Argentine Woes Don't Deter Oil Investors

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Argentina's latest $8 billion bailout by the International Monetary Fund has lifted the immediate threat of default on a national debt of $130 billion but its economic woes are still a concern to energy investors. Not only is Argentina the core cash cow for Spain's Repsol-YPF, but also much future upstream investment now depends on US independents that have only recently bought local assets. If the economic malaise spreads to regional export outlets, plans for lifting oil production -- already down to 750,000 barrels per day this year from a peak of 900,000 b/d in 1999 -- could be at risk. At the moment, export flows to Brazil, Chile, and the US are holding up and the oil industry is cushioned by last year's record profits of $1.5 billion. Repsol, Argentina's largest producer, is the most exposed (PIW Jun.11,p1). Repsol derives 65% of its earnings from the country and exports $2 billion per year of crude oil and products. First quarter profits were up 20% at $700 million and the company plans to invest $6.94 billion -- most of it for exploration -- in Argentina by 2005. Perez Companc -- the second largest producer, with 100,000 b/d -- is focused on expansion in Ecuador, Bolivia, Brazil, Peru, and Venezuela and is investing in natural gas in Chile, Brazil, and Uruguay. Ranking third, Chevron produces 85,000 b/d through its Petrolera San Jorge unit and has a three-year exploration program in the hydrocarbons-rich Neuquen basin. San Jorge produces 60 million cubic feet per day of natural gas, which is sold locally, and exports 35% of its oil output to Chile. Smaller US independents have some of the most ambitious investment plans. US Pioneer, with 23 blocks in the Neuquen basin, expects to maintain local spending at nearly $100 million per year in 2002. Vintage Petroleum, which has agreed to pay $50.4 million for Royal Dutch/Shell's two 3,000 b/d oil blocks in the Cuyo Basin, has a 2002 capital budget of $98 million for South America, of which $77 million is for Argentina. Devon Energy has bought the Mangrullo gas field in the Neuquen basin, which is expected to start producing by the end of 2001. Devon also has a 22% interest in the Tordillo field in the San Jorge basin, and is the sole operator of the Cuyo basin Tupungato field, in western Argentina. The company's gas operations include a 50% interest, in partnership with Exxon Mobil, in the Neuquen basin's Sierra Chata field, which produces 26,000 barrels of oil equivalent per day. Apache, now one of the top five US independents, is targeting Argentina through its 1999 acquisition of Fletcher Challenge Energy's 25% stake in 311,000 acres in the Neuquen basin (PIW Jun.18,p7). Among Argentina's attractions have been a stable business climate, royalty payments that average only 12%, moderate tax rates, no obligation to supply the local market, and the freedom to export. After a 17% increase in crude oil exports to 115,200 b/d in 2000, the upward trend is likely to continue as producers hedge against a possible currency devaluation. Devon, for example, says its production in the 24,000 b/d Tordillo field could be exported easily if domestic demand drops off. Most of its Sierra Chata production already goes to Chile. Helped by a new 88 MMcf/d pipeline to Brazil, which opened last year, adding to the four existing lines to Chile, gas exports have remained robust.

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