Repsol YPF to invest US$2.3bn in Argentina E&P through 2007

Repsol YPF plans to invest US$2.3bn in exploration and production (E&P) to maintain hydrocarbons production in Argentina from 2003 to 2007, COO Ramon Blanco said during a conference to discuss the company's strategy over the period. Most of the investment will be for infill drilling, secondary recovery projects, 3D seismic studies, and exploration in low-risk areas, Blanco said.

The work will be carried out in the Neuquen, San Jorge and Cuyana basins. Nearly two years since the devaluation of the Argentine peso in early 2002, Repsol YPF sees "clear signs of economic recovery," especially in terms of macroeconomic factors, Cortina said. The devaluation has been a double-edged sword for Repsol YPF, with lower production costs and higher profitability margins offset by lower gas prices still frozen at their pesofied levels. Repsol YPF has concentrated on liquids exploration and has maintained 27 rigs in the country since the devaluation to take advantage of lower production costs, Cortina said.

The company has also increased its refining capacity utilization to 93% in 2003 from 89% in 2002 to produce more refined products such as gasoline, which are not subject to heavy export taxes. However, liquids production is expected to decline in the next few years due to the maturity of existing fields, which will be compensated by higher gas production, Cortina said, adding gas prices are expected to return to their pre-devaluation level of US$1.4 per million British thermal units (mBTU) by 2007. Although the gas rate for residential consumers remains frozen at its early 2002 pesofied level, Repsol YPF has reached price adjustment agreements with large industrial consumers, which allowed the company to increase its average gas price to US$0.85/mBTU from January-September 2003 compared to US$0.69/mBTU in 2002.

However, the current price for residential customers "is impossible to maintain in the mid-term," Cortina said, adding that Argentina will eventually have to import gas from Bolivia due to lack of investment in gas exploration, Bolivian gas costs about US$1.05/mBTU, which including transport costs is equivalent to paying US$1.25/mBTU for gas from the Neuquen basin, he added. "All companies are looking forward to long-term signals to make major long-term investments to replace declining gas reserves," he said, adding that new gas investment plans take longer to implement than crude investments, so Argentina's gas industry will take some time to recover. Although Repsol YPF aims to maintain its hydrocarbons production in Argentina through 2007, the company will reduce its Argentine production as a percentage of the company's total production from 72% in 2002 to 56% by 2007, in line with its decentralization strategy, Cortina said.

The company will focus on other Latin American countries including Trinidad and Tobago, where the fourth Atlantic LNG train is expected to start up in 2005, and Brazil where the Albacora Leste field is expected to start up in the same year, Cortina said.

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