, Galuccio said.

“You will have news regarding this sooner than you think,” he said.

The deal with Bridas is progressing as expected, Galuccio said. The billionaire Bulgheroni brothers are “interacting with their Chinese partners” CNOOC Ltd. (883)

YPF’s partnership with Brazil’s Vale SA (VALE5) to drill for so- called tight gas in Neuquen province is on hold after the mining company said yesterday it will suspend a $6 billion potash joint venture in Mendoza, Galuccio said today. If the gas isn’t used for the potash project, YPF plans to pump it into one of its pipelines for other industries.

“We’re planning to develop that area, with or without Vale,” he said.

To contact the reporters on this story: Pablo Gonzalez in Buenos Aires at pgonzalez49@bloomberg.net; Joe Carroll in Chicago at jcarroll8@bloomberg.net

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

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