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Big names bid in Argentina's offshore auction

Some of the world's biggest oil companies get involved in Argentina's first offshore licensing round in almost three decades

Argentina is attempting to emulate the recent offshore advances made by Latin American neighbours such as Brazil and Guyana, while also looking to replicate the US shale boom in the Vaca Muerta.

The country's first offshore bid round for 30 years closed on 16 April and attracted bids worth $995mn from some of the world's biggest E&P companies. In the end, 13 firms bid for 18 of the 38 blocks that were auctioned.

ExxonMobil, Norway's Equinor, Shell, Total and BP were among those that acquired acreage in the auction. The uniqueness of the round played a part in attracting interest, with many of the bidders identifying it as a window of opportunity that might not come around again soon.

Jimena Blanco, research director and head of Americas at Verisk Maplecroft, a risk consultancy, shares the government's view that the bid round was a success. "The number of players that could qualify in terms of their experience of operating in such remote areas and in difficult conditions was limited, so it was extremely successful from that point of view," she tells Petroleum Economist.

Winners' circle

ExxonMobil, flush from the success of its work offshore Guyana, won three blocks in partnership with Qatar Petroleum (QP). The two companies have a close working relationship, having recently recorded a significant gas find off Cyprus, and together picked up the MLO-113, MLO-117 and MLO-118 blocks. These assets are in the Malvinas Oeste Basin, the furthest south area to be auctioned.

$718mn ⁠— total investment commitment of successful bidders

Malvinas Oeste's appeal lies in its proximity to the Austral Basin, where Total and Wintershall are producing around 20mn m³/d (7.3bn m³/yr) of gas off the coast of Tierra del Fuego. Argentina's only current offshore production, it is also likely to have played a part in encouraging Equinor to bid successfully for the AUS-105 and AUS-106 blocks in the Austral Basin. Malvinas Oeste is further offshore and in slightly deeper waters to the east of the Falkland Islands.

UK independent Tullow, Germany's Wintershall Dea and local company Pluspetrol combined to secure the MLO-114 and MLO-119 blocks, also in the Malvinas Oeste. Tullow picked up MLO-122 on its own as while, with Equinor took 100pc of MLO-121 and joined a consortium of Total and state-controlled YPF to secure MLO-123. The final block in the basin to be awarded, MLO-124, was picked up by a grouping of Japan's Mitsui, Eni and Argentine conglomerate Tecpetrol.

The remaining blocks to be awarded were in the Argentina Norte Basin, which drew considerable interest, because of or despite the total lack of previous exploration work there. A few wells have been drilled on the continental shelf offshore Argentina in the past, although without success. Argentina Norte, however, traverses the continental slope, where it falls steeply away into deeper water.

QP was also active in this basin, this time combining with Shell to win the CAN-107 and CAN-109 blocks. Total and BP took CNA-111 and CAN-113, with Equinor picking up CAN-102 and CAN-108. The Norwegian company also acquired CAN-114, working in concert with YPF.

Altogether the winning companies have committed to invest a total of $718mn in their exploration programmes.

Attractive terms

The pedigree of bidders is evidence that, as well as the availability of large blocks, the terms to explore them were attractive. The companies that won blocks generally have extensive offshore expertise, but, even more significantly, they have sufficiently deep pockets to fulfil their exploration obligations without being exposed to the vagaries of the local finance market. Argentina remains fiscally fragile, so being relatively shielded from high interest rates and inflation is a win for the offshore developers.

The exploration periods for the blocks⁠ — which stretch to as much as eight years with no drilling commitments in the first four years⁠ — were also a draw. The companies that won acreage will hope these long timeframes allow the economy to recover in the interim and reduce financial risk should any of the projects move to a production phase. It also buys time for the companies to acquire and analyse seismic data, and even delay drilling expensive wells until a period of sustained high oil prices minimises risk.

The political risk element was not a major factor for the bidders, says Verisk Maplecroft's Blanco. "Regardless of the upcoming presidential election in October, the consensus is that the oil and gas investment framework is unlikely to change irrespective of who wins. The reason for this is that the current framework was set up by the former [Cristina Fernandez de] Kirchner administration so, even if her movement comes back into office, there is not a fear within the sector that it would result in a major regulatory change."

Kirchner said on 18 May she would stand as a vice-presidential candidate in the elections later this year.

Key trends

One of the most noteworthy trends in the auction process was the appetite amongst the companies for deepwater acreage. The lion's share of the blocks awarded were in the Argentina Norte and Malvinas Oeste basins, the deepest plays in the bid round.

Another notable development was the debut of some big names in Argentina. BP is a major investor in local company Pan American Energy, but the offshore round marked the company's entry into the Argentine market on its own. Mitsui, Eni and Tullow all followed suit by venturing into the upstream sector there for the first time.

The bidders' pedigree shows exploration terms were attractive

Companies with established onshore portfolios in Argentina also moved to build a more diversified upstream asset base. Shell, Equinor, Tecpetrol and ExxonMobil are all significant players in the Vaca Muerta shale, where they are investing billions of dollars. Indeed, QP recently deepened its relationship with ExxonMobil by buying a 30pc stake in the US company's Argentine shale portfolio. The companies work closely together in exporting LNG from Qatar and will no doubt be monitoring closely the Argentine government's plan to build a liquefaction plant to export gas from the Vaca Muerta to the global market.

Any future offshore output will most likely be available for export. The development of the Vaca Muerta has already driven up Argentina's total crude output to around 500,000bl/d, enough to meet domestic demand. This means additional shale oil and offshore production could create a robust crude export capacity for the country.

What next?

Should commercial quantities of hydrocarbons be discovered, the lack of an offshore services industry to support development could be an obstacle. That said, Guyana started from zero in its offshore development when oil was first discovered there in 2015 and is forecast to produce 750,000bl/d by 2025.

If the majors exploring off Argentina make any finds on the scale of the Liza discovery in Guyana's Stabroek block, they will probably follow the same playbook and deploy a series of FPSOs. The first two phases of the Liza project will be developed by a pair of FPSOs, with combined output of 340,000bl/d anticipated by mid-2022.

ExxonMobil is the lead in the consortium developing Liza and other prospects off Guyana. The experience it gains there could be vital off Argentina, should there be discoveries on a similar scale. The companies that won acreage in April will have their fingers crossed that is the case, as will the government in Buenos Aires.

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