December 7, 2010 / 4:25 PM / in 9 years

UPDATE 3-Argentina's YPF makes massive natural gas find

* Makes 4.5 tcf unconventional discovery at Neuquen field

* Argentine proven current reserves estimated at 16 tcf

* Eskenazi hopes for additional stake purchase by year-end (Recasts, adds analyst comment)

By Karina Grazina and Luis Andres Henao

BUENOS AIRES, Dec 7 (Reuters) - Argentina’s biggest energy company, YPF (YPFD.BA), said on Tuesday it had found a huge deposit of unconventional natural gas that would be equivalent to a quarter of the country’s proven reserves.

The discovery at YPF’s Loma de la Lata conventional natural gas field in the Patagonian province of Neuquen is similar to unconventional shale deposits in the United States, the company said.

“We obtained excellent results in terms of natural gas ... we carried out our first exploration campaign by limiting ourselves to just one area,” YPF Chief Executive Sebastian Eskenazi said in a televised speech. “In just that one area, we found we had 4.5 tcf.”

He said that meant YPF, the local unit of Spain’s Repsol (REP.MC), would potentially be able to extend the life of its reserves to 16 years from six years at the moment.

The South American country has proven natural gas reserves of 16 trillion cubic feet (tcf), according to a 2009 estimate by the U.S. Energy Information Administration (EIA), and demand has surged in recent years due to robust economic growth.

YPF, clarifying that the find could not be classified as reserves, said exploration teams had drilled four wells of “tight gas,” each of which had yielded an initial daily output of 100,000 cubic meters per day.

It said “huge volumes” of both shale gas and tight gas had been found at the site.

U.S. natural gas production this year is at its highest level in nearly 40 years, primarily due to a massive increase in shale gas production and reserves.

U.S. net proved natural gas reserves rose 11 percent, or 28.8 tcf, in 2009 to total 284 tcf, underscoring the dramatic impact that new gas pumped from shale rock formations is having on world energy supply, the EIA said last month. [ID:nN30290575]

SHORTAGES

President Cristina Fernandez hailed the discovery, which could eventually help the government avert sporadic energy shortages that have forced it to limit exports to Chile and factories at times of peak demand. [ID:nN02168396]

Energy reserves have fallen in recent years in Latin America’s No. 3 economy and the country has been forced to import more fuel to meet its needs.

Critics blame government intervention in the market and political uncertainty for discouraging investment in exploration.

If the new discovery can be brought into production it might also help reduce Argentina’s imports from neighboring Bolivia, which has South America’s second-biggest reserves. Argentina also imports diesel and LNG. [ID:nN03292326]

Eskenazi said YPF aimed to supply gas from the new discovery to a potash mine being developed by Brazilian mining company Vale VALE5.SA, and that it would pay between $4 and $5 per million British Thermal Units (BTU) for the fuel.

“That’s less than imported natural gas but more than conventional gas,” Eskenazi told Reuters.

Argentina pays Bolivia about $7.50 per million BTUs for the natural gas it imports, but domestic producers receive less than that. Energy analysts said that raised questions about the viability of the project.

“Here in Argentina, prices are very low ... these deposits are much more costly than what’s paid in Argentina ... it could be a lot of gas, but it could be very expensive,” said former state energy official Jorge Lapena.

“If these were proven reserves, which could be registered in the market, this would almost certainly have an extraordinary impact on the share price,” he added.

Shares in YPF, which is worth about $17 billion at current market value, jumped 5.2 percent following the announcement.

Eskenazi also said his family’s Petersen group aims to exercise an option to buy an additional 10 percent stake in the energy company from Repsol before year-end.

The Petersen group holds about 15 percent of YPF, and the option to buy another 10 percent expires in 2012.

“We’re trying to do it before the end of the year. We’ll have to see if we manage that,” he said. (Additional reporting by Jorge Otaola and Eduardo Garcia; Writing by Helen Popper) (helen.popper@thomsonreuters.com; +54 11 4318 0655; Reuters Messaging: helen.popper.reuters.com@reuters.net))

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