ARGENTINA PUSHES TO COURT FOREIGN OPERATORS

Nowhere has the push toward privatization in South America been more dramatically highlighted than in Argentina.

President George Bush's early November 1990 visit to Brazil, Uruguay, Argentina, Chile, and Venezuela was intended to show U.S. support for democratization, deregulation, and privatization efforts in South America.

Bush arrived in Argentina just after Argentine President Carlos Saul Menem put down a military coup that followed a year of ambitious privatization and democratization initiatives in the country.

MENEM'S INITIATIVES

Menem, elected in 1989 as head of the ultranationalist Peronist Party shocked supporters and pleased conservatives by undertaking a drive for free market economic reform and privatization that was a 180 turnabout from the nationalization/labor/populist Peronist policies of the past.

The party's founder, General Juan D. Peron, nationalized Argentina's oil industry-along with most other key industries-after World War II.

Menem inherited an economy with almost 200%/month inflation, which his austerity measures and tough monetary policies brought down to 6.2% in November 1990.

Since he took office in July 1990, Menem has privatized the state owned telephone, airline, and television industries and one third of the federally run highways.

Together with an aggressive push to deregulate Argentina's oil and gas sector, Menem's privatization effort is expected to result in cutting the country's foreign debt by $8 billion to $52 billion.

Menem claims his policy of allowing private local and foreign ownership of state oil assets is a first for Latin America. From the 1920s until 1990, about 70% of oil and gas production had been in the hands of the state oil company, Yacimientos Petroliferos Fiscales, and the rest owned by private companies.

Argentina's previous efforts to boost oil and gas production were hampered by frequent changes of government oil policy, especially by regimes favoring nationalistic, anti-private sector attitudes.

Menem's administration has targeted an increase in YPF production to almost 700,000 b/d in 8 years from the current 448,000 b/d.

But YPF is strapped for cash and has limited technological resources, which has opened the door for joint ventures with foreign operators.

That led to liberalizing the country's oil laws and the first time an Argentine agency has put out a tender for bids on oil and gas concessions.

NEW TENDER AREAS

YPF is offering four major oil producing areas with identified total combined crude reserves estimated at 256 million bbl under its next tender.

Vizcachueras produces 13,000 b/d and has 58 million bbl of reserves in Mendoza province 1,000 km west of Buenos Aires. El Huemul produces 13,000 b/d and has 44 million bbl of reserves in the Santa Cruz province of Patagonia. El Tordillo produces 16,000 b/d and has 47.8 million bbl of reserves in Chubut province 1,530 km from Buenos Aires. Puesto Hernandez produces 39,000 b/d and has 106 million bbl of reserves 1,200 km southwest of Buenos Aires.

In all, the country has more than 9,000 producing oil wells. Total proved reserves are about 2.28 billion bbl of oil and about 28 tcf of gas.

Industry officials think the big jump in E&D spending as a result of new private investment can turn Argentina into a significant oil exporting country. Argentina in recent years has produced a little less than about 500,000 b/d and exported about 10-15% of that volume.

Of the 19 sedimentary basins YPF has identified in the country, only five have oil production: Noroeste, Cuyana, Neuquen, San Jorge Gulf and Austral--which laps over into Chile where it is called Magallanes. Not until June 1989 did production start up in the offshore Austral basin, off Tierra del Fuego.

These five basins represent only 40% of Argentina's total 1.75 million sq km of sedimentary basin prospective for hydrocarbons. Three of the basins extend offshore, with the prospective continental shelf area covering 1 million sq km.

PREVIOUS ACTIVITY

YPF mostly has focused its exploration and production in the Cuyana, Neuquen, and San Jorge Gulf basins.

Up to 1989, YPF had drilled one well per 101 sq km in Cuyana basin, one per 84 sq km in Neuquen basin, and 1 well per 86 sq km in San Jorge Gulf basin.

Exploration activity offshore has been slight. There is one well for every 467 sq km in Austral basin and only one well per 33,800 sq km in the Rawson basin.

That leaves a huge untapped potential area for foreign explorationists.

GAS ACTION

In the late 1970s, YPF began to step up its search for natural gas reservoirs.

It turned up the 1.32 tcf Loma de la Lata field in Neuquen basin. In the Noroeste basin, YPF tapped Paleozoic pay to open Ramos field, still under development with reserves estimated at more than 600 bcf. The state company also proved another 600 bcf in Aguaragua field, also in Noroeste basin.

In the southernmost tip of Argentina, YPF has developed an important complex of natural gas reservoirs, Candon Alfa and San Sebastian on Tierra del Fuego and various fields tied into the gas processing complex at El Condor south of Santa Cruz province.

By the end of the 1980s, Argentina was thought of primarily as gas prone.

At yearend 1989 natural gas reserves totaled more than 4.4 tcf, representing 32 years of consumption at then current rates. Crude reserves YPF estimated then at 2.1 billion bbl-about where they were in 1969-represented 14 years of consumption.

PRODUCTION DATA

At yearend 1989, Argentine production was split 69% YPF and 31% private companies.

Production flowed from 9,280 wells with an average daily output of 43 b/d/well in 1989. About 84% of crude production was primary recovery and 16% secondary recovery. Argentina became self-sufficient in oil and natural gas in 1982. In 1989, due to diminishing domestic demand, crude and oil products became the second biggest export after steel products. YPF says it took in $356 million in oil export revenues that year.

In the last six years, Argentina's industrial production dropped by 10%. Menem's tough anti-inflationary measures included a reduction in real wages of the public sector by 15% in 1989.

FOREIGN INVESTMENT SOUGHT

Foreign participants may take interests of 35-50% in exploration/production projects in Argentina. YPF supplies some of its technology, participates in operatorship, and provides technical personnel for the ventures.

Foreign partners are responsible for providing development plans, operational structure, and audited reserve figures, and top bidders become block operators.

Partners are free to market their share of produced oil abroad, Foreign companies also will be free to do what they want with revenues from oil sales without obligation to reinvest them in the country.

Argentina's energy secretariat in February 1989 issued an international tender for bids on exploration, development, and production projects in 40 areas in the five producing basins. The bids were sought on areas that had been inactive for 5 or more years or whose average production in 1988 did not exceed 1,258 b/d. In all, 132 fields in those areas produce less than 18,000 b/d of oil.

Under the 1989-90 tender offer, YPF sold interests in 31 marginal producing areas for a total of $252 million as of yearend 1990. Those areas are producing 17,870 b/d of oil and 29 MMcfd of gas.

The government expects its tender program ultimately will net it more than $1 billion.

1990 ROUND PLAYERS

Foreign companies acquiring acreage in the 1989-90 tender round were Amoco Corp., Chevron Corp., Brazil's Braspetro, British Gas plc, Exxon Corp., Marathon Oil Co., BHP Petroleum Pty. Ltd., Occidental Petroleum Corp., Spain's Repsol SA, Shell Oil Co., Total CFP, Trend Exploration (U.K.) Ltd., and Triton Energy Corp.

Until the tender, Argentina hadn't allowed foreign companies to operate state owned fields for more than 80 years. YPF operates about 250 marginal fields amenable to enhanced recovery.

British Gas, together with Argentine companies Cadipsa, Bracht, and Welber Insua, made the biggest single bid for a concession block, $50 million for the area covering Canadon Minerales field in the San Jorge Gulf basin along the boundary between Chubut and Santa Cruz provinces in Patagonia.

The same group won concessions in two other regions, for a combined $81 million.

Repsol and Argentina's Astra won bids for three areas, paying $19.1 million.

A surprise winning bid came from the Argentine company Minar, which acquired four blocks for $51 million. Until now, Minar had not been an active oil and gas operator, working mostly as a subcontractor for other companies.

Shell's Pecten International Co., through Pecten Argentina, acquired six blocks totaling 11.5 million acres in Argentina. Four of the blocks, covering 9.5 million acres, are in the lightly explored Chaco-Parana basin. An exploratory well was abandoned there in late 1989. The other two blocks cover about 1.6 million acres in the prolific Neuquen basin.

TEXACO

The biggest player in Argentina's recent push to attract foreign investment is Texaco Petrolera Argentina SA.

Texaco in 1989 signed nine exploration contracts with YPF for 11 blocks covering more than 19 million acres.

The contracts were offered by YPF under the fourth round of its Houston Plan, the broad licensing program that began in 1985 but only has been implemented under Menem's administration.

"The Houston Plan is considered the main impact for increased exploration/development activity in Argentina," said S. R. Gregori, Texaco Argentina executive vice-president.

Gregori said, "The drive for privatization is real. Based on government information as of Aug. 31, 1990, about $174 million out of a total commitment of $292 million made through the Houston Plan, has been spent for exploration by private industry."

Robert Black, vice-president of Texaco's Latin America division, said, "Argentina is what we in Texas call petroleum country, and we believe that the possibilities for oil discovery are really good."

Texaco's return ends an absence of 36 years, having left the country in the early 1950s because of the Peronist nationalization drive.

Texaco's focus will be Cretaceous targets in the Neuquen basin, considered one of the hottest plays in Argentina.

Gregori cites as potential roadblocks to E&D work in Argentina. "Further austral inflation at a stagnant exchange rate for the dollar, additional taxes, procrastination of deregulation laws for the petroleum industry, and uncertainties of government guidelines established for petroleum industry."

He also noted that Texaco's downstream market share in Argentina is relatively small, having been on stream less than two years.

TEXACO DRILLING RESULTS

Texaco Argentina has drilled two discoveries since it acquired its Argentine acreage, on its Petrolera Argentina San Jorge Curamched (CNQ-8) prospect and Pluspetrol Cuchuma (CNQ-11) prospect,

Total combined reserves of oil, gas, and condensate in the former are estimated at 20 million bbl of oil equivalent.

Texaco plans to develop CNQ-8 with 30 development wells to produce about 9,000 b/d of oil. It hasn't set a timetable yet. Reserves are estimated at 15 million bbl of crude.

The CNQ-8 discovery well flowed 497 b/d of 43 gravity crude and 2 MMcfd of gas from Lower Cretaceous Agrio Avile member at about 8,596 ft. CNQ-8 has a gas cap drive, and closure is a four way dip.

CNQ-11 flowed 400 b/d of 31 gravity crude from Upper Cretaceous Yacoraite at 1,148 ft. Texaco also drilled and completed a step-out but disclosed no details.

One well only has been completed at CNQ-8 while two wells, not on stream yet, are at CNQ-11. The well cost $800,000. The reservoir has a water drive and fault closure.

One rig is working each field. Texaco has run into some problems with salt in the CNQ-8 well.