One of the world's legendary investors is upping his bet on Argentina's shale
oil and gas industry in a show of confidence for shale production in South
America's largest unconventional prize --and a big boost for both supermajors
and smaller players making big waves in the heart of new discovery areas.
George Soros has doubled his
stake in YPF SA, the state-owned oil company in Argentina, which sits atop
some of the world's largest shale oil and gas resources, and is about to get
even larger following a new discovery over the last couple of weeks of a second
key shale play.
Argentina holds an estimated 27 billion barrels of technically recoverable
oil and 802 trillion
cubic feet of technically recoverable shale gas, much of it located in
the Vaca Muerta, an enormous shale formation in the Neuquen basin -- the second-largest
shale gas deposit and the fourth-largest shale oil deposit in the world.
And on Aug. 14, YPF announced the discovery
of oil in another shale formation--Agrio shale--in the same basin.
Some estimates suggest that combined, the two plays' reserves could be worth
as much as $3 trillion.
"I am very excited with this [Agrio] discovery that proves that Vaca Muerta
and Chubut's D-129 formation aren't the only shale deposits we have to exploit
in Argentina," YPF CEO Miguel Galuccio told reporters, according to Bloomberg. "The
tests are very promising but still, it is too soon to provide figures."
In the meantime, Soros' confidence helps override some negative incidents
that had held back investment in Argentina's shale, including the government's
2012 expropriation of YPF, then owned by Spanish firm Repsol, and the government's
failure to make a July
30 bond payment, which has resulted in a standoff with a hedge fund over
unpaid bills back to the last default in 2001.
The government of Cristina Fernandez de Kirchner, however, has taken steps
to repair Argentina's relationship with international markets, and even tweaked
tax laws in 2013 to give special benefits to big oil companies willing
to invest more than $1 billion in the country.
The move was immediately followed by Chevron's announcement that it would
enter into a joint venture with YPF. To incentivize the global energy industry
to further invest, additional steps are being taken, including discussions
for a new hydrocarbon bill that could further standardize and incentivize the
industry for both supermajors and mid-sized companies.
The newest discovery is certainly vindication for Soros' gamble on Argentina.
His company, Soros Fund Management LLC, took a strong position in YPF in the
second quarter of this year, doubling its position. It now controls 3.5
percent of YPF's American depositary receipts, worth $450.5 million.
Soros' move suggests that his firm is not focusing on the short-term problems
facing Argentina, but believes that the geological fundamentals are more important.
By increasing his stake in YPF, he is betting that Argentina is sitting on
some lucrative plays that could be bigger than the Eagleford or Bakken in the
United States.
According to the Financial
Times, "Some of the world's largest hedge
funds have been snapping up Argentine stocks, betting on an economic
recovery in the country even though it defaulted
on its debt for the second time in 13 years."
And while the market has caught on to the 'Soros Factor,' it hasn't yet caught
on to the smaller companies that are positioned to benefit from the Vaca Muerta
shale and the new Agrio find.
The Neuquen basin is also where YPF, in
partnership with Chevron, is producing crude from the Vaca Muerta shale
and is expecting to have nearly 300 wells drilled in the Loma Campana/Loma
La Lata area.
It's great news for Chevron, but it's also great news for smaller players
with big footprints on this scene who will benefit from all the supermajor
drilling in the emerging Vaca Muerta and the new Agrio shale formations--as
well as from the confidence boost provided by Soros.
There are only a few junior companies who have significant land holdings in
Argentina's Neuquen Basin, among them, Madalena
Energy Inc. (MVN.V), which will benefit from Chevron's plans to drill 300
wells just west of the junior's Coiron Amargo block.
The point is that as the supermajors drill, the smaller companies reap the
benefits, positioning themselves for big rewards with big players who are eyeing
their large tracts of land in this promising basin.
"Given the size of the resource prize in both Vaca Muerta and Agrio, Argentina
is home to one of the biggest unconventional plays in the world," said Kevin
Shaw, CEO of Madalena Energy, which controls around 1 million net acres
in Argentina and plans to begin shale development in the Agrio formation later
this year or in early 2015.
"Some of the largest oil companies around the globe are continuing to actively
drill and appraise Argentina's Vaca Muerta shale and are now starting to do
work in the Agrio shale," Shaw said.
For oil and gas explorers both big and small, Argentina is back--with possibly more
shale than the United States, and the industry is more active than ever..
Like Warren Buffet, when George Soros makes a big move, people notice. Their
decisions, which sometimes run counter to conventional wisdom, are often seen
in hindsight as signals of trends that few investors are noticing.
Source: http://oilprice.com/Energy/Crude-Oil/Soros-Si...lace-to-Be.html
By. James Stafford of target="_blank" Oilprice.com
