Majors step up to bid on Argentina offshore acreage


LONDON, HOUSTON and SINGAPORE -- Argentina's first national offshore licensing round was held yesterday, April 16, 2019, in Buenos Aires. Of the 38 blocks offered in an open bid round, 18 were licensed.

The round attracted bids from 13 companies, with the winning bids totaling $718.28 million. All Majors participated in the bidding, aside from Chevron.

The acreage is located in the Austral Marine, Western Malvinas and Argentina basins.

Commenting on the results, Horacio Cuenca, research director at Wood Mackenzie, said: "The Argentinian government designed very competitive terms for this round, acknowledging the frontier nature of the acreage, and demonstrated its focused intent on attracting explorers that will carry out the initial de-risking, rather than generating revenue."

"The terms were appealing enough to attract the companies with the technical capabilities and deep enough pockets to chase this high-risk acreage: the Majors. Most of the bidders already had a presence in the country, having taken significant positions in the Vaca Muerta shale play.

"Low upfront payments were required, and bidding was done on work commitments. In addition, the blocks are large, which allows companies to maximize exposure to potential finds.

"The exploration periods are also long; a company can keep the whole block for eight years before it has to relinquish half of it. There are no drilling commitments for the first four years.

"Our analysis shows that half of all volumes discovered in a play are found before first production from the first field developed in that play. We also find that frontiers deliver the highest value creation, in part due to attractive fiscal terms.

"It will be a few years before we see the first well. Most of the blocks were won with seismic commitments – the acquisition and processing of seismic are likely to take a few years. And companies can delay the potential drilling of these expensive wells to a time where we expect to have consistently higher oil prices."

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