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September 19, 2014
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YPF reaches US$550M deal with Petronas

A map provided by YPF that details the exploration area.

Galuccio signs shale oil development agreement with Malaysian state energy company

Argentina’s state-controlled energy company YPF said yesterday it had reached a deal worth US$550 million with Malaysia’s state oil firm Petronas to develop shale oil in the vast Vaca Muerta formation.

Negotiations between the firms had been ongoing for several months, and the news came as a step forward in the country’s search for foreign investment to develop the shale formation, thought to be one of the world’s largest.

YPF said Petronas would contribute US$475 million to the initial investment in oil exploration at a 187-square-kilometre segment of the formation in the southern province of Neuquén called Amarga Chica. Before the agreement was signed, President Cristina Fernández de Kirchner spoke with Malaysian Prime Minister Najib Tun Razak on the phone to discuss the details of the new project.

In exchange for the investment, Petronas was handed a 50-percent stake in the area.“During the pilot stage, we will drill more than 30 wells,” YPF said, noting that depending on the results, the project could be continued.

Following the initial three-year phase and its results, the companies expect to bring total investment in the project up to the US$1-billion mark within the first five years, YPF said. Speaking in Kuala Lumpur, Malaysia, where the deal was signed, YPF CEO Miguel Galuccio eased some nerves by assuring that the partnership with Petronas “does not depend on the prior approval of a new Hydrocarbons Law.”

“Decree 929 per se provides all the conditions that allow for the activation of the investment programme of US$550 million in three years for the drilling of 30 vertical and horizontal wells on the La Amerga Chica block,” he said.

His counterpart at Petronas, Tan Sri Dato’ Shamsul Azhar Abbas, said his firm was very pleased to celebrate its “entry into shale oil (operations) through this partnership with YPF.”“Neuquén is a prolific area with great growth potential that will surely greatly benefit Argentina,” he added. Galuccio emphasized that shale “activity requires great capital investment and the strong development of human and technological resources, and this association represents a new gesture of support in YPF’s leadership and the country’s great potential.”

“This accord means more jobs, greater income and more production for Neuquén,” he added.

The province’s governor, Jorge Sapag, said “we are going to work with the federal government and YPF to fulfill the necessary conditions so that this new agreement for the development of the non-conventional resources of our province succeeds.”Seemingly leaving tension over the new Hydrocarbons Law aside for the moment, Sapag said he was certain the deal “will bring even more investment, jobs and resources for Neuquén.”

Fracking away

The project, as with the rest of Vaca Muerta, was designed on the use of hydraulic fracturing, a technique that involves pumping a pressurized fluid — usually made of water, sand and chemicals — into a well to create a fracture in the rock layer and release trapped petroleum or natural gas. Studies indicate Argentina is sitting atop a shale bounty that could transform the outlook for the Western Hemisphere’s supply and secure the country’s energy self-sufficiency and export capacity for decades.

US-based Chevron signed a US$1 billion with YPF in 2013 deal to produce oil and gas in Vaca Muerta.

“The shale play in Argentina is unique because of the rock. Its thickness. Argentina has kind of won the geological lottery,” Chevron spokesman Kent Robertson told Reuters in May during a trip to Buenos Aires.

Rising production

YPF’s oil production in Neuquén reached 67,098 oil barrels per day in June, the highest level since June, 2006, while gas production reached 22.54 million cubic metres per day, a peak that hadn’t been reached since January 2011.

In the same month, there was an average of 107 rigs drilling for oil or gas in the country, the highest number operating since records began in 1982, and more than double the number at the start of 2012, according to oil field services company Baker Hughes. North American drilling giants like Nabors Industries and Helmerich & Payne have some of their largest and most modern rigs contracted to work in the country.

Helmerich & Payne has 10 of its rigs in Argentina, accounting for a third of its total drilling fleet outside North America, according to a recent investor presentation. Apache, EOG, ExxonMobil, Total and several smaller companies have all already been active in the Neuquén basin.

—Herald with AP, Reuters, DyN

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