By Marianna Parraga
HOUSTON, March 7 Nationalizations, currency
controls, contract changes, subsidies and political instability
over the last 15 years have not prevented energy investors from
showing renewed interest in Latin America.
With proven oil reserves of 340 billion barrels, the world's
second-largest behind the Middle East, Latin America is trying
to attract foreign capital for Colombia's onshore and offshore
blocks as well as Argentina's large unconventional resources and
Mexico's fast-track energy reforms.
"The appetite for Latin America is big," said Carlos Pau,
chairman of the private Argentina-based firm Americas Petrogas,
at the IHS CERAWeek energy conference.
Low geological risk, increasing regional demand for fuels
and proximity to the Atlantic Basin, another consuming market,
are among the arguments that companies make for investing.
Bigger international players, including Chevron Corp
, Spain's Repsol SA, Italy's Eni SpA
and Royal Dutch Shell PLC, have stayed in Latin America
despite contractual risks, such as in Venezuela and Argentina.
But the companies showing the fastest growth in the region
are mid-sized ones that reinvest profits locally instead of
repatriating dividends, thereby avoiding limits on currency
exchange in some countries.
"We take risks. We are working on the second phase of an
agreement to buy Harvest (Harvest Natural Resources Inc )
assets in Venezuela. Why there? Because reserves are there,"
Steven Crowell, chief executive officer of Pluspetrol
said at the conference.
The company has expanded within the region with exploration
and production blocks in Peru, Colombia and Argentina. It is now
actively tendering crudes and products on the open market.
Paolo Scaroni, the CEO of Eni, said on Wednesday that a
crucial offshore gas project in Venezuela with Repsol and
state-run PDVSA will start early production at the end of this
year, while the company increases crude output at another
billion-dollar development in the Orinoco belt, the country's
But companies venturing into the region are now looking at
Mexico, where the market is set to open 75 years after a
nationalization. That could provide experienced firms and
mid-sized ones a chance to build on their success in U.S. shale
and offshore plays.
"Can I have my money back?" That is a frequent question
among companies based outside Latin America after price and
currency controls surged in recent years, and there is no easy
Argentina and Venezuela have imposed long-term restrictions
to deal with hard currency shortages, but both are also trying
to relax them in a period of economic weakness.
Frequent legal changes and the imposition of windfall profit
taxes in Venezuela, Colombia and Ecuador since crude prices
climbed in 2008 have also contributed to investors' wariness.
With a lone bid at the minimum price, a consortium of
Brazil's state-run Petrobras, Shell, France's Total
, CNOOC and China National Petroleum
Corporation in October won the rights to develop the offshore
Libra field. The weak result was blamed on onerous local content
requirements in a country with high taxes.
Low domestic prices also discourage foreign investment. Fuel
subsidies account for 2.25 percent of the region's gross
domestic product, according to the Latin American Energy
Organization, or Olade.
At just pennies a gallon, Venezuela has the world's cheapest
gasoline after 15 years of frozen prices. It also subsidizes
imported gas from Colombia. Argentina is dealing with big gas
and diesel subsidies while paying high prices for imports of
liquefied natural gas.
"At this point, Venezuela would have to multiply the
gasoline retail price by 25 to cover production costs," said
Ramon Espinasa, lead Oil and Gas specialist of the
Inter-American Development Bank.
Bolivia also has subsidies for the gas sold in its domestic
market; Ecuador does the same for its fuels and almost the
entire region subsidizes liquefied petroleum gas used for
For their part, Mexico, Chile, Peru and Colombia are working
to progressively remove subsidies, which would allow oil
operators to recover investments faster and satisfy an
incremental demand for all types of fuels.
To meet demand, the region quadrupled fuel imports from the
United States in the last decade to 1.3 million barrels per day
in 2013, according to the U.S. Energy Information
WHERE TO GO?
Clear rules in Peru, Colombia and Uruguay could attract
energy investors with a low tolerance for risk, but to get their
hands on big deposits companies must be willing to tolerate less
favorable terms in Venezuela, Argentina, Brazil and Ecuador.
BP, Total and BG won blocks in 2012 to explore
offshore Uruguay, while Chevron is expected to be the largest
private investor in Argentina's biggest unconventional
reservoir, Vaca Muerta, working along with state-run YPF
Mexico, which has under-invested in exploration for years,
is widely expected to become a key destination for foreign firms
once its government implements an extensive energy reform
Emilio Lozoya, the CEO of Mexico's state-owned oil company
Pemex, said at CERAWeek that Mexico will need $1
trillion to boost oil output to 3 million barrels per day by
2018, increase production of gas and petrochemicals and build
new energy infrastructure.
"Pemex will be working hard to find the right partners.
Conservatively, we can see results (of the reform) in a couple
of years," he said.