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YPF CEO sees turning point in Argentina oil, gas output

Alberto Raggio/Reuters

Gutierrez said weather issues will hurt YPF's 2017 output, forecast to contract by 3 percent. But he has "no doubt" of positive 2018 production for YPF.

By Caroline Stauffer and Juliana Castilla

BUENOS AIRES
Petroleumworld 08 08 2017

Argentina's state-run petroleum company YPF SA forecasts that its production will increase in 2018 after contracting this year, as the number of rigs operating in the country rises, the company's chairman said on Monday.

Despite a wave of investment announcements in the Vaca Muerta shale area, one of the world's largest, Argentina's oil output has continued to fall since President Mauricio Macri took office in late 2015 while natural gas output rose marginally thanks to government price supports.

"For me the adjustment process is over and looking at 2018 this situation will change, I think we have seen the floor of rigs," Miguel Gutierrez said in an interview at the Reuters Latin American Investment Summit.

There were 49 active oil and gas drilling rigs in Argentina in April and 60 in June according to Baker Hughes, about half the number two years earlier as companies adjusted to lower global prices and changing government policies.

Gutierrez last year took the helm of YPF, which accounts for between 35 to 45 percent of the country's petroleum output each month. Previously, he held high-level positions at JPMorgan Chase & Co. and Telefonica SA.

He forecast oil prices of between $50 and $60 per barrel for the next two or three years.

"We don't see much change... companies have to see how they can modify costs so production is profitable," he said in the interview at his office in Buenos Aires.

'TWO YEARS' FOR NEW FIELDS

Gutierrez said weather issues will hurt YPF's 2017 output, forecast to contract by 3 percent. But he has "no doubt" of positive 2018 production for YPF.

He said it would take around two years for new shale fields to move beyond pilot phases to development. Two fields are currently producing in Vaca Muerta.

YPF is "accelerating pilots we believe have interesting opportunities, that's why we have partnered with (Royal Dutch) Shell in Bajada de Anelo and with Schlumberger in Bandurria Sur," Gutierrez said.

He said YPF has made "good progress" in forming partnerships with oil majors and more could be announced.

Attracting investment to Belgium-sized Vaca Muerta is a priority for Macri. In January he announced a deal with labor unions and energy companies to lower costs and extend a subsidized price of $7.50 per million British thermal units for natural gas.

Gutierrez said the labor agreement had been "more than 80 percent" implemented and progress made toward deals with unions in Santa Cruz and Chubut provinces in addition to Neuquen, home of Vaca Muerta.

He reiterated that better infrastructure is also needed to lower costs.

The break-even price of $43 per barrel YPF has given for Loma Campana, a shale field it operates with Chevron Corp, is "similar" to other areas, Gutierrez said.

"We know there are opportunities to improve," he said.

RISING INVESTMENT, ASSET SALES

Gutierrez said "in theory" 2018 investments in Vaca Muerta would be more than the $2.3 billion it plans to invest this year.

He said the company does not need to sell assets in order to invest and would "surely not" issue another bond this year.

"We have established financial discipline,' he said. "We do not want to increase our debt."

Gutierrez said YPF is looking for a partner to operate its electricity subsidiary, but he declined to comment on reports it was in talks to sell 49 percent of it to General Electric Co.

"We don't want to take capital from our program of oil and gas development, and therefore we are seeking a partner," he said.

YPF is analyzing downstream opportunities, Gutierrez said, though he declined to comment on a Reuters report of YPF's interest in Royal Dutch Shell Plc's refinery and gasoline stations in Argentina.

Gutierrez also said YPF would sell its Metrogas unit when "the price was right" but was not in a hurry.

He said YPF had hired consulting firm Deloitte to analyze contracts with Brazilian engineering conglomerate Odebrecht from 2010 to 2015, but ruled out a corruption write-off. Deloitte declined to comment.

Brazil's state-run oil firm Petrobras wrote off $2 billion in corruption losses in 2015 to corrupt deals with contractors including Odebrecht.

"There is no chance (of a write-off). This has already been seen by an internal audit but we think from the corporate governance perspective an independent entity should participate," Gutierrez said.

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