YPF signs production deal with Gazprom

Sep 05, 2015 12:00 AM

State-controlled oil company YPF sealed an agreement yesterday with Russia’s state-controlled energy giant Gazprom to develop tight and shale gas in Argentina in what marks the latest deal that the firm has signed with an international firm to boost local production in an effort to cut back on energy imports.

The deal sets out the principles for cooperation for a final accord that would be signed before March 2016.

The agreement comes after President Cristina Fernández de Kirchner and her Russian counterpart Vladimir Putin took part in the signing ceremony of a memorandum of understanding (MOU) between the two companies in April to explore and produce hydrocarbons jointly.

It also marks the latest example of Moscow’s involvement in Argentina’s energy sector.

“We clearly said in our business plan that we needed large partners to develop our resources as it wasn’t going to be possible to do it by ourselves,” YPF CEO Miguel Galuccio said after meeting with his Gazprom counterpart Alexey Miller in Vladivostok, Russia. “We hope Gazprom becomes a good partner for YPF like Chevron, Dow and Petronas are now.”

The deal signed between Galuccio and Miller took place on the sidelines of the Eastern Economic Forum.

YPF was the only Latin American firm to seal a deal with the Russian energy giant, which also signed agreements with three additional foreign firms.

Instead of seeking to explore and exploit the resources of a specific area as it did with other companies such as Chevron, YPF said it will work with Gazprom to reach a broader cooperation on oil and gas production. Nevertheless, the Russian company’s main interest in Argentina is thight and shale gas.

The accord will provide “a significant push for the development of the republic’s oil and gas industry,” Miller said in the statement. “It’s a highly important deal to strengthen the strategic partnership between the countries.”

Argentina has 30 times more unconventional gas and nine times more unconventional oil than traditional reserves, according to YPF figures. The country has the world’s second largest shale gas reserves, after China, and the fourth largest shale oil reserves, after Russia, the United States and China, according to estimates.

Since 2013, YPF has invested more than US$2 billion in Vaca Muerta, the country’s massive shale oil and gas formation that is mostly located in Neuquén province. But because of the magnitude of the resources and the country’s difficulties in obtaining financing from abroad YPF is looking for foreign partners — a task that has become even harder over the last year amid plunging oil prices.

In Loma Campana, the company operates the country’s larges shale oil field with US oil giant Chevron and is developing another shale gas field with US company Dow Chemical. Other companies involved in Vaca Muerta include Petronas from Malaysia, France’s Total, the US-based ExxonMobil, the British-Dutch Shell, and Germany’s Wintershall.

YPF managed to increase natural gas production by 14 percent and oil production by six percent during the first six months of the year, compared to the same period last year. But, looking at the sector as a whole, gas production rose 3.5 percent and oil production 0.4 percent in the first half of the year.

Closer Russian ties

The deal between YPF and Gazprom marks the latest example of how the CFK government has been trying to boost ties with Moscow over the past few years.

Fernández de Kirchner travelled to Russia in April to meet with Putin and expand the economic ties between the two nations, signing a set of agreements that included the MOU with Gazprom, the construction of a sixth nuclear reactor in Argentina by Russian firm Rosatom and the supply of nuclear fuel for reactors currently producing energy in Argentina.

The visit came less than a year after Putin came to Buenos Aires on a state visit.

Gazprom has rights over the largest natural gas reserves in the world, 18 percent on a global scale and 70 percent only in Russia. It’s the only producer and exporter of natural gas in Russia and has the world largest network of natural gas transportation with more than 161,000 kilometres.

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