BUENOS AIRES (Dow Jones)–The shares of oil and gas companies invested in Argentina’s unconventional hydrocarbon industry rallied on Tuesday, after YPF SA (YPF, YPFD.BA) said it discovered nearly 1 billion barrels of shale oil.
Argentina is thought to hold vast quantities of oil and gas locked away in tight sands and shale rock formations.
The U.S. Energy Information Administration ranks Argentina third in the world behind China and the U.S. with 774 trillion cubic feet of technically recoverable shale gas resources.
Advances in drilling and extraction technologies have revolutionized the U.S. oil and gas industry, which is enjoying a boom in unconventional production. Shale assets are hot property in the U.S., and oil giants like Exxon Mobil Corp (XOM) have spent billions to acquire companies that were early movers in this field.
YPF shares traded 12.6% higher at $35.70 in New York on Tuesday afternoon.
YPF, a subsidiary of Repsol YPF SA (REP.MC) and Argentina’s top oil and gas producer, said Monday it had found 927 million barrels of oil equivalent in a shale formation in Neuquen Province. The discovery has yet to be certified and doesn’t form part of the company’s proved reserves, which totalled 992 MMBOE at the end of 2010.
Canada’s Americas Petrogas (BOE.V) was up 2.6% at C$2.41. In August, Exxon Mobil agreed to invest up to $76.3 million to explore with the Canadian firm for unconventional oil and gas in Argentina.
Meanwhile, shares of Petrobras Argentina SA (PZE, PESA.BA), which dabbles in unconventional gas, were down 0.8% at $13.77 in New York.
Adrian Mayoral, senior trader at his family-run brokerage, said YPF’s find is already baked into the share price. He recommends that clients sell on Tuesday’s rally.
«The real news would be if the government were able to attract meaningful investment in this sector…That would provide support for the shares of these companies» invested in unconventional oil and gas, Mayoral said.
Time will tell if Tuesday’s shale-inspired gains stick or melt away like other short-lived rallies fueled by unconventional energy discoveries.
YPF shares bounced in May, when it announced a shale oil find, as well as last December, after it discovered 4.5 trillion cubic meters of shale gas–enough to lift its gas reserves to 16 years from six.
But a noxious cocktail of falling oil prices, Europe’s sovereign debt crisis and a raft of government-imposed foreign exchange controls helped push the stock to a 52-week closing low of $31.25 last Thursday.
Argentina’s shale deposits have also attracted investment by major oil and gas companies like France’s Total SA (TOT) and Apache Corp (APA). But investors must overcome a number of hurdles before they can turn that untapped potential into a commercially exploitable resource.
Those include double-digit inflation that is putting upward pressure on salaries, a lack of pipeline and related infrastructure, and onerous taxes on oil exports and government-mandated natural gas price caps that have discouraged production.
Dwindling domestic sources of gas coupled with high demand have forced President Cristina Kirchner to import growing volumes of expensive gas from Bolivia and Trinidad and Tobago.
To attract shale gas investment, Kirchner launched the Gas Plus program in 2008 that allows producers to charge higher prices than for price-capped conventional gas.
Last year, Apache signed Gas Plus contracts for $4.10 and $5.00 per million British thermal units. Meanwhile, YPF sold conventional natural gas in Argentina for an average price of just $1.96/MMBtu.
But recent comments by industry executives indicate that even Gas Plus prices might be too low.
«Shale gas could develop very quickly in Argentina, but only at the right price, and we’re not there yet,» Halliburton Co. (HAL) Chief Executive David Lesar told investors in September.
-By Ken Parks, Dow Jones Newswires; 54-11-4103-6740; ken.parks@dowjones.com
Source: http://online.wsj.com