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Analysis: Oil majors' interest in Argentina tests free-market reforms

Reuters  |  BUENOS AIRES 

By Luc Cohen

(Reuters) - majors are evaluating bids for offshore exploration rights in Argentina, a major change in a country that sent Spanish giant packing six years ago and has seen little offshore exploration for decades.

To secure bids, will need to show it has moved beyond its historical fluctuations between free-market policies and left-wing populism and that it has made progress in lowering costs for firms.

companies including and told they are looking at bidding in the auctions, to be held later this year, and a said Exxon and have also shown interest.

The country faces fierce competition to attract the billions of dollars of investment needed to develop deepwater reserves. Brazil, Ecuador, and neighboring will all auction offshore blocks in 2018 after undertaking market reforms or revising contract terms to facilitate the entry of the world's top companies.

For Big Oil, the potential access to Latin American reserves is unprecedented. In many countries now opening, including Argentina, resource nationalism has long barred their entry or limited opportunities.

Six years ago, former populist expropriated Repsol's stake in Argentina's state-owned company SA. The move sent chills through both the industry and the entire private sector.

Interviews with industry executives, consultants, geologists and officials point to optimism for Argentina's upcoming auctions and for Mauricio Macri's government, which has sought private sector and help in structuring the process.

"Growing confidence in the current government's policies - their focus on trying to create an that is attractive for investments - has been the big change," Shell's told on the sidelines of an industry gathering in "It's that focus that has created more interest by the sector to say 'why not, let's look at this.'"

The auction will be a test of company confidence in the longevity of Macri's reform agenda because it can take a decade between an initial investment in offshore exploration and the first production.

will take bids for three offshore basins from July through November. Exploration rights for blocks in the 130,000-square km Basin, 90,000-square km Malvinas and 5,000 square kilometers in the Austral Basin are on offer.

While little exploration has been done outside the Austral basin, has identified 22 million barrels of equivalent for further investigation, said at an event last Wednesday.

"There is a lot of interest from large companies - Chevron, Exxon Mobil, Shell," Daniel Redondo, the secretary for strategic planning in Argentina's Ministry, told on the sidelines of a recent event.

Consultancy Bain & Company, on a contract with the government to gauge interest, last year interviewed more than 60 companies, including "all the majors" and independent explorers including and Hunt Oil, said Diego Garcia, a Buenos Aires-based Bain partner. Colombia's may bid in the auctions, its told

Norway's Statoil, which already has onshore drilling projects in Argentina, is partnering with on offshore seismic studies and is "considering future licensing rounds," a said.

"Huge areas of the Argentinian continental shelf will be available for bids from companies," executive for exploration said at an event in last Wednesday. "We have of course started our evaluations already."

and Exxon declined to comment. and Hunt did not respond to requests for comment. Firms likely won't decide whether to bid until the full terms of the auction are published.


Macri's government has enacted pro-market reforms across the His 'Let's Change' coalition swept to victory in midterm elections last October, taking advantage of divisions within the opposition Peronist movement, which is generally defined by strong defense of labor rights and national sovereignty.

Macri is on course to become the first non-Peronist to finish his term since Argentina's return to democracy in 1983. He's expected to stand for re-election starting in late 2019.

The decision to hold offshore auctions comes as struggles to attract investment to its shale play, which is in a remote part of that lacks infrastructure to get and gas to consumers.

is home to the world's No. 2 resources of and the fourth largest of shale oil, estimates the U.S. Information Agency. Yet production peaked in 1998 and topped out in 2004, according to Ministry data. Investment in exploration has dried up since the country's 2001 financial crisis and the populist political response.

Under the terms of a 2014 revision to Argentina's hydrocarbons law, which was well-received by industry, royalties paid to the will be 12 percent of the value of hydrocarbons extracted and companies would receive exploration rights for three years, with an option to extend for three years.

Rights for each exploration block would be awarded to the company that pledges the most investment, as laid out in the law, Garcia said.

"Companies will be interested in studying something that has not been explored," said of G&G Consultants in Buenos Aires, who said the regional competition was unlikely to be an obstacle for "I do not think the big players will have used up all their exploration capital in "


The majors would likely be most interested in the large Basin, the least explored of the three on offer, Bain's Garcia said.

By contrast, the Austral Basin just off the coast of Tierra del would be more of a to serve the domestic market and could appeal to local players and Total, which already operates in the area, he said.

The Malvinas could be most appealing to exploration-focused independent firms, he said.

Perth, Australia-based began analyzing existing data on Argentina's offshore formations in November 2016, smelling opportunity in an economic and political opening, and launched a full database for exploration companies in early February.

"This should have been done a long time ago in Argentina," Searcher said. "But the politics and the finances unfortunately held back for a very long time."

(Additional reporting by and in and Juliana Castilla in Buenos Aires; Editing by and Brian Thevenot)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Tue, March 13 2018. 10:55 IST