February 8, 2012 / 8:25 PM / 8 years ago

UPDATE 2-Repsol's YPF touts massive Argentine oil find, shares soar

* Forecast for potential resources hiked to 22.8 bln barrels
    * Shale prospect seen comparable to giant US shale fields
    * YPF shares close 8 percent higher after announcement

    By Helen Popper and Joshua Schneyer	
    BUENOS AIRES/NEW YORK, Feb 8 (Reuters) - YPF, the
Argentine arm of Spanish oil major Repsol, said its Vaca Muerta
shale prospect holds 22.8 billion barrels of oil and gas
resources, a staggering amount that may double Argentina's oil
and gas output within a decade.	
    The announcement sent YPF shares up 8 percent to 165.25
pesos ($38) on the Buenos Aires exchange.  	
    Following recent test-drilling, YPF said on
Wednesday that oil and gas resources in its 12,000 square
kilometer concession in southern Argentina's Patagonia region
were much larger than previously thought. But it cautioned that
developing the entire shale play could cost $25 billion per
    "If the exploration in the whole Vaca Muerta area is
successful, and intense development work starts immediately, in
10 years Argentina's current oil and gas production capacity
could be doubled," YPF said in a statement.	
    Argentina pumped around 760,000 barrels per day (bpd) of oil
and 4 billion cubic feet of gas per day in 2010, according to
U.S. Department of Energy, which called it South America's top
natural gas  producer.    
  The firm's previous, November estimate on Vaca Muerta, or
"dead cow" in English, showed it held at least 927 million
barrels of reserves in just a small sliver of the area YPF had
explored so far. 	
    The latest estimate comes after new drilling, and
extrapolates a much larger resource base over the entire area
controlled by YPF. 	
    However, recovery rates for shale drilling are often just a
small fraction of total resource estimates. Foreign oil
companies have also been hesitant to dive headlong into
Argentina's upstream oil sector, since the government imposes
price controls on domestic sales of oil and gas. In recent
years, it has loosened some restrictions in an effort to attract
new investment.	
     "They (YPF) are in the early appraisal well stage, so I'd
be careful about drawing too many conclusions," said Sylvie
D'Apote at Gas Energy consultancy in Rio de Janeiro. 	
     "But this is very good for Argentina." 	
     If confirmed by further drilling, the YPF find may bode
well for other major oil companies with stakes in the broader
Vaca Muerta area, which covers around 30,000 square kilometers.
They include ExxonMobil, EOG Resources and
    Repsol estimated earlier that the hydrocarbons mix in the
Vaca Muerta area included up to 80 percent oil and liquids, and
about 20 percent natural gas. 	
    The oil is a prized light variety. YPF, which is majority
owned by Repsol and pumps over half of Argentina's oil, started
producing small volumes of crude from the shale play last year. 	
     Argentina's proved oil reserves -- a measure of how much
crude could be readily tapped economically -- stood at 2.62
billion barrels as of 2009, U.S. Department of Energy data
    It is far too early to determine how much of YPF's Vaca
Muerta resources -- around nine-fold the size of Argentina's
proved reserves -- might someday be added to the proved
category, analysts say.	
    But the shale play has already drawn comparisons to the
giant fields, such as Bakken in North Dakota and Eagle Ford in
Texas, that have recently allowed the United States to stem
decades of oil production declines and become a net exporter of
refined oil products. 	
    Mark Papa, the chief executive of EOG Resources, told a
conference last year that Vaca Muerta could produce more oil
than Eagle Ford, which has recently been pumping around 400,000
barrels a day. 	
    In a 1,100-square kilometer area YPF explored so far at Vaca
Muerta -- about 10 percent of its total concession -- the
company identified "contingent resources" of 1.525 billion
barrels of oil equivalent, Wednesday's statement said.	
    YPF, which has a market value of approximately $15 billion,
said it would require capital from Argentina and foreign credit
markets to tap Vaca Muerta.	
    "I think they are saying that a lot of investment is
required, and for that (the government) has to create the right
(investment) security conditions in order to attract capital,"
said Buenos Aires-based oil analyst Victor Bronstein. 	
    "They are sending a political message." 	
    Due to fast-growing demand, the country has been forced to
import more fuel to meet its needs in recent years and critics
blame government intervention and political uncertainty for
discouraging investment in exploration.	
    YPF started work to develop shale resources in Argentina in
2007, announcing its first positive results last year, with a
shale gas find known as Loma La Lata.  	
     Soon after that discovery, a U.S. Department of Energy
report showed that Argentina holds more natural gas trapped in
shale rock than all of Europe does - a 774-trillion-cubic-feet
bounty that could transform the outlook for Western Hemisphere

    The shale prospects, or "unconventional reserves," could
give Argentina a chance to turn around a sharp decline in
production from its conventional oil and gas fields. Once a
major oil and gas exporter, soaring domestic demand has turned
the country into a gas importer and a barely self-sufficient oil
producer in recent years.
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