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The confiscation by the government of Argentina of 51% of the stock of YPF S.A. (NYSE:YPF) - the former, and now again, national oil company - was instigated by the perceived need to increase energy production from Argentina's potentially very rich oil and natural gas deposits. Over the last several years, Argentina has become a net importer of energy which cost the country $10 billion in hard to get foreign currency in 2011.

Now the newly appointed CEO - and former Schlumberger (NYSE:SLB) exec - Miguel Galuccio - has announced a $35 billion capital spending plan over the next five years with the goal of increasing oil and gas production by 25%. The headline: YPF unveils plan to invest 35bn dollars in five years with the help from partners, brings us to the point of this article: ¿Qué socios? - What partners?

The plan calls for $7 billion in annual investment starting in 2013 and going through 2017. The interesting part is that YPF generated a net profit of just $1 billion in 2011. According to the 20-F the company drilled about 500 wells in 2011. The new plans call for drilling at least 1,000 in 2013 with many of those wells using more expensive horizontal drilling techniques to tap Argentina's shale oil and gas reserves. Where will the additional money to fund the expanded exploration come from?

Argentina cannot borrow money on the international markets and the country does not have the reserves to fund $7 billion per year of exploration, so YPF needs to find some well heeled partners to absorb a large portion of the E&P costs. For comparison, in 2011 EOG Resources (NYSE:EOG) spent about $6.6 billion on exploration and development. EOG is a moderately large E&P company and the $6.6 billion spend was about 65% of total revenue for the year. In contrast, YPF reported $127 million of exploration expenses.

Two companies are currently positioned to make or expand deals with YPF/Argentina and potentially generate significant profits from finding and production of new energy sources in Argentina. The companies are Schlumberger Ltd. and the previously mentioned EOG Resources.

During the Q&A of its first quarter earnings conference call, Schlumberger management stated the company has a significant amount of drilling equipment already in position in Argentina. This is a very big deal since import restrictions enacted over the last 6 months or so now make it very difficult and time consuming to import almost anything into the country. Schlumberger provided much of the equipment for the natural gas horizontal drilling boom in the U.S. and their expertise - plus equipment - could be very valuable when assisting YPF to meet its goals.

EOG Resources initiated drilling operations in a joint venture with YPF in late 2011. The company recently completed its first successful vertical well in Argentina and the first horizontal well is waiting to be fracked. As the first U.S. E&P energy company with horizontal drilling experience in the country, EOG has a tremendous head start to expanding operations in Argentina.

Both of these companies have the first foot in the door to assist Argentina and YPF with the goal of significantly increasing in-country energy production. If they can work in and around the local political processes and protect their interest as far as being able to bring profits out of the country, Argentina may end up as very nice long term profit plays.

Source: Argentina And YPF Plan To Invest $35 Billion - Who Wins?