Will Argentina lead the global shale gas race?

With shale gas drilling going global, energy importing nations are evaluating their own geology, currently, to see if they have shale reserves that can be tapped.  Likewise, Argentina which imports natural gas from neighboring Bolivia is set to win the global shale race where other countries in Asia, Europe and Africa are gearing up aswell. What is considered as the “game-changer” for the US, will shale gas success be replicated outside North America ,or for that matter, in Argentina?

Currently, Europe is in the limelight for being ahead of the shale gas activities, however, one needs to watch out who might be the next one?

Whats  happening in Argentina?

• In 2010, YPF announced a 4,500 billion cubic feet(Bcf)  shale gas  discovery in Loma de La Lata  conventional gas field  in the well known and productive Neuquen Basin in Patagonia.
• The Company has also formed a $140 million joint venture with the Brazilian iron ore and mining multinational, Vale, which will use the gas to develop a $4.3 billion dollar potassium project in nearby Mendoza.
• American Petrogas Inc, which holds about 16 exploration blocks, both for conventional and shale gas in the eastern and western parts of the Neuquen basin, thinks that its western blocks have the greatest potential for shale gas. It believes that about 100 tcf of gas is present in 9 of its blocks.
• Indian Farmers Fertilizer Cooperative (IFFCO), a strategic  alliance partner with American Petrogas Inc  in Argentina has invited two government owned Indian companies, Oil India and GAIL , to invest in its shale prospects.
• Apache Corporation expects to hold 900,000 net acres in the shale gas prone part of the Neuquen and has a partnership with YPF to develop shale gas in several prospective blocks. It is currently drilling the first horizontal multi fracture well in Argentina specifically to develop shale gas.
• Total acquired an interest in 4 shale gas blocks in the Neuquen and will explore in partnership with YPF. This follows the acquisition of an 85% interest in 2 other Neuquen shale gas blocks recently.  Total operates about a quarter of Argentina’s natural gas production. 

Recent Shale Gas Transactions in Argentina

Global Distribution

    Source: Hart Energy Global Shale Gas Study

The Society of Petroleum Engineers estimates 2,116 tcf of shale gas in South America.

• Argentina – Neuquen Basin, Austral Basin 
• Colombia – “Cretaceous organic – rich shale source rocks are present in both the Maracaibo and Middle Magdalena basin of Colombia and Venezuela.
• Peru – Ucayali Basin

As per Hart Energy Global Shale Gas Study, shale gas is plentiful around the globe. Conservative estimates place the total resource volume at about 20,000 Tcf. This volume is likely to increase as more shale gas plays are identified and evaluated.

However , the uncertainty still remains wheather the operators would be able to overcome the hurdles of tapping this source of stored energy. The biggest challenges to developing these resources outside of the US include:

• Access to acreage / resource
• Availability of rigs and skilled workforce
• Access to water and environmental concerns about waste water
• Finances, due to high cost of wells
• Necessary infrastructure to transport the gas once in production 

Argentina- a tough place to do business!! Repsol dilutes maturing Argentina assets and concentrates on Brazilian pre-salt discoveries

Repsol has agreed to sell a 3.83% stake of YPF to Lazard Asset Management and other investment funds for $639 million ($42.4/share). YPF's shares were last traded for $48.3/share on 14^th Mar, 2011. In addition to this, Repsol announced a public offering of 24.27 million shares of YPF, in the form of American Depositary Shares, representing 6.17% of the company’s stock. Additionally, Repsol has granted the underwriters an option to purchase an additional 3.64 million shares, representing 0.93% of YPF.

At the end of last year, Repsol agreed the sale of 3.3% of YPF for $500 million to funds managed by Eton Park Capital Management, Capital Guardian Trust Company and Capital International Inc. Additionally, shares of YPF totalling 1.06% of the company have been sold on the stock markets in the last few months. Following the latest transactions, YPF’s shareholding structure is as follows: Repsol Group (75.9%), Petersen Group (15.46%) and 8.64% free float.

Repsol’s strategy- Dilute maturing assets in Argentina and focus more on Brazlian assets!

This deal is part of Repsol’s strategic aim to rebalance its global assets portfolio as laid out in the Horizon 2014 plan, allowing new shareholders into YPF. Repsol is seeking to reduce business in maturing fields in Argentina while investing in exploration in Brazil’s offshore Santos Basin. At the end of 2010, Sinopec signed agreement to invest $7.1 billion in Repsol’s Brazilian unit. Repsol forecasts annual production growth of as much as 4% through 2014 as projects in Brazil and Peru start. It plans to invest 28 billion euros from 2010 to 2014 on fields in Venezuela, Bolivia and Algeria. The company will invest about 6 billion euros this year and plans to drill 25 to 30 exploration and evaluation wells. Recently, Repsol signed agreement to invest at least $768 million in oil exploration and development on Alaska's North Slope.

Is doing business in Argentina tough??

Buying YPF could be a good business – Repsol in Argentina announced a large unconventional gas discovery in December 2010, which it is keen to explore with partners. But monetising that and any future discoveries of that type will take time, and the reality is that with its maturing markets and heavy regulation which discourages investment, Argentina is, for many energy companies, a tough place to do business.

Argentina has some of the lowest gas prices in the world, in large part because of governmental controls designed to curb inflation and bolster the competitive edge for manufacturers. Barclay Hambrook, CEO of Americas Petrogas, in an interview about Argentina's shale reserves potential said, “The Argentine government has to do a little more in terms of encouragement, especially in terms of higher prices, as the wells are deeper and require a lot of capital and expertise to complete. If there is some improvement in gas prices, then I think there could be a significant upturn in investment and exploration in the Neuquen Basin.”

To know more on shale gas projects in Argentina click here: http://docsearch.derrickpetroleum.com/research/q/%22argentina%20shale%20%22.html