BP's Dudley Favors Argentina Shale Over Costly Texas Permian

(Bloomberg) -- BP Plc would rather invest in Argentina’s shale oil fields than in Texas’s Permian Basin, the U.S. drilling hot spot, Chief Executive Officer Bob Dudley said.

The U.K. oil producer is seeking to buy more assets in Argentina’s Vaca Muerta shale fields, which have “enormous potential,” Dudley said in a Bloomberg Television interview Tuesday in Buenos Aires. The government there has improved the investment appeal of the country by helping foreign companies cut through red tape, he said.

“I’m really encouraged by what I see,” Dudley said. “There’s a lot of future here.”

Argentine President Mauricio Macri has been courting international corporations from Exxon Mobil Corp. to Total SA to tap the vast investments needed to develop the nation’s shale oil and gas deposits. Attractive terms are key to lure companies that have narrowed their portfolio and slashed global spending to weather oil’s two-year decline. For BP, still reeling from the $60 billion fallout from the 2010 Gulf of Mexico oil spill, affordability is paramount.

Pan American

The London-based producer would make any further investments in Argentina through its joint venture, Pan American Energy LLC. Pan American is 60 percent owned by BP and 40 percent by Bridas Corp., a partnership between the billionaire Bulgheroni brothers and China’s Cnooc Ltd.

“I’m not surprised because valuations in the Permian have become expensive,” said Iain Armstrong, a London-based analyst at Brewin Dolphin Ltd. “The Vaca Muerta is seen highly prospective and Pan American has been around in Argentina for a while and that gives them some voice.”

The Permian Basin’s oil-rich geology, extensive infrastructure of terminals and pipelines and low production costs have lured producers who are competing to snap up acreage there, ratcheting up purchase prices. Permian shale assets are too costly for BP right now, Dudley said on the sidelines of the Argentina Business and Investment Forum.

Oil companies across the world may cut spending for a third straight year in 2017 to shield finances as the global oversupply continues to cap crude-price growth, according to the International Energy Agency. Investments in oil and gas fields are set to drop 24 percent to $450 billion this year after a 25 percent decline in 2015, the IEA said this week.

Dudley sees oil prices staying around $50 a barrel for the remainder of 2016. In the long term, BP will shift more toward natural-gas production over oil, he said.

Vaca Muerta, Spanish for Dead Cow, has major deposits of both oil and gas. Covering an area the size of Belgium, it has become one of the world’s top shale plays and is considered key to restoring energy self-sufficiency in Argentina. Exxon has designated the formation as one of nine “key activity” areas in the Western Hemisphere.

With assistance from Rakteem Katakey. To contact the reporters on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net ;Erik Schatzker in New York at eschatzker@bloomberg.net To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net Amanda Jordan, John Deane

Copyright 2016 Bloomberg News.

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