Malaysia's Petroliam Nasional Bhd (Petronas) is vying to capitalize on Argentina's massive shale reservoirs - second largest shale gas resources in the world worth 802 trillion cubic feet and the fourth largest shale oil reserves worth 27 billion barrels. The Malaysian state energy firm has signed a deal worth RM 1.7 billion ($550 million), with its Argentinean counterpart YPF for the development of shale oil in Argentina's Vaca Muerta fields. The 187-square kilometer region in southwest Argentina is expected to witness the drilling of 30 wells in the next three years or so. And depending on the success the 3-year deal could evolve into a 5-year agreement worth $1 billion.
Vaca Muerta translates into 'Dead Cow' but the fields have definitely sprung both Petronas and YPF into life.
Scramble for Shale
Extricating shale gas transformed the U.S. from a potential candidate for the largest natural gas importer in the world to now being among the leading fossil fuel exporters in the world. China is also following suit and is encouraging its oil companies to make the most of 30 trillion cubic meters worth of shale reserves, to lower the country's export costs.
If Petronas and YPF manage to develop Vaca Muerta to its potential, this could herald Argentina's economic rise and make the country follow the footsteps of the U.S. and China in terms of banking on shale to improve the national exchequer's balance sheet through the impact of shale gas exploration. The companies are planning on using hydraulic fracturing to drill dozens of wells in the initial phase, with around a 1,000 more in the next ten years or so, if things work out well.
Fracking has been the vanguard of U.S's oil and gas production and has been masterfully used by companies like Halliburton to capitalize on the horizontal rig count in the country. Developing unconventional energy requires technical savoir-faire in addition to the latest technology, which is why the U.S has been surging ahead in the shale scramble. China is eying collaboration with leading U.S. firms to provide the technical expertise to unearth its rich shale resources.
Similarly Petronas will be taking care of the technical side of the Vaca Muerta exploration via Progress Energy Resources corp, which is a Canadian firm purchased by the Malaysian company a couple of years ago.
While both YPF and Argentina might have found the ideal partner in Pertronas, the move is a game changer for the Malaysian company as well. Not only would digging into Vaca Muerta boost Petronas's firm, by entering Latin America, the company would now be vying to explore other avenues.
Petronas is believed to be mulling over developing offshore with YPF already, along with the exploration of other Latin American fields. The YPF-Petronas area is called La Amarga Chica which is located in the Neuquen province, which is northwest of the 290 square kilometer region in Vaca Muerta called Loma Campana, where YPF is already working with Chevron.
In addition to Latin America, Petronas is also increasing its presence in North America, particularly Canada after acquiring Progress Energy for $4.8 billion.
The world's second largest shale gas reserves is an extremely promising start to what the company would perceive as just the start of its shale maneuvers. The world has earmarked shale gas exploration as being pivotal in energy independence and economic growth, and hence if Petronas manages to beef up its technology and technical know-how it could be among the Who's Who of shale explorers in the not-too-distant future.
Petronas's net profit in Q2 was RM 21.06 billion, which was a 58% hike from RM 15.26 billion at the end of Q2 last year. Even so, fluctuating crude prices would have an impact of the company's H2 earnings.
The Q2 report also revealed a 13.7% capital investment increase taking the expenses to RM 13.378 billion from the previous RM 11.757 billion. The revenue saw a 15% increase moving from last year's RM 74.42 billion to RM 85.36 billion at the end of Q2. The earnings before interest, tax, depreciation and amortization witnessed a 33.5% increase to RM 35.19 billion from RM 26.33 billion. However, again, the second half of the year could be marred by a possible downtrend in crude prices with supply outdoing the oil demand. Even so, the price shouldn't go below $95 per barrel.
Petronas's H1 profits jumped from RM 35.63 billion last year to RM 39.82 billion. Most of the lucrative numbers like the 12% increase in revenue from RM 151.10 billion to RM 169.41 billion this year, are owing to higher oil and gas production volumes, better quality of petroleum products, increase in LNG volumes and the strength of U.S. dollar against the Malaysian ringgit.
The crude oil production in H1 was 2.23 million barrels of oil equivalent (mmboe) compared to 2.12 mmboe last year. This rise was owing to enhanced productions in Malaysia and Iraq, with resumption of operations in South Sudan along with the additional production in Canada.
Petronas already has strong production and revenue numbers, and with the shale agreement the company has augmented its long-term outlook as well. Vaca Muerta would enhance Petronas's production and earnings in the years to come, and the company's performance in Argentina would be an audition for even bigger shale gas exploration opportunities worldwide. Unless there's a dramatic plunge in oil prices Petronas is a safe bet for posting positive numbers in the second of the current year, in addition to showcasing massive growth next year onwards.
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