Argentina is home to some of the largest shale oil and gas reserves in the world, and it has some of the best chances to be the first country to replicate the U.S. shale revolution outside of North America.
International investment has been tricky in Argentina since the country has largely been locked out of financial markets due to the ongoing debt standoff the government is engaged in with creditors, dating back to the country’s default in 2001.
Still, the enormous Vaca Muerta shale basin is “world class,” according to Credit Suisse analysts. The partially state-owned Argentine oil company, YPF (NYSE:YPF), stands to be a major beneficiary of an Argentine shale revolution. And there are several reasons that YPF could be a smart play for investors looking at the Vaca Muerta. Related: Why Energy Efficiency is the Cheapest Form of Energy
First, oil prices are more heavily regulated in Argentina, which hindered the company’s financial position when international oil prices were above $100 per barrel, but protect the company when prices are low. While other companies around the world are suffering from low prices, YPF can at least enjoy the certainty of regulation. Related: Top 5 Oil Producing Countries Could See Production Peak This Year
Second, the Argentine government may get a whole lot friendlier to international investors this fall after President Cristina Fernandez de Kirchner leaves office. That is especially true if the pro-business candidate Mauricio Macri pulls out a victory. But no matter who wins, there is a decent chance that the conflict with Argentina’s creditors finds a solution with the new administration. Related: Why We Should Get Used To Low Oil Prices
More importantly, the Vaca Muerta has very large oil and gas reserves and YPF is leading the charge on development. There are other large oil and gas companies operating in the Vaca Muerta, including ExxonMobil (NYSE:XOM), Royal Dutch Shell (NYSE:RDS.A), and Chevron (NYSE:CVX). But Credit Suisse says that YPF is “one of the most liquid investment vehicles for investors to get exposure to Argentina.”
Also, the company has a high return on invested capital, according to Credit Suisse, a return that is better than Chevron, for example. YPF has a 6 percent rate of growth in terms of production, a figure that is closer to 14 percent when accounting for the acquisition of assets from Apache Corporation (NYSE:APA).
For investors looking at Argentina’s oil and gas investment opportunities, YPF could be the best bet.
By Charles Kennedy of Oilprice.com
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