Argentina Provinces Court Private Firms for O&G Development

BUENOS AIRES - Argentina's oil- and gas-rich southern provinces are looking forward to a surge in exploration and development spending following the nationalization of the country's largest oil and gas producer, YPF SA, but are also actively courting private companies to help them tap their huge shale gas potential.

"We're very enthusiastic," said Jorge Sapag, governor of Neuquen province, in an interview.

On Monday, YPF Chief Executive Miguel Galuccio announced a plan to spend $7 billion a year over the next five years to boost annual production to 216 million barrels of oil equivalent by 2017, up from an estimated 159 million this year.

Neuquen province is sitting on top of the key to that optimistic growth projection--the Vaca Muerta shale gas deposit. It is reportedly the world's third-largest shale gas find. In February, YPF announced the Vaca Muerta deposits and dramatically raised its estimate for unconventional oil and gas resources to 22.8 billion barrels from 927 million.

But the company said at the time that it would take investment of $25 billion a year over the course of a decade to exploit the find.

"We're exploring lots of options for working with local and international companies on financing and technology," Neuquen's governor said. There are already a host of international companies working in the province, with 100 wells drilled last year and the same amount expected this year, Mr. Sapag said. Companies are investing $1.6 billion this year and that is expected to double next year, he added.

However, the governor of nearby Santa Cruz province was a bit more guarded. The YPF takeover, is "a step forward on the route to energy self-sufficiency, but it's not going to be easy," Daniel Peralta told reporters on the sidelines of an event to announce YPF's investment plan Tuesday.

To attract the needed investment, Santa Cruz is going to look for "modern, novel ways" to team up with foreign companies. That could include joint ventures or other kinds of company partnerships with YPF, Mr. Peralta said.

However, it may prove a challenge to entice many companies to lay down big investments in Argentina's oil sector. Last month, President Cristina Kirchner seized a 51% stake in YPF from its controlling shareholder, Spain's Repsol YPF SA, sparking a major diplomatic rift with Spain and shaking confidence in the security of investments in Argentina.

In the weeks leading up to the takeover, a host of provinces yanked concessions that had been granted to YPF on the grounds that the company had failed to do the work needed to increase output.

"It's true that the reserves are declining, are mature, but it's also true that there was a lack of investment," Mr. Peralta said.

Santa Cruz and Chubut provinces have already returned those concessions to the state-run YPF to boost the company's resources and "prepare it for future negotiations," Mr. Peralta said.

While Santa Cruz is seeking to attract new international investors, Mr. Peralta also fired a warning shot toward Brazilian oil company Petroleo Brasileiro, or Petrobras. The company's concessions in the Austral basin are up in 2016 and 2017 and "we're worried about the lack of investment in exploitation and exploration," Mr. Peralta said. The province will start talks with Petrobras this month and "we want them to invest more, to at least double investment levels," Mr. Peralta said.

A spokesman for Petrobras Argentina couldn't immediately be reached to comment.

Copyright (c) 2012 Dow Jones & Company, Inc.


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