Pampa sets sights on Argentina’s tight gas as Vaca Muerta drags

By Jonathan Gilbert on 1/11/2017

BUENOS AIRES (Bloomberg) -- Pampa Energia SA wants to become one of Argentina’s main producers of tight gas following its acquisition of Petrobras Argentina SA, because those prospects are currently more profitable than shale gas in the giant Vaca Muerta formation.

“We want to be one of the key players in tight gas,” Chairman Marcelo Mindlin said in an interview at Bloomberg’s headquarters in New York. Pampa currently produces 25% of Argentina’s tight gas, Mindlin said.

While increasing output in Vaca Muerta, the world’s second-biggest shale gas play, is crucial to reversing Argentina’s dependence on gas imports, Pampa is zoning in on tight gas deposits acquired last year from Petroleo Brasileiro SA’s Argentine unit outside of the formation, General Manager Ricardo Torres said. That’s because today drilling for them is cheaper and profit margins are greater, Torres said.

Pampa is ready to offer up to $1 billion in five-to-ten-year bonds on international markets. The debt may be issued on Jan. 17, Mindlin said. The money raised will allow Pampa to pay off a bridge loan that funded the $890-million takeover of Petrobras Argentina and drive its expansion in tight gas and electricity generation. Pampa won’t sell more debt this year.

Vaca Muerta

Even as the company pivots its hydrocarbons strategy on tight gas, it will drill its first shale gas well this year in Vaca Muerta with Exxon Mobil Corp.’s XTO Energy, Mindlin said. Exxon has a JV with Pampa in the Parva Negra Este Block of Vaca Muerta, Suann Guthrie, a spokeswoman for Exxon, said in an email. Exxon will drill the horizontal section of an already-perforated well, with operations turned back to Pampa after completion.

Pampa controls 18% of Vaca Muerta’s acreage after its acquisition of Petrobras Argentina. It would look to continue working with XTO on shale gas projects in the formation that are still under research, Mindlin said.

Those projects may get a boost after President Mauricio Macri announced on Tuesday an accord with labor unions. They made concessions to spur gas investments in Vaca Muerta. “Definitely this agreement with the unions is going to reduce the cost,” Mindlin said.

Likewise, Mindlin said he was pleased by another of Macri’s business-friendly energy policies to raise electricity and gas tariffs for consumers. Pampa owns transmission company Transener SA and distribution company Edenor SA.

“It’s a big, big change to what was happening in the last 15 years,” he said. “We are very excited.”

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