In May of last year, Argentina’s President Cristina Fernández took control of the Argentinian oil company YPF by expropriating shares from the Spanish oil major Repsol. Now, more than a year and a half later, Fernández is offering to pay Repsol $5 billion for the expropriated shares. That’s less than half of what Repsol was seeking, but it’s better than nothing. And for Argentina, it could kick-start drilling in the country’s vast shale oil and gas reserves. Reuters reports:
“We are building a path that will allow for an increase in hydrocarbon exploration and exploitation,” [Argentina’s new cabinet chief Jorge Capitanich] told a press conference, adding that Argentina has a “very ambitious” energy program scheduled for the years ahead….Already the world’s No. 3 corn and soybean exporter, Argentina stands to become a major oil and gas producer as well if the government can attract the tens of billions of dollars it needs to exploit the Vaca Muerta (Dead Cow) shale formation….“The understanding with Repsol shows that the government, when in need, can show a remarkable degree of pragmatism. An understanding with Repsol should facilitate YPF negotiations with other oil companies interested in Vaca Muerta,” said Ignacio Labaqui, an analyst with Medley Global Advisors.
According to the EIA, Argentina has the world’s fourth largest reserves of shale oil, and is second only to China in technically recoverable shale gas. While Argentina lacks the pipeline network or established services industry that has complemented and enabled America’s shale boom, it does have plenty of water—a key resource in fracking—and its geology lacks the complexity that has stymied Chinese efforts.Attracting investment may be the single best move Argentina can make toward developing its shale resources. Deloitte insists that “[m]aintaining a favorable investment climate” is necessary for any meaningful shale production to take place. But we won’t be holding our breath for a second (South) American shale revolution; Argentina is very good at squandering its resource bounty.