The Argentine state hydrocarbons company YPF will invest $1.26 billion to start construction in March 2023 of a 435-mile pipeline from the Vaca Muerta unconventional deposit to a new crude oil export terminal to be built in the Rio Negro region, in southern Argentina.

Image courtesy of Jason Weeks, Pixabay

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The pipeline will move 60,000 cubic meters, or about 372,000 barrels per day, of crude oil, according to Argentina´s state news agency Telam.

“Details became known following a meeting of YPF´s President Pablo Gonzalez with state legislators from the Rio Negro province,” Telam said. Media based in the province of Rio Negro, about 600 miles southwest of the capital Buenos Aires, also reported the information as provided during that meeting, adding the terminal will handle VLCCs.

The infrastructure to be completed by 2025 should allow the loading and dispatching of ships with 390,000 cubic meters capacity at a rate of one every five days, it said.

The capacity exceeds that of Pipeline System Oleoductos del Valle (Oldeval) that connects Vaca Muerta with Puerto Rosales, in Bahia Blanca, 420 miles south of Buenos Aires. That pipeline moves 36,000 cubic meters per day, according to Telam. A thousand workers will work in the construction.

Hard Currency Savings

Pablo Gonzalez, president of YPF, and Mauricio Martin, downstream vicepresident, reportedly provided the information as part of a presentation to state legislators in Rio Negro.

“This project is to be made now, is not for the long run, and will demand over $1.2 billion,” Gonzalez reportedly told Rio Negro legislators.

“We are going to do it quickly to meet the objective of exporting to replace imports and compensate for the loss of hard currency,” he said.

Plans include construction of a one-million-cubic-meters capacity, or 6.2 million barrels, storage, Telam said.

The YPF official estimated spending just in the pipeline at $660 million while construction of 20 tanks and marine facilities would take another $600 million.

Drilling to increase

YPF´s debt at the end of the period was $5.8 billion, a $656-million, on-year reduction.

Out of 504,000 barrels of oil equivalent (boe) total production in the second quarter of 2022, 237,000 boe were of natural gas and 225,000 barrels of crude oil.

The company has intensified drilling, with 38 drilled horizonal wells and 29 completed horizonal wells, Officials have said that YPF is still at a relatively early stage of developing the Vaca Muerta deposit.

A 328,100-bpd refining operation

YPF has over 50% of Argentina’s refining capacity, and runs three fully owned refineries with 328,100 barrels-per-day total capacity. Its pipelines extend 1,740 miles for crude and 1,120 miles for refined products.

In addition, the company with headquarters in Buenos Aires has a 54% share of the diesel and gasoline market in Argentina. That fuel is distributed through 1,654 service stations. Only about 10% of those stations were company owned, according to relatively recent media reports. YPF reportedly has 57% of the country´s fuel market compared with 19% for Shell and 14% by Axion.

YPF is also a petrochemical producer with 1.7 million tons-per-year chemical production capacity that includes benzene, toluene, xylenes, methanol and propylene.

YPF´s nationalization

Former Argentina President Cristina Fernandez de Kirchner (2007-2015) introduced legislation to nationalize Repsol in April 2012 that was approved in Congress and signed on May 5, 2012.

The nationalization became possible after Spanish company Repsol approved the sale in 2014.

At the time Repsol announced that Argentina recognized the Spanish company´s “right to receive $5 billion as compensation for the expropriation of 51% of the shares of YPF and stipulates guarantees for effective payment as well as the termination of all judicial and arbitration proceeding and the reciprocal waiver of future claims.”

According to terms of the accord, Argentina agreed to pay with bonds at interest rates ranging from 7% to 8.8%. The expectation back then was for a full bond payment in 20 years.

This acceptance of such debt during the government of Fernandez de Kirchner (also current vicepresident since 2019) transferred back to the 45-million nation, with a per-capita GDP of about $11,000, not just assets it once had but also provided a new discovery, one of the world´s richest hydrocarbon deposits.

Vaca Muerta

Repsol announced in 2011 its biggest ever unconventional oil discovery in the region of Neuquen, in the southwest of Argentina, that became known as Vaca Muerta.

At the time it confirmed recoverable resources of 927 million barrels of which 741 million were high quality oil with an API of 40 or higher.

Argentina’s Vaca Muerta formation makes up about 60% of the country’s 27 billion barrels of technically recoverable shale oil reserves, ranking as the world´s fourth-largest reserves of that type, the U.S. Energy Information Administration said in 2017.

YPF was established in 1922 as the world´s first state owned and run company. However, former Argentine President Carlos Menem (1989-1999) on June 28, 1993 announced the sale of the company to use proceeds to pay retired worker pensions.

Menem sold YPF as part of multiple Argentine asset sales, across multiple industries, mostly during the 1990s, from the flagship airline and ports to telecommunications. The IPO to sell YPF was initiated on June 28, 1993 when a 45% stake in the company was sold for $3 billion, according to media reports at the time.

Arthur D Little, a company that provides consulting services, around 1994 “worked closely with Argentine government to restructure and privatize its state-owned oil company YPF, resulting in unprecedented profits and $4 billion in stock sales,” according to the consulting company´s website.

After the mid-1990s transaction, Repsol later bought more equity and ended owning about 98% of YPF in 1999, after it paid $2 billion to the government for a 15% stake and then paid about $13 billion for all the other stock, according to reports at the time.

Q2 revenue increase

YPF said on Aug. 10 that its second quarter revenue was $4.8 billion, a 45% increase from the year earlier.

According to its second quarter 2022 earnings webcast on Aug 11,  the company´s capital and exploration (capex) was $932 million, a 61% increase from 2021.

The Argentine government controls a 51% stake in YPF while the rest is listed in equity markets.

Besides YPF another Argentina-based chemical producer is Pampa Energia, an independent company that also operates in the country´s electricity and gas industries. Dow has been present for decades in Argentina´s chemical manufacturing.

By Renzo Pipoli