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YPF to Drill Unconventional Well In Argentina's Chubut Province

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BUENOS AIRES - Argentine state-run oil company, YPF SA, will invest ARS60 million ($12 million) to drill an unconventional well in Chubut Province.

The well's inauguration Wednesday indicates YPF is making good on plans to expand beyond the better-known province of Neuquen in its search for unconventional shale oil and gas.

Top Argentine officials, including President Cristina Kirchner, Chubut Governor Martin Buzzi and YPF Chief Executive Miguel Galuccio, touted the well, saying it is evidence the country is also advancing on plans to reverse years of declining oil and gas output.

"This is a new milestone in Argentina oil history," Mr. Buzzi said. "We're expanding the country's oil and gas frontier."

Mr. Galuccio said this is the first time YPF has drilled a well of this kind in Chubut. The well will stretch down more than 3,000 meters in a bid to uncover oil and gas.

Mr. Galuccio used the well's inauguration to highlight the company's achievements over the past year. He said YPF had boosted oil output for the first time in many years.

"We have reversed the decline and we're ready to grow," Mr. Galuccio said, noting that oil and gas production across the country have plummeted over the past decade.

The declining output has coincided with rising demand for oil, gas and fuel, converting Argentina into a net energy importer and forcing the government to spend billions each year on gas and fuel imports. In 2011 Argentina spent more than $9 billion on imported energy, leading the government to take drastic measures, including a crackdown on the currency market.

Mr. Galuccio's top goal at the company has been to boost output and end the need to spend money on energy imports.

In a statement, YPF said its oil output rose about 2.5% last year, compared with an 8% decline in 2011. Still, natural gas output fell 2.3% on the year, versus an 11% decline in 2011, according to the statement.

YPF aims to boost oil production by 4% and gas output by 1.8% in 2013.

The latest data from Argentina's energy secretariat indicate YPF increased oil production by 3% to about 11.6 million cubic barrels in 2012.

In contrast, the company's natural gas output fell 2.6% to 10.3 billion cubic meters from 2011, according to the data.

Mr. Galuccio voiced confidence in the company's future while also acknowledging that things will not always be easy.

"You don't measure increases in oil output from one day to the next. You measure it in years," he said. "Everything we do is long-term. We're heading in the right direction and we're going to recover our energy sovereignty. It's not that we're going to have setbacks and problems. We're going to have them."

One of YPF's biggest challenges in recent years has been feisty unions that have blocked output during much of the year in southern provinces during wage disputes. Analysts say one reason that production rose last year was that there were fewer union protests affecting production.

Mr. Galuccio said YPF also boosted fuel production by 2.6% last year, compared with a 6.9% decline in 2011. Meanwhile, refineries processed 1.6% more crude last year, compared with an 11.5% decline the previous year.

The higher output helped YPF cut gasoline and diesel imports by 54% and 33%, respectively, from 2011, the company said.

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

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