YPF Expects to Increase Oil, Gas Production in 2013
BUENOS AIRES - Argentina's largest oil company, state-run YPF SA, expects to increase crude and natural-gas production this year as it ramps up spending on exploration and production, YPF Chief Executive Miguel Galuccio said Tuesday.
Argentine President Cristina Kirchner tapped Mr. Galuccio to run YPF shortly after she nationalized the company last year and charged him with reversing years of declining production. YPF managed to increase oil output 2.2% in 2012, while the decline in natural gas production eased to 2.3%.
Mr. Galuccio expects oil production to rise 4% this year, and gas production to increase about 1%.
"For 2013, the challenge is to move to a growth mode, but not growth at any cost. I intend to preserve the profitability of this company and I will have all the [authority] to delay or eliminate projects if needed," he said in a conference call with analysts.
YPF invested 16.48 billion pesos ($3.25 billion) in its operations last year, an increase of nearly 26% from 2011.
YPF has budgeted about $5 billion in capital expenditures this year, and will need to raise about $500 million in additional financing for its investment plan, Chief Financial Officer Daniel Gonzalez said.
YPF's ambitious investment program is starting to bump up against physical constraints.
The company will likely have to bring in drilling rigs from abroad as it runs out of suitable rigs in Argentina, Mr. Galuccio said.
YPF is staking its future on developing Argentina's vast shale-gas and-shale oil deposits.
The South American nation is thought to be home to the world's third-largest shale-gas reserves after the U.S. and China, with some 774 trillion cubic feet of recoverable gas, according to U.S. Energy Information Administration estimates. Argentina is also thought to have significant quantities of shale oil.
But getting those hydrocarbons out of the ground and to consumers and businesses will require billions of dollars that neither YPF nor Mrs. Kirchner's government have on their own.
Last December, YPF signed a deal with a company linked to Argentina's Bulgheroni family to invest $1.5 billion together over the following two years to develop shale-gas and oil resources.
YPF also announced a preliminary agreement that same month with Chevron Corp. that could see the California-based company and YPF spend about $1 billion to drill 100 wells for unconventional energy in Neuquen Province. Chevron has four months to negotiate the final terms and conditions of that agreement.
However, a court-ordered embargo on the assets of Chevron's local subsidiary, stemming from a decades-old case involving environmental-damage claims in Ecuador, has raised questions about Chevron's ability to invest in Argentina. Chevron has said it will use all legal means available to fight the embargo.
"The Chevron deal is moving ahead as expected," Mr. Galuccio said, adding that there will probably be some changes to last year's agreement.
A Chevron spokesman didn't immediately respond to an email and phone calls seeking comment.
Mrs. Kirchner is seeking outside investment and technical expertise to make Argentina energy self-sufficient once again after years of declining production and reserves turned the country into a net energy importer in 2011.
Last May, she formally expropriated a 51% stake in YPF from Spain's Repsol SA in a dispute over investment. Mrs. Kirchner accused the Spanish company of siphoning capital out of YPF and failing to invest enough in its operations.
Repsol has denied those accusations and is seeking about $10 billion in compensation for its YPF shares.
Critics of the government's energy policies say that price caps and export taxes have discouraged investment in the oil and gas sector.
Last November, the Kirchner administration more than tripled the price that YPF can charge for new natural gas production to $7.50 per million British thermal units.
YPF's shares traded in New York were recently 3.5% higher at $15.29, giving the company a market capitalization of about $6.0 billion.
Copyright (c) 2013 Dow Jones & Company, Inc.
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