Argentina's upstream sector is finally coming out of a lengthy holding pattern. In recent years, exploration and development activity in Argentina had been reined by uncertainty over the prospects for natural gas export pipelines.
That uncertainty was complicated further by Repsol SA's acquisition of Argentine giant YPF SA and Chevron Corp.'s acquisition of big Argentine independent Petrolera Argentina San Jorge SA, as a wait-and-see stance took hold in the aftermath of those big mergers.
The sector was further buffeted by the collapse in oil prices in 1998 and early 1999.
But Argentine E&D action has been picking up steadily in recent months. And by all accounts, the sector is on the verge of changing faster than anyone would have imagined just a year ago.
Moreover, a roster of gas transmission project ventures linking to neighboring countries (OGJ, Aug. 9, 1999, p. 37) and the forthcoming divestment of assets belonging to the Repsol-YPF energy titan is helping to breathe new life in the industry.
Indeed, with upstream ambitions running high once again, "spending" and "increased investments" have become the prevailing buzzwords in Argentina's petroleum industry. And most of that surge in outlays is targeted for a robust slate of exploration and development activity.
Repsol-YPF
Fresh from its $15 billion buyout of Latin America's leading oil equity, Repsol-YPF wants to maintain its stronghold in Argentina, while still yielding to a government condition to shed part of its share in the domestic sector.
According to Repsol-YPF General Director of Exploration & Production Dante Ruben Patritti, the new company will spend $800 million for E&D this year. Expenditures will fuel the company's aggressive expansion plan, averaging $1.2 billion/year in upstream investments over the next 10 years, he said.
Although the firm's operations span the continent-from Offshore Guyana to Tierra del Fuego-Patritti said Argentina's Golfo de San Jorge basin would be the focus of domestic spending.
"Some 60% of investments would be focused on its oil operations and the remaining 40% on its natural gas holdings," he said.
Patritti also said the company plans to drill around 500 wells in the region, of which 200 will be on acreage it operates in the southern Golfo de San Jorge and Austral sedimentary basins.
Pan American
Pan American Energy LLC, the joint venture of BP Amoco PLC's Argentine unit and local independent Bridas SAPIC is targeting spending of around $200 million in 2000, Richard J. Spies, Pan American's CEO said.
Moreover, Spies said the company would reorient spending towards oil production next year. In 1998, Pan American produced 28 million bbl of petroleum. "This year (1999), production should decline, but we will raise investments next year (2000) and begin producing more oil," he said.
Pan American is a major producer and exporter of the heavy, sweet crudes Canadon Seco (25
Spies also said the company would earmark increased investments for the company's gas assets. The Northwest basin's Acambuco block is its most important gas project to date. The company hopes to begin gas production from the block in September 2000. Acambuco is located between Bolivia's San Alberto block-where Brazil's Petroleo Brasileiro SA has made recent discoveries-and Argentina's Ramos field. Pan American Energy (54.5%), Royal Dutch/Shell (22.5%), and Repsol-YPF (20%) are the largest investors in Acambuco.
Spies also said the company is considering shedding noncore assets from its Argentine portfolio and reorienting its operations to higher-yielding holdings. "We would like to focus on our major production areas and consolidate our operations throughout the country," he said.
TotalFina
Total Austral SA, the Argentine unit of France's TotalFina SA, and coinvestors are mulling investments of up to $1 billion in Argentina over a 5-7 year period. The lion's share of investments will be used for oil and gas exploration and development.
"There is still quite a lot of room for growth in both (sides of) the upstream," said Total Austral's Director of Development & Planning Gerard Moutet. Indeed, Moutet said Total Austral, a key oil and gas producer in Argentina, will focus in the coming years on increasing gas production in the southernmost Austral sedimentary basin and the Neuquen basin and would target increasing its stake in midstream holdings. Company officials stress, however, that projected investments will be made in stages upon the completion of natural gas export projects.
However, the company and coinvestors hope to increase their Argentine hydrocarbon production by 40% over the next 5 years, from the current average level of 175,000 boe/d.
Total and partners said they would focus on undeveloped blocks in the Austral basin, which have a high potential for gas production. Blocks tagged for spending increases include Vega Pleyade, Aries, and Carina. Officials also said there are plans to step up exploration activities on the CAA-35 and CAM-1 offshore blocks and the onshore Santa Cruz-1 Oeste and CA-3 blocks in Santa Cruz Province.
Chevron
Following Chevron's 100% purchase of Petrolera Argentina San Jorge, one of the largest oil producers and petroleum exporters in Argentina, a company official said that San Jorge's capital spending would be about $60 million/year for the next several years.
San Jorge's gross operated production is about 78,000 b/d of oil.
San Jorge accounts for 8% of the oil production in Argentina and has proved reserves of more than 180 million boe and potential reserves of more than 400 million boe.
San Jorge said it hopes to boost net oil production to about 80,000-90,000 b/d by 2003-04 from the current 58,000 b/d.
Perez Companc
Rather that hunker down in the wake of the giant mergers, Argentina's surviving independents are stepping up efforts to meet the new competition.
Perez Companc SA, the country's largest privately owned energy enterprise, and other, smaller concerns are making plans to spend more for E&D.
And, according to Carlos Cortizas, a senior official in Perez Companc's oil and gas division, the company's upstream aspirations are back in the spotlight. Cortizas also said the company would experience a shift in corporate focus toward consolidating exploration and production assets. Perez Companc reined spending throughout 1998-99 when oil prices plunged to modern-era lows, in real terms. But Cortizas said that, beginning next year, the company would free up more investments.
"Spending will be increased by $100 million from this year's $400 million budget. And between 75% and 85% of investments will be made in exploration and production," he said.
Since the mid-1990s, the horizontally integrated energy conglomerate has spread its upstream portfolio across Latin America, transforming its overseas subsidiaries into major players in the hydrocarbon provinces of Bolivia, Brazil, Peru, and Venezuela. About 56% of Perez Companc's 1.087 billion boe reserves are outside Argentina. Cortizas said, however, that a large share of midterm investments would be targeted at developing gas assets in the southern Austral sedimentary basin and the western Neuquen basin.
Cortizas also said the drive to consolidate its operations could entail "either swapping certain fields with other local operators or selling more marginal properties outright."
The firm's flagship projects are being undertaken by the UTE Santa Cruz II joint venture. Operator Perez Companc holds a 37.8% interest in the JV; Repsol's Astra and YPF units retain the balance.
The venture plans to drill 29 gas wells over the next 3 years in the Maria Ines, Barda Las Vegas, and An Aike areas. This drilling program is part of a $110 million project to increase gas output and expand field infrastructure.
In western Argentina, the company is looking to invest over $100 million upon successful completion of a drilling program aimed at developing gas reserves on its 100%-owned and operated Rio Neuquen block in the Neuquen sedimentary basin. There, Perez Companc currently has two wells exploring for new reserves, while total gas output from the block averages 1.7 million cu m/day (MMcmd). The company hopes to lift gas production to 4.7 MMcmd over a 3-year period.
Despite losing out in the competition for Argentina's fourth largest oil company, Petrolera San Jorge, to Chevron, Perez Companc and partner Unocal Corp. plan to pursue more upstream opportunities together in the future, Cortizas said.
The two companies teamed up to purchase the firm that was acquired by Chevron in September 1999. Analysts pegged San Jorge's value at $1 billion. "We lost out, and that was disappointing, Cortizas said. "But we both have common goals for Argentina, (and) we hope to work together in the future."
Unocal
For its own part, Unocal has been trying to press ahead with several projects to aid in its upstream expansion here, the most recent being the San Jorge bid.
Indeed, the subsidiary has not experienced the growth it has hoped for, but with oil prices still strong, Unocal Patagonia Ltd.'s General Manager Steven Benedetti said the company would continue pursuing oil production opportunities here. "We are committed to Argentina," he said. "The key for us will be farming into developed projects," he said.
The company and partner Repsol-YPF recently shelved plans to develop the CAA-9 high-risk block located in the San Matias sedimentary basin after the government delayed approval for licensing amid environmental concerns (OGJ, Aug. 2, 1999, p. 36). Unocal and Repsol-YPF are also jointly developing offshore acreage in the southern San Jorge sedimentary basin. Unocal holds 50% in the venture.
Unocal also participates in one other venture with Repsol-YPF, involving the CNQ-7 block in the Neuquen sedimentary basin. Unocal and Repsol-YPF bid for the concession last year and have committed to perform exploratory studies and drill at least one well in the concession. Benedetti said he expected approval would be given by the end of the year.
Pluspetrol
Pluspetrol Resources SA, one of Argentina's few remaining privately held oil concerns, will spend a minimum of $150 million in 2000 to both increase hydrocarbon production and acquire new acreage in Latin America, company president Luis Rey said.
In addition to its acreage in Argentina, Pluspetrol is an increasingly important player in Bolivia and Peru.
Rey said the company's short-to-medium term goals include lifting oil production to 100,000 b/d from 50,000 b/d and natural gas production to 15 MMcmd from current output of 11 MMcmd.
Alliances, acquisitions
Alliances and asset acquisitions are expected to continue to set the tone for Argentina's usptream sector, as the Repsol-YPF divestment process races ahead and operators open up participation in a number of upstream development projects.
And a drove of smaller independents are waiting in the wings to expand their share in the market.
Pioneer Natural Resources Co., Irving, Tex., is one such firm emerging from the shadows. According to company sources, the firm has agreed to purchase Pan American's Al Sul de la Dorsal Block and Estacion Fernandez Oro, both in the western Neuquen basin.
"It's a very important step for our new push into E&P," a company official said. Pioneer already holds the Al Norte de la Dorsal Block near Pan American's tract. Analysts said the purchase would benefit Pioneer, because properties in the Neuquen basin are characterized by low finding and development costs and a well-developed production infrastructure.
Pioneer Resources Argentina SA's Guimar J. Vaca Coca said that "an official announcement concerning an acquisition" would be forthcoming.
The Neuquen basin is located about 925 miles southwest of Buenos Aires and just east of the Andes mountain range, and it accounts for over half the country's oil production.
Vaca Coca also said Pioneer would press ahead with several projects to lift oil production in the coming years. The company expected to close 1999 with output at about 10,000 b/d, up from 7,500 b/d earlier in the year.
As for its most recent acquisitions, Pioneer next plans to merge operations at Al Sul de la Dorsal Block with its nearby Al Norte de la Dorsal Block. Terms and conditions of the deal were not available, but sources said the acquisition would be completed soon.
Jorge Mariaca-Pando, a Pioneer production manager said, however, that output at Al Sur de Dorsal is currently about 1,570 b/d of oil plus 200,000 cu m/day of natural gas. Output at Pioneer's Al Norte de Dorsal is currently 7,550 b/d of oil.
Mariaca-Pando said the company would unitize operations at both blocks, while Pioneer is targeting a combined production of 12,580 b/d in coming years.
The company is also drawing up plans to boost production on a second block that it acquired from Pan American: Estacion Fernandez Oro. The acreage is located in Rio Negro Province and produces around 630 b/d and about 45 cu m/day of gas liquids.
Mariaca-Pando said plans include conducting seismic surveys and drill- ing an exploration well in 2000. The company also hopes to make further inroads in Neuquen by pursuing other oil field acquisition opportunities there. The most recent acquisitions take the total of Pioneer's blocks in Argentina to 22. Mariaca-Pando said Pioneer and partners produce a total of 28,000 b/d.
Petrobras
Petrobras Director Antonio Luiz Silva de Menezes said the Brazilian oil giant would focus in the coming years on transforming its Argentine unit into a major player here. Currently, Petrobras holds 15% stake in the UTE Aguarangue consortium in northwestern Argentina. Tecpetrol is operator in the venture with a 23% stake, while YPF and ExxonMobil Corp. and other firms hold the remaining interests.
Petrobras also has the Neuquen basin's Puesto Zuniga exploration concession. The acreage covers 400 sq km and is located near Lake Pellegrini in western Argentina.
"Our focus will be on transforming the (Argentine) subsidiary into a wholly integrated unit, with assets in both the upstream and downstream," he said. More than this, Menezes said the company is "very interested" in the projected sale of assets by Repsol-YPF.
"We plan to use our current Argentine holdings as our base for expansion," the official said.
Repsol-YPF and Petrobras have already reached a preliminary agreement to deepen working relations and expand existing joint ventures. This cooperation accord aims to facilitate the future sale or exchange of assets and licenses the two companies have in Argentina, Brazil, and other countries.
Moreover, both companies will also conduct joint exploration and production projects as part of the accord. The two sides plan to release in the near future a series of studies that will detail the projects that the accord will encompass.