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BMI View: The renationalisation of YPF and subsequent ‘aggressive but realistic’ strategic investment
plan set out by the company is the new driving force behind Argentina’s energy sector. While foreign
interest in the country’s shale potential exists, as evidenced by Chevron’s recent entrance, we remain
bearish on the sector and its prospects for receiving much-needed foreign investment. We expect
production at existing fields to remain high into 2013, primarily on the back of continued pressure on
YPF to produce since its nationalisation. Further changes to our forecasts, including reserves and
refining capacity, will come when the implementation of the five-year plan begins in earnest.
The main trends and developments we highlight in the Argentine oil and gas sector are:
?? The fiscal regime needs work if Argentina is to secure adequate long-term investment and harness
the country’s apparent potential. Indeed, YPF is looking to raise US$1bn in debt to fund its planned
2013 capital expenditures. In addition to the risks associated with investing in the recently
nationalised company, BMI believes that a sizeable currency devaluation is in store for Argentina
amid a broader weakening of the economy.
?? An audit carried out by US consultant Ryder Scott to assessed the potential of the Vaca Muerta
formation in Argentina’s Neuquén Province to hold estimated prospective resources of 21.2bn barrels
of oil equivalent (boe), contingent resources of 1.5bn boe and booked proven, probable and possible
(3P) reserves of 116mn boe net to YPF. This is a considerable increase on a November 2011
contingent resources estimate of 927mn boe. In one of Repsol’s last investor presentations as the
parent of YPF it noted that Argentina has the potential to replicate the shale revolution witnessed in
the US, while the CEO of US independent EOG Resources said that the Vaca Muerta play ‘could be
bigger than the 5.7bn bbl Eagle Ford’, a formation located in south Texas, US.
?? YPF’s new investment plan envisages US$7bn in capital expenditure (capex) each year to 2017,
focusing on the unconventional plays at Vaca Muerta and marginal fields. The aim is to increase
production to 219.2boe by 2017, a rise of 37% on current production levels. YPF aims to increase the
number of new wells to 50 per year, in comparison to 19 wells per year between 2007 and 2011.
Repsol-YPF had previously estimated that it would invest US$25bn per year to double the country’s
current oil and gas production.
?? Conventional oil volumes will continue to come under pressure, though the plan to increase
production from marginal fields could provide some respite if implemented as envisaged by YPF.
Our current estimates assume oil output falling in 2012, but recovering in 2013/14. By 2017, we
expect Argentina to be pumping an average 744,540 barrels per day (b/d).
?? Artificially low domestic prices for fuels insulate demand. However, the weakening macroeconomic
environment will take a toll on oil consumption. We now forecast annual average growth in oil
consumption of 2,1% to 2017, reaching 733,239 b/d. The trend of importing more and more refined
fuels while exporting less and less crude oil will continue according to our forecasts, pushing the cost
of imports higher. We forecast the cost of refined fuel imports to be US$3.21bn in 2013by 2012 and
rising to US$6.96bn by 2021. By 2018 we see net oil imports of 13,360b/d and rising thereafter,
ending Argentina’s position as a net oil exporter.
?? Our forecasts suggest that natural gas production will reach 40.5bn cubic metres (bcm) by 2017,
although we are not factoring in any production from shale gas at this stage. The commercialisation
of the Vaca Muerta shale gas resources presents a strong upside risk to our forecast. Under the
current forecast scenario, imports of natural gas are expected to exceed 15bcm by 2017, up from
5.2bcm in 2011.
?? The cost of oil and gas imports costs will continue to rise steadily over the forecast period, with the
potential to nearly double by 2021 should there be no major progress in exploiting shale resources.
Indeed, gas imports will cost a total of US$4.6bn in 2013, rising to US$10.2bn in 2021. The value of
the country’s oil exports will shift from US$304mn in 2013 to an import bill of US$9.6bn in 2021.
At the time of writing we assume an OPEC basket oil price for 2012 of US$107.05/bbl, falling to
US$99.10/bbl in 2013. Global GDP in 2012 is forecast at 3.2%, up from an assumed 3.1% in 2011,
reflecting slowing growth in China and uncertainty with regard to the eurozone debt situation. For 2013,
global GDP growth is estimated at 3.7%.