Argentina Shale Development

Brian Hicks

Written By Brian Hicks

Posted May 1, 2013

It’s a race to the finish line for Argentine shale.

The Eurnekian family, Argentina’s second wealthiest family, has plans of beating Chevron (NYSE: CVX) to a deal in the nation’s shale region by pledging $700 million in two deals with state-run oil company YPF SA (NYSE: YPF).

shaleIn October of 2012, Eduardo Eurnekian, head of the family fortune, agreed to a $500 million deal in the Vaca Muerta fields. The second deal amounts to $200 million—covering the purchase of an 81 percent interest in Cia. General del Combustibles SA.

Vaca Muerta is said to contain 23 billion barrels of oil, and investors around the world have been lining up to get a piece of the pie.

With the CGC deal in place, Eurnekian wants to prove to YPF that he’s serious in forming a binding agreement. No other company has been able to secure a contract since President Christina Fernando Kirchner nationalized YPF last year.

Kirchner seized the company on the grounds that Madrid-based Repsol SA (OTC: REPYY) had underinvested in YPF since the 1990s.

Repsol has not forgotten the repossession and has threatened to sue anyone who develops the region until the company’s $10.5 billion investment is paid back in full.

Regardless of the threat, companies are planning to develop, and the prize possession is that coveted binding agreement.

Hugo Eurnekian, a nephew of Eduardo Eurnekian, is confident that the family can turn the mutual understanding with YPF into an iron-clad contract. Bridas Corp. and Chevron (NYSE: CVX) hope to do the same, but both companies are in the middle of legal disputes.

Chevron signed an uncertain $1 billion agreement with YPF in December of last year, but an embargo was placed on Chevron’s assets by a Buenos Ares court one month before the deal. A Chevron exploration into Vaca Muerta will depend on that embargo being lifted, pertaining to a $19 billion judgment against Chevron by an Ecuadorian court to pay for cleanup efforts in Amazon waters.

Bridas, owned by the Bulgheroni brothers (the richest family in Argentina), is tied up in legal woes after facing a lawsuit from Repsol.

While two companies that pose the greatest threat to the Eurnekian interests are tied down in legal squabbles, the family will have plenty of time to strategize and curry favor with the government.

So far, Repsol has not sued the Eurnekians.

The founder of the Eurnekian fortune is Eduardo Eurnekian. The son of Armenian immigrants, he was able to make his fortune through media and airports. The family’s worth is estimated at $1.3 billion, according to Bloomberg.

Since Eduardo has no children, he plans to leave his fortune and business to his nephews and nieces.  

Hugo Eurnekian is leading the charge into the family’s oil and gas ventures.

The family is entering the energy industry with its own capital—an unprecedented feat for a private family with no previous affiliation with the oil industry, especially as it competes head-on with top companies like Chevron.

Vaca Muerta

According to MSN Money, the Vaca Muerta landscape measures 7.4 million acres. It could hold the world’s largest untapped unconventional reserves.

The government has set up a $2 billion fund through central bank assets to develop the region. Miguel Galuccio, CEO of YPF, is looking for partners that will offer a total of $37 billion in funds to explore the shale-rich field. If more investment is placed into Vaca Muerta, this would make Argentina the largest producer of oil in South America, competing even with Venezuela’s Orinoco belt region.

So what is holding it back?

Many outside investors have been unsettled by the nationalization of YPF, along with Argentina’s troubled financial history.

Argentina’s financial problems have not exactly gained investor confidence in the past, but there is some good news.

Though Analysts are still on the fence about Argentina’s economy for 2013, the economy did grow by .4 percent in January of this year, according to Reuters.

Economic progress may reassure some investors, but more may have to be done from the administration to convince oil companies and investors to jump on board after YPF’s nationalization.

But the Eurnekians appear well on their way to securing a solid contract with the government. This may set the stage for more investment to come, which could launch the Argentinean economy on a path to prosperity.    

Argentine Shale Investment

Petroleo Brasileiro (NYSE: PBR) said that the Argentina government must do more in setting clear rules and fostering a healthy investment environment if it wants to develop Vaca Muerta, according to Bloomberg. Petrobras finished its first shale oil well in Vaca Muerta, and the company has yielded 29 tight gas wells, all with successful results.

Madalena Ventures Inc. (TSX-V: MVN) recently made more positive well discoveries in Nequin Basin and Vaca Muerta, according to PR Newswire. Madalena also has 14 wells in Vaca Muerta.

And French oil company Total (NYSE: TOT) has drilled seven wells, with “146,039 net acres of dry gas, 240,186 acres of wet gas and 281,947 acres of oil”, according to the Chicago Tribune.

Royal Dutch Shell (NYSE: RDS-A) drilled two horizontal wells and plans to drill six more in 2013.

But the majority of exploration rights are held by YPF, ExxonMobil (NYSE: XOM), Apache Corp (NYSE: APA), and Americas Petrogas (TSX-V: BOE)—together, the four hold rights to 80 percent of the shale site.    

Judging by the vast discoveries, it is obvious that Argentina is sitting on a treasure trove of gas and oil reserves.

What is needed now is a more fertile investment atmosphere.


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