Pampa Sets Sights on Argentina Tight Gas as Vaca Muerta Lags

Updated on
  • Chairman Mindlin says those prospects are more profitable
  • Global bond sale of up to $1 billion may take place on Jan. 17

Pampa Energia SA Chairman Marcelo Mindlin wants to use assets he picked up in Petroleo Brasileiro SA’s fire sale last year to become one of Argentina’s top natural gas producers.

His focus will be on the tight gas deposits Pampa bought from the Brazilian oil company because they’re currently more profitable than the shale assets in the giant Vaca Muerta formation in Patagonia that also came with the deal.

“We want to be one of the key players in tight gas,” Chairman Marcelo Mindlin said in an interview at Bloomberg’s headquarters in New York. Pampa currently produces 25 percent of Argentina’s tight gas, Mindlin said.

While increasing output in Vaca Muerta, the world’s second-biggest shale gas play, is crucial to reversing Argentina’s dependence on gas imports, it’s currently cheaper to drill the tight gas deposits that came with the takeover of Petrobras Argentina SA last year, General Manager Ricardo Torres said. The deal was part of Petrobras’s more than $13 billion of asset sales in the past two years to shore up its finances.

Tight gas is produced from reservoir rocks with extremely low permeability such as sandstone and limestone. Like shale, it typically requires slamming sand, water and chemicals underground at high pressure to unlock the hydrocarbons trapped in the rocks in a process known as hydraulic fracturing, or fracking.

To finance its expansion, Pampa is ready to offer as much as $1 billion in 5-to-10-year bonds on international markets this month, Mindlin said. The proceeds will also allow Pampa to pay off a bridge loan that funded the $890 million takeover of Petrobras Argentina. Pampa won’t sell any more debt this year after this issuance, he said.

Vaca Muerta

Even as the company pivots its hydrocarbons strategy to tight gas, it will drill its first shale gas well this year in Vaca Muerta with Exxon Mobil Corp.’s XTO Energy, Mindlin said. Exxon has a joint venture with Pampa in the Parva Negra Este Block of Vaca Muerta, Suann Guthrie, a spokeswoman for Exxon, said in an e-mail. Exxon will drill the horizontal section of an already-perforated well, with operations turned back to Pampa after completion. Guthrie declined to comment on the costs of the development.

Pampa controls 18 percent of Vaca Muerta’s acreage after its acquisition of Petrobras Argentina. It would look to continue working with XTO on shale gas projects in the formation that are still under research, Mindlin said.

Those projects may get a boost after President Mauricio Macri announced on Tuesday an accord with labor unions. They made concessions to spur gas investments in Vaca Muerta. “Definitely this agreement with the unions is going to reduce the cost,” Mindlin said.

Likewise, Mindlin said he was pleased by another of Macri’s business-friendly energy policies to raise electricity and gas tariffs for consumers. Pampa owns transmission company Transener SA and distribution company Edenor SA.

‘Big Change’

“It’s a big, big change to what was happening in the last 15 years,” he said. “We are very excited.”

Pampa will continue to invest heavily in combined cycle plants, Mindlin said. It will also bid in the government’s second renewable energy auction, set for May, after winning a 100-megawatt wind project in the first auctions last year.

Mindlin is expecting generation companies to soon be approved to sell renewable energy directly to big industry consumers, instead of to the state’s electricity grid. The government is still studying how it would put in place the policy, said a person at the Energy Ministry who asked not to be identified because the plans aren’t public.

    Before it's here, it's on the Bloomberg Terminal.