Tags: YPF | shale | gas | Argentina

YPF Targets Shale Gas Reserves in Argentina

By    |   Monday, 09 January 2012 07:15 AM

YPF (YPF) is the biggest energy company in Argentina and has potential to grow. It’s drawing attention now for its shale oil and gas developments in Argentina, a country estimated to hold some of the world’s largest reserves of such unconventional hydrocarbons.

YPF is traded in the United States as American Depositary Receipts (ADRs). It is 57.43 percent owned by Spanish oil company Repsol YPF (REP) and managed by Grupo Petersen, an Argentine conglomerate that has increased its holding to 25.46 percent since 2008.

Its new focus is on Vaca Muerta, a sedimentary rock formation in the Neuquen Basin of Patagonia, source of 90 percent of the country’s conventional oil and gas. Vaca Muerta is thought to have potential to make Argentina a shale powerhouse like the United States.

YPF already is making finds. In November, it said it had identified 927 million barrels of oil equivalent of technically recoverable shale resources (741 million barrels of oil and 10.4 trillion cubic feet of gas) in Vaca Muerta, with production coming in at 5,000 barrels of oil equivalent (BOE) per day from 15 wells in a tiny slice of the total area.

Big money

There are challenges. First, the resources must be developed using expensive fracking technology only now starting to become available in the world. Repsol CEO Antonio Brufau last December said $28 billion must be invested to develop its shale resources in Neuquen, equivalent to six times YPF’s net worth in the third quarter.

Impossible? Maybe, but YPF is stepping up spending, which rose 66 percent to 3.68 billion pesos ($854 million) in the third quarter from a year earlier.

Third-quarter revenue went up 35 percent to 15.3 billion pesos on the year, while net income rose 14 percent to 1.75 billion pesos. The improvement was led in part by higher domestic energy prices, signaling a change in government policy that has kept prices among the world’s lowest since 2002.

Authorities allowed a 30 percent rise in diesel and gasoline prices in 2011. Oil prices have reached $60 a barrel, thought adequate for shale investment. Attention now is on gas, which is averaging $2 per million British thermal units (MMBtu), less than the $6/MMBtu to $8/MMBtu needed for shale development. The government has said it would allow higher prices as long as they don’t scupper industrial production and exports.

The expectation of higher prices is boosting the profit potential of YPF. Of 11 analysts tracked by Thomson/First Call, eight have buy recommendations, two say hold and one warns it could under perform.

The company is due to next report on Feb. 24.

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