Boston, MA -- (SBWIRE) -- 03/13/2014 -- while our oil and gas production forecasts are still fundamentally cautious given Argentina's poor business environment, we are turning modestly more optimistic toward the country's oil and gas sector. Indeed, its small steps toward reform have been met with enthusiasm by international firms, resulting in a number of investment agreements in the past few quarters. We do not discount the substantial risks inherent in operating in Argentina. However, its massive shale potential, and recent political signals that we are likely to see more orthodox policymaking ahead - at least when it comes to the oil and gas sector - suggest that the risks to our view lie to the upside.

The main trends and developments we highlight in the Argentine oil and gas sector are:

- In recent quarters, we have seen a number of indications that Argentina's operating environment is improving - if slowly. The government has continued to reform its fiscal regime - with a cut in the export taxes levied on domestically produced oil in an attempt to increase its attractiveness to foreign investment. With this change, exporters will now realise US$70 per barrel (bbl) for oil sold abroad, rather than US$42/bbl as was previously the case. Moreover, this follows a revision of wellhead natural gas prices, which were increased from US$5 per mn British Thermal Units (mnBTU) to US$7.50/mnBTU in a bid to further incentivise production. Finally, we believe the October 2013 Congressional election - which left President Cristina Fernandez de Kirchner's ruling Frente Para la Victoria (FPV) without a twothirds legislative majority - may have marked a policymaking turning point, increasing the likelihood of policy moderation over the medium term.
- These factors, combined with the country's massive shale potential have encouraged a slow return of investment to Argentina. This includes not only a US$1.2bn investment by supermajor Chevron, but an US$120mn investment by Dow, as well as joint venture between German firm Wintershall and Gas y Petroleo del Neuquen.
- Conventional oil volumes will continue to remain under pressure in the short run, though the plan to increase production from marginal fields could provide some respite if implemented as envisaged by YPF. Our current estimates assume only a moderate increase in liquids output, such that by 2018 we expect Argentina to be pumping an average of 718,000 barrels per day (b/d). We reiterate though that we have not fully factored in the country's massive shale potential, which therefore provides considerable upside risk to this forecast.
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