MACRI’S ARGENTINA: FROM PARIAH TO POSTER CHILD page 20
ENERGY INFRASTRUCTURE CONSTRUCTION: A HIGH-STAKES GAME page 25
EXCLUSIVE INTERVIEW WITH SENATOR GUILLERMO JUAN PEREYRA page 14
RED TAPE TO RED CARPET page 12
BACK IN VOGUE? PAGE 19 ARGENTINA JANUARY 2017 Acknowledgements
Energy Boardroom would like to thank:
Guillermo Juan Pereyra, National Senator, Neuquen Province; President, Mining, Energy & Fuels Commission (Senate Chamber); General Secretary, Rio Negro, Neuquén & La Pampa Oil & Gas Union
Omar Gutierrez, Governor of Neuquén
Richard Spies, CEO, Pan-American Energy (PAE)
Adrian Mascheroni, General Manager, AESA
Marcelo Carro, Commercial Manager, Rovella Caranza
Adolfo Sanchez Zinny, CEO, Bolland ARGENTINA OIL & GAS
A New Dawn Feature 12 CONTENTS January — 2017
2 ACKNOWLEDGEMENTS
5 PREFACE
6 SNAPSHOT IN FIGURES Balancing Jobs: Keeping the Plates 10 UNLOCKING UNCONVENTIONALS INTERVIEW Spinning Omar Gutierrez, Governor of Neuquén Province Exclusive Interview with Guillermo Juan 12 A NEW DAWN FEATURE Attracting the Global Elite Pereyra 14 14 BALANCING JOBS INTERVIEW Guillermo Juan Pereyra, National Senator, Neuquen Province; Mining, Energy & Fuels Commission (Senate Chamber); Rio Negro, Neuquén & La Pampa Oil & Gas Union
16 INVESTING IN ARGENTINA INTERVIEW Andrés Ondarra, Invest Argentina
19 BACK IN VOGUE? COVER STORY
20 From Pariah to Poster Child Back in Vogue? Cover Story 21 Putting Out the Welcome Mat 19 22 Neuquén’s Vaca Muerta: Valley of Dreams...
24 ...And Disillusionment
25 Energy Infrastructute Construction: a High-stakes Game
26 A Force to be Reckoned With
28 Closing the Cycle
29 A Formidable Heritage
29 Perils of the Pendulum Inside Oil&Gas is produced by Focus Reports Ltd. 32 THE VIEW FROM THE TOP INTERVIEW Richard Report Publisher: Diana Viola Spies, Pan American Energy (PAE) Project Director: Alina Manac Senior Editor: Louis Haynes 34 STRATEGY INTERVIEW Horaccio Turri, Pampa Energia Editor: Patrick Burton Editorial Coordinator: Jannes Peemoeller 36 ARGENTINA’S NEW POLITICAL DIRECTION Project Assistant: Claudia Prado, Luis Sancho FEATURE Open for Business Graphic Design: Miriam León For exclusive interviews and more info, please log onto 37 EPC INTERVIEW Adrian Mascheroni, AESA www.energyboardroom.com or write to [email protected]. 39 SOURCING SKILLS FEATURE Recruitment Copyright: All rights reserved. No part of this publication maybe reproduced in any form or by any means, whether electronic, mechanical or otherwise including photocopying, recording or any information storage or retrieval system without prior 40 SHAPING THE FUTURE INTERVIEW Javier Pastorino, written consent of Focus Reports. While every attempt is made to ensure the accuracy Siemens of the information contained in this report, neither Focus Reports nor the authors accept any liabilities forerrors and omissions. Opinions expressed in this report are not necessarily those of the authors.
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4 Argentina Oil & Gas 2017 www.energyboardroom.com PREFACE Preface
With abundant natural resources, a cen- tury-long history of hydrocarbon extrac- tion, and the eighth largest land mass in the world, Argentina is truly an ener- gy giant. However, efforts by the pre- vious administration to ensure security of supply which involved nationalization of the country’s largest E&P actor, YPF, and expropriation of Repsol’s assets in Argentina, helped scare off international investors and led to the country being demoted from a net energy exporter to an importer in 2014. However, change is in the air. The go- vernment of new President Mauricio Macri has declared that Argentina is “open for business,” and the political winds seem to be flowing in the direction of greater international investment into Argentina’s oil and gas industry. With the third largest shale reserves of any coun- try in the world and a series of mega-play discoveries throughout the 2000s, now is the time for Argentina to leverage inter- national capital to exploit its undeniably massive potential. This report features interviews with key domestic industry figures as well as re- presentatives of major MNCs, who lay out the areas in which Argentina displays greatest promise. The road to regaining self-sufficiency and profit will not be smooth however; infrastructure issues, a lack of shale extraction expertise, and the prominent role of trade unions in the country are all obstacles that the cornu- copia of O&G actors in Argentina must overcome. If Argentina can do this, then the future looks bright.
www.energyboardroom.com Argentina Oil & Gas 2017 5 SNAPSHOT IN FIGURES The Macroeconomy
ARGENTINA FACTSHEET MACRI-ECONOMICS
ARGENTINA % CHANGE ON A YEAR EARLIER Population: Area: 43,886,748 Consumer prices Macri becomes GDP 2,780,400 sq km president 60 6 FORECAST GDP (PPP): Capital City: USD 879.4 billion (2016) Buenos Aires 40 4
Currency: Official Language: 20 2 Argentine Peso Spanish 0 0 Source: CIA World Factbook
ARGENTINA’S TOP TRADE PARTNERS -20 -2
TRADE BY COUNTRY, IN BILLIONS -40 -4
$29 (21%) 2014 2015 2016 2017 Source: Economist Intelligence Unit
$22 (15.7%) ARGENTINA’S PUBLIC SECTOR DEFICIT
$15 (11.2%) DEFICITS DURING THE FOURTH QUARTER OF EACH YEAR
MILLION USD 2010 2011 2012 2013 2014 2015 0 $13 (9.5%) -1000 $3 (2.2%) -2000
$3 (2.0%) -3000
-4000 OTHER $52.8 (38.4) -5000 Imports Exports -6000 Source: World trade Organization, “Argentina: Merchandise Trade”, September 2015 Source: Secretary of the Treasury
ARGENTINA’S GDP TRAJECTORY
8.9% 9.0% 10.4% 8.1% 6.1% 4.1% 2.3% 2.4%
0
-1.1% -6.0% -2.6%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2013 2012
Argentina is Latin-America’s 3rd largest economy in terms of Purchasing Power Parity. In 2015 its GDP reached USD 586 billion with GDP per capita at USD 13500 (USD 22,500 in PPP terms) In the last 10 years (2005-2015) Argentina’s compound annual gowth rate was 3.2% Source: INDEC
6 Argentina Oil & Gas 2017 www.energyboardroom.com SNAPSHOT IN FIGURES Argentina’s Energy Makeup
ARGENTINA’S ENERGY MATRIX EVOLUTION ARGENTINA’S ENERGY TRADE BALANCE
Exports-Imports Imports CIF Exports FOB (Cost Insurance & Freight) (Free on Board) 2015 2025
80,000 KTOE 100,000 KTOE 2003 -0.5 4.9 5.4
2004 -1.0 5.2 6.2
2005 -1.5 5.6 7.2
2006 -1.7 6.1 7.8
2007 -2.8 4.1 6.9 1.8% 1.9% 2.5% 5.6% 2008 -4.3 3.5 7.8 5.4% 4.8% 2009 6.6% 14.4% -2.6 3.8 6.5 32.6% 23.7% 2010 -4.8 1.8 6.5 51.1% 49.6% 2011 -9.8 -3.2 6.6
Coal Nuclear Hydro 2012 -9.1 -2.2 7.0
Renewables Oil Natural Gas 2013 -11.6 -6.0 5.6
KTOE: Kilotonne of Oil Equivalent 2014 -11.5 -6.5 5.0
Source: Ministerio de Enegía y Minería. Presidencia de la Nación. Source: Ministerio de Enegía y Minería. Presidencia de la Nación.
PRIMARY ENERGY SUPPLY & DEMAND BALANCE
Source: Ministerio de Enegía y Minería. Presidencia de la Nación.
KTOE (Kilotonne of Oil Equivalent) 90,000
80,000 Domestic Supply Source: Secretary of the Treasury 70,000
Domestic Demand 60,000
50,000
40,000 16% 16% 15% 12% 11% 10% 11% 10% 30,000 9% % 7% 7% 7% 6% 6% 6% 7% 7 5% 5% 5% 2% 20,000
-3% -1% 10,000 -6% -7% EXPORTS IMPORTS - 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
www.energyboardroom.com Argentina Oil & Gas 2017 7 SNAPSHOT IN FIGURES International Comparison
WORLD NATURAL GAS PRODUCTION TRAJECTORY BY TYPE (2010-2040)
BILLION CUBIC FEET PER DAY
Coalbed methane Tight Gas Other Non-Tight Gas Shale Gas
600 HISTORY PROJECTION 500
400
300
200
100
0 2010 2015 2020 2025 2030 2035 2040
Demand for natural gas, both shale and conventional, is projected to soar over the next couple of decades. Argentina, blessed with bountiful reserves, can be exrected to enjoy a windfall over this period.
Source: EIA
SHALE GAS AND OTHER NATURAL GAS GROSS PRODUCTION OF NATURAL GAS PRODUCTION IN SELECTED COUNTRIES MILLIONS OF CUBIC METRES/YEAR 2015 AND 2040. BILLION CUBIC FEET PER DAY. 45,524
Shale gas 44,353 Other gas
42,896
41,708 41,804
0 20 40 60 80 100 120
2015 2040 2003 2005 2007 2009 2011
Source: EIA Source: Ministerio de Enegía y Minería. Presidencia de la Nación.
8 Argentina Oil & Gas 2017 www.energyboardroom.com SNAPSHOT IN FIGURES Shale
ESTIMATES SHALE GAS AND OIL RESERVES
BASINS NEUQUÉN AUSTRAL SAN JORGE PARANÁ TOTAL Vaca Muerta Los Molles Estimated Shale Gas Reserves 308 Tcf 275 Tcf 130 Tcf 86 Tcf 3.2 Tcf 802.2 Tcf Estimated Shale Oil Reserves 16 Bbl 3.7 Bbl 6.6 Bbl 0.5 Bbl 0.01 Bbl 26.81 Tcf Total Neuquén Gas: 583 Tcf - Oil:19.7 Bbl Grand TOTAL All Basins 802.2 Tcf of shale gas and 26.81 Bbl of shale oil
Tcf: trillion cubic feet; Bcf: billion cubic feet; Bbl: billion barrels.
Source: Wilson Center, EIA
ARGENTINA’S SHALE RESOURCES SHALE GAS BASINS IN SOUTHERN SOUTH AMERICA VACA MUERTA 50,000 La Paz barrels of shale oil a day currently produced in Argentina.. This is expected to double by 2018 Parana NO. OF RIGS FOR SHALE DEVELOPMENT IN ARGENTINA Basin Asunción
Existing (20) Estimated no. needed each year over the next Chaco five years (21) Basin Santiago
ESTIMATED SHALE RESERVES Buenos Aires
Total spent on Montevideo Total planned Vaca Muerta since Neuquen $1.2bn investment $3.5bn development in 2016 Basin began in 2011
ESTIMATED SHALE RESERVES Golfo San Jorge Basin
OIL (bn barrels of oil equivalent) 32 78 27 Austral- Magallanes Basin
GAS (tn cubic feet of 1,125 623 natural gas) 802 Source: U.S. Energy Information Administration, “World Shale Gas Resources: An Source: Wood Mackenzie, IHS Energy, Deloitte LATCO, US Energy Information Administration Initial Assessment of 14 Regions Outside the United States” March 2011. www.energyboardroom.com Argentina Oil & Gas 2017 9 UNLOCKING UNCONVENTIONALS Omar Gutierrez, Governor of Neuquén Province
THE LAND OF OPPORTUNITY
Preface: Omar Gutierrez, Governor of Neuquén, is in char- ge of the second biggest unconventional oil and gas basin in the world after Eagle Ford. He talks achieving economic and social stability in Argentina as well as the profitable in- vestment opportunities in the Neuquén Basin.
One of my main priorities is advancing towards the creation of an attractive scenario that can offer profitable opportu- Omar Gutierrez nities to attract national and international investments and ensure the development of our energy potential. GOVERNOR OF NEUQUÉN EBR: What are the investments that the province needs in order to develop the Neuquén Basin produc- tion, maximizing oil and gas extraction, and solving EBR: The province of Neuquén contains the second the Argentinian energy crisis? biggest unconventional oil and gas basin in the world OG: Every crisis brings with it opportunities and after Eagle Ford. What are your main priorities as gov- Argentina, hand in hand with Neuquén, has the possibility ernor to ensure the development of production? of growing oil and gas production and solving the energy OMAR GUTIERREZ (OG): Neuquén is currently pro- crisis. Indeed, the Neuquén Basin gas production has expe- ducing around 50 percent of the total gas consumed in rienced a growth of 8.5 percent over the last year. Argentina but the gas price per million of BTU was not ad- Neuquén is working towards the turnaround of the equate considering the quality of our product. Therefore, Argentinian oil and gas production negative curve, levera- Neuquén citizens have made the value recognition of the ging this advancement in the development of its own oil wellhead gas of our production as one of their priorities and gas unconventional basins, which represent around 30 over the last few years. percent of the total gas produced in the province. In addi- In the past, the market was reimbursing us between USD tion, it is worth mentioning than only 9.5 percent of the 2.20 and 2.40 per million of BTU depending on the mon- 32,000 square kilometres of Vaca Muerta’s surface is under th, but now this price has been incremented to USD 5.30 exploitation, thus there is a huge potential ahead. and 5.60 per million of BTU in winter and summer months However, in order to continue with this trend and reach respectively. the expected levels of production, the province needs cer- Nowadays, close to 25 percent of the national gas consu- tain amounts of investment tailored to infrastructure deve- med is imported from foreign countries; however, ever since lopment that would enhance the efficiency and productivi- the feasibility of the unconventional gas extraction in the ty ratio; gaining competitiveness. The major obstacle facing Neuquén Basin was demonstrated and the gas price of our the development of the basin was the settlement of a proper products was properly settled, this curve can be reverted gas price according to the high quality of our products and and can bring Argentina back to export status. permitting profit returns, but this has already been solved.
10 Argentina Oil & Gas 2017 www.energyboardroom.com UNLOCKING UNCONVENTIONALS Omar Gutierrez, Governor of Neuquén Province
We are fully aware that the energy SME community of the province has a big impact in jobs and wealth genera- tion and, as a consequence, the provincial government of Neuquén is working to strengthen such business networ- ks by offering tax incentives and capacitation programs, among others. Neuquén is working towards achieving eco- nomies of scale and to get that we need consolidation and investment from both big and small companies. In my opinion, the model that is being developed in Neuquén is a model that should be followed by the rest of the provinces and would ensure the social and econo- mic stability needed to attract national and international investments. From the energy perspective, Neuquén is strengthening and developing a plan towards conventio- All the industry stakeholders must be “ nal and unconventional production and renewable energy aware that, within an environment development that, together with other political actions, will where the price is generally determined create the social and economic stability deserved. by the international market, the advancement towards structural cost EBR: The high oil and gas production costs in Ar- optimization is crucial to survive and gentina create an industrial challenge. During your
compete. speech at Club del Petroleo you commented that effi- “ ciency and productivity do not mean firings, but mean OMAR GUTIERREZ GOVERNOR OF new investments that would create new jobs. How do NEUQUÉN you aim to gain efficiency and productivity in the province? EBR: What steps has Neuquén made to ensure the OG: The increase in the price of our products as a result economic and social stability that will increase the at- of their high quality is a cornerstone in the advancement tractiveness of Argentina, building the trust of poten- towards the efficiency and productivity improvements of tial national and international investors? the business community. In addition, we need to get the in- OG: Neuquén is at the front of Argentina’s energy ma- vestment that will enable the technological developments trix diversification process, developing renewable energy required to improve the product in quality and quantity. projects such as hydroelectric and wind. In this regard, The efficiency and productivity improvement is a conti- we are in the final stage of signing a financing agree- nuous process that will advance inasmuch as new techno- ment of USD 1.5 billion for a hydroelectric project called logies will be incorporated, reaching economies of scale. Chihuido that will create huge social and energy benefits All the industry stakeholders must be aware that, within with the creation of more than 5,000 jobs and the genera- an environment where the price is generally determined by tion of approximately 640 megawatts. In addition, such a the international market, the advancement towards struc- project will be the lever for the opening of five new dams tural cost optimization is crucial to survive and compete. that will increase the aforementioned benefits. The hydro- If we were able to reduce our production costs to the electric potential of the province is huge as it owns the level of countries such as the US, currently close to half of second largest hydric basin in Argentina and 95 percent the oil and gas production costs in Argentina, the profits of the water that flows through the basin it is not being would enable us to invest in better technologies that would exploited. be translated into new jobs. www.energyboardroom.com Argentina Oil & Gas 2017 11 A NEW DAWN Attracting the Global Elite
the rules of the game.” Other industry FROM RED leaders concur. “We’ve entered a peri- od of incredible adjustment, but just TAPE TO RED have to hope that the new spirit pre- CARPET vails and there is no back sliding or weakening of resolve,” mutters one. Juan Procaccini, president of Preface: Argentina’s new administration has held its first Business and Invest- Argentina’s Investment and Trade ment Forum in an effort to entice foreign direct investment (FDI) into the country. The event was leveraged to showcase the new direction of the government, voi- Promotion Agency, recognises that ce commitment to prolonged fiscal and structural transition, and address a key there will be doubters and that it will concern of many of the industry leaders in attendance: government consistency. take time to win back the trust of the international investment community. “We’ve been pretty much out of the key milestone in President by private industry. “To trigger pro- market for 10 years; we were total- Mauricio Macri’s cru- longed growth and inward invest- ly isolated… and now everything has sade to attract tranches of ment flows, it’s absolutely crucial radically changed,” he muses, reflect- fresh FDI into Argentina to have regulatory certainty and to ing on the sheer scale of the task at A occurred in Buenos Aires be convinced of the state’s commit- hand. from the 13th to the 15th of September ment to and persistence in carrying with the launch of the much-anticipat- through proper structural reform,” ed Argentina Business and Investment explains Andrew Liveris, CEO of Dow Forum. The event itself was attend- Chemical. ed by over 2000 top executives from The ongoing fiscal and structural around the world each eager to witness reforms of the Argentinian govern- first hand a demonstration of the new ment have not passed unnoticed with administration’s political and econom- Liveris keen to point out that “many ic resolve following years of econom- governments around the globe are ic turmoil and insular protectionist nowadays bereft of ideas, struggling policy. for answers to their economic woes “We have embarked upon a new and unwilling to countenance nec- political phase, and are ushering essary structural and fiscal reform in the new Argentina,” confidently given its associated unpopularity!” declared President Mauricio Macri, Macri’s regime, by contrast is press- eager to reassure the international ing ahead with real reform una- investor community that the country bashed. “This has been a red tape has learned from past eccentricities country for so long that it is almost and is finally ready to complement unimaginable to now witness the its “profound talents and bountiful emergence of a red carpet [country]!” natural resources” with “consisten- he gushes. Liveris is convinced that cy in rule of law, regulatory predicta- Argentina is on the cusp of becom- bility an a thorough clean-up of the ing one of the most promising coun- national economy.” Such pronounce- tries in the region just so long as its ments were naturally warmly received leaders prove successful in “changing
12 Argentina Oil & Gas 2017 www.energyboardroom.com A NEW DAWN Attracting the Global Elite
For Bob Dudley, CEO of BP in Argentina, the country requires Testament to that readiness, Siemens even used the event two more ingredients in addition to a continuation of the to unveil a commitment to the tune of some EUR five reforms underway. ”To turn this situation around it’s going billion (USD 5.6 billion) in direct in-country investment to be massively important to secure both labour flexibility and in infrastructure, mobility and energy management. ”The great scale, by which I men more rigs, more roads, more hard size of our contribution is reflective of what we perceive as infrastructure that can buttress and support the industry,” the utter seriousness displayed by the authorities towards he asserts. “In my discussions with government officials, I do enacting game-changing reform,” expounds Siemens detect though that there is genuine desire to make this hap- CEO, Joe Kaeser. Our calculation is that, if Argentinians pen, so there’s much reason to be optimistic,” he elaborates. get their economy and business ecosystem in order this Not only private actors, but even governments appear time round, they could soon find themselves leading the charmed by declarations of a “new Argentina, open for busi- Latin American region once more.” ness again.” Sigmar Gabriel, Vice-Chancellor and Minister for Economic Affairs and Energy of Germany says he is We have embarked upon a new convinced the country “is on the right track again,” empha- “ political phase, and are ushering in the sising that Germany stands as “a ready trade partner” with
new Argentina.
“all manner of German businesses ready to engage in tech- nology and know–how transfer and assist in Argentina’s eco- “ nomic development.” MAURICIO MACRI PRESIDENT OF ARGENTINA
www.energyboardroom.com Argentina Oil & Gas 2017 13 BALANCING JOBS Guillermo Juan Pereyra, National Senator, Neuquen Province; Mining, Energy & Fuels Commission (Senate Chamber); Rio Negro, Neuquén & La Pampa Oil & Gas Union KEEPING THE PLATES SPINNING
Preface: Guillermo Juan Pereyra, president of the Mining, Energy and Fuels commission in the Argentinian Senate and general secretary of the Rio Negro, Neuquén and La Pampa oil and gas union, reviews the development of Argentinian energy policies and explains his efforts to maintain strong energy legislation which ensures that both employee and corporate interests are secured equally.
EBR: One of the first things that President Macri did when he got elected last December 2015 was the creation of the Ministry of Energy, how has this affected the re- sponsibilities and activities of the commission? JP: The former government’s direction resulted in a sig- nificant energy deficit, a serious challenge recognized by the newly elected government hence why the new Ministry was created. The industry was artificially sustained by public GUILLERMO JUAN PEREYRA subsidies which had direct impact on the national public ac- counts; those subsidies were not incentivizing the industry to National Senator, Neuquen Province; President, Mining, Energy enhance efficiency. The current government is advancing to- & Fuels Commission (Senate wards minimizing such subsidies through strengthening the Chamber); General Secretary, Rio Negro, Neuquén & La Pampa Oil & financial capacity of the energy industry by engaging in its Gas Union own business activities and emphasizing the efforts to attract investments. In this regard, I totally agree with the actions to allow its exploitation. The recent discoveries, such as Vaca that have been undertaken by President Macri. Muerta, put Argentina in the center focus of many potential In reality, however, Argentina does not have enough finan- investments. Companies such as PAE have carried out several cial capacity to explore and exploit the different existing tight-gas drilling pilots in Lindero Atravesado basin already basins in its territories; nevertheless, the national oil and gas and the results were highly satisfactory, further providing exploration and exploitation activities need to be developed evidence of Vaca Muerte’s great potential! in order to achieve energy autonomy. It is worth mentioning that Argentina is currently importing around USD 8 billion EBR: Considering the big challenges and the commis- of gas and—once energy autonomy is achieved—the financial sion’s broad range of responsibilities, what are the main commitment to imports could be distributed to other devel- topics on your agenda? opment areas of national interest. JP: We are currently working on the development of a It is well known that Argentina has enough energy resourc- project aimed to showcase the potential of the existing ma- es to satisfy the national demand and will eventually bring ture wells distributed across all of Argentina. It is a project back the country to its former export status; however, the that can have several positive impacts on the national energy challenge behind this potential is to attract the funds needed industry, as there are more than 3,000 mature wells which
14 Argentina Oil & Gas 2017 www.energyboardroom.com BALANCING JOBS Guillermo Juan Pereyra, National Senator, Neuquen Province; Mining, Energy & Fuels Commission (Senate Chamber); Rio Negro, Neuquén & La Pampa Oil & Gas Union
Argentina has enough energy resources to satisfy the “ national demand and will eventually bring back the country to its former export status; however, the challenge behind this potential is to attract the funds needed to allow
its exploitation. GUILLERMO JUAN PEREYRA NATIONAL SENATOR, NEUQUEN PROVINCE; “ PRESIDENT, MINING, ENERGY & FUELS COMMISSION (SENATE CHAMBER); GENERAL SECRETARY, RIO NEGRO, NEUQUÉN & LA PAMPA OIL & GAS UNION
Frankly speaking, those wells are been the general secretary of the already in prime condition as all the Rio Negro, Neuquén and La Pampa infrastructure needed for full exploita- oil and gas union for more than tion is already established; they only 32 years. As leader of this organi- require technology and flexibility from zation, I am highly focused on de- the SMEs to re-activate their opera- fending the interests and concerns tions. The latter is especially true in the of the industry employees across context that Argentina currently has a the three regions. My role is really set national oil price, although the sus- delicate as a result of the current tainability of this energy policy once oil and gas industry environment commencing 2017 is highly question- where the companies are constantly able. This statement poses a challenge considering redundancies as a con- to the ratification of this law, nonethe- sequence of the downturn of the less, these SME companies would be global energy industry. able to develop the production activi- The union negotiates salaries and ties in those mature wells and remain defends jobs if needed, however, profitable. The idea for this law was we are also always considering the derived as a reference of best practice sustainability of the business com- used in the US and in Canada where a munity. In order to achieve such are not being exploited to its full po- substantial number of mature wells are objectives, the industry at large tential! The response of the industry existing and equivalent laws have been is working towards the stability has been quite positive so far. These able to take advantage of those mature between companies and employees mature wells were abandoned in wells, consequently allowing SMEs to in an effort to improve the social Argentina as a consequence of their carry out profitable operations. and economic stability and to low production potential and low attract international and national profitability for the IOCs. The law de- EBR: In addition to being the investments. This path of develop- signs a plan to requiring these IOCs, president of the commission, you ment involves the entire oil and gas who are the owners of those mature are also the general secretary of one community: provincial and central wells, to share the production rights of the most important oil and gas government, unions, companies of those wells with small and medi- unions in Argentina. What are the and employees. We are aware, that um size companies that will be able to main topics concerning you in your if we want to defend our jobs we enhance the production profitability role as a unionist? have to take care of the companies due to their flexibility and their low JP: The union elects its general as well fostering the attractiveness structural costs. secretary every four years, but I have for investments. www.energyboardroom.com Argentina Oil & Gas 2017 15 INVESTING IN ARGENTINA Andrés Ondarra, Invest Argentina
INVEST FOR SUCCESS
Preface: The Vice President responsible for the oil and gas sector of Invest Ar- gentina highlights the signs of government consistency in its current reform efforts and how the agency can support potential investors in maximizing the utilization of existing investment opportunities in Argentina.
EBR: The president of the we have already achieved in less than ANDRÉS Agency, Juan Procaccini, has said a year of existence; right now we are ONDARRA
“We’ve been pretty much out of the managing more than 100 companies Vice President, market for 10 years, we were totally with an investment pipeline of more Invest Argentina isolated. And now that has totally than USD 25 billion. changed”. In this context, what is your action plan to generate invest- EBR: As pointed out by Dow ments into Argentina? Chemical’s CEO Andrew Liveris Forum, for instance, we had a signif- ANDRÉS ONDARRA (AO): Our at the Investment Forum, Argenti- icant participation of the opposition first priority was to get the Agency na is beginning to turn from a red with a clear message: while some dis- up and running with the right team tape country to a red carpet coun- agree with certain policy implemen- in place. The Agency was created by try. However, the country needs tations, most players agree with the the new administration in February to show persistency of the current general direction the government is 2016. I joined the agency in May, at political direction. What do you taking, which is to stabilize as a coun- the time we were only two vice presi- say to business community leaders try, express a sense of continuation dents –now we are five—, thus we have and international investors who and stop swinging in between the ex- already significantly increased our are cautious and waiting to see tremes of the political spectrum. senior team. Right now we are oper- whether this new policy direction What’s more, the current adminis- ating at full speed, working head to is enduring? tration does not have congress major- head with our clients, ensuring that AO: We fully understand this con- ity and in October 2017 there are we understand their investment plans cern. Having the private background, mid-term elections. Nevertheless, we and help these to materialize. At this all of us understand the need of as believe this will not change the coun- stage, we are focusing on companies much certainty as possible before try’s direction. The sheer pace of our that have already decided to invest in making an investment decision. On government’s ability to pass all the Argentina, companies that at some the other hand, I am convinced that heavy measures already implement- point had decided to postpone their the right signs of stability and con- ed through congress shows that the investments due to different facts tinuity have already been sent in the majority of the political spectrum of and that now, under the new govern- context of political direction, building Argentina agrees on the general direc- ment, are willing to implement their consensus and engaging in dialogue tion One of the most recent laws that investments plans. The speed of our with the private sector. In the recent got half sanction, for instance, is the progress can be seen by the numbers Argentina Business & Investment public private participation law (PPP)
16 Argentina Oil & Gas 2017 www.energyboardroom.com INVESTING IN ARGENTINA Andrés Ondarra, Invest Argentina
AO: The momentum of Argentina is entirely different to other Latin American countries. Argentina is coming out of decades of little or no foreign investment, which creates significant oppor- tunities across multiple sectors. Specifically, in the energy sector there has been practically no invest- ments for many years. Moreover, as a country we under- stand that opportunities are not everything but that these have to be matched by the right framework, the way business is conducted and simply being a stable country of the 21st century. What’s more, we have strong fundamentals compared to some of our regional neighbors which will bring a more stable regula- are the key pillars to develop the such as the size and development tory framework for companies inter- whole country. For instance, the of the local market. We have the ested in investing in long term oil and agroindustrial sector of Argentina is second highest GDP per capita in gas or infrastructure projects with significant, yet if the transportation the region. Additionally, we have public sector participation. Other reg- infrastructure is not good enough we tremendous natural resources; not ulatory changes already implemented will not be able to use the resources of only oil and gas but also renewable include the law for first employment, this sector to full extend. The govern- energy, water, agriculture. We also SMEs, changes to the land law; all ment has a crystal clear vision to put have a highly trained and educated efforts to ‘normalize’ the country and the country back to work, and the im- workforce. provide stability in the longer term. minent challenges to are energy and The Argentinean value prop- infrastructure development. osition globally—and especially EBR: President Mauricio Macri in the regional context—is highly recently said that energy is at the EBR: Argentina is not alone in attractive! And this value proposi- heart of Argentina’s future. How- offering opportunities to the oil tion is already recognized by some ever, investments are needed across and gas industry but it is compet- of the leading private stakeholders all sectors in Argentina including ing with countries such as Bolivia, globally; given the scope of avail- agriculture, infrastructure, capital Colombia and Brazil. Of course, able natural resources and the goods and more. To what extend is none of these has a “Vaca Muerta”, positive business and investment attracting investments into the oil however, these also have their spe- environment this government is & gas and energy industry a priori- cific opportunities. Why should establishing, some analysts believe ty within your overall ambitions to the global oil and gas companies that Argentina will be one of the attract investments? place their investments into Ar- main determinants of the global AO: Investments in energy and in- gentina instead of these regional oil and gas price in the next 30 to frastructure are a top priority; these neighbors? 40 years. www.energyboardroom.com Argentina Oil & Gas 2017 17 STRAP IN HERE PLEASE Strap subhead in here please
LOREM IPSUM DOLOR SIT AMET
Preface: A
18 Argentina Oil & Gas 2017 www.energyboardroom.com COVER STORY Back in Vogue? ARGENTINA BACK IN VOGUE?
Argentina, the eighth largest country in the world, is unquestionably one of the energy resource giants of our time. Yet, though the country can look back on a century-long heritage of hydrocarbon extraction, a catalogue of mega play discoveries during the 2000s, and the third largest shale reserves on the planet, Argentina’s recent hydrocarbon profile makes rather grim reading. The country was notably demoted from being a net energy exporter to importer in 2011 to the extent that, by 2014, it had to stump up some USD 9 billion per annum merely to purchase foreign fuel. Efforts by the previous administration of Cristina Fernández de Kirchner to restore security of supply though the infamous nationalization of the iconic E&P actor, YPF, and stunning expropriation of Repsol assets thus making YPF into Argentina’s NOC, did little to address the situation, but much to scare off international investors, while the state energy subsidy bill mushroomed to 12.3 percent of government expenditure. Times are changing, however, and a new government has made resolving Argentina’s energy conundrum one of its foremost priorities. In the words of freshly elected President Macri, “Sin energía no hay futuro” – without energy, we have no future! www.energyboardroom.com Argentina Oil & Gas 2017 19 COVER STORY Back in Vogue?
FROM PARIAH TO POSTER CHILD
Few countries have so dramatically spurned international investors only to woo them back again as assiduously as Argentina is now doing, but President Macri is resolute that “there is absolutely no other way.” “We need the great companies of the world to be coming here and financing JUAN JOSE MIGUEL ANGEL RICHARD SPIES ARANGUREN, GUTIERREZ the construction of roads, ports, waterways and pipelines. CEO, Pan- We’re a vast country that depends pretty much only on Minister of Energy President, YPF American Energy and Mining trucks today… it’s unbelievable that such a state of affairs could have been allowed to happen,” he argues. On hos- ting the first business and investment forum since his in both conventional and unconventional oil and gas. election last fall he affirmed that his administration has “Argentina possesses five mature oil basins, however, we “embarked upon a new political phase, and is ushering also have at least 15 more highly prospective oil and gas in the new Argentina,” eager to reassure the international basins with an immense exploratory potential… our goal investor community that the country has learned from the is very much to maximize our production, and are inviting past and is ready to complement its “profound talents and in the full range of talents to tap this enormous potential bountiful natural resources” with “consistency in rule of and put in place the necessary hard and soft infrastructu- law, regulatory predictability an a thorough cleanup of the re… for me the utmost priority is to establish the right fra- national economy.” Already a welter of investor-friendly mework which will afford companies and entrepreneurs reforms have been enacted: lifting capital controls that the opportunities to get involved and start mucking in!” for several years limited the repatriation of dividends, he confidently declares. devaluing the peso, overhauling the statistics agency, res- Investors at home and abroad, mindful that a self-de- tarting negotiations with disgruntled creditors from the clared rightwing, pro-business candidate unaffiliated with nation’s 2001 default and striking USD 9.3 billion deal Peronism or Radicalism has been freely and fairly elected with debt holders. for the first time in Argentine history, seem inclined to New Minister of Energy and Mining Juan Jose give the new administration the benefit of the doubt. Aranguren, a former chief executive of Shell Argentina, has Miguel Angel Gutierrez, president of YPF, explains that emphasiszd the “veritable abundance” of opportunities Argentina is “moving toward a market economy” which he believes will attract even more investments into the coun- try. Javier Pastorino, CEO Argentina/ Uruguay & CEO WEENING ARGENTINA OFF GAS SUBSIDIES Power & Gas (South America without Brazil) at Siemens RESIDENTIAL PRICES PER CUBIC METER, FOR APRIL 2016, IN U.S. DOLLARS is of a similar mind. “The new government has created the basics and the required regulatory framework that URUGUAY $1.49 Argentina deserves and has been waiting for and we will BRAZIL $1.24 prove responsive to this change in climate.” In the meantime, FMC Technologies which withdrew CHILE $1.14 from Argentina in 1997 has returned and is ramping up ARGENTINA $0.29 its local operations. “We have identified an opening for
VENEZUELA $0.05 provision of our well head equipment, frack pumps and flow line services…economically and politically the coun- Argentine prices from the main gas company in Buenos Aires try is making the right steps… it’s just the perfect time to Source: University of Belgrano in Buenos Aires Center for the Study of Regulated Public Services. come back and be here!” relates GM, Fernando Camuzzi.
20 Argentina Oil & Gas 2017 www.energyboardroom.com COVER STORY Back in Vogue?
“We’re staring at an incredibly “ We’re at a pretty special juncture in which the market friendly momentum of the business winds can be entirely
cabinet packed different to the rest of Latin America with veterans “ of the corporate ANDRES ONDARRA VICE PRESIDENT, INVEST ARGENTINA ADRIAN world and tech- MASCHERONI nocrats whe- General Manager, re the Finance quality investment opportunities pop- contracts made!” exclaims Ricardo AESA Minister comes ping up across multiple industries, Delgado, sub-secretary of Public from JPMorgan especially the energy and infrastruc- Federal Works at the Ministry of the Chase and the Foreign Minister is a ture sectors,” he speculates. Interior. former CEO of Telecom Argentina… The government, for its part, is Delgado’s office calculates that, we might not get a better chance pulling out all the stops to facilitate courtesy of a recent KPMG study, than this again so must take advan- this process. “Over the last couple of “Argentina is going to require invest- tage of this window of opportuni- decades, Argentina has defaulted on ments into infrastructure of as much ty,” whispers the head of another many of its international contracts as six percent of GDP in order to be multinational. and that has naturally damaged our able to support stable, long-term eco- credibility with the international nomic development… Currently we are investor community, which is why it investing less than 2.5 percent of our PUTTING OUT THE is absolutely crucial that we now send GDP, so it’s paramount to put out the WELCOME MAT a very strong and robust message that welcome mat again to attract in the from a governmental and judicial necessary revenue flows to address the Indeed ‘investment’ appears to be perspective we will respect all future shortfall.”Much of this infrastructure the buzzword du jour. As Andres Ondarra, VP of Invest Argentina—in charge of attracting and facilitating foreign investment into the country— points out: “We’ve effectively been out of the financial capital markets for approximately 12 years with little or no FDI and this has put a severe dampener on the country’s develop- ment, meaning that there is substan- tial ground to make up.” Now that the floodgates have been opened, he is predicting a stampede of activity. “By my reckoning, we’re at a pretty special juncture in which the momentum of the business winds can be entirely dif- ferent to the rest of Latin America… now that we are coming in from the Vaca Muerta, Neuquén Basin, Argentina cold there’s going to be a wealth of Source: YPF www.energyboardroom.com Argentina Oil & Gas 2017 21 COVER STORY Back in Vogue?
deficit pertains directly to the ener- ecosystem in order this time round, they could soon find gy sector. “It is well known that themselves leading Latin America once more.” Argentina possesses sufficient natu- ral resource endowments to satisfy national energy demand and more- NEUQUÉN’S VACA MUERTA: VALLEY OF over enable us to reclaim our former DREAMS… RICARDO export status, however, the real chal- DELGADO, lenge behind all this latent potential The Neuquén basin—located in the north west of Secretary of Coordination of is to attract the funding needed to Argentina—is home to the Vaca Muerta formation which Public Works and Housing conduct the requisite exploitation,” the IEA estimates to hold a recoverable total of 16.2 billion muses Senator Guillermo Juan barrels of oil and 308 trillion of natural gas, making it the Pereyra of Neuquén province and second largest shale play in the world after US Eagle Ford. President of the Mining, Energy and The numbers alone put Vaca Muerta on the international Fuels Commission. “The brute fact map; but for Argentina it represents not only hydrocarbon is Argentina does not hold sufficient extraction, but also national pride and reassurance. After financial firepower to explore and becoming a net importer of energy in 2011, the gas-reliant produce the prolific basins in its ter- nation has placed high hopes on Vaca Muerta for restoring ritories on its own so it is imperative national energy self-sufficiency and independence. GUILLERMO JUAN PEREYRA to source some of the capital from outside and that means making National Senator, Neuquén Province; ourselves amenable to international President, Mining, investors,” he concludes. Energy & Fuels Commission (Senate Industry stakeholders have Chamber); General already expressed satisfaction with Secretary, Rio Negro, Neuquén & the new outward-looking orienta- La Pampa Oil & Gas tion of the state. “This has been a Union red tape country for so long that it is almost unimaginable to now witness the emergence of a red carpet,” enthuses Andrew Liveris, CEO of Dow Chemical, noticing that, “this is occurring at just the right moment when the other big oil and gas power- houses of the region, notably Brazil and Venezuela are in turmoil.” Other multinationals seem to concur. Total, BP and Royal Dutch Shell have just announced hundreds of millions of dollars of investments each, while Siemens recently committed USD 5.6 billion to in-country invest- ment in infrastructure, mobility and energy management. “The size of our contribution is reflective of what we per- ceive as the utter seriousness displayed by the authori- ties towards enacting game-changing reform,” expounds Siemens global CEO, Joe Kaeser. “Our bet is that, if Argentinians manage to get their economy and business
22 Argentina Oil & Gas 2017 www.energyboardroom.com COVER STORY Back in Vogue?
will undoubtedly benefit from these developments. Midstream specialists like pipeline operator Oleoductos del Valle (OLDELVAL) have been gearing up for a potential uptick in workload. According to its CEO, Jorge Vugdelija,
OMAR JORGE RIVERA JORGE ROLANDO the company, which currently trans- GUTIERREZ VUGDELIJA BALSAMELLO Country Manager, ports 70 percent of all oil produced in Governor of Halliburton CEO, Oleoductos Managing Director, Neuquén, shifting volumes of 21,000 Neuquén del Valle Oiltanking to 22,000 m3 per day, has put in place “a 1,700 km strong network (and 16 Given that the current administra- Vaca Muerta constitutes a strategic pumping stations) capable of han- tion emphasizes increasing private pillar for the company in Argentina, dling broadly twice today’s capaci- sector involvement, stakeholders are with the company striving to position ty.” “The system has been designed in now readying themselves for what itself as “partner of choice to enti- anticipation of much bigger volumes they consider to be the “impending ties planning to develop Argentina’s and on top of that, we are currently in boom” of Vaca Muerta. Especially unconventional resources [because the midst of developing what we call active is the local regional appara- this is going to be about] big-ticket ‘The Capacity Increasing Stairway,’ tus. Omar Gutierrez, governor of projects.” “A certain amount of prior which, starting from available Vaca Neuquén Province, has been busily planning is required so as to ensure Muerta oil projections for the near showcasing his region to the inter- that we are already there in pole posi- future, sequentially maps out and cal- national oil and gas community, tion to capitalize once the boom really culates transport system requirements advocating that, “Neuquén really is starts kicking off!” he adds. and corresponding investments for the land of opportunity.” Alberto Well-established indigenous players each step in the basin’s future produc- Saggese, president and CEO of Gas with a foothold in Neuquén province tion,” he elaborates. y Petrol del Neuquén (GyP)—an E&P company actually owned by the prov- ARGENTINA’S GAS PRODUCTION Source: IEA ince of Neuquén—meanwhile explains Shale Gas Tight Gas UG Total that his firm is currently producing 6 “some 500,000 m3 of natural gas and 60 m3 of oil per day” in addition to 5 expediting “a strong pipeline of four non-conventional pilot projects in association with Shell, Total, Exxon, 4 and Wintershall” respectively. A sense of excitement pervades the 3
entire local value chain. While the cubicbillion metres super majors proceed with pilot stud- 2 ies, some of the large oil field service providers are also readying them- 1 selves for a potential “bounce in activ- ity.” Jorge Rivera, country manager of 0 Halliburton Argentina, discloses that 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 www.energyboardroom.com Argentina Oil & Gas 2017 23 COVER STORY Back in Vogue?
Associated industries like engineering and construction … AND DISILLUSIONMENT are looking forward to a knock-on boost in regional ener- gy infrastructure demand. Hector Flores, president of local However, some stakeholders are more cautious and warn EPC player, Damgas, recounts that he had initially chosen that despite the current excitement, the path to realiz- Neuquén as his base to “help develop his home province,” ing the Vaca Muerta dream could be slow and tortuous. but that it turned out to be an “astute business decision.” Richard Spies of Pan American Energy, the largest private He is optimistic on the short-term future of the province hydrocarbon producing company in Argentina which pro- and despite not yet witnessing “the full impact” of incom- duces 18 percent of all hydrocarbons in Argentina, advo- ing investments is convinced that “Neuquén will soon form cates an incremental approach. “Two years ago we were the frontline of future oil and gas activity.” considering investing in Vaca Muerta, but the costs were Even companies in adjacent provinces are jockeying for a prohibitively high. Today the cost estimations for the same slice of the action. Rolando Balsamello, GM of downstream type of well are less than half of what is was then which cer- outfit Oiltanking Ebytem, which currently processes 70 tainly affords new possibilities, but it’s still vitally impor- percent of Argentina’s crude oil, predicts “a tremendous tant to act in a measured manner that at all times ensures opportunity in the making.” “We have operations situated profitability. Our strategy so far has been to first focus on right near to the exit door of the basin, which are likely to pockets of tight gas in Neuquén alongside our conven- come under a lot of pressure as demand rises so we have to tional production in the south and then, once we have be on our toes and ready to grasp this moment.” got those operations working efficiently, to complete the
Doing the common, THE KEY OF OUR uncomonly well COMPETITIVENESS IS TO HAVE THE VERSATILITY OF A SME, AND THE STEADINESS OF A BIG CONSTRUCTION COMPANY, WHICH IS REFLECTED EVERY DAY BY Headquarters: Tucuman 663 BEING THE PARTNER OF Neuquen, Q8300PMM CHOICE OF OUR CLIENTS Neuquen, Argentina
Rolando Balsamello / Oiltanking Ebytem S.A. Head Offi ce Martin Lezica 3075 (B1642GJA). San Isidro Buenos Aires M: [email protected] Phone: +54-11-52301100 T: +54 299 632 4846 Marketing Contact e-mail: [email protected] +54 299 421 2926 www.damgasconstrucciones.com
24 Argentina Oil & Gas 2017 www.energyboardroom.com COVER STORY Back in Vogue?
ENERGY INFRASTRUCTURE CONSTRUCTION: A HIGH-STAKES GAME
MARCELO CARRO Rovella Carranza is although our participation was small it lays down a mar- — a company with “30 ker and acts as a stepping stone to a bright future in the Commercial Manager, Rovella Carranza years of permanent energy infrastructure segment.” The company, however, self-reinvention and will be aiming much higher than merely laying pipelines; innovation, while all Carro rhapsodizes that, “we recently also conducted our the time re-investing first ever extra high voltage electricity project.” scrupulously in equi- Juan Chediack, president of the Argentinian construc- pment, technology tion association CAMARCO is confident in the abilities JUAN CHEDIACK and training” accor- of local outfits like Rovella to provide the infrastructure — ding to Commercial that the country needs to develop. He asserts that “99 President, Manager Marcello percent of established infrastructure in Argentina was CAMARCO Carro. The company built by Argentinian companies; we have a high level of has recently resol- construction quality, highly educated engineers and high ved to undertake yet level of sophistication of equipment in the field, hence another cycle of rein- why we will not have any problems with any project in vention. “We realized the years to come.” that just so long as Rovella has, during the course of its history, made a the government continues to place orders for bridges, point of changing according to market needs and applies roads and dams, then we would be assured a high tempo its proven formula “in anticipation of developments in of workload; but should the government’s much publici- Argentina” once again. “This has always been a hallmark zed investment drive stall, then we would essentially find of our company ethnos and to date has served us very ourselves out of business, so thought it prudent to start well,” reflects Carro. With the oil, gas and power sectors diversifying our offering,” he explains. set to define the mid- to long-term future of the Argen- Within Argentina, Carro has identified “energy related tine construction industry, Carro is confident that Rove- construction” as the market niche that will best allow ma- lla can be “an early mover, positioned at the pioneering turation and growth. “One of our most recent headline vanguard, ready to fully embrace and exploit this new era projects was our participation in installing a gas pipeline; of heady risk and returns.”
step up to unlocking shale by harnessing the expertise of is the configuration of the market: the Texas shale scene one of our parent companies, Bridas, that has forged first- is dominated by versatile, entrepreneurial SMEs and bou- hand experience on US shale plays,” reveals Spies. tique fracking specialists whereas those investing in Vaca Others stress the importance of maintaining a clear sense Muerta tend to be NOCs like YPF and the big IOCs such as of perspective on economic viability. “Vaca Muerta is cur- ExxonMobil, Chevron, Shell and BP, many of which have rently producing around four percent of the total oil pro- drawn their horns in since the start of the oil price crash. duction of Argentina; it is not a lot yet though it will cer- Therefore you could say that we are missing part of the tainly increase. Right now the cost of production there is dynamism and momentum that spurred on the US shale close to double that of shale in the United States so there revolution,” reflects Leonardo J. Brkusic, Executive Director is still frankly a long way to go in perfecting the know-how of Grupo Argentino de Proveedores Petroleros (GAPP). and technology to be able to align the economic fundamen- GyP’s Alberto Saggese also recognizes this as a potential tals with those of analogous markets,” concludes Ernesto barrier to the speedy development of the region. “Perhaps the Lopez Anadón, president of the Instituto Argentino de main issue we’re facing in Neuquén is actually that the most Petróleo y Gas (IAPG). prospective assets are already distributed among a handful Another aspect threatening to slow down the develop- of key players. In Vaca Muerta, practically all the high profile ment of Vaca Muerta is actually the type of actors present. spots are actually already under concession rights owned by “One big difference between Eagle Ford and Vaca Muerta the oil majors and super majors. The development of these www.energyboardroom.com Argentina Oil & Gas 2017 25 COVER STORY Back in Vogue?
Anyone seriously considering high profile assets thus depends very “ much on the concession holders’ investing in the Argentine individual investment policies. We hydrocarbons space must be very
are, of course, doing whatever we can attentive to cultivating harmonious
to encourage them to declare com- relations with the unions. “ merciality and press ahead with pilot JAVIER RICHARD SPIES CEO, PAE PASTORINO projects, but, by law, those rights of CEO, Argentina/ concession must be respected and Uruguay & CEO final decision-making rests with the Guillermo Pereyra, who has also been the general secre- Power & Gas (South America without holders. We are therefore focusing tary of the Rio Negro, Neuquén and La Pampa oil and Brazil), Siemens our energies on inciting SMEs to get gas union for over 32 years, declares that the labor union involved in remaining areas where movement “recognizes the delicate tasks facing company there are still blocks to pick up such management boards” during a period of sustained glob- as the dry gas window and that is al oil price volatility and “fully appreciates the value of where we hope to entice in new invest- productivity and re-investment” to the enduring econom- ment flows,” he explains. ic viability of the industry. “When defending our jobs, negotiating salaries and looking out for the interests of workers, we always take into account the sustainability OMAR FLORES A FORCE TO BE RECKONED of the business model and wholly acknowledge that, President, Damgas WITH under the prevailing price contest, cost-containment
Despite the pro-business stance of ARGENTINA’S DECLINING SHARE OF FDI the incumbent administration, other forces continue to impact the energy sector’s overall invest-ability and attrac- TOTAL STOCK OF % OF STH AMERICA´S YEAR tiveness. Argentina’s trade unions, for instance, continue to FDI ($BN) STOCK OF FDI wield considerable influence, sometimes playing a decisive 2001 79,504 24% role in determining the success of in-country business ven- 2002 43,146 16% tures. Aldolfo Sanchez Zinny, president of the indigenous 2003 48,262 15% oilfield service provider Bolland, describes labor unionism 2004 52,507 14% as a “significant hurdle” to surmount, noting that union 2005 55,139 13% pressure, if not dealt with appropriately, can “rapidly 2006 60,253 12% degenerate the work environment to the extent that a com- pany’s overall profitability becomes compromised.” 2007 67,574 11% “It’s important to bear in mind that union power tends 2008 77,066 12% to be much more pronounced in Argentina than in many 2009 79,871 10% other countries,” agrees PAE’s Richard Spies. “Anyone 2010 88,455 8% seriously considering investing in the Argentine hydrocar- 2011 93,199 8% bons space must be very attentive to cultivating harmoni- 2012 100,821 8% ous relations with the unions,” he counsels, adding that 2013 111,361 8% one of the “keys to long-term survival” in the local market is “not to overlook this variable.” Union bosses, however, 2014 114,076 8% are swift to underline the economic literacy of their mem- 2015 93,871 8% bers and decry the antagonisms of the past. Senator Juan Source: FDI Magazine based on Untad figures
26 Argentina Oil & Gas 2017 www.energyboardroom.com COVER STORY Back in Vogue?
www.energyboardroom.com Argentina Oil & Gas 2017 27 COVER STORY Back in Vogue?
CLOSING THE CYCLE
EDUARDO MONTICH Montich is adamant that “the entire — value chain needs to be revamped CEO, EMA SA and upgraded” because “even if the installed capacity could be dra- matically raised, the existing supply chains would be insufficient” to su- ADOLFO ANDRES pport higher volumes. “EMA is acti- SANCHEZ ZINNY ONDARRA ve in all three phase of the electric CEO, Bolland Vice President, energy cycle—generation, distribu- Invest Argentina JUAN CARLOS FERNANDEZ tion and transmission—and where — we identify the most potential for seeking “not just peaceful coexist- CEO, IMPSA future business is most definitely the distribution side,” he confides. ence, but active collaboration in shap- “Over the past decade many electri- ing the future oil and gas business city distributors had to reduce their landscape” in an era when many of investments in an effort to control the industry fundamentals have been costs and ended up impoverishing One urgent item on the agenda for both the quantity and quality of undergoing transformative changes. the current legislative session has their offering, especially in the servi- Some business leaders now perceive been ensuring national energy secu- ce support area…so there’s a lot of the unions to be more of an asset than rity at a point when Argentina finds unmet need to respond to and EMA herself afflicted with increasing elec- a problem. Adrian Mascheroni, GM as the local market leader in provi- tricity shortages. “The bottom line is sion of medium voltage equipment, of Astra Evangelista (AESA)—the EPC that the country is both deficient in aspires to be a main protagonist in arm of YPF with 65 years of experience electricity generation capacity and correcting this situation.” hostage to power distribution bott- in the energy industry—recalls his “gen- lenecks,” diagnoses Eduardo Mon- uine surprise” at the “diligence, under- Other stakeholders are also raring tich president of Electro Mecanica to get involved. Juan Carlos Fernán- standing and constructive demeanor of Argentina (EMA). “At this moment dez, CEO of integrated power solu- the labor unions” when, at the bottom in time total national installed capa- tions provider, IMPSA, is confident city is a mere 32 gigawatts whereas of the oil price crash, he was compelled that his company has much to con- to be a serious country with easy to contain costs in the operations and tribute towards correcting Argen- access across the full territory that tina’s present imbalance. “Around maintenance (O&M) segment which number would have to more than the world we’ve installed more than in turn necessitated restructuring the double to 80 gigawatts,” he con- 1.5 times the national electricity ge- tinues. “By way of comparison the deployment of the firm’s human cap- neration of Argentina so we’ve got a United States enjoys roughly one ital. “By joining forces we were able to huge amount of experience to draw gigawatt of installed capacity per upon and apply to the homeland… identify very effective common solu- every 300 citizens, and in neighbo- right now we’re evaluating what we tions to the evolving industrial chal- ring Chile the ratio is more like one think are some great opportunities to 800 citizens, whereas for us it is lenges,” he recounts. Today he regards in the hydro and wind power seg- a shameful one gigawatt for 1300 his company’s warm and respectful ments.” citizens.” relationships with the unions over the full scope of a complex offering and geographic presence as “one of the and productivity enhancement reasonable compromise for all par- defining points of AESA’s competitive have become critical for survival,” ties,” he concludes. advantage.” “It’s all about channeling he affirms. “We are therefore always Indeed many stakeholders perceive passions and interests in a common ready to debate these issues open- a “new spirit of solidarity” in which direction to the benefit of all… ulti- ly and frankly and to resolve upon industry workers and managers are mately they’re just as determined as
28 Argentina Oil & Gas 2017 www.energyboardroom.com COVER STORY Back in Vogue?
the rest of us to find solutions to the investment fund has matured into the largest Argentinian challenges our industry faces today,” integrated power company in the space of only seven years,” he affirms. reflects CEO Horaccio Turri. Drawing attention to Pampa’s headline-making announcement that it was buying a con- trolling stake of 63 percent of Petrobras’ Argentinian assets A FORMIDABLE HERITAGE at a price tag of USD 192 million, he expresses determi- HORACIO TURRI nation that “home-grown success stories like Pampa will CEO, Pampa For all its defects, Argentina holds a ultimately be what determines Argentina’s energy destiny.” Energía long and illustrious track record in oil and gas with no shortage of tal- ent, expertise and know-how. “We actually fare pretty well PERILS OF THE PENDULUM compared to many countries because of Argentina’s lengthy history in oil and gas development. This heritage means that There can be little doubt that the Argentinian energy sec- there are many technically qualified Argentines with hydro- tor has now entered an exciting period where optimism carbons expertise that can be easily sourced from the local abounds and there is all to play for. “President Macri is market. Another contributing factor to this talent pool is the really opening up the country and the relationships with country’s strong academic structures with well-reputed uni- important countries such as the US are better than ever versities and institutes churning out new cohorts of gradu- before: prior to the political change, importing had always ates each year,” contemplates PAE’s Richard Spies. Sufficiently available workforce is particularly crucial in the energy-infrastructure engineering field, as Adrian 34.5 kV Vacuum Circuit Breaker & High Speed Mascheroni, general manger of AESA elaborates “last year, Grounding Switch for Wind Power Substations we grew to approximately 6000 employees of which 2200 are dedicated to our service unit. Having vast human resourc- es available allows us to be highly flexible thus guaranteeing a stable business; we work on the OPEX side of upstream, midstream and downstream activities of oil and gas players, hence why we need to be able to offer sustainability. “ This in turn no doubt contributes to a very peculiarly Argentinian sense of self-belief, responsibility and con- fidence of aptitude in being able to sort out their own affairs. “It’s important to always be pushing the bounda- ries and aiming high…that is how great things are achieved and explains how Pampa Energia, having started out as an
President Macri is really opening “ up the country and the relationships with important countries such as the US are better than ever before.
EMA Electromechanics “ 16 Industrial Dr, Sweetwater, TX 79556 RODOLFO GONZALEZ PRESIDENT, ELECTRO + 1 325 235 8000 MECHANICS TECMACO www.emaelectromechanics.com www.energyboardroom.com Argentina Oil & Gas 2017 29 COVER STORY Back in Vogue?
The Macri administration has set the ball rolling by pressing the “ reset button and ushering in a new pro-business climate and favorable operation environment, but it will be up to all Argentines
to ensure that this prevails in to the future. RICARDO DELGADO “ RODOLFO SECRETARY OF COORDINATION OF PUBLIC WORKS AND HOUSING GONZALEZ President, TECMACO been such a tremendous struggle, but now we are unleashed achievements was to lay 12,000 kilo- to get on with our core tasks and business is being propelled metres of pipelines in just two months!” he divulges. Ricardo forward,” resumes a visibly optimistic Rodolfo Gonzalez of Delgado, sub-secretary of public federal works, acknowledg- TECMACO. es the reality of uncertainty. “Investor confidence is ultimate- Yet, for all of that, Argentina is no stranger to reversals and ly always going to be founded upon on long-term trust,” he backsliding. Old timers will no doubt recall the mid-1990s confesses, “The Macri administration has set the ball rolling and zeitgeist of Menem-ismo when a flashy president and by pressing the reset button and ushering in a new pro-busi- his then bullish Finance Minister Domingo Carvallo wowed ness climate and favorable operation environment, but it will the international community and the IMF, boasting to have be up to all Argentines to ensure that this prevails in to the “changed the rules of the game” with a turn to market forc- future.” Time will no doubt tell. es, sweeping privatizations and a dollar peg only to hasten a descent into currency crisis and economic turmoil several years later. ‘Boom and bust’ has very much been the name of the game. Some companies can therefore be forgiven for exercising more caution and persevering with tried and tested formula. “Nothing can disguise the fact that Argentina is a relatively unpredictable market where we cannot simply do what we would like to do. The policies the authorities pursue greatly influence profit and loss out here so we have to be prepared for all eventualities. We are always working hard to expand our business regardless of the political situation and dedicate ourselves to the task of importing finished goods and chemi- cals. We are optimistic and have plans to expand our capacity by nearly 40 percent, but won’t be taking anything for grant- ed,” asserts Oiltanking Ebytem’s Rolando Balsamello. “We have to make as much headway as possible while the going is good,” agrees Hector Flores of Damgas. “Our default position is to be as versatile as possible so that we can respond quickly and take advantage of any arising opportu- nities or changes in the politico-economic climate… all our projects have an average time span of two to six months. We place all of our resources into one project in order to car- ry them out in a short period of time; one of our flagship
30 Argentina Oil & Gas 2017 www.energyboardroom.com COVER STORY Back in Vogue?
www.energyboardroom.com Argentina Oil & Gas 2017 31 THE VIEW FROM THE TOP Richard Spies, Pan American Energy (PAE)
LOCAL CHAMPION
Preface: Richard Spies, CEO of Pan American Energy (PAE), Argentina’s largest private oil and gas operator, discusses the strategic importance of PAE to parent company BP and PAE’s company’s conventional and unconventional plays in Argentina.
tive resources still out there awaiting development. In Neuquén, we are a smaller produc- Richard Spies er in Lindero Atravesado where we oper- PAN AMERICAN ENERGY ate alongside YPF as a partner, but have nevertheless demonstrated a capacity to increase gas production. We are proud to have been able to realize systemat- ic productivity gains across the entire EBR: How strategically impor- EBR: PAE in notable for being field in the conventional realm for over tant is PAE to BP considering that the largest private E&P Company 20 years. We’re talking about increases the latter owns some 60 percent of in Argentina: enjoying a respective from 15 million cubic feet a day in 2013 Pan American Energy? market share of 20 and 16 percent to 120 million cubic feet a day today. RICHARD SPIES (RS): As of oil and gas production. With a That’s quite a significant rise in space CEO, it is my responsibility to en- portfolio that straddles four dif- of only two and a half years. Part of this sure that the global management ferent conventional and uncon- derives from the fact that nowadays we board understands the continued ventional oil and gas basins, what are able to develop tight gas that we relevance of an entity like PAE to would you define as your most per- could not reach in the past, but it also the company’s overall portfolio of forming assets? stems from our willingness to build assets. At the end of the day, howev- RS: I am proud to affirm that we upon and apply our experiences and to er, the figures speak for themselves. have demonstrated potential in each constantly be on the lookout for fresh What I would point out is that PAE and every area where we undertake op- optimizations. The strategy underway is roughly the same size (probably erations. Our biggest operation is un- right now is to acquire acreage and even a little bit bigger) than it was doubtedly Cerro Dragón. It is mostly expand our footprint with a view to prior to BP’s well-documented is- situated in Chubut, but it also extends repeating those successes across other sues in the Gulf of Mexico. Today out into Santa Cruz and accounts for blocks; deploying what has become a BP is a smaller company than it was some 90 percent of our total oil pro- well-defined and tried and tested pro- before. So, BP has contracted and duction. This also happens to be the cess. The other objective is to make fur- PAE is growing and, therefore, com- largest oil producer field in the coun- ther inroads into tight gas development paratively our weighting is more sig- try. There is much to do in this space to the point where we are in a position nificant than ever before. with a large volume of highly prospec- to set about producing in Vaca Muerta.
32 Argentina Oil & Gas 2017 www.energyboardroom.com THE VIEW FROM THE TOP Richard Spies, Pan American Energy (PAE)
is deep water. We recognize our limi- tations and our shortfall of experience in such operations and have calculat- ed that we would do better to focus instead upon those areas where we have some existing skill sets to build upon and a competitive advantage to further assert.
EBR: In January, PAE signed an agreement with YPF for USD 500 million worth of investment to [In conventionals production] we’re talking about develop unconventionals in Vaca
“ increases from 15 million cubic feet a day in 2013 to Muerta. Could you expand on the
current and future investments that 120 million cubic feet a day today. “ PAE has in its pipeline? RICHARD SPIES PAE RS: We have been steadily expanding our acreage footprint in the Neuquen There remain a lot of opportunities operating oil and gas fields. Not only basin. We have one block called to exploit in Neuquen and Chubut as do we display a strong track record in Bandurria Centro where we sport a 100 well as the extension into Santa Cruz. secondary development, which is still percent interest. We are now convinced Simultaneously, alongside our partners ongoing, but we have also been forg- that, having successfully developed down south (such as Total) in Tierra del ing ahead with some EOR pilots. Being tight gas in Neuquen alongside our Fuego, we are attempting to leverage able to draw upon BP’s own proprietary conventional production in the south, further prospects in la Cuenca Marina technology is obviously a bonus and that we can now credibly make the Austral. We further possess a small one of our points of differentiation step up to operate efficiently in Vaca portfolio of foreign assets in Bolivia from any competitors. We can also call Muerta and lowering our production and Mexico that we have agreed with upon the experience of our other part- costs there. our shareholders to continue to expand ner Bridas, which has been fairly active Two years ago we were considering and develop. in US shale plays. This may well prove investing in Vaca Muerta, but the costs very useful when trying to unlock Vaca were prohibitively high. Today the cost EBR: 80 percent of the conven- Muerta. estimations for the same type of well tional oil and gas fields in Argen- We are always attentive to applying are less than half of what is was then. It tina are mature including much of our learning from one block to our is a strong reflection of improvements your own portfolio. You are also other assets. The block that we acquired that we have attained in the past as well well underway with operations in in Mexico, for example, is in shale oil as changes underway across the indus- the unconventional realm as well. water and we possess an Argentinian try. We have now resolved to try it. First How do you ensure that you acquire block with similar characteristics so we we will go about it on an experimental adequate technological capabili- ensure that there is a lot of cross polli- basis. Once we have properly evaluated ties to sustain your production and nation of ideas between the two sets of the economic results and determined move into these new spaces? activity. the output, then we will be able to set RS: I think we actually already pos- The area where I do not realistically the appropriate speed at which we will sess a really rare capability in terms of see PAE venturing into any time soon go about developing the basin. www.energyboardroom.com Argentina Oil & Gas 2017 33 STRATEGY Horaccio Turri, Pampa Energia
PAV I NG THE WAY TO GROWTH
Preface: The CEO of Pampa Energia Argentina elaborates on the strategy that led the company to become the coun- try’s largest fully integrated energy company in less than seven years. Furthermore, he highlights the significance of the recent acquisition of Petrobras Argentina and how this HORACCIO will enable Pampa Energia to grow even further in the future. TURRI
CEO, Pampa EBR: Pampa Energia was founded in 2005 and re- Energia ported a net profit of USD 256 million by the end of 2015. What is the business philosophy that led to this rapid growth? HORACCIO TURRI (HT): The main driver of Pampa cent of Argentina’s total production—just two years later. Energia is its strong focus on investment and growth. The Throughout this development, we recognized the signifi- controlling shareholders are Argentinians committed to cance of this segment for the future of our company, hence their country and committed to creating value and expand- why we founded Petrolera Pampa which today is 50 per- ing their operations. Having started as a small investment cent owned by Pampa and 50 percent by friends and family fund, they developed into the largest Argentinian integrat- of the controlling shareholders as well as being traded on ed power company in less than seven years—the result of the Buenos Aires stock exchange; fully dedicated to Pampa being the largest private investor focusing on power in the Energia’s oil and gas business segment. last 12 to 13 years. I personally joined Pampa Energia in 2008 with the goal of closing the combined cycle in Lomo EBR: Entering the oil & gas exploration and pro- La Mate, which was a project worth approximately USD duction segment is similar to playing Russian roulette 250 million aimed at adding approximately 200 megawatts – what were the conditions that led you to enter this to the system. In executing this project, it became clear that segment? in a country such as Argentina, with a tightly regulated en- HT: We did not go into exploration at all—we went for ergy sector, it would be good to get our own natural gas as- the development of proved reserves! Our main driver—and sets. We moved on to developing our own E&P operations, target—was to develop proven reserves which were simply mainly through joint ventures with the major players in in need of investment in order to start producing; this in- Argentina as partners. Our initial steps were very success- cluded transportation facilities, wells, surface treatment fa- ful, hence why we decided to invest even further into this cilities and more. As a company, we did not have any prior segment. By 2011, we were producing approximately one oil and gas experience, hence why we did not feel secure million cubic meters per day of natural gas, the equivalent enough to go into the exploration segment straight away. of one percent of Argentina’s total production. Through Another reason why we focused on these assets was that, further investing into joint ventures with some of the larg- at that time, Argentina had a significant problem with its est oil and gas companies in Argentina, we reached a total energy trade balance which eventually translated into a production of 5.5 million cubic meters per day—or five per- negative economic trade balance. Due to the decline in gas
34 Argentina Oil & Gas 2017 www.energyboardroom.com STRATEGY Horaccio Turri, Pampa Energia
Tight gas assets are a huge opportunity “ in the oil and gas sector. Former Petrobras had significant tight gas assets in the Neu- quén basin, which we believe will be the
main driver of our investment policy in the coming years. “
HORACCIO TURRI CEO, PAMPA ENERGIA
EBR: To what extent was utilizing the capital markets the right way of complementing Pampa’s strategy? HT: Petrolera Pampa was a leverage story, its total capital is around USD 20 million and all of the rest was completely financed through banks and through the capital market in Argentina. Initially we financed mostly through pesos, now, considering the current ARS to USD rate, we are working on switching the ARS debt into a USD debt. Given the macroeconomic context of Argentina and that Pampa Energia is a 100 percent Argentinian company, was it production—which was a result of the pricing policy inter- a challenge to raise investor confidence? vention of the previous government— gas production de- This has definitely been a challenge, however, as aforemen- clined significantly and Argentina had to start importing tioned Argentina was desperate for natural gas and the fact natural gas. These import activities led to one of the most that each little molecule had to be paid with USD, which significant problem of the Kirchner government; the lack the government did not have, balanced this challenge for us. of US dollar in the country due to its mandatory usage for Therefore, it was apparent that the market is very attractive importing energy, which could have been produced from and we were confident that they were going to be committed Argentina’s extensive resources. As this problem grew ex- to pay the natural gas because the government could pay us ponentially, it was finally comprehended by the govern- in ARS—a significant opportunity which we realized. ment which reacted by implementing several incentives to enhance domestic gas production, for instance, that gas EBR: What are some of the opportunities you identify produced from new wells are awarded with a differential for Pampa Energia in the near future? price, which made gas production significantly more at- HT: Personally, I can only talk for the oil and gas seg- tractive. These regulatory developments were appealing ment; I am confident that there are numerous opportuni- to us as well, which is why we made the decision to move ties for Pampa Energia in the near future. The acquisition of forward with the development of our gas assets. These Petrobras Argentina was key to unlocking these opportuni- assets were qualified as new gas wells, hence why we re- ties. Tight gas assets, for instance, are a huge opportunity in ceived a very handsome price for our natural gas. Overall, the oil and gas sector. Former Petrobras had significant tight we invested USD 400 million over the years and are now gas assets in the Neuquén basin, which we believe will be the producing around three million cubic meters of natural main driver of our investment policy in the coming years. gas which had an EBIDTA of USD 100 million last year We have the experience within Petrolera Pampa, we have a and projected EBIDTA of USD 200 million this year. In successful past in this segment, the country still needs a lot 2014, we decided to go public and the IPO traded at ARS of natural gas still relies on imports of diesel and gas which 1.7 and is currently trading in the range of ARS 55 to ARS needs domestic substitution, hence why we will continue to 57—quite a success story! focus our efforts on our gas assets. www.energyboardroom.com Argentina Oil & Gas 2017 35 ARGENTINA’S NEW POLITICAL DIRECTION Opening for Business
and exploitation activities need to be developed in order to TAKING ITS PLACE achieve energy autonomy”, hence why Pereyra stresses that “the challenge behind this potential is to attract the funds IN THE GLOBAL needed to allow its exploitation.” LANDSCAPE The kick-off to exploiting Vaca Muerta, however, seems to be in full throttle with ExxonMobil having committed to a USD 229 million pilot, Argentina’s YPF in collabora- Preface: A new presidency in Argentina means the coun- tion with Dow Chemical to a USD 500 million pilot, and try is once again open for business in oil and gas and poi- Petronas USD 500 million for the current pilot and USD sed to regain its place on the top table of global energy. five billion for long-term development. Private invest- ments for the benefit of the oil and gas industry are nee- rgentina was a longstanding oil and gas player ded elsewhere, as Ricardo Delgado, sub secretary of Public until 2011, when it became a net importer for the Federal Works in the Ministry of Interior, explains, “invest- first time in its history. Ever since, Argentina’s ments into infrastructure must reach six percent of our economy, much reliant on the oil and gas indus- GDP (USD 30.6 billion) in order to be able to develop the try as its main economic contributor, has stru- Argentinian infrastructure.” Despite the estimate, Delgado ggledA to re-assume its former size, growth and stability. In realizes that there is significant need for private investments January this year, with the election of Mauricio Macri as pre- as “currently we are investing less than 2.5 percent of our sident, the door to a bright oil and gas future was opened GDP into infrastructure!” again. Stating that “Argentina has decided to take its place The Minister of Transport, Guillermo Dietrich, aligns in the global landscape,” President Macri swiftly reversed with the former statement, elaborating on the infrastruc- the policies of his predecessor and is focusing on boosting ture challenge regarding the energy industry at the Club the economy with free-market measures such as the elimi- del Petroleo, an entity with social purpose which brings nation of foreign exchange controls and reducing subsidies. together leading stakeholders of the Argentinian oil and The change in government has certainly stirred up the gas industry. Dietrich states that the ministry “is develo- interest of the international oil and gas community, with ping several projects related to all the different transport the Financial Times describing Argentina as “offering a bri- means in order to improve the logistics and efficiency of ght spot in LatAm’s oil sector” in March 2016, referring to the energy industry in Argentina.” Nonetheless, Dietrich the newly elected government and Argentina’s unconven- is aware that the government will not be able to meet the tional resources in Neuquén’s Vaca Muerta reservoir, the country’s oil and gas infrastructure challenges alone; the second largest shale reservoir in the world. As Vaca Muerta’s ministry’s projects are an “improvement” which must be technically recoverable unconventional resources are suffi- complemented by the combined efforts of all stakeholders cient for supplying domestic demand, Argentina’s declared including “companies, unions, provincial governments mission is to achieve energy self-sufficiency, highlighting and employees” alike. In discourse with the leading oil and that the former would additionally free up some USD eight gas stakeholders at the Club, Dietrich stressed the fact billion which the country currently spends on gas imports. that “Argentina is a land full of energy business oppor- However, as Guillermo Juan Pereyra, Senator of Neuquén, tunities.” Argentina’s vast resources, the repositioning of President of the Mining, Energy and Fuels Commission the government and willingness to enhance the country’s in Argentina’s senate and the General Secretary of the Rio attractiveness for FDI certainly underlines Dietrich’s sta- Negro, Neuquén & La Pampa Oil & Gas Union, pronounces, tement and it seems as though all relevant stakeholders “in reality Argentina does not have enough financial capaci- within the government have rallied together with the aim ty to explore and exploit the different existing basins in its to have Argentina —as president Macri says— “take its pla- territories; nevertheless, the national oil and gas exploration ce in the global landscape.”.
36 Argentina Oil & Gas 2017 www.energyboardroom.com EPC Adrian Mascheroni, AESA
EBR: Is AESA ready to move into ENGINEERING the renewable energy segment? AM: We are working on enhanc- PROWESS ing our capabilities to fully support projects in the electricity and power generation segment. Two or three years ago, we participated in a pro- Preface: The general manager of AESA, one of Argentina’s largest EPC compa- ject in Brazil where we were involved nies and fully owned by YPF, reviews current challenges in the industry, elaborates in constructing wind generators; un- on AESA’s unique offering, and describes the potential in Argentina’s ambitions to enhance its renewable energy sector. fortunately, due to a lack of resources, this project had to be shut down and we decided to wait for the segment EBR: You have been general man- EBR: To what extent are you a to pick up and concentrate on our ager for AESA since February 2013, captive company of YPF? core competences—oil and gas—in the how would you define the role AESA AM: In 2012, YPF decided to rein- meantime. However, the energy sector plays in Argentina today? vest a significant amount in the do- is highlighted here by all significant ADRIAN MASCHERONI mestic up- and down-stream segment. stakeholders, hence why we are con- (AM): AESA today has four dif- Knowing that there would not be fident that now is the right time to ferent business units: The manufac- enough companies to support the EPC move in this segment once again! turing department, which generates side of these efforts, YPF needed to rely about ten percent of our revenues, the on us as a strategic execution partner EBR: The landslide in global engineering and construction depart- for the largest of these projects. This commodity prices has led the glob- ment, which combined generate about situation, however, has changed due al industry to follow a cost contain- 45 percent of revenues, and our service to the global landslide in commodity ment strategy. How has this affect- department, which generates another prices which led the complete value ed AESA’s operations? 45 percent of revenues. Between 2008 chain to follow a cost reduction strat- AM: Especially on the service side, and 2012, the Argentinian oil and gas egy. This issue is especially severe in we receive significant pressure to re- industry had stagnated, hence why we Argentina, where companies face par- expanded our scope to other countries amount CAPEX and OPEX costs! One in Latin America, significantly contrib- of the reasons for this is the high pres- uting to the development of oil and gas sure from the unions which hinder sig- structures across the region. In 2012, nificant cost reductions for all players however, YPF changed management involved. As AESA, we therefore need and the government became the ma- to broaden the scope of seeking busi- jority shareholder of the company. As ness activities and we have identified a result, YPF decided to start investing significant potential in the electricity significantly in the Argentinian oil and and power generation businesses, espe- gas sector and we refocused our capac- cially in thermal and renewable power ADRIAN ities on supporting YPF’s efforts, con- generation. The government is work- MASCHERONI sequently closing down all of our inter- ing tirelessly on attracting foreign as General Manager, national operations. The work we have well as local investors into this segment AESA done for YPF ever since has demanded and I am confident this will be the op- almost all of our capacities. portunity of the future for AESA. www.energyboardroom.com Argentina Oil & Gas 2017 37 EPC Adrian Mascheroni, AESA
duce costs. This comes as no surprise, Cruz among others. We are present fort to increase the value of AESA as given the aforementioned unusually in all geographies of Argentina’s up- a company, which is important to all high OPEX costs in Argentina; in the stream segment, hence why it is sim- stakeholders in the country. last fifteen years, OPEX costs of oil and ple to deploy our services to all clients. gas players have multiplied by seven Furthermore, we maintain a splendid EBR: In a nutshell, what differen- on average—a significant challenge. relationship with the unions; a great tiates AESA from its competition? Therefore, as a company, we need to number of our employees in the ser- AM: One of the most distinguish- redefine some of our services in col- vice segment are part of a union, hence ing characteristics is, that we comple- laboration with the clients. The big- why we are very well accustomed to ment our EPC offering with our own gest hurdle to overcome is the strong dealing with unions, finding common manufacturing, which is highly un- pressure of the unions because—espe- ground, and thus finding solutions. usual in the industry. It allows us to cially in construction services such as We work with a multitude of differ- offer the complete package making us maintenance—the only way to reduce ent unions on a daily basis due to a one stop shop! Moreover, AESA is operational costs is to reduce human our complex offering and geographic a company of modern management. capital. If you do not have new areas presence across the country. Another We develop new ideas and new solu- of development, the unions pose a se- strength is our continuous drive for tions for our clients and ourselves on rious challenge to navigate. self-development, consistently explor- a constant basis; Argentina is a com- ing new areas of service. For instance, plex country with complex challeng- EBR: What are the key assets of three years ago we started working in es and it needs innovative thinking AESA? the area of digital oilfields, environ- to master these challenges. It is not AM: We offer EPC and services, mental services and specific services only unions which are a unique chal- which are two separate worlds. Within to refineries. We are constantly look- lenge, it also includes society at large our service segment, one of the most ing at other options of developing our which has changed significantly. This significant strengths is the wide array business offering and we are commit- requires innovative thinking, flexibil- of services that we offer scattered ted to continuing to do so in the fu- ity and—of course—technological in- across the country with operational ture. This will also enable us to focus novation. This mindset is embedded bases in Mendoza, Neuquén and Santa on more types of clients; all in an ef- within AESA!
38 Argentina Oil & Gas 2017 www.energyboardroom.com SOURCING SKILLS STRAP IN HERE PLEASE Recruitment Strap subhead in here please
A LONGSTANDING HISTORY
Preface: Despite Argentina’s disconnect from the global environment over the past decade, the country has still been able to produce some world-class minds that offer a significant opportunity for the hydrocarbons industry to tap into.
rgentina’s longstanding history in oil and gas development brings many benefits, such as an established supplier base, indigenous know-how, and an awareness of the significance of this sec- tor to the country at a large. Often forgotten in Alists of Argentina’s attractiveness factors are Argentinians themselves. As Richard Spies, CEO of Pan American Energy, highlights, “because of Argentina’s lengthy history in oil and gas development, there are many technically qualified Argentines with hydrocarbon experience” which enables his “we have a tradition of educational accreditation to ensure company to “easily source talent from the local market.” graduates are equipped with the knowledge and skills to Furthermore, the connections between “industry and aca- genuinely call themselves engineers!” The stringent accre- demia are strong” praises Spies, allowing a “smooth transi- ditation process is both a curse and a blessing as in compa- tion to becoming oil and gas professionals.” rison with countries such as Brazil and China, Argentina Juan Carlos Fernández, CEO of Argentina’s IMPSA, generates a relatively small number of engineering gradua- explains that although the company aims for a “global tes per year. Roces defends that discrepancy between quan- inclusion of talent,” their research and development team tity and quality of Argentinian engineers, highlighting that today “consists mostly of Argentinians”. Fernández also “this is a comparison of apples with peaches” amusingly highlights that the global business community “needs to pronouncing that “an engineer in China is what we call a understand that Argentina has excellent universities which technician in Argentina; there is nothing wrong with tech- year-on-year produce excellent young professionals.” Jose nicians, however, I would like to highlight that there are Ramon Riemblo, CEO of TECNA, one of Argentina’s lea- significant differences in the quality of engineering educa- ding EPC companies, highlights that their engineers “are tion in both countries.” the crème de la crème of the industry” and that one of their Furthermore, Roces acknowledged that science, techno- competitive advantages is the ability to “export the engi- logy, engineering and mathematics (STEM) degree gradua- neering capabilities coming from Argentina” to the world. tes “only account for 22 to 24 percent” of total graduates; The excellency of Argentina’s oil and gas professionals nonetheless, he highlights that “as country we have reali- does not emerge from nothing, as Jose zed the challenges of increasing our graduates in STEM Luis Roces, Rector of the Institute of Technology Buenos degrees” and believes they are on “the right path” to achie- Aires, one of the country’s foremost universities explains: ve just that. www.energyboardroom.com Argentina Oil & Gas 2017 39 SHAPING THE FUTURE Javier Pastorino, Siemens
COMMITED TO ARGENTINA
Preface: The CEO of Siemens Argentina and Uruguay who is also the CEO of Siemens’ Power & Gas Division Sou- th-America (excluding Brazil), highlights the company’s strong commitment to Argentina and elaborates the role Siemens will play in the future of the country.
EBR: What were your immediate priorities upon EBR: Siemens global CEO Joe Kaeser has said to Presi- assuming your current position? dent Macri that he plans to further reinvest in Argentina JAVIER PASTORINO (JP): Frankly speaking, we and create another 1000 jobs directly and some 4000 indi- are focusing on one big task: growth! We are very opti- rectly in the next four years. Just how strategic is Argenti- mistic that the country will develop—predominantly in na to Siemens’ regional and global footprint? infrastructure—which will lead to growth across our en- JP: Our Argentinian operations are leading in the region in tire portfolio, hence why we are very optimistic in the fu- terms of turnover and revenues and we believe this will even ture of our Argentinian operations. This optimistic tra- further develop in the future—the visit of our global CEO Joe jectory naturally means that we prioritize a substantial Kaeser can be interpreted as strong signal showcasing explained presence in all of our segments in order to thoroughly commitment. Especially since president Macri was elected, the capture growth opportunities. Specifically, oil & gas will government has created the basics and the required regulato- offer significant opportunities for us; the industry has ry framework to attract further investments into the country unquestionably experienced a very dynamic evolution and produce the growth that Argentina deserves and has been over the last few years and the resulting challenges of the waiting for! President Macri and members of his cabinet have market volatility and the decline in international prices recently visited Germany and projected a very positive image of challenge the business environment significantly. We are Argentina to many German multinational companies, includ- committed to facing these challenges side by side with ing Siemens. We plan to leverage our recognition as a brand our clients. Maximizing efficiency throughout the entire and appreciation as a business in Argentina – we are recognized value chain is a mandatory goal for new investments, in as a local player with multinational capabilities. this context, innovation applied to technology, process- es and business models becomes an excellent catalyst EBR: Around one third of the energy consumed in Ar- for achieving the necessary improvements in efficiency. gentina is produced using Siemens technology. What is Our technological innovation, leading products, sys- the role of the energy industry within your business here? tems, and solutions, offer numerous opportunities for JP: Undoubtedly Siemens is the leading company in the optimization if incorporated strategically and integrated energy segment in Argentina. This segment is a significant intelligently. part within our business in the country; not only as a conse-
40 Argentina Oil & Gas 2017 www.energyboardroom.com SHAPING THE FUTURE Javier Pastorino, Siemens
INDEX Including advertisers
“ We are very optimistic that the country will develop— predominantly in infrastructure—which will lead to
growth across our entire portfolio. “
JAVIER PASTORINO CEO, SIEMENS ARGENTINA AND URUGUAY
quence of the technological innovation of our products, ser- able energy potential just as we exploit the potential of nat- vices and solutions, but mainly due to the strong local ex- ural gas. I am confident that our newly elected government pertise, which adds real value to our customers. We have a has made the right decision in concentrating on further uti- significantly strong presence in the power generation sector lizing Argentina’s gas and renewable resources and as as an because we are introducing the most efficient technology in Argentinian citizen—just as Siemens as a company does—I fully terms of heat rate and emissions in addition to considering support the government’s current energy strategy! environmental influences and always creating efficiencies. Every day, we work side by side with our customers to help EBR: A heated debate is currently taking place around them build their projects and maintain the availability of the productivity and efficiency of the energy industry in power plants; we have a genuinely spotless track record, prov- Argentina. How is Siemens helping Argentinian busi- ing our capability and capacity in this area. nesses to overcome this challenge? JP: In the oil and gas industry—as in other industries— EBR: In 2014, 52 percent of all electricity produced in adding more automation, leveraged by digitalization and mi- Argentina was generated from natural gas, 16 percent gration towards electrification, can positively change some of from oil and only two percent from renewable resourc- the rules in this highly competitive game. This potential is es – current trajectories as well as government ambitions applicable to all steps of the value chain of energy: whether show that this balance will shift in Argentina’s future to- it be in a distant oilfield, an electrical network of a large city wards more usage of natural gas as well as renewables. or an industry that consumes this resource. As a country, in- How does Siemens position itself in Argentina in antici- corporating innovation—both in the supply and the demand pation of these developments? side—is the pathway to rapidly developing towards desired JP: We have fully anticipated the developments in the energy self-sufficiency. The challenge is clearly how to be re- future use of natural gas by developing and providing the ally efficient in producing oil and gas with all of its rotating most advantageous and efficient gas turbines in the world. equipment; our solutions, combined with the automation, Furthermore, as well as its oil and gas resources, Argentina digitalization and electrification that we provide, are already has some of the best renewable resources in the world and helping customers gain the desired efficiency in their pro- from an Argentinian perspective we must exploit the renew- duction process. www.energyboardroom.com Argentina Oil & Gas 2017 41 COMPANY INDEX
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COMPANY NAME PAGE #
Allaria Ledesma 4 Ministry of the Interior 21, 22, 30, 36
Argentina Investment & Trade Promotion Agency 12 Ministry of Transport 36
Argentine-Dutch Chamber of Commerce 4 Oiltanking Ebytem 23, 24, 30
Astra Evangelista (AESA) 28, 29, 31, 37, 38 Oleoductos del Valle SA (OLDELVAL) 22, 23
Bolland 26, 28 Pampa Energia 29, 34, 35
BP 13, 22, 25, 32, 33 Pan American Energy (PAE) 14, 15, 18, 24, 26, 29, 32, 33
BTU 4 Rio Negro, Neuquén & La Pampa Oil & Gas Union 14, 15, 22, 36 CAMARCO 25 Rovella Carranza 25, 27 Chevron 25 Royal Dutch Shell 20, 22, 23, 25 Contreras 4 Siemens 13, 20, 22, 26, 40, 41 Damgas 24, 26, 30 Tecmaco 29, 30 Dow Chemical 12, 16, 22, 36 TECNA 39 Electro Mecanica (EMA) 4, 28 Total 22, 23, 33 ExxonMobil 23, 25, 36 Wood Group 4 FMC Technologies 20 YPF 5, 19, 20, 21, 25, 28, 32, 33, 36, 37 Grupo Argentino de Proveedores Petroleros (GAPP) 25
Gas y Petrol del Neuquén 23, 25
Halliburton 23
Huinoil 4
Instituto Argentino de Petróleo y Gas (IAPG) 25
Invest Argentina 16, 17, 21, 28
IMPSA 28, 39
IPE Neuquén 4
Institute of Technology Buenos Aires (ITBA) 4, 39
Mining, Energy & Fuels Commission 14, 15, 22, 36
Ministry of Energy & Mining 20 www.energyboardroom.com
Photo © cover: “Quinteto” (1927) Author: Emilio Pettoruti Photo © page 2: Argentina - Buenos Aires Street Art - 76. Flickr: McKay Savage Photo © page 4: Buenos Aires - Parque de La Flor (Floralis Generica). Flickr: Vinicius Pinheiro Photo © page 5: La Boca. Flickr: Marissa Strniste Photo © page 10-11: Buenos Aires Flickr: Caliel Costa Photo © page 14-15: “TROGLODYTES” (1948) Author: Xul Solar. Photo © page 16-17: Puerto Madero 14 - de la serie “Otra Mirada” Flickr: Fabio Téllez Photo © page 32-33: Flowers 13. Flickr: dcmevergreen Photo © page 34-35: La Flor De Buenos Aires: Floralis Genérica. Flickr: David Photo © page 36: Argentina. Flickr: NASA Goddard Space Flight Center Photo © page 37-38: First camera toss. Flickr: Beatrice Murch Photo © page 39: Argentina - Buenos Aires 012 - Congressa dome. Flickr: McKay Savage Photo © page 40: las torres. Flickr: Christian Ordenes www.energyboardroom.com Argentina Oil & Gas 2017 43 STRAP IN HERE PLEASE EnStrap subheade inr hereg pleaseyBoardroom.com
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