Pan American secures loan for Cerro Dragon field

Pan American Energy has signed a $550 million loan agreement with International Finance Corp. for development of Cerro Dragon oil field in the Golfo San Jorge basin in Chubut, Argentina.

Eric Watkins
Senior Correspondent

LOS ANGELES, July 19 -- Pan American Energy LLC has signed a $550 million loan agreement with the World Bank's private-sector division, International Finance Corp. (IFC), for development of Cerro Dragon oil field in the Golfo San Jorge basin in the southern province of Chubut, Argentina.

Pan American is 60% owned by BP PLC and 40% by Bridas Corp. of Argentina

The funds will provide financing for Pan American's 2007 and first-half 2008 capital expenditures program for the block, which represents about half of the company's total production.

IFC said the financing, $150 million from its own reserves and $400 million from commercial banks, will support Argentina's economic growth and "generate substantial benefits for Argentina through tax and royalty revenue."

IFC said the Cerro Dragon outlays encompass six main areas of development:

-- Drilling of more than 120 oil wells, 55 gas wells, and 122 waterflood wells.

-- Completion of five waterflood projects (started in 2006), six waterflood projects in 2007, and two waterflood projects in 2008.

-- An increase in the electric power supply system through the addition of two 40-Mw gas turbines.

-- Expansion of the oil treatment plants.

-- Expansion of the existing water injection capacity.

-- 80 well workover interventions.

Approval of the loan follows the extension, which was due to end this year, of Pan American's contract for the Cerro Dragon field signed in April by the firm's Pres. Carolos Bulgheroni and Chubut Gov. Mario das Neves.

Pan American will operate the block until 2027 and has the option of a 20-year extension. It reportedly plans to invest $2 billion to 2017 and a further $1 billion by 2027.

The Argentine subsidiary of Houston-based Allis-Chalmers Energy Inc.—DLS Drilling Logistic & Services Corp. — which has an existing contract with Pan American to provide 31 rigs in the Golfo San Jorge area, will supply and operate an additional 3 drilling and 14 service rigs for the Cerro Dragon area work.

Allis-Chalmers estimated costs associated with the new equipment at $80 million and said the contract will generate additional revenue of $200 million over the 5 years of its term.

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