Recently Released Market Study: Argentina Oil & Gas Report Q3 2014

New Energy research report from Business Monitor International is now available from Fast Market Research

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Boston, MA -- (ReleaseWire) -- 06/12/2014 --We have grown increasingly bullish on Argentina's upstream this quarter. Formal resolution to the Repsol-YPF dispute has removed a major barrier to international oil companies looking to enter the Argentine oil and gas sector. Increased investment and a growing exploration drive point to a marked improvement in investor sentiment, and we expect this trend to continue in the coming quarters.

Nevertheless, our oil and gas production forecasts remain comparatively cautious, and this is largely due to the legacy of a poor business environment and the substantial operational risks inherent to Argentina. However, the country's vast shale potential, and recent indications of more moderate policymaking, suggests that the risks to our view lie firmly to the upside.

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

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- 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 USD70 per barrel (bbl) for oil sold abroad, rather than USD42/bbl, as was previously the case. This follows a revision of wellhead natural gas prices, which were increased from USD5 per million British Thermal Units (mnBTU) to USD7.50/mnBTU, in a bid to incentivise production. Finally, since the October 2013 Congressional election, which left President Cristina Fernandez de Kirchner's ruling Frente Para la Victoria (FPV) without a two-thirds legislative majority, we have seen growing indications of a more moderate policy leaning.
- These factors, combined with the country's massive shale potential, have encouraged a slow return of investment to Argentina. This includes not only a USD1.6bn investment by supermajor Chevron, but an USD120mn investment by Dow, as well as joint venture between German firm Wintershall and Gas y Petroleo del Neuquen. With the resolution of the Repsol-YPF dispute removing a legal barrier to companies seeking joint venture agreements with the Argentinean national oil company (NOC), we expect investment to return at a faster pace over the coming quarters.
- 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 745,000 barrels per day (b/d), before increasing to 816,000b/d by 2023. We emphasise that this does not factor in the country's vast shale potential, which provides significant upside risk to our forecast.

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