The Next Big Shale Play
Oct 13th 2011 1:24PM
Updated Oct 13th 2011 1:42PM
Argentina, known for its love for soccer, has suddenly found a new game to grab global attention. The discovery of huge shale gas reserves is inviting players from across the globe to this South American nation. The country, a net importer of natural gas, has come across gas reserves that will help it take care of future energy demand. Let's dig dipper and analyze why companies across the globe are flocking to Latin America's third largest economy.
First, Argentina, with 774 trillion cubic feet of gas, ranks No. 3 in the world in terms of technically recoverable shale-gas resources. Argentina's shale gas reserves exceed its conventional proven gas reserves, which are roughly 13.4 trillion cubic feet. The Neuquen basin is currently the largest shale gas reserve basin with more than 250 TCF. The country's largest oil and gas producer YPF (NYS: YPF) discovered 4.5 TCF of shale gas in the Loma de la Lata Field of Neuquen in December 2010. The basin already has gas transportation and field services infrastructure in place. This gives companies a comfortable environment to operate.
Second, the government has changed the pricing structure for gas, which was long repelling investors from the country's energy sector. The Argentinean government had put price caps on natural gas to make it affordable to consumers, industrials, and electricity generation. The rigid domestic pricing made investment in Argentina less appealing for foreign investors. However, with the surge in global energy prices, Argentina eased fuel pricing to make the energy sector environment more favorable for energy companies. This, coupled with shale discoveries, has made Argentina popular in the global natural gas market.
What's there for investors?
Argentina provides energy companies with quantifiable reserves and long field life. This allows them to continuously run production and extract gas from the field. Given the trend in the global demand for natural gas, a continuous supply source of shale gas will help the companies post solid top-line growth.
South American countries such as Brazil, Colombia, Venezuela, Peru, and Bolivia are experiencing increasing natural gas demand. Presence in Argentina also provides the energy companies opportunity to tap these markets.
Who's who in the Argentinean energy sector?
Energy giants ExxonMobil (NYS: XOM) and Chevron (NYS: CVX) are teaming up with the Argentinean government to develop shale gas reserves in the Neuquen basin. Exxon, which plans to invest in natural gas in Colombia, Germany, Poland, China, and Indonesia, is willing to spend nearly $100 million to develop its shale gas reserves in Argentina. Exxon has entered into an agreement with Americas Petrogas with a 45% stake in the four Los Toldos blocks in the Neuquen basin.
Apache (NYS: APA) , which has been in the country since 2001, has produced 48,537 barrels of oil equivalent per day in the second quarter. The company has teamed up with YPF to develop shale gas in the Noroeste, Cuyo, Neuquen, and Austral basins in Argentina. Apache expects to have 900,000 net acres in the shale-gas-prone part of the Neuquen. Oil service provider Halliburton (NYS: HAL) has successfully executed the first horizontal, multistage hydraulic fracture shale gas completion in Argentina's Neuquen Basin for Apache. It plans to drill 53 wells in 2011 and more than 350 wells from 2012 through 2015. The company estimates that production from its Argentina operations will double by 2015.
Other conglomerates present in Argentina's shale gas market are Total SA (NYS: TOT) ; Petrobras Argentina, which is owned by Petrobras; Pan American, in which BP holds a majority stake; and YPF SA.
Presence in Argentina will also provide the energy companies a platform to overtake or keep up with their competitors. Companies such as Royal Dutch Shell, Chesapeake (NYS: CHK) and ConocoPhillips, which do not have a presence in the country, might face tough competition from the current operators.
Other foreign interests
Argentina is also drawing attention from Asian countries. In 2010, China Petrochemical announced its plan to buy all of the Argentinean assets of American Occidental Petroleum for $2.45 billion. China's state-owned energy firm, CNOOC (NYS: CEO) , also took a 50% stake in Argentina's oil and gas firm Bridas. The stake is worth $3.1 billion.
Argentina boasts huge reserves. Given the rising global demand for natural gas, it is obvious for companies to invest in areas rich in natural gas reserves. The next 20 years might see a change in the energy mix, with gas contributing more than oil. I think the age of gas is dawning.
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At the time this article was published Abantika Chatterjee doesn't own shares of any company mentioned. Motley Fool newsletter services have recommended buying shares of Chevron, Chesapeake Energy, and Total. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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