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Pan American Energy to invest $3.4 billion in Argentina from 2013-17 

BY SHANE ROMIG

BUENOS AIRES -- Argentina' s Pan American Energy has signed a deal with the government to invest $3.4 billion between 2013 and 2017 to boost natural gas exploration and production in exchange for being able to charge higher prices.

The company said it will boost it' s price for natural gas over a base level to $7.5/MMbtu.

Pan American said it had reached a similar deal as state-run oil company YPF. In November, YPF announced it would start charging $7.5 mmBtu, more than three times what the company charged for its gas last year.

The agreement with Pan American Energy will increase Argentina' s annual natural gas production by 4.3%, adding about 4 MMcmd, the Argentine government said in a statement. That will save the state $4.3 billion and will decrease the capital outflows for gas imports by $6.8 billion," the government said.

The government lauded the commitment and hinted that other sectors could anticipate the government allowing them to raise prices if they make similar investment commitments.

The deals with YPF and Pan American have "marked the path to follow [and] send a clear signal to the industrial sector, particularly power generators," Planning Minister Julio de Vido said in a statement.

The government tightly controls the domestic price of oil, gas and services such as electricity. The companies complain that those controls stifle investment.

Pan American Energy is 60% owned by BP, while China' s CNOOC has a 20% stake through Bridas Corp. Bridas Corp. is a joint venture between CNOOC and Bridas Energy Holdings Ltd., the oil and gas company owned by Argentina' s Bulgheroni family.

Argentina has struggled in recent years with stagnant oil and gas production while demand has soared, turning the country into a net oil importer.

In April, Argentine President Cristina Kirchner seized a controlling stake in YPF from Spain' s Repsol in a dispute over investment. She accused Repsol of bleeding YPF dry with dividends and not investing enough in exploration and production.

Repsol denies those accusations and is seeking about $10 billion in compensation for its lost shares in YPF. Now Argentina is on a major investment drive to develop what could be massive unconventional oil and gas deposits.

Argentina ranks third in the world, behind China and the U.S., in potentially recoverable shale-gas reserves, with 774 Tcf, according to a study last year by the U.S. EIA.

YPF has plans to invest $7 billion a year between 2013 and 2017. The company is also looking to form joint ventures for financing and expertise in shale oil and gas exploitation.

On Dec. 19, YPF and Chevron said they have agreed to create a joint venture within a year. That agreement, the final terms of which will be hammered out in four months, would see the companies spend about $1 billion to drill 100 wells in a 290-sq km area in the Vaca Muerta formation in Argentina' s Neuquen Province. The results of that pilot program will help the companies finalize plans to drill an estimated 2,000 wells for about $15 billion.

Dow Jones Newswires

12/29/2012

 

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