MercoPress. South Atlantic News Agency

Mexico’s Pemex oil company expected to join YPF in developing shale resources

CEO Galuccio: YPF is open to generate all the agreements needed to put in production the huge resources from Vaca Muerta

YPF Chief Executive Officer Miguel Galuccio said Argentina’s nationalized energy company is willing to form a partnership with Mexico’s state-run Petroleos Mexicanos to develop shale oil and natural gas deposits in the Vaca Muerta formation.

“YPF is open to generate all the agreements needed to put in production the huge resources from Vaca Muerta and Pemex could be a good partner,” Galuccio said in an e-mailed response to Bloomberg questions.

After YPF sealed its first shale accord with Chevron Corp. on July 16, Galuccio said Argentina needs more partners like the California-based company to stop a production decline that contributed this year to the biggest plunge in central bank reserves since 2002. Energy imports, which doubled to 9.4 billion dollars in 2011 from a year earlier, rose to 10.5 billion in 2012 and are forecast by ex-Economy Minister Roberto Lavagna to climb to 15 billion this year.

“In order to develop reserves we need investments from partners to revert the natural decline of fields,” Galuccio said, adding that “the development of shale gas and oil requires a huge amount of cash and the sharing of risks and expertise.”

In April 2012, Argentina’s President Cristina Fernandez seized majority control of YPF from Spain’s Repsol SA. Mexico City-based Pemex is a minority shareholder in Repsol. Galuccio admitted having had “many business meetings in the last few months” with Pemex’s CEO Emilio Lozoya.

Argentina, which holds one of the world’s largest shale gas and oil reserves according to US Energy Information Administration data, is offering tax and export incentives for energy companies that invest at least 1 billion dollars over a five-year period.

Pemex, the world’s fifth-largest crude oil producer, is also experiencing a decline in production at mature fields as it heads to a ninth straight year of falling output. After Pemex’s July output slid to the lowest monthly level in almost 18 years, Mexico proposed an energy reform that would end a seven-decade state energy monopoly on Aug. 12.

Mexico has untapped shale-gas reserves that may be as much as 460 trillion cubic feet, according to data compiled by Pemex. The Mexican producer has 175 shale exploratory opportunities identified in five areas, according to a quarterly presentation.

Meanwhile figures released by the Secretary of Energy show that Argentina’s oil and gas production during the first half of the year dropped 3.56% and 7%, which is the most worrying since “Argentina virtually runs on gas: at home, electricity generating plants and vehicles”.

In June Argentina’s overseas gas bill amounted to 893 million dollars, up 16% over the same month a year ago, and this does not include imports from Cammesa which manages the electric market and provides gas supplies to the generating plants.

“The fall is structural and persistent (since 2004) and impossible to turn around in the short term. We are paying the price of improvising and disinvestment in exploration in recent years” said Jorge Lapeña a former Energy Secretary. He added: “since gas in the main element of Argentina’s energy equation and domestic demand continues to increase, production fall demands larger and larger imports”.

However the industry admits that YPF under state control has significantly increased the level of activity at the wells, but also under special conditions: better financing with government funding.

However the private sector continues with a greater production fall: Pan American Energy (shared by UKBP, China’s Cnooc and the Bulgheroni family), the second oil company in Argentina has seen an 11% drop in gas and 7% in oil production. The company blames the labour incidents in their main reserve, Cerro Dragon, in June last year: ‘production level once activities resumed have remained below pre-occupation of the wells”.

Other private companies performance wasn’t better and faced with the situation the government of President Cristina Fernandez has started to make effective the incentives promised at the start of the year to those companies that provide greater volumes of gas production to the market.   

In November last year President Cristina Fernandez invited the companies to increase gas volume production for which it promised to pay 7.5 dollars per million BTUs, still far from the import price, but far better than the average price paid to domestic production.

CEO Galuccio is attributed to have pressed on the government to make effective the payments (and its promise).