YPF chairman Guillermo Nielsen was very much wearing that cap at the World Economic Forum in Davos this week, as he appealed for investment in Argentina’s Vaca Muerta shale formation – even if as the sole representative of the government there, he also had to address a host of other issues.
The economist informed the top-level global Swiss huddle on Tuesday that the Alberto Fernández administration was putting the final touches on a draft regulatory framework for the unconventional formation – one of the biggest shale oil and gas deposits in the world – which would be entering Congress in the next 10 to 15 days.
“We have the [right] rocks but we need capital … investments for fracking,” said Nielsen, who also observed that the extraction of unconventional energy resources is highly capital-intensive.
“But let’s keep the Argentine risk out of this,” added the architect of the 2005 debt-bond swap, who was also tasked with explaining the complex process of debt renegotiations now underway with the International Monetary Fund (IMF) and private creditors.
No further details were available on the draft bill, which was first announced by President Alberto Fernández last week and is destined for debate in next month’s extraordinary sessions of Congress.
PIPELINE TO BRAZIL?
The YPF chief also suggested that the construction of a gas pipeline connection with southern Brazil could make the natural gas potential of Vaca Muerta even more interesting by offering an outlet to a strong market. At present, local and Chilean demand is insufficient to accelerate production. Brazilian Economy Minister Paulo Guedes expressed enthusiasm about the Vaca Muerta link-up at Davos.
Nielsen said that this initiative would help Argentina tackle its biggest debt of the last three decades, chiding the previous Mauricio Macri administration for having done so little to develop the energy project after borrowing US$100 million (he further ticked off the IMF for “breaking its own rules” in lending US$44 billion of an agreed US$56 billion to Macri). Energy, agriculture and mining were the three key sectors for giving Argentina the growth to pay off its debt, he argued.
Addressing the “Beyond geopolitics” panel, Nielsen did not limit his appeal to Vaca Muerta, pointing out that 20 percent of Argentina’s oil and 40 percent of its natural gas still comes from conventional sources.
Meanwhile, Neuquén Province Governor Omar Gutiérrez invited European business authorities from the sector to a dialogue about the present of Vaca Muerta, seeking the ratification of their investment commitments, local media reported.
The governor, whose province hosts the majority of deposits, spoke from Madrid where he headed to attend the International Tourism Fair (Fitur, in its Spanish acronym), but he also used his presence in Spain to seek Vaca Muerta investments.
Gutiérrez considered that the “strategic” pipeline to Brazil was the missing link out of the bottleneck preventing the development of infrastructure and the market, also pointing out that it would f e e d Rosario’s industrial belt.
Back at Vaca Muerta that bottleneck had been placing some 2,000 jobs at risk this month with a further 3,000 pink slips lined up for next week, according to trade unionist and ex-senator Guillermo Pereyra.
However, on Thursday the sector’s trade unions and business chambers agreed to roll back 600 dismissals and 1,200 layoffs while postponing further suspensions in the hope that production will pick up again. The agreement was the result of mediation by Labour Minister Claudio Moroni, following extended meetings lasting much of the week.
Some of the companies had requested Chapter 11 proceedings whereby under Argentine law crisis prevention would permit the reduction of employer social security contributions for at least the next six months. Moroni said that he would pass this proposal onto his Economy colleague Martín Guzmán.
Vaca Muerta’s problems began early last year when the Mauricio Macri administration cut back the basis for subsidies from actual production to the more conservative original estimates. But the situation began to tailspin last August with Decree 566, which froze fuel prices.
“Now there are 17 less drilling-rigs, thus jeopardising 3,000 jobs. In November and December 600 workers were fired and 1,200 laid off. Fortunately all that could be halted yesterday,” said Pereyra.
The oil giants contacted by Gutiérrez in Madrid included Total and Shell with hopes of approaching Norway’s Equinor before he returns home where he has a meeting with Chevron lined up.
Shell and Equinor are already talking about expanding their territory in the Vaca Muerta shale deposits, well-informed sources told Bloomberg – concretely the joint purchase of a 49 percent share in Bandurria Sur, currently owned by Schlumberger which announced its intention to sell last September. The remaining 51 percent of the field (currently some 10,300 barrels a day) is the property of YPF.
This decision comes with tense debt talks adding sovereign risk to the infrastructural bottlenecks and abrupt subsidy cuts mentioned above. Potential investors do not see any signs of inflation coming under control while it is also feared that trade unions could be more assertive under the new government.
Meanwhile, both Energy Secretary Sergio Lanziani and future ambassador to Washington, Jorge Argüello, said that Vaca Muerta investments would also be sought in the United States.
Despite all the problems throughout last year, 2019 was the best year in Vaca Muerta history with a 33 percent surge in output over 2018 and 6,425 new stages of fracking, a report by NCS Multistage consultants found.