Argentina and Venezuela to Team Up in Oil, Gas Ventures

Argentina and Venezuela agreed Tuesday to forming a strategic alliance to develop oil and gas industries through the countries' state-run oil companies.
Argentina's recently nationalized YPF SA (YPF, YPFD.BA) will team up with state oil monopoly Petroleos de Venezuela, or PdVSA, to "identify schemes for...joint planning" in both countries, according to a declaration signed Tuesday by Argentina's president, Cristina Kirchner, and her Venezuelan peer, Hugo Chavez.
The presidents met in Brazil for a Mercosur trade-bloc summit where Venezuela was added as the group's fifth member. Members Argentina, Brazil and Uruguay took advantage of Paraguay's suspension to race through Venezuela's membership. Venezuela's entry had been blocked since 2006 by Paraguay's congress, which questioned Chavez's democratic credentials.
Paraguay was suspended from Mercosur last month after former president Fernando Lugo was impeached and removed from office in a lightning-fast process other Mercosur countries called a "legislative coup."
The two countries agreed to cooperate in developing Venezuela's Ayacucho 6 Orinoco oil fields and oil-and-gas exploitation in Argentina.
The agreement calls for preparing "a portfolio of projects...to obtain joint short-, medium- and long-term financing" and technology transfers from PdVSA to YPF.
In May, Argentina's government expropriated 51% of YPF from its majority shareholder, Spain's Repsol SA (REP.MC, REPYY), after President Kirchner accused the Spanish company of underinvesting and using YPF's generous dividends to fund operations in other countries.
Argentina--traditionally a net energy exporter--spent $11 billion on imported foreign oil and gas last year as output fell and demand soared. Investment in the sector stalled in recent years as companies complained the price caps and steep export taxes on oil made the business a loosing proposition.
Argentina is planning to invest about $7 billion a year between 2013 and 2017 to increase production, and is on the hunt for partners and investors to fund exploration.
The goal is to be producing 216 million barrels of oil equivalent by 2017, up from an estimated 159 million this year, YPF Chief Executive Miguel Galuccio said last month.
Tapping its vast shale-gas reserves will figure large in those plans.
Argentina ranked third in the world, behind China and the U.S., in potentially recoverable shale-gas reserves, with 774 trillion cubic feet, according to a study last year by the U.S. Energy Information Administration. Argentina is also thought to hold large quantities of shale oil.
YPF raised the estimate of its unconventional resources to 22.8 billion barrels earlier this year from 927 million barrels.
Meanwhile, OPEC member Venezuela is sitting on top of the world's largest oil reserves at 296.5 billion barrels, according to OPEC's 2010 annual survey.
PdVSA has struggled to increase output during Chavez's 12 years in office, which critics have partly attributed to insufficient investment into the sector.
The company is banking on developing its Orinoco heavy oil belt and has plans to invest $142 billion between 2011 and 2015 into its projects.
Source: Dow Jones