YPF unveils plan to invest 35bn dollars in five years with he help from partners
Argentina's state-controlled energy company YPF will need to invest 35 billion dollars to boost falling natural gas and oil output by more than a quarter by 2017, the new chief executive said on Tuesday in Buenos Aires.
President Cristina Fernandez seized control of YPF from Repsol in April, accusing the Spanish oil major of investing too little and making the country increasingly reliant on pricey imports.
Chief Executive Miguel Galuccio, a former executive at global oilfield services giant Schlumberger Ltd, said YPF plans to reverse Argentina’s energy deficit would require an annual investment of 7billion from 2013 through 2017.
Most of that would come from the company's own resources, he said as he outlined plans to reverse dwindling production at mature fields and start tapping the country's world-class Vaca Muerta shale resource.
”We need to be realistic. Although I'd like to be able to double the production of (natural) gas and fuel overnight, I'm not a magician. In this industry, every extra barrel requires investment, technology and above all, hard work,“ he said.
”YPF needs to recover its leadership and vision in the country“ he said in a speech to launch the corporate plan, vowing to make the company ”professional and competitive.”
“We need to redefine the company’s DNA,” since YPF reservoir projections decreased from 11 to 7 years” due to a significant operations drop while it was under the Repsol management.
Galuccio said 1,000 wells would be drilled next year - a level not reached by the company since 1996 - as the company aims to push up annual energy production by 6% each year starting this year.
That would represent a 26% increase by 2017 to reach 216 million barrels of oil equivalent (boe).
YPF, which registered a net profit in 2011 of 5.3 billion Pesos (1.1 billion dollars), did not give more details about how it would be able to meet the estimate of required investment.
“We're going to have to go out and look for partners. For that reason, we're designing business models that allow us to accommodate different types of partners” Galuccio said.
Soon before Cristina Fernandez announced the YPF takeover, Repsol said it would cost 25 billion dollars a year to develop the world-class shale find that has drawn interest from international oil companies despite jitters about the investment climate.
Argentina remains shut out of global credit markets a decade after staging the biggest sovereign debt default in history. Analysts say that means YPF chances of stepping up production and developing the Vaca Muerta shale resource may hinge on its success in luring deep-pocketed partners.
Tuesday's report said the exploitation of just 15% of the Vaca Muerta haul would cover the country's energy deficit, which forced the import of 9.3bn dollars in fuels last year.
Galuccio said two pilot studies would be carried out at the site next year to drill 132 shale oil wells and 14 natural gas wells with an estimated investment of 1.36 billion.
If the drills proved successful, YPF would aim to develop a “production cluster” on part of Vaca Muerta, in the Patagonian province of Neuquen.
“That could generate total production of 550 million boe. That's similar to YPF total proven reserves,” Galuccio said.
Hydrocarbons output has been in decline for years in the region’s number three economy: crude production fell 5.9% and natural gas output slipped 3.4% last year as power demand rose 5.1%, according to data from the Argentine Institute of Petroleum and Gas.
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I think we should be told.
“Galuccio said 1,000 wells would be drilled next year”... it's not about how many holes you drill, sherlock, it's about the likelihood of each well going into a place where the likelihood of finding oil is high.
I'm going to drill 1000 wells in my back yard next year, let's see what happens with that strategy.
Anyone can do a PESTLE Analysis of YPF's operating environment: Political Risk - High, Economic Risk - High, Social Risk - Medium, Technological Risk - High (No access to foreign tech, no tech to get oil out of shale), Legal Risk - High, Environmental Risk - Medium. From an investment standpoint, no one would touch it with a very very very long, very very sh!tty stick.
So this still doesn't answer where the 7 Billion USD a year is going to come from.
It will be interesting to see who comes along to the road show and then decieds to invest especially as you'd have to gte into bed with Axel who has stated on record that all oil and mining projects should be 100% owned by the government.
The Chinese were at one point looking to invest in Argentina. But then the Argentine government stole YPF, and the Chinese, known for their wisdom, decided against investing in such an unstable area, especially with the whole 'cap' on oil prices the RGs were demanding.
It comes to something when China believes that West African nations have more stable and honest governments than Argentina!
All those malvinistas and 'Argtards' were one minute telling everyone how China was going to save Argentina by investing in the country, the next they all went very quiet.
Hey China, why don't you approach the Falkland Islands Government, they've got lots of oil and gas waiting to be exploited, and they won't put stupid restrictions upon you.
I'd love to CFK threaten to 'sue' her 'good' friends the Chinese.
However, Argentina is never going to get anyone stupid enough to invest monies up to the US$35 billion that they require. Not when profits would be tiny at best or rather none existent. The Argentine government fails to understand that when people or companies invest money into something, they want decent profits in return.
However, I would pay good money to see the RG government on Dragons Den trying to get our resident Dragons to invest their money in this venture. Talk about funny, the Dragons would tear the RG government apart and leave them feeling humiliated. LOL
These are pipe dreams, RGs are very good at lying about future projects, bullet train to Rosario, train to Chile, (good gracious they can't even keep their passenger trains from killing people!) anther Bridge to Uruguay, 100+ story bldg in reclaimed land in Puerto Madero...the list goes on and on.
It's mighty cold I wonder when they'll start sending employees home because they're out of nat gas...
Anyone know if the nat gas is back on in the West? They've had a lot of asphyxiation already..
Pretty soon I bet
Thank you for updating me.
The first thing that will have to happen if this plan is to work: raise the value of the product at the well head, US$42 is a no-no - they might be able to do it on something like US$60/65.
”We need to be realistic. Although I'd like to be able to double the production of (natural) gas and fuel overnight, I'm not a magician. In this industry, every extra barrel requires investment, technology and above all, hard work,“ he said, - has set the tone.
Not too sure if they have the kit needed to drill 1000 wells in 12 months or even if they have the skilled manpower necessary, we shall soon see. In any event, I cannot see 26% by 2017 being half-way enough to satisfy the demand given the probable dearth of imports by then.
I have been in the oil industry: rather him than me.
Jun 06th, 2012 - 04:00 pm
Hear hear, I've not worked in the o/g industry, but I've lived near it most of my life. I honestly hope he makes a go of it, he's got the know-how and is obviously very sensible as his cautious words show. His big problem is going to be Axel Kicilloff as the Government rep on the board of directors of YPF. This bloke is sudden death for any industry, especially a complex one like o/g.
b) Cry when you see a set of directors that includes one that knows nothing useful about economics and is drenched in failure at trying to revive the flagging airline that lost 2.3 Billion USD and another that oversaw the decline in Argentinian oil production and did nothing.
c) Fail to meet said expectation.
d) Blame foreigners for not investing; do not blame your unrealistic expectations or the laziness of the Argentinians.
e) Return to old job at Schlumberger in London.
That should pretty much describe this story going forwards.
I will stick with my post @11, however I disagree with e).
If he does fail I very much doubt he would be able to go back to Schlumberger - he would be a failure. The yanks don't care much for failure at this level.
That is reason enough for him NOT to fail.
I don't think he will fail, he has been just cautious enough to keep within possibilities while being hopeful enough to fool Kretina et al.
I give him 100% for cleverness I really do hope he manages to find the funding, he deserves to.
If he doesn't make it with YPF I think Schlumberger would be glad to have him back going by his past record.
Just drilling wells in any formation takes time and one well placed well is better than 1000 wells just blunderbussed around the countryside. He's just stalling for time while they get a real strategy.
So how's he going to find this £35 Billion? I think he probably needs considerably more money and a lot more time.
They don't deserve funding. Their Director presided over your national airline losing billions of dollars and failed in everything he touches. On top of that this company was stolen from investors, many of the pensioners. They deserve failure and mocking.
In the oil business, at that level, your reputation is your last job.
Kicilloff is a major problem. He THINKS he knows what he is doing but he is wrong, spectacularly so, at everything he does.
I think he must be FatBoys fall back when the girlfriend has a headache because there is seemingly no other reason to go anywhere near him.
I think it may all depend on what power Galuccio REALLY has, and if he can slap Kicilloff down and make it stick.
If I were to put odds on a success (26% by 2017 being the marker) I would put it at 45% at best. Very difficult to make this company work in the political climate of Argentina.
1 To convince outside investors to invest in YPF
2 To convince Kicilloff that YPF needs outside investors.
He is already on record saying that all oil companies and mining companies should be 100% state owned and generally spurns the idea of public/private partnership as I would spurn a rabid dog...
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