Argentina’s YPF to invest $30bn to emulate US shale boom

Argentina’s YPF to invest $30bn to emulate US shale boom

12:00 - State-controlled energy group pledges spending as a part of Macri’s investment drive

YPF, Argentina’s largest oil company, said it will invest more than $30bn over the next five years in a move aimed at emulating the US shale boom. The pledge makes the state-controlled company the top investor in Argentina at a time when the pro-market government of President Mauricio Macri is on a drive to attract investments to consolidate an economic rebound after six years of stagnation.

YPF will continue its drive to develop the country’s huge unconventional resources, with the Vaca Muerta shale field in Patagonia containing the second-largest reserves of shale gas in the world. It aims to increase unconventional production by 150 per cent, reaching half of total production within the next five years. Overall oil and gas production is hoped to rise by 5 per cent a year, to reach 700,000 barrels of oil equivalent a day in 2022. Exploration efforts will be ramped up, with reserves targeted to rise by 50 per cent.

YPF is also aiming to boost electricity production — much of it through renewables — as a part of its efforts to become a fully integrated energy company. Although developing its shale resources remains the top priority, YPF also wants to refocus on conventional production. Critics say this was neglected until Mr Macri replaced YPF’s management team shortly after he took power two years ago, despite it accounting for the bulk of the company’s production. Executives are hoping to enhance productivity by cutting costs and operating more efficiently, with some projects whose contracts were signed when oil prices were as much as double their current prices no longer viable.
Earlier this year, trade unions agreed to more flexible working conditions, with high labour costs seen as one of the biggest barriers to the development of Vaca Muerta, in return for investments from oil companies of up to $15bn a year. Once a net exporter of energy, a lack of investment in recent years has led to production plummeting, leaving Argentina with a costly energy deficit and a dependence on imports that have placed heavy pressure on the budget.

Although the previous management appointed by the populist president Cristina Fernández de Kirchner oversaw significant increases in investment, profits and production, turning Argentina into the biggest producer of unconventional energy outside North America, many are critical of its record.

“They were driven by production, not profits,” said one senior executive in the sector, criticising a sharp increase in YPF’s debt. “When production was not growing they bought it, through acquisitions. It was all a sleight of hand.”

Once by far the biggest local player in the sector, YPF has seen increased competition recently, with both Pan American Energy and Pampa Energía growing through mergers and acquisitions over the past two years.

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