Page 5 - LatAmOil Week 43 2019

LatAmOil COMMENTARY LatAmOil
 Despite these problems, Fernandez de Kirchner has remained a popular politician – popular enough, in fact, to have been Alberto Fernan- dez’s running mate. She is now set to assume the vice presidency on December 10, but it is not clear whether she will play any role in the for- mulation of energy policy.
For his part, Fernandez has not talked much in public about his plans for the energy sector. Earlier this month, though, some of his advi- sors published a report with policy recommen- dation. In the report, they urged Fernandez to take the following steps: freeze natural gas and electricity tariffs at current levels in order to curb inflation; link petroleum product prices to the national currency, the Argentinian peso, rather than to the US dollar, and make YPF “the main player” in efforts to develop Vaca Muerta fields.
Devil in the details
These facts are hardly reassuring news for pri- vately owned oil and gas operators, as they rep- resent a departure from Macri’s approach to the sector.
Nevertheless, they do not signal that Argen- tina is about to shut the door on foreign inves- tors. The country needs the money that Vaca Muerta oil and gas can generate badly enough that Fernandez is likely to continue encouraging development deals. In short, the new president is just as cognizant as Macri was of the potential benefits that are likely to follow the expansion of exploration and production activitiy.
But as usual, the devil is in the details. Even though Fernandez and Macri both wanted to see producers extract and sell more oil and gas from Vaca Muerta fields, they have slightly different ideas about how to do this.
This divergence is evident in the fact that even before the publication of his policy advi- sors’ recommendations, Fernandez was saying he wanted to make sure that YPF remained in the lead with respect to developing Vaca Muerta reserves. For example, he said during a visit to
Madrid in September that Argentinians them- selves ought to reap the biggest reward from the exploitation of domestic shale fields. As such, he said, the NOC deserves protection. If the coun- try has to depend on foreign partners to extract its resources, he remarked, there is “no sense in having oil.”
What’s next?
In short, while Argentina’s incoming president leans left, he is not an implacable ideologue who will insist on putting the entire oil and gas indus- try under state control.
Instead, he is likely to pursue more mod- erate goals. For example, he may require new investors in Vaca Muerta fields to partner with YPF and agree to contract terms that are advan- tageous for the NOC. Additionally, he might push investors in existing contracts to carve out a small equity stake for YPF. International oil companies (IOCs) are likely to accept changes of this type, as long as they have access to attractive prospects on reasonable terms.
The bigger question will be how Fernandez handles Argentina’s faltering economy. The president-elect has vowed to attack inflation and mitigate the difficulties that voters have encoun- tered in the wake of the debt and currency crisis that hit the country last year.
If he succeeds – which is not a sure thing, given that Argentina will probably have to print money to cover the fiscal deficits it has accu- mulated because of its lack of access to capital market – then IOCs are likely to continue invest- ing in Vaca Muerta. They may even do so at the same pace, if the business environment does not change too much.
But if he fails, Argentina’s prospects will dim. If the country continues to experience high inflation and other ways, it could experience social unrest. This in turn might lead Fernan- dez’s administration to put more pressure on IOCs. And if it does, interest in Vaca Muerta is likely to fade. ™
Ferna “
MEXICO
Pemex bond prices get a lift from new data on production, debt load
ndez may
require new investors in Vaca Muerta fields to partner with YPF and agree to contract terms that are advantageous for the NOC
MEXICO’S national oil company (NOC) Pemex saw its bond prices rise this week, following the release of data showing improved performance.
In a conference call with investors on Octo- ber 29, Pemex’s acting director-general Fran- cisco Flamenco emphasised that the NOC had succeeded in increasing output and in reducing its debt load in the third quarter of 2019.
The company extracted 1.69mn barrels per day of oil on average between July and Sep- tember, up from 1.67mn bpd between April
and June, he said. This marks a 1.2% rise on the revised second-quarter figure.
Flamenco also noted that Pemex had seen its debt load drop slightly from MXN2tn ($104.6bn) as of the end of June to MXN1.96tn ($102.5bn) as of the end of September. This rep- resents a quarter-on-quarter decline of 2.04%.
During the call, the Pemex chief attributed the rise in oil yields to the company’s efforts to focus on shallow-water and onshore fields, where production costs are higher.
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