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Page added on September 3, 2014
Soros Signals Argentina’s Shale is Biggest Place to Be
One of the world’s legendary investors is upping his bet on Argentina’s shale oil and gas industry in a show of confidence for shale production in South America’s largest unconventional prize – and a big boost for both supermajors and smaller players making big waves in the heart of new discovery areas.
George Soros has doubled his stake in YPF SA, the state-owned oil company in Argentina, which sits atop some of the world’s largest shale oil and gas resources, and is about to get even larger following a new discovery over the last couple of weeks of a second key shale play.
Argentina holds an estimated 27 billion barrels of technically recoverable oil and 802 trillion cubic feet of technically recoverable shale gas, much of it located in the Vaca Muerta, an enormous shale formation in the Neuquen basin — the second-largest shale gas deposit and the fourth-largest shale oil deposit in the world.
And on Aug. 14, YPF announced the discovery of oil in another shale formation—Agrio shale–in the same basin.
Some estimates suggest that combined, the two plays’ reserves could be worth as much as $3 trillion.
“I am very excited with this [Agrio] discovery that proves that Vaca Muerta and Chubut’s D-129 formation aren’t the only shale deposits we have to exploit in Argentina,” YPF CEO Miguel Galuccio told reporters, according to Bloomberg. “The tests are very promising but still, it is too soon to provide figures.”
In the meantime, Soros’ confidence helps override some negative incidents that had held back investment in Argentina’s shale, including the government’s 2012 expropriation of YPF, then owned by Spanish firm Repsol, and the government’s failure to make a July 30 bond payment, which has resulted in a standoff with a hedge fund over unpaid bills back to the last default in 2001.
The government of Cristina Fernandez de Kirchner, however, has taken steps to repair Argentina’s relationship with international markets, and even tweaked tax laws in 2013 to give special benefits to big oil companies willing to invest more than $1 billion in the country.
The move was immediately followed by Chevron’s announcement that it would enter into a joint venture with YPF. To incentivize the global energy industry to further invest, additional steps are being taken, including discussions for a new hydrocarbon bill that could further standardize and incentivize the industry for both supermajors and mid-sized companies.
The newest discovery is certainly vindication for Soros’ gamble on Argentina. His company, Soros Fund Management LLC, took a strong position in YPF in the second quarter of this year, doubling its position. It now controls 3.5 percent of YPF’s American depositary receipts, worth $450.5 million.
Soros’ move suggests that his firm is not focusing on the short-term problems facing Argentina, but believes that the geological fundamentals are more important. By increasing his stake in YPF, he is betting that Argentina is sitting on some lucrative plays that could be bigger than the Eagleford or Bakken in the United States.
According to the Financial Times, “Some of the world’s largest hedge funds have been snapping up Argentine stocks, betting on an economic recovery in the country even though it defaulted on its debt for the second time in 13 years.”
And while the market has caught on to the ‘Soros Factor,’ it hasn’t yet caught on to the smaller companies that are positioned to benefit from the Vaca Muerta shale and the new Agrio find.
The Neuquen basin is also where YPF, in partnership with Chevron, is producing crude from the Vaca Muerta shale and is expecting to have nearly 300 wells drilled in the Loma Campana/Loma La Lata area.
It’s great news for Chevron, but it’s also great news for smaller players with big footprints on this scene who will benefit from all the supermajor drilling in the emerging Vaca Muerta and the new Agrio shale formations—as well as from the confidence boost provided by Soros.
There are only a few junior companies who have significant land holdings in Argentina’s Neuquen Basin, among them, Madalena Energy Inc. (MVN.V), which will benefit from Chevron’s plans to drill 300 wells just west of the junior’s Coiron Amargo block.
The point is that as the supermajors drill, the smaller companies reap the benefits, positioning themselves for big rewards with big players who are eyeing their large tracts of land in this promising basin.
“Given the size of the resource prize in both Vaca Muerta and Agrio, Argentina is home to one of the biggest unconventional plays in the world,” said Kevin Shaw, CEO of Madalena Energy, which controls around 1 million net acres in Argentina and plans to begin shale development in the Agrio formation later this year or in early 2015.
“Some of the largest oil companies around the globe are continuing to actively drill and appraise Argentina’s Vaca Muerta shale and are now starting to do work in the Agrio shale,” Shaw said.
For oil and gas explorers both big and small, Argentina is back–with possibly more shale than the United States, and the industry is more active than ever..
Like Warren Buffet, when George Soros makes a big move, people notice. Their decisions, which sometimes run counter to conventional wisdom, are often seen in hindsight as signals of trends that few investors are noticing.
11 Comments on "Soros Signals Argentina’s Shale is Biggest Place to Be"
Plantagenet on Wed, 3rd Sep 2014 2:59 pm
Soros is a smart guy. The Vaca Muerte tight oil shale play in Argentina is going to be HUGE!
James A. Hellams on Wed, 3rd Sep 2014 7:23 pm
The amount of technically recoverable oil in this article is 27 billion barrels. However, this should be considered in light of the total worldwide consumption of oil.
The total worldwide consumption of oil (from the latest report) is 88 million barrels per day. This translates in to 32 billion barrels of oil consumption every year.
The 27 billion barrels in the article would last 0.85 years; compared to the worldwide consumption of oil in one year.
bobinget on Wed, 3rd Sep 2014 7:49 pm
Lucky for us James, we all aren’t drawing water from the same well.
Plantagenet on Wed, 3rd Sep 2014 8:11 pm
James — you’d better check your math. The Vaca Muerte is likely to eventually produce about 2-3 millon barrels a day. That means the vaca muerte will last over 30 years—not the 0.85 years you came up with.
westexas on Thu, 4th Sep 2014 6:50 am
Ed Morse, et al’s thoughts about the Monterey Shale Play in 2012 follow. Note that the only impediment that Ed Morse foresaw to California boosting production by one mbpd was the regulatory burden in California.
ENERGY 2020
North America, the New Middle East?
Citi GPS: Global Perspectives & Solutions
20 March 2012
The largest tight reserves could well be in California, with the EIA estimating over 15 billion barrels of technically recoverable reserves, several times greater than at least official Bakken and Eagle Ford reserves. The prospectivity of the region stems from the natural fracking that is caused by high levels of seismic activity in the geological faults in that state. The main prospect is Monterey/Santos shale, which has its own specific geological features, and is increasingly well understood through seismic imaging and drilling of exploratory wells. Venoco and Occidental, two of the major companies in Monterey, together completed California’s largest ever 3-D seismic shoot. Drilling activity in this area increased throughout 2011, hitting 40 rigs in October, and up 100 wells in 2011 compared to the year before. Occidental was particularly active in drilling in the San Joaquin basin, finding that the geology, comprising many faults as a result of longstanding seismic activity, is best accessed through vertical wells with acid fracking. Use of vertical wells is more economic than horizontal drilling, and meant Occidental’s completed well costs were only around $3.5 million. The geology of Monterey shale suggests lower initial production rates but also less steep decline curves compared to the Bakken. But California’s regulatory framework might well result in the projected potential 1-m b/d of incremental production for the state never being reached.
The US West Coast region includes shale oil plays in the San Joaquin and Los Angeles basins. Located within these basins is the Monterey/Santos shale oil play with a total area estimated at 1,752 square miles. Monterey, in particular, has an average EUR of 550-k bbls per well and approximately 15.42 billion barrels of technically recoverable oil. Occidental reported vertical well costs of $3.5 million, and with EURs guidance from 400-700-k boe, total finding and development costs are around $7 to $8/boe.
mike on Thu, 4th Sep 2014 7:21 am
“Vaca muerte” is Spanish for “dead cow”. Seems appropriate. You won’t get much milk from a dead cow.
Northwest Resident on Thu, 4th Sep 2014 10:07 am
What? Shale oil companies aren’t accumulating enough debt or losing enough money fracking American shale? So now they want to go to Argentina where they can accumulate even more exponentially increasing debt while losing more money (and destroy more ecosystem and pollute more water)? Sure, why not!? After all, those zero percent interest rates and vast oceans of newly “printed” QE money that have enabled fracking in America are guaranteed to last forever. And there are plenty of spare rigs and multitudes of spare fracking industry workers who would love to go into the jungles of Argentina to earn their daily bread. Truly, fracking in Argentina makes sense on so many different levels — why are they wasting their time in North Dakota when they could be in Argentina?
JuanP on Thu, 4th Sep 2014 12:57 pm
I believe that Vaca Muerta is one of the largest shale plays outside the USA. How much oil will end up coming out of there is anyone’s guess, probably not enough to make a difference on a global scale.
I hitchhiked and backpacked across Neuquen, Argentina about 25 years ago, including the Vaca Muerta area. It is one of the most barren and desolate places on Earth, comparable to the Mongolian plains, there is nothing but emptiness all around.
Sheep farms down there are tens and hundreds of thousands acres in size because there is no forage and little rain.
I consider that place to be as far away from infrastructure as is possible in today’s world. It is very windy and very cold down there most of the year. I mean Alaska cold. Those oil hands must be bored to death down there.
James A. Hellams on Thu, 4th Sep 2014 7:33 pm
With all due respect, Plant, I am right.
You cannot consider this oil field as a source of rescue, when the world faces the dire consequences of peak oil to come.
This field, compared to the total worldwide consumption of oil is, in deed, not up to the task.
If you truly want the good times to keep rolling, you would have to find a field the size of 32 billion barrels of oil EACH and EVERY year from now on.
Further, you would, with each of the above fields of oil; have to be able to produce the 88 million barrels of oil per day EACH and EVERY day from the very beginning of the find. This would have to be done just to break even with the present demand.
The field mentioned in this article is inadequate to prevent the eventual collapse of the oil supply.
Northwest Resident on Thu, 4th Sep 2014 8:39 pm
JuanP — After a couple of winters fracking the barren plains of North Dakota, those oil hands will be well acclimated for working the barren emptiness of the Vaca Muerta. And sure, they’re going to just love it in Argentina! No matter how much money they lose and no matter how much debt they accumulate. George Soros says it is the place to be, so what could go wrong? Wow — cold barren plains in Argentina?! I thought everything south of Mexico was a humid tropical jungle… 🙂 Thanks for clearing up my misconception.
Kenz300 on Sat, 6th Sep 2014 12:05 pm
If the world is to have any hope of dealing with Climate Change we need to stop building any more coal fired power plants. While gas is a better option than coal it still is damaging to the environment.
Big money needs to invest in alternative energy sources to transition the planet away from fossil fuels.
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Big Companies, Big Renewable Investments
http://www.renewableenergyworld.com/rea/news/article/2014/08/big-companies-big-renewable-investments