Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20
The Growing Weaponization of Space - 14th Feb 20
Will the 2020s Be Good or Bad for the Gold Market? - 14th Feb 20
Predictive Modeling Suggests Gold Price Will Break Above $1650 Within 15~30 Days - 14th Feb 20
UK Coronavirus COVID-19 Infections and Deaths Trend Forecast 2020 - 14th Feb 20
Coronavirus, Powell and Gold - 14th Feb 20
How the Corona Virus is Affecting Global Stock Markets - 14th Feb 20
British Pound GBP Trend and Elliott Wave Analysis - 13th Feb 20
Owning and Driving a Land Rover Discovery Sport in 2020 - 2 YEAR Review - 13th Feb 20
Shipping Rates Plunge, Commodities and Stocks May Follow - 13th Feb 20
Powell says Fed will aggressively use QE to fight next recession - 13th Feb 20
PALLADIUM - THIS Is What a Run on the Bank for Precious Metals Looks Like… - 13th Feb 20
Bitcoin: "Is it too late to get in?" Get Answers Now - 13th Feb 20
China Coronavirus Infections Soar by 1/3rd to 60,000, Deaths Jump to 1,367 - 13th Feb 20
Crude Oil Price Action – Like a Coiled Spring Already? - 13th Feb 20
China Under Reporting Coronavirus COVID-19 Infections, Africa and South America Hidden Outbreaks - 12th Feb 20
Will USD X Decline About to Trigger Precious Metals Rally - 12th Feb 20
Copper Market is a Coiled Spring - 12th Feb 20
Dow Theory Stock Market Warning from the Utilities Index - 12th Feb 20
How to Get Virgin Media Engineers to FIX Hub 3.0 Problems and NOT BS Customers - 12th Feb 20
China Under Reporting Coronavirus COVID-19 Infections by 66% Due to Capacity Constraints - 12th Feb 20
Is Coronavirus the Black Swan That Takes Gold To-Da-Moon? - 12th Feb 20
Stock Market 2020 – A Close Look At What To Expect - 12th Feb 20
IBM AI Mega-trend Tech Stocks Investing 2020 - 11th Feb 20
The US Dollar’s Subtle Message for Gold - 11th Feb 20
What All To Do Before Opening A Bank Account For Your Business - 11th Feb 20
How and When to Enter Day Trades & Swing Trade For Maximum Gains - 11th Feb 20
The Great Stock Market Dichotomy - 11th Feb 20
Stock Market Sector Rotation Should Peak Within 60+ Days – Part II - 11th Feb 20
CoronaVirus Pandemic Stocks Bear Market Risk 2020? - Video - 11th Feb 20
Facebook (FB) AI Mega-trend Tech Stocks Investing 2020 - 10th Feb 20
The US Constitution IS the Crisis - 10th Feb 20
Stock Market Correction Continues - 10th Feb 20
Useful Tips for Becoming a Better Man - 10th Feb 20
Will CoronaVirus Pandemic Trigger a Stocks Bear Market 2020? Part1 - 9th Feb 20
Could Silver Break-out like it did in 2011? - 9th Feb 20
The End of the Global Economy - 9th Feb 20
Fed to Stimulate in Any Crisis; Don’t Let Short-Term Events Bother You - 9th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

It's Time to Invest in Argentina's Oil and Natural Gas Plays

Commodities / Oil Companies Aug 10, 2012 - 02:18 AM GMT

By: The_Energy_Report

Commodities

Best Financial Markets Analysis ArticleArgentina's nationalist leanings grabbed major headlines earlier this year, but Mackie Research Analyst Bill Newman says the conflict is unlikely to become a repeating trend with the majors and supermajors currently trolling for oil and gas in the country's Vaca Muerta shales. In fact, Newman expects newer policies to encourage foreign investment in energy exploration. In this exclusive interview with The Energy Report, Newman explains why investors should keep an eye on the region and watch for major catalysts.


The Energy Report: Bill, Argentina's government decided to pull Yacimientos Petrolíferos Fiscales' licenses. Are you concerned that the political climate there will drive away potential investors just when you've started recommending projects in the country?

 

Bill Newman: The expropriation of Yacimientos Petrolíferos Fiscales' shares didn't drive companies away. Before the expropriation of Repsol S.A.'s (REPYY:OTCPK) 51% ownership in YPF, there was a rush of new companies coming into the Neuquen Basin who saw the huge potential of developing the Vaca Muerta shale oil and gas play. The companies that were acquiring lands were the majors and supermajors, including Exxon Mobil Corp. (XOM:NYSE), Royal Dutch Shell Plc (RDS.A:NYSE; RDS.B:NYSE), Chevron Corp. (CVX:NYSE) and Total S.A. (TOT:NYSE). All of them are continuing to drill.

 

What the expropriation has done is limit the amount of additional capital these companies are willing to commit to Argentina in the short term. Companies continue to talk with the government and are trying to get better certainty over commodity pricing, reduced import restrictions and capital controls. Given the huge amount of foreign capital that's going to be needed to develop these shale plays, we think there's a good chance that some changes will be announced, prompting the majors and supermajors to commit more capital again. If that does occur, then this would be a major catalyst for the junior oil and gas companies operating in Argentina, including Americas Petrogas Inc. (BOE:TSX.V) and Madalena Ventures Inc. (MVN:TSX.V).

 

TER: Was the conflict with Yacimientos' licenses an isolated incident of nationalization, or is there more to come?

 

BN: Right now, it looks like the nationalization of these assets is contained just to Repsol's shares in Yacimientos. It was a very populist move by Argentina's president, Cristina Fernandez, because most Argentineans view Yacimientos as a national oil company. But we think it's unlikely that the president will move against any other companies in the region.

 

TER: What impact has this widely covered story had on oil and gas companies' stocks that operate in the region?

 

BN: Both Madalena and Americas Petrogas have been hit hard by increased political uncertainty in Argentina, in addition to general market conditions. Since February, Americas Petrogas is down about 50%. Madalena is down by about 75%. We think this is an opportunity. Both companies are well financed. They both have active drilling programs targeting the Vaca Muerta shale, so there should be a lot of drilling catalysts. Both plan to complete multiple fracture stimulations of the Vaca Muerta in the next six months. We think the political situation has been priced into these stocks, and both companies can fund their operations with cash and cash flow for the next couple of years. We do expect the political situation in Argentina to remain volatile, but we think there's a good chance the government is going to introduce new incentives to try to attract the capital it needs to develop these shale plays. In the meantime, Americas Petrogas and Madalena will be able to continue drilling and testing the shale play.

 

TER: So both companies can fund current operations from the cash flow they have right now?

 

BN: That's right. Americas Petrogas is actually producing 2,500 barrels oil equivalent per day, so it's actually generating some cash flow. Madalena is generating some production but limited cash flow. It has enough capital on the books to fund its operations for the next couple of years.

 

TER: Have test results moved these stocks?

 

BN: The production tests of the Vaca Muerta so far have been very encouraging. The vertical Vaca Muerta oil wells are initially flowing between 200 and 800 barrels oil per day (bbl/d). EOG Resources Inc. (EOG:NYSE) recently announced that it completed the first horizontal Vaca Muerta well. It was completed with a multistage frack and the well flowed at 1,500 bbl/d. These are very good results, comparable to what you get in North America. What makes this Vaca Muerta play stand out is its thickness. For example, Americas Petrogas' Los Toldos Este well encountered a 330-meter (m) section, over 1,000 feet of Vaca Muerta shale. When you have those kinds of thicknesses, you can book a huge amount of reserves if production is proven to be economic.

 

TER: Is Madalena on track to frack the Lower Agrio, which was slated for July?

 

BN: Yes. Actually, it is currently working on the well. It's called the Cur X-1 well. That's a really exciting play because it's the first time that the Lower Agrio shale has been fracked in Argentina. It is targeting oil as well. So if it works out, you have a new shale play to go after in Argentina and that's really important. I'm guessing there should be results at the end of August.

 

TER: In comparison, Americas Petrogas is waiting on three pending results from current explorations, and within the next two years, it's also planning on performing about 12 unconventional shale tests. Is having a greater number of test results coming in going to give Americas Petrogas a competitive edge?

 

BN: Definitely. So far, it has drilled and cased three shale wells. The company is drilling the fourth well right now, which is the second joint venture with ExxonMobil. That's on the Los Toldos I block. After it has done that well, it plans to immediately drill another well with Exxon, on the Los Toldos II block. So in the next two months, we're expecting Americas Petrogas and Exxon to complete a fracking stimulation of the Los Toldos wells. We think it's a good indication that it decided to go ahead and drill additional wells even before testing the first well, which was drilled in the Los Toldos II block. That shows the company is confident in what it has found so far. We are expecting a continued stream of drilling results from Americas Petrogas over the next six months, which could be a good catalyst for the stock.

 

TER: The Vaca Muerta exploration is significant for Madalena, isn't it?

 

BN: Yes, absolutely. Madalena has, to date, nine penetrations of Vaca Muerta on its Coiron Amargo block. Those have shown that the Vaca Muerta is present over the entire block and had good results. Later this year, it will go back and complete fracture stimulations on three more wells on that block. We think that could lead to a very large increase in its reserves by year-end. Madalena and Americas Petrogas have both drilled in the deeper part of the basin, which is more gas prone. Both companies have encountered huge sections of Vaca Muerta. The shale is between 500 and 600m thick—massive, massive thickness. Again, Madalena and Americas Petrogas are both carried by Apache Corp. (APA:NYSE) on these wells, so they don't pay for any of the costs for those wells.

 

TER: How big a role does the Vaca Muerta play in Madalena and Americas Petrogas' stories?

 

BN: It's actually one of the key reasons to be in the stock. Americas Petrogas has access to about 750,000 acres of land that has shale potential. So it's one of the largest holdings of shale acreage in Argentina. That's exposing the company to a massive resource. At the current market price, investors are paying very, very little for the potential of the shale play. We think Madalena is more risky, but it has actually drilled more wells targeting the Vaca Muerta than Americas Petrogas. Madalena has more leverage when it comes to stock price appreciation. We're hoping the government will make Argentina more fiscally attractive for exploration companies. If that occurs, that's another major catalyst for both stories.

 

TER: Does Americas Petrogas' joint venture with Exxon give it an advantage? Does it derisk the project?

 

BN: The fact that Exxon will be funding up to six wells on the Los Toldos blocks is very important. Exxon could pay up to $75 million worth of exploration on the land, which is fantastic. The fact that Exxon farmed in to Americas Petrogas and let Americas Petrogas operate the blocks, which is pretty much unheard of, shows how interested Exxon is in the Vaca Muerta play in Argentina. Again, it comes down to resource potential. Results to date are encouraging enough for them to see that this could be a multibillion-barrel play.

 

TER: What other companies in Argentina are you positive about?

 

BN: There are a couple other junior oil and gas companies that we're keeping an eye on, but we don't have coverage on them. One of them is called Crown Point Ventures Ltd. (CWV:TSX.V). It has a growing conventional production base. It also has Vaca Muerta shale potential in the Cerro de Los Leones block.

 

The other one is Azabache Energy Inc. (AZA:TSX.V). It has actually just drilled a well on its Covunco Norte plot targeting the Vaca Muerta that encountered 360m of shale.

 

TER: Thank you so much for your time and your insight.

 

Bill Newman is vice president of international oil and gas with Mackie Research Capital Corp. He has been an energy analyst for 16 years. Bill holds a Bachelor of Commerce from the University of Calgary and has a CFA designation.

 

Want to read more exclusive Energy Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Exclusive Interviews page.

DISCLOSURE:
1) Padma Nagappan of The Energy Report conducted this interview. She personally and/or her family owns shares in the following companies mentioned in the interview: None.
2) The following companies are sponsors of The Energy Report: Royal Dutch Shell Plc. Interviews are edited for clarity.
3) Bill Newman: I personally and/or my family own shares of the following companies mentioned in this interview: Crown Point Ventures Ltd. I personally and/or my family am paid was paid by the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this story. Within the last three years, Mackie Research Capital has managed or co-managed an offering of securities by Madalena Ventures Inc. and has received compensation for investment banking and related services from Madalena Ventures Inc. Bill Newman visited the Buenos Aires offices of Madalena Ventures Inc. on Jan. 27, 2012. All expenses were paid for by Mackie Research Capital Corp. Within the last three years, Mackie Research Capital has managed or co-managed an offering of securities by Americas Petrogas Inc. and has received compensation for investment banking and related services from Americas Petrogas Inc. Bill Newman visited the Buenos Aires offices of Americas Petrogas Inc. on Jan. 27, 2012. All expenses were paid for by Mackie Research Capital Corp.

 

Streetwise – The Energy Report is Copyright © 2012 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part.

 

The Energy Report does not render general or specific investment advice and does not endorse or recommend the business, products, services or securities of any industry or company mentioned in this report.

 

From time to time, Streetwise Reports LLC and its  directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

 

Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

 

Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

 

Participating companies provide the logos used in The Energy Report. These logos are trademarks and are the property of the individual companies.

 

101 Second St., Suite 110
Petaluma, CA 94952

 

Tel.: (707) 981-8204
Fax: (707) 981-8998

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules