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John Daly

John Daly

Dr. John C.K. Daly is the chief analyst for Oilprice.com, Dr. Daly received his Ph.D. in 1986 from the School of Slavonic and East European…

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Argentina Announces Massive Oil and Natural Gas Reserves

There is good news and bad news for Argentina, Latin America’s third largest economy.

The good news?

On 7 November the YPF SA, Argentina's biggest oil and gas company, confirmed its biggest oil discovery yet in Argentina in the country’s Vaca Muerta basin in Neuquen province in northern Patagonia, reserves equivalent to 927 million barrels of recoverable oil and natural gas, of which 741 million barrels is oil. Repsol YPF SA based its discovery on output from 15 producing wells in the Loma Lata Norte area, 746 miles southwest of Buenos Aires. YPF SA's majority shareholder is Spain's Repsol YPF SA, which has a 57.4 percent stake in the company.

Following the announcement YPF SA’s stock surged 10.7 percent on the Buenos Aires Stock exchange. YPF SA currently produces more than 50 percent of Argentina’s crude oil. If the discovery proves to be verified, then according to U.S. Energy Information Administration data, Argentina will rank as having the world’s third-largest probable reserves of shale oil, behind the U.S. and China.

The bad news?

The Vaca Muerta basin Neuquen province oil is situated in a shale formation.

The oil will be extracted by hydraulic fracturing, an increasingly controversial technique involving injecting water, sand and chemicals at high pressure into well boreholes to force out the fuel.

Former Argentine Energy Minister Jorge Lapena cautioned that while YPF SA’s "spectacular announcement" was good news, the reserves have yet to be proven and that studies on economic feasibility and environmental impact still need to be done, noting, "There's still a long path to go from resources to reserves, and then to put them into production." While the discovery is good news for Argentina, the find pales next to Brazil's recent deep-sea oil discoveries, which experts estimated could be as much as 55 billion barrels or Venezuela’s massive oil resources of 296.5 billion barrels in proven crude reserves.

YPF SA owns oil rights to 4,600 square miles of the Vaca Muerta basin. Not resting on its laurels, YPF SA said that it is investigating another 194 square mile exploration area that could contain additional oil. For YPF SA, the news assuages the futility of drilling a dry hole off the disputed Falkland Islands earlier this year.

Environmental concerns aside, where will Argentina’s Neuquen oil go? According to Gas y Petroleo del Neuquen chairman Ruben Etcheverry, "We have talked with Gazprom, there are also some Chinese companies" interested, adding that shale gas development in Argentina could help the nation cease its dependency on expensive natural gas imports within five or six years.

The Vaca Muerta (“dead cow’) basin is about to get a lot more crowded. YPF SA currently controls about 4,600 square miles of the Vaca Muerta formation, which has a total surface area of 11,500 square miles. Other energy companies prospecting for shale oil and gas in Neuquen province include Apache Corp., Exxon Mobil Corp., Americas Petrogas Inc., France’s Total SA and Madalena Ventures Inc.
But before the gringos rush to Patagonia to begin oil and natural gas production, they should bear in mind that three days after President Cristina Fernandez de Kirchner won reelection on 23 October, in her first official act changed a 2002 decree requiring companies such as Repsol YPF SA, Total SA, Petroleo Brasileiro SA and Pan American Energy LLC to keep at least 30 percent of their export revenue in the country after several years of being exempt, arguing that this puts extractive industries on a level footing with farmers. Cynics ascribe the move to an attempt by the central banking authorities to stem capital flight.

But despite the minor legislative hiccup, 70 percent of the profits on 927 million barrels of recoverable oil and natural gas isn’t too shabby.

Despite its isolation, Patagonia has a well established environmental movement in both Argentina and Chile. They have yet to be heard from on the environmental impact of hydraulic fracturing and its demands on Patagonia’s arid water reserves, but they will doubtless view the YPF SA’s announcement with less than enthusiasm.

By. John C.K. Daly of Oilprice.com

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Leave a comment
  • Fernando Leza on February 24 2012 said:
    I believe the "fracturing is increasingly controversial" statement is more applicable to the USA, and in particular to NY state. Fracturing has been going on for over 100 years, and the recent attacks against it are based more on ignorance rather than facts.

    One could argue that biofuels are a lot more controversial, since most of US biofuel production requires heavy tax payer subsidies, and leads to higher food prices.

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