Chevron: prices won’t hurt Vaca Muerta cash

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YPF’s Galuccio also denies speculation of slump as governors meet in BA

Slumping international crude oil prices will not play a major role for US oil major Chevron as it determines future investment opportunities in Argentina, a top company executive said.

A decrease in crude oil prices “doesn’t play a significant role in our long-term decisions,” Ali Moshiri, Chevron’s Houston-based head of exploration and production for Latin America and Africa, said in an interview with Reuters that focused on Mexico’s newly opened energy market.

Moshiri was hardly alone. YPF chief executive Miguel Galuccio also insisted yesterday that the vast Vaca Muerta shale oil and gas formation remains viable despite dropping prices.

Meanwhile, governors of oil-producing provinces met in Buenos Aires to call for domestic prices to remain stable in order to protect investments.

At least so far, Chevron insists it is not spooked by the lower prices. The California-based company is seeking to double its drilling rigs in Vaca Muerta shale development from about 20 earlier this year.

Moshiri did not indicate how soon that goal could be accomplished.

Chevron has invested more than US$2 billion in a joint project with YPF to develop shale oil in Loma Campana — the first large-scale oil production project in Vaca Muerta.

Moshiri told Reuters this week that the “next stage” for Vaca Muerta with YPF is to develop the central and eastern parts of the development.

Competitiveness

The government has said that Vaca Muerta is key to return the country to self-sufficiency, compared to the US$7 billion energy deficit the country will likely experience this year due to energy imports.

US light sweet crude prices, which is used as a reference in Argentina, settled at US$66.88 per barrel yesterday, down 40 percent since June.

The price fall in itself is not a problem for Vaca Muerta, Galuccio told a conference yesterday. “Vaca Muerta is not at risk at all,” he said.

“The best way to compete with oil prices is to be more competitive,” Galuccio added. “Rather than it costing US$7 million to drill a well, it could instead cost US$3.5 million in a couple of years.

“This is what will liberate us from the pressure of oil prices. We have to bet on our competitiveness.”

In the shadow of the Andes Mountains, the Vaca Muerta shale formation covers 30,000 square kilometres, an area roughly the size of Belgium.

Domestic price concern

In Buenos Aires City, governors of oil-producing provinces emphasized that just because international oil prices are decreasing, that does not mean domestic prices should follow suit.

“Faced with the temporary volatility in the international price of oil, the Ofephi governors consider it inconvenient that there be modifications in the domestic prices on which investment plans are based in order to increase production, obtain self-sufficiency and assure jobs,” the governors of the oil-producing provinces wrote in a statement distributed after their meeting yesterday.

The meeting was led by Martín Buzzi, the governor of Chubut, which is the country’s top oil producer. Neuquén Governor Jorge Sapag also took part in the meeting, as did the provincial leaders of Mendoza (Francisco Pérez) and Río Negro (Alberto Weretilneck). La Pampa and Salta were also represented in the meeting, although the governors did not personally attend.

“This is a situation that is only temporary, that has to do with a dispute for power — economic as well as political,” Buzzi said yesterday. “In the oil production scheme we are used to having prices that increase and decrease but this situation cannot put at risk the country’s strategy to seek out self-sufficiency.”

That is why, Buzzi told the state-run news agency Télam, it is important for domestic crude prices to remain where they are at around US$83 per barrel for high-quality Medanito crude and US$67 per barrel for the lower-quality Escalante.

Decline resumes

In the international markets, oil prices resumed their decline yesterday after rallying the previous session.

A bounce in oil prices on Monday from five-year lows helped foster a broadly more positive tone in Asia, but both Brent and US crude oil fell yesterday.

Brent yesterday fell US$2, or 2.76 percent, to settle at US$70.54, nearly testing Friday’s close of US$70.15, the lowest since mid-2010.

US crude fell US$2.12 to US$66.88. It rose four percent on Monday, the most since August 2012.

Crude futures pared losses in post-settlement trading after industry group American Petroleum Institute (API) released data showing US crude stocks fell 6.5 million barrels last week.

IMF Managing Director Christine Lagarde said late on Monday that cheaper oil was a positive for the global economy. The drop has given a boost to travel companies and should have a positive impact on consumer spending.

Herald staff

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