Oil majors’ interest in Argentina tests free-market reforms

BUENOS AIRES: Oil majors are evaluating bids for offshore exploration rights in Argentina, a major change in a country that sent Spanish energy giant Repsol packing six years ago and has seen little offshore exploration for decades.

To secure bids, Argentina will need to show it has moved beyond its historical fluctuations between free-market policies and left-wing populism and that it has made progress in lowering costs for energy firms.

Oil companies including Shell and Statoil told Reuters they are looking at bidding in the auctions, to be held later this year, and a government official said Exxon and Chevron have also shown interest.

The country faces fierce competition to attract the billions of dollars of investment needed to develop deepwater reserves.

Brazil, Ecuador, Mexico and neighbouring Uruguay will all auction offshore blocks in 2018 after undertaking oil market reforms or revising contract terms to facilitate the entry of the world’s top energy companies.

For Big Oil, the potential access to Latin American energy reserves is unprecedented.

In many countries now opening, including Argentina, resource nationalism has long barred their entry or limited opportunities.

Six years ago, former populist President Cristina Fernandez expropriated Repsol’s stake in Argentina’s state-owned oil company YPF SA. The move sent chills through both the energy industry and the entire private sector.

Interviews with oil industry executives, consultants, geologists and officials point to optimism for Argentina’s upcoming auctions and for President Mauricio Macri’s government, which has sought private sector and US government help in structuring the process.

“Growing confidence in the current government’s policies – their focus on trying to create an environment that is attractive for investments – has been the big change,” Shell’s head of deepwater Wael Sawan told Reuters on the sidelines of an industry gathering in Houston.

“It’s that focus that has created more interest by the sector to say ‘why not, let’s look at this.’”

The auction will be a test of company confidence in the longevity of Macri’s reform agenda because it can take a decade between an initial investment in offshore exploration and the first production.

Argentina will take bids for three offshore basins from July through November.

Exploration rights for blocks in the 130,000-square km Argentina Basin, 90,000-square km Malvinas West Basin and 5,000 square kilometers in the Austral Basin are on offer.

While little exploration has been done outside the Austral basin, YPF has identified 22 million barrels of oil equivalent for further investigation, upstream head Pablo Bizotto said at an event last Wednesday.

“There is a lot of interest from large companies – Chevron, Exxon Mobil, Shell,” Daniel Redondo, the secretary for strategic energy planning in Argentina’s Energy Ministry, told Reuters on the sidelines of a recent event.

Consultancy Bain & Company, on a contract with the government to gauge interest, last year interviewed more than 60 companies, including ‘all the majors’ and independent explore rs including Anadarko and Hunt Oil, said Diego Garcia, a Buenos Airesbased Bain partner.

Colombia’s Ecopetrol may bid in the auctions, its chief executive told Reuters.

Norway’s Statoil, which already has onshore drilling projects in Argentina, is partnering with YPF on offshore seismic studies and is “considering future licensing rounds,” a spokesman said.

“Huge areas of the Argentinian continental shelf will be available for bids from companies ,” executive vice president for exploration Tim Dodson said at an event in Buenos Aires last Wednesday. “We have of course started our evaluations already.”

Chevron and Exxon declined to comment. Anadarko and Hunt did not respond to requests for comment. Firms likely won’t decide whether to bid until the full terms of the auction are published.