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Argentina’s Energy Sector
Status and Outlook
July 28, 2014
G&G Energy Consultants - Daniel G. Gerold Carabelas 235 – Piso 7 - Buenos Aires, C1009AAA – Argentina Tel.: 54.11.4326.2806 54.11.5238.2012 54.11.5238.2013
Economic Stagnation
2
• End of the high economic growth cycle
• Industrial stagnation since 2010
• Correlation between industrial stagnation, and impact of energy imbalance
50
60
70
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90
100
110
120
130
140
ene-‐94
ene-‐95
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ene-‐07
ene-‐08
ene-‐09
ene-‐10
ene-‐11
ene-‐12
ene-‐12
Jan-‐14
Base 2006 = 100
INDUSTRIAL ACTIVITY INDEX
Official Data INDECPrivate Data FIEL
-‐15%
-‐10%
-‐5%
0%
5%
10%
15%
Dec-‐95
Jun-‐96
Dec-‐96
Jun-‐97
Dec-‐97
Jun-‐98
Dec-‐98
Jun-‐99
Dec-‐99
Jun-‐00
Dec-‐00
Jun-‐01
Dec-‐01
Jun-‐02
Dec-‐02
Jun-‐03
Dec-‐03
Jun-‐04
Dec-‐04
Jun-‐05
Dec-‐05
June
-‐06
Dec-‐06
Jun-‐07
Dec-‐07
Jun-‐08
Dec-‐08
Jun-‐09
Dec-‐09
Jun-‐10
Dec-‐10
Jun-‐11
Dec-‐11
Jun-‐12
Dec-‐12
Jun-‐13
Dec-‐13
12 month moving average
INDUSTRIAL ACTIVITY INDEX
Official Data INDEC
Private Data FIEL
0
200
400
600
800
1000
1200
1400
1600
1800
2000
-‐12%
-‐9%
-‐6%
-‐3%
0%
3%
6%
9%
12%
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014 (p)
GDP 1960=100 Annual Rate
ARGENTINE GDP EVOLUTION
Economic Stagnation
3
• “Currency exchange control" was the "solution" sought to stabilize funds flow from Argentina
• Reduction of Trade Balance due to energy imports
• Reduction of direct and financial investments due to aggression against companies
• Explosion of fiscal deficit to 5% mostly due to energy subsidies
0%
5%
10%
15%
20%
25%
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
(p)
2015
(p)
Weight in Overall Exports/Imports
RELATIVE WEIGHT OF ENERGY PRODUCTS ON IMPORTS AND EXPORTS
Exports
Imports
-‐6,000
-‐3,000
0
3,000
6,000
9,000
12,000
15,000
18,000
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
(p)
Million US$TRADE BALANCE OF ARGENTINA
Strong dependence on domestic oil and gas production
• Argentina’s energy consumption biased towards hydrocarbons - 87.6% of overall consumption
• Natural Gas 54.1% even under large shortages
4
Hydroelectricity3,052 3.9%
Nuclear1,836 2.3%
Gas42,781 54.1%
Oil and products25,794 32.6%
Coal711 0.9%
Renewables4,217 5.3%
Others748 0.9%
ENERGY CONSUMPTION IN ARGENTINA (million tons oil equivalent)
100
150
200
250
300
350
400
450
-‐
10
20
30
40
50
60
70
80
90
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1983
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
GDP Index 1960=100
Millions of Oil Equivalent Tons
GDP AND PRIMARY CONSUMPTION OF ENERGY IN ARGENTINA
Energy Consumption (right)
GDP Index 1960=100 (left)
• Economic growth and energy demand: strong correlation
• No energy, no growth? • High growth, more energy? • Somebody will need to find the way
to guarantee sustainable energy supply
Growing demand of power, gas, gasoline 3/4/9% Domestic oil and gas production decline -1.6%; -5.2%
Import Gas, LNG, gasoline, diesel +48%; +29%; +500%; +40%
Need for Dollars to pay for imports - US$ 12.8 Bn 2013 Need for Pesos for booming subsidies + AR$ 90 Bn 2013
Stagflation causes social unrest and loss of elections Forced changes in paradigms for Energy Sector
Energy policies expected to change, as current status is unsustainable
5 WHEN?
As in the past, Argentina will change its energy policy to boost production (*)
• Impressive imports of energy products at US$ 12.8 Bn in 2013, to partially satisfy demand
• Energy imports subsidized 80% of actual cost
• Economic variables under stress
(*) In 1958, 1967, 1976, 1987, and 1990 Argentina modified its oil/gas policies to attract foreign investment to boost domestic production 6
-‐20,000
-‐15,000
-‐10,000
-‐5,000
0
5,000
10,000
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
(p)
2015
(p)
Current US$ Millions
ENERGY SECTOR EXTERNAL TRADE BALANCE
ExportsImportsEnergy Trade Balance
0%
5%
10%
15%
20%
25%
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
(p)
2015
(p)
Weight in Overall Exports/Imports
RELATIVE WEIGHT OF ENERGY PRODUCTS ON IMPORTS AND EXPORTS
Exports
Imports
7
Impact of insufficient domestic hydrocarbon production
• Unfavorable Trade Balance with negative trend • US$ needed for imports - US$ 12.8 Bn 2013
• AR$ needed for subsidies + AR$ 80.0 Bn 2013
Imports of energy products decreased just 2.2% in H1 2014 at US$ 6.5 Bn, despite recession
Exports of energy products declined
-‐20,000
-‐15,000
-‐10,000
-‐5,000
0
5,000
10,000
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
(p)
2015
(p)
Current US$ Millions
ENERGY SECTOR EXTERNAL TRADE BALANCE
ExportsImportsEnergy Trade Balance
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
ene feb mar abr may jun jul ago sep oct nov dic
MM US$ CIF
IMPORTS OF ENERGY PRODUCTS -‐ CUSTOMS DATA
2010201220132014
8
Is there a chance for further boost of business terms?
Whenever Argentina faced imports of
energy products, a change took place to
boost domestic oil and gas production through improved
terms
• Expected US$ disbursements to import energy in 2014-2016 are so large, that something will have to change to improve domestic production, aggressively
9
Higher prices are influencing demand for gasoline, which still grows
-‐4%-‐1%2%5%8%11%14%17%20%23%26%29%
-‐
100
200
300
400
500
600
700
800
Jan-‐07
May-‐07
Sep-‐07
Jan 08
May-‐08
Sep-‐08
Jan-‐09
May-‐09
Sep-‐09
Jan-‐10
May-‐10
Sep-‐10
Jan-‐11
May-‐11
Sep-‐11
Jan-‐12
May-‐12
Sep-‐12
Jan-‐13
May-‐13
Sep-‐13
Jan-‐14
May-‐14
Annu
al Variatio
n
Thou
sand
cub
ic meters p
er m
onth
CONSUMPTION OF GASOLINE -‐ ALL TYPES
Monthly Consumption (left) Annual Variation (right)
-‐20%
-‐15%
-‐10%
-‐5%
0%
5%
10%
15%
20%
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
Jan-‐07
Apr-‐07
Jul-‐0
7Oct-‐07
Jan-‐08
Apr-‐08
Jul-‐0
8Oct-‐08
Jan-‐09
Apr-‐09
Jul-‐0
9Oct-‐09
Jan-‐10
abr-‐10
Jul-‐1
0Oct-‐10
Jan-‐11
Apr-‐11
Jul-‐1
1Oct-‐11
Jan-‐12
Apr-‐12
Jul-‐1
2Oct-‐12
Jan-‐13
Apr-‐13
Jul-‐1
3Oct-‐13
Jan-‐14
Apr-‐14
Annu
al variatio
n
m3/mon
th
DIESEL OIL CONSUMPTION -‐ EXCLUDES POWER GENERATION
Monthly Consumption (left) Annual Variation (right)
0.80
0.85
0.90
0.95
1.00
1.05
1.10
1.15
1.20
1.25
1.30
Ene Feb Mar Abr May Jun Jul Ago Sep Oct Nov Dic
US$/liter YPF -‐ DIESEL OIL REGULAR
2011201220132014
0.900.951.001.051.101.151.201.251.301.351.401.45
Ene Feb Mar Abr May Jun Jul Ago Sep Oct Nov Dic
US$/literYPF -‐ GASOLINE REGULAR
2011201220132014
10
Thermal Power Generation nearly 70% of supply, requiring more fuel
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 (est)
Natural Gas (M
Mcm
d pe
r ann
ual a
verage)
Ton/year o3 m3/year (C
oal R
esidual O
il and
Diesel Oil )
CONSUMPTION OF ALTERNATIVE FUELS FOR POWER GENERATION
Diesel Oil (Cubic meters/year) Residual Oil (Tons/year)
Coal (Tons/year) Gas (MMcmd/year)
-‐2,000
-‐1,000
0
1,000
2,000
3,000
4,000
12,00013,00014,00015,00016,00017,00018,00019,00020,00021,00022,00023,00024,000
ene-‐02
jul-‐0
2en
e-‐03
jul-‐0
3en
e-‐04
jul-‐0
4en
e-‐05
jul-‐0
5en
e-‐06
jul-‐0
6en
e-‐07
jul-‐0
7en
e-‐08
Jul-‐0
8en
e-‐09
Jul-‐0
9en
e-‐10
Jul-‐1
0en
e-‐11
Jul-‐1
1Jan-‐12
Jul-‐1
2Jan-‐13
Jul-‐1
3Jan-‐14
Annual Growth (MW)
Power Capacity (MW)
DEMAND OF PEAK POWER CAPACITY -‐ NET OF SHORTAGES
Peak Power Capacity Demand (Left)
Annual Variation in Peak Capacity (Right)
-‐2%-‐1%0%1%2%3%4%5%6%7%8%9%10%
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
Feb-‐04
Aug-‐04
Feb-‐05
Aug-‐05
Feb-‐06
Aug-‐06
Feb-‐07
Aug-‐07
Feb-‐08
Aug-‐08
Feb-‐09
Aug-‐09
Feb-‐10
Aug-‐10
Feb-‐11
Aug-‐11
Feb-‐12
Aug-‐12
Feb-‐13
Aug-‐13
Feb-‐14
Growth(GWh/month)
GROSS DEMAND OF ELECTRICITY (excludes exports)
MWh/Month (Left)12 month moving average (Right)
0%
10%
20%
30%
40%
50%
60%
70%
80%
Jan/07
Apr/07
Jul/07
Oct/07
Jan/08
Apr/08
Jul/08
Oct/08
Jan/09
Apr/09
Jul/09
Oct/09
Jan/10
Apr/10
Jul/10
Oct/10
Jan/11
Apr/11
Jul/11
Oct/11
Jan/12
Apr/12
Jul/12
Oct/12
Jan/13
Apr/13
Jul/13
Oct/13
Jan/14
Apr/14
GROSS SUPPLY OF ELECTRICITY
HYDRO THERMAL NUCLEAR IMPORTS WIND/SOLAR
11
Power demand propelled by Residential – Decrease in Industrial demand
y = -‐112.66x3 + 5.2975x2 + 1.6772x -‐ 0.0276R² = 0.5841
-‐11%-‐9%-‐7%-‐5%-‐3%-‐1%1%3%5%7%9%11%
-‐5% -‐4% -‐3% -‐2% -‐1% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9%
Domestic Demand of Electricity
Annual GDP Growth
CORRELATION GDP vs. ELECTRICITY DEMAND
0
20
40
60
80
100
120
140
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Thousand GWh/year
HISTORICAL POWER SUPPLY BY SOURCE
Net Imports Hydroelectric
Thermal Nuclear
Renewables
-‐20%
-‐15%
-‐10%
-‐5%
0%
5%
10%
15%
20%
25%
Ene 08
Abr 0
8
Jul-‐0
8
Oct-‐08
Ene 09
Abr 0
9
Jul-‐0
9
Oct-‐09
Jan-‐10
Apr-‐10
Jul-‐1
0
Oct-‐10
Jan-‐11
Apr-‐11
Jul-‐1
1
Oct-‐11
Jan-‐12
Apr-‐12
Jul-‐1
2
Oct-‐12
Jan-‐13
Apr-‐13
Jul-‐1
3
Oct-‐13
Jan-‐14
Apr-‐14
ANNUAL POWER DEMAND EVOLUTION FOR MAIN SEGMENTS OF CONSUMPTION
Residential
Industrial > 300 kW
4,000
5,000
6,000
7,000
8,000
9,000
10,000
11,000
12,000
13,000
Jan-‐93
Jan-‐94
Jan-‐95
Jan-‐96
Jan-‐97
Jan-‐98
Jan-‐99
Jan-‐00
Jan-‐01
Jan-‐02
Jan-‐03
Jan-‐04
Jan-‐05
Jan-‐06
Jan-‐07
Jan-‐08
Jan-‐09
Jan-‐10
Jan-‐11
Jan-‐12
Jan-‐13
Jan-‐14
MWh/month
CONSUMPTION OF ELECTRICITY IN ARGENTINA
12
Gas consumption by segment - Winter residential demand affects large consumers
Residential31.1 23.9%
Commercial3.7 2.8%
Industrial37.9 29.0%
Power Generation39.0 29.9%
CNGV7.4 5.7%
Public agencies1.2 0.9%
Others9.5 7.2%
Exports0.7 0.6%
AVERAGE GAS CONSUMPTION 2013 (MMm3/d)
Residential65.246.6%
Commercial6.24.4%
Industrial26.519.0%
Power Generation24.017.1%
CNGV7.55.4%
Public agencies0.40.3%
Others10.07.2%
WINTER 2013 -‐AVERAGE GAS CONSUMPTION (MMm3/d)
0
20
40
60
80
100
120
140
160
180
Avg Jul 13 Max daily 2013
MMm3/d
EFFECTIVE GAS CONSUMPTION WINTER 2013
Otros
Exportaciones
GNC
Generación Eléctrica
Plantas Cabeceras
Industrial
Comercial
Residencial0
20
40
60
80
100
120
140
160
Avg Jul 13 Max daily 2013
MMm3/d
ACTUAL GAS SUPPLY WINTER 2013
Importación Bolivia
LNG-‐Peak Shaving-‐PIPA
Linepack
Inyección Comercial
0
10
20
30
40
50
60
70
80
90
Avg Jul 13 Max daily 2013 MMm3/d
UNSATISFIED GAS DEMAND WINTER 2013
Exportaciones
Generación EléctricaPlantas Gas CabecerasIndustrial
13
Natural gas large unsatisfied demand
-‐1600
-‐1400
-‐1200
-‐1000
-‐800
-‐600
-‐400
-‐200
02002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
MMm3 PER YEAR
ESTIMATED GAS SUPPLY RESTRICTIONS TO INDUSTRIAL CONSUMERS
20
22
24
26
28
30
32
34
36
38
40
Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec
MMm3/dINDUSTRIAL GAS CONSUMPTION -‐ EXCLUDES GAS PROCESSING
PLANTS AT FIELDS -‐ INCLUDES CERRI PLANT
2005-‐2010 Range 2013 2012 2014
10
15
20
25
30
35
40
45
50
55
Ene Feb Mar Abr May Jun Jul Ago Sep Oct Nov Dec
MMm3/dGAS CONSUMPTION IN THERMAL POWER GENERATION
Range 2005-‐2010 2013 2012 2014
0
10
20
30
40
50
60
70
ene-‐93
ene-‐94
ene-‐95
ene-‐96
ene-‐97
ene-‐98
ene-‐99
ene-‐00
ene-‐01
ene-‐02
ene-‐03
ene-‐04
ene-‐05
ene-‐06
ene-‐07
ene-‐08
ene-‐09
ene-‐10
ene-‐11
ene-‐12
ene-‐13
ene-‐14
MMcmd
DEMAND BY RESIDENTIAL MARKET -‐ DAILY AVERAGE IN A MONTH
14
PlanGas complements price to 7.5 US$/MMBTU for incremental volumes
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Q1 20
10
Q2 20
10
Q3 20
10
Q4 20
10
Q1 20
11
Q2 20
11
Q3 20
11
Q4 20
11
Q1 20
12
Q2 20
12
Q3 20
12
Q4 20
12
Q1 20
13
Q2 20
13
Q3 20
13
Q4 20
13
Q1 20
14
YPF WELLHEAD GAS PRICE -‐ NEUQUEN BASIN (US$/MMBTU)
+61%
0.60 0.80 1.00 1.20 1.40 1.60 1.80 2.00 2.20 2.40 2.60 2.80
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
US$/MMBTU
AVERAGE NEUQUEN BASIN WELLHEAD GAS PRICE
201120122013 5
7
9
11
13
15
17
19
2008
2009
2010
2010
2011
2011
2011
2011
2011
2011
mar-‐12
may-‐12
jun-‐12
jul-‐1
2ago-‐12
oct-‐12
ene-‐13
mar-‐13
abr-‐13
may-‐13
jun-‐13
jul-‐1
3ago-‐13
Sep-‐13
Nov-‐13
Jan-‐14
Mar-‐14
Apr-‐14
May-‐14
Jun-‐14
US$/MMBTU IMPORTED LNG PRICES -‐ DES CONDITION -‐ 2008-‐2014
PlanGas price scheme provides incremental subsidy, but average realize price converges to 4.5 US$/MMBTU Not enough average if weight of tight and shale gas increase in future developments
15
Very high actual cost of gas supply
• When considering the cost of substitute fuels and eventual cost of satisfying industrial gas demand which is curtailed, current actual cost exceeds 8 US$/MMBTU
4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5 9.0
Jan-‐12
Feb-‐12
Mar-‐12
Apr-‐12
May-‐12
Jun-‐12
Jul-‐1
2
Aug-‐12
Sep-‐12
Oct-‐12
Nov-‐12
Dec-‐12
Jan-‐13
Feb-‐13
Mar-‐13
Apr-‐13
May-‐13
Jun-‐13
Jul-‐1
3
Aug-‐13
US$/MMBTU
COST OF EQUIVALENT SUPPLY OF GAS TO DOMESTIC MARKET -‐WEIGHTED INFLUENCE OF ALTERNATIVE FUELS
Equivalent cost -‐ Without curtailments to industriesActual cost with current curtailments to industriesEquivalent cost -‐ Supply to industries and to gas processing plants
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
US$/MMBTU
ESTIMATED WELLHEAD GAS PRICES -‐ TERM CONTRACTS TO INDUSTRIES
NeuquenAustralNorthwestGas Plus NeuquenAverage DomesticPlanGas Subsidy
0
5
10
15
20
25
30
35
40
45
Jan-‐96
Jul-‐9
6Jan-‐97
Jul-‐9
7Jan-‐98
Jul-‐9
8Jan-‐99
Jul-‐9
9Jan-‐00
Jul-‐0
0Jan-‐01
Jul-‐0
1Jan-‐02
Jul-‐0
2Jan-‐03
Jul-‐0
3Jan-‐04
Jul-‐0
4Jan-‐05
Jul-‐0
5Jan-‐06
Jul-‐0
6Jan-‐07
Jul-‐0
7Jan-‐08
Jul-‐0
8Jan-‐09
Jul-‐0
9Jan-‐10
Jul-‐1
0Jan-‐11
Jul-‐1
1Jan-‐12
Jul-‐1
2Jan-‐13
Jul-‐1
3Jan-‐14
MMCmdNATURAL GAS EXPORTS AND IMPORTS IN ARGENTINA
Exports
Imports
Dependence of imported gas from Bolivia and LNG
16 0
100
200
300
400
500
600
ene feb mar abr may jun jul ago sep oct nov dic
MMm3 per monthGAS IMPORTS FROM BOLIVIA
Rango 2007-‐2012
2013
2014
0
100
200
300
400
500
600
700
800
900
ene feb mar abr may jun jul ago sep oct nov dic
MMm3 per monthLNG IMPORTS
Rango 2007-‐201220132014
0
50
100
150
200
250
300
350
400
450
ene feb mar abr may jun jul ago sep oct nov dic
Miles tn/mesCONSUMO DE FUEL OIL EN GENERACIÓN ELÉCTRICA
Rango 2007-‐201220132014
0
5
10
15
20
25
30
35
40
45
50
Jan-‐06
May-‐06
Sep-‐06
Jan-‐07
May-‐07
Sep-‐07
Jan-‐08
May-‐08
sep-‐08
Jan-‐09
May-‐09
sep-‐09
Jan-‐10
May-‐10
sep-‐10
Jan-‐11
May-‐11
Sep-‐11
Jan-‐12
May-‐12
Sep-‐12
Jan-‐13
May-‐13
Sep-‐13
Jan-‐14
May-‐14
MMCmd
IMPORTS OF LNG AND NATURAL GAS FROM BOLIVIA
Bolivia
LNG
17
Medanito crude price previous to January estimated at 83 US$/bbl
• Effects of changes after devaluation to last until May
55
60
65
70
75
80
85
ene-‐11
abr-‐11
jul-‐1
1
oct-‐11
ene-‐12
abr-‐12
jul-‐1
2
oct-‐12
ene-‐13
abr-‐13
jul-‐1
3
oct-‐13
ene-‐14
abr-‐14
US$/bbl
CRUDE OIL PRICES ASSESSED FOR MEDANITO TYPE -‐ DOMESTIC MARKET
50556065707580859095100105
2010 2011 2012 Dic 2013
2014 2015 2016 2017 2018 2019 2020
US$/bblMEDANITO PRICE PROJECTION BY YPF
MONTH MEDANITO (US$/BBL)
FUELS PRICE INCREASES AUTHORIZED
February 71 6.0%
March 76 6.1%
April 80 5.4%
May 83 3.8%
30
35
40
45
50
55
60
65
70
75
80
85
Jan 06
Apr 0
6Jul-‐0
6Oct-‐06
Jan 07
Apr 0
7Jul-‐0
7Oct-‐07
Jan-‐08
Apr-‐08
Jul-‐0
8Oct-‐08
Jan-‐09
Apr-‐09
Jul-‐0
9Oct-‐09
Jan-‐10
Apr-‐10
Jul-‐1
0Oct-‐10
Jan-‐11
Apr-‐11
Jul-‐1
1Oct-‐11
Jan-‐12
Apr-‐12
Jul-‐1
2Oct-‐12
Jan-‐13
Apr-‐13
Jul-‐1
3Oct-‐13
Jan-‐14
Apr-‐14
US$/bbl
ASSESSMENT OF PRICES -‐ MAIN DOMESTIC CRUDE OIL TYPES
NeuquenEscalanteCañadon Seco
Active drilling and workover rigs in 2014 - Soaring drilling rates – 50,000 US$/d
70
80
90
100
110
120
130
Ene Feb Mar Abr May Jun Jul Ago Sep Oct Nov Dic
TOTAL ARGENTINA -‐ ACTIVE DRILLING RIGS
2011 2012 2013 2014
2530354045505560657075
Ene Feb Mar Abr May Jun Jul Ago Sep Oct Nov Dic
YPF -‐ ACTIVE DRILLING RIGS
2011 2012 2013 2014
4550556065707580859095
Ene Feb Mar Abr May Jun Jul Ago Sep Oct Nov Dic
YPF -‐ ACTIVE WORKOVER RIGS
2011 2012 2013 2014
120
130
140
150
160
170
180
Ene Feb Mar Abr May Jun Jul Ago Sep Oct Nov Dic
TOTAL ARGENTINA -‐ ACTIVE WORKOVER RIGS
2011 2012 2013 2014
19
Declining oil (-5.3%) and gas (-5.1%) reserves by end of 2012
• Higher investments dedicated to shale oil
• Initial stage at shale gas
• Maturing conventional oil and gas production due to limited exploration activity, led to decline in reserves
• Incentives to revert trend, with some small discoveries being made
• YPF announced 148% reserves’ replacement ratio based in recovery factor and extension of concessions
0
500
1,000
1,500
2,000
2,500
3,000
0
5
10
15
20
25
30
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Oil Reserves (Millon bbls)
Gas Reserves (TCF)
OIL AND GAS PROVED RESERVES
Gas Reserves (left)
Oil Reserves (right)
0
1
2
3
4
5
300
400
500
600
700
800
900
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
GAS (Bcfgd)OIL (Thousand bopd)
OIL AND GAS PRODUCTION
OIL (bopd, left)GAS (Bcfgd, right)
20
YPF extending its influence rapidly
YPF217,09939.4%
PAN AMERICAN ENERGY99,07518.0%
PETROBRAS ARGENTINA
27,6895.0%
PLUSPETROL38,2557.0%
SINOPEC 34,0286.2%
CHEVRON 21,5313.9%
TECPETROL20,8523.8%
TOTAL 15,4402.8%
PETROLERA ENTRE LOMAS12,5512.3%
APACHE10,4171.9%
CAPSA12,0172.2%
ENAP 10,0461.8%
OTHERS 33,429 6.05%
OIL PRODUCTION BY OPERATOR JAN-‐MAY 2014 (bopd)
TOTAL 32.2 28.62%
YPF 30.9 27.41%PAE 12.8 11.35%
PETROBRAS 9.2 8.18%
APACHE 6.9 6.12%
TECPETROL 3.4 3.04%
PLUSPETROL ENERGY 2.7
2.36% PLUSPETROL 3.0 2.70%
SINOPEC 2.0 1.79%
ENAP 2.3 2.03%
ROCH 1.7 1.50%
CAPEX 1.3 1.19%ENTRE LOMAS 1.3
1.11%
OTHERS 2.6 2.31%
GROSS GAS PRODUCTION BY OPERATOR JAN-‐MAY 2014 (MMm3/d)
33.6% 35.0% 36.8%41.6% 42.0%
19.8% 18.0% 17.6% 18.6% 18.3%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
2011 2012 2013 Apr-‐14 May-‐14
GROSS GAS MAIN OPERATORS -‐ MARKET SHARE EVOLUTION
YPF PAN AMERICAN ENERGYPETROBRAS ARGENTINA PLUSPETROLSINOPEC ARGENTINA
April and May 2014 include acqusition of Apache (1.9%)
30.0% 30.1% 29.6%
27.3% 29.2%23.3% 23.4%
25.3%
34.0% 33.7%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
2011 2012 2013 Apr-‐14 May-‐14
GROSS GAS MAIN OPERATORS -‐ MARKET SHARE EVOLUTION
TOTAL YPF PAE PETROBRAS TECPETROL
April and May 2014 include 6.0% after acquisition of
Apache
21
Oil and Gas production moderating declining trend in 2014
• Oil production fell 1.6% in 2013
• Decrease of 0.8% in Jan-May 2014
• Increase in drilling activity driven by YPF, focused at Neuquen basin
• Gas production fell by 5.2% in 2013
• Equivalent to 6.3 MMm3/d
• Expanding drilling activity since YPF expanded in H2 2013
• Decrease of 0.9% in Jan-May 2014
105
110
115
120
125
130
135
140
145
Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec
MMcmd
NATURAL GAS GROSS PRODUCTION IN ARGENTINA
2007-‐2011 Range 2011 2012 2013 2014
500
520
540
560
580
600
620
640
660
680
Jan Feb March April May June July Aug Sept Oct Nov Dec
Thousandbopd
CRUDE OIL, CONDENSATE AND NATURAL GASOLINE PRODUCTION IN ARGENTINA
2007-‐2011 Range 2011 2012 2013 2014
22
Declining trend in oil and gas productivity requires a change for higher prices
85%
86%
87%
88%
89%
90%
91%
92%
-‐
1
2
3
4
5
6
7
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Water Cut
Million bb
ls pe
r day
WATER PRODUCTION AT ARGENTINE OIL FIELDS
Agua Petróleo Corte de Agua
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
0
20
40
60
80
100
120
140
160
180
200
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Ago 20
13
Gas P
rodu
ction (M
Mcm
d)
PGas produ
ction pe
r wll (m
3/d/well)
GAS PRODUCTIVITY IN ARGENTINA
Gas Production (right) Gas production per well (left)
23
• 2011 through 2013 were years of acreage positioning
• High values paid: Chevron 10,000 $/acre
• Estimated $ 3.5 Bn invested since 2010
• $ 2.0 Bn in past 12 months
• Several players assessing the Vaca Muerta play
• Expansion in exploration efforts
• Debate on ways to progress with Vaca Muerta play
• Changes still required for development
• Regulatory stability
• Higher prices
• Reduction in Union activism
• Service industry development
• More rigs and fracking capacity
• Water treatment centers required as utilization and scarcity will become an environmental flag
• Government promotes development of suppliers for the shale play
Shale play receives interest and will unfold in next years
24
Actual output of shale play as of May 2014 – All operators in Argentina
25
Aggregate May 2014 output at 20,258 boe
13,090 bopd
43.0 MMcfd (1.22 MMcmd)
YPF as Operator explains 88.3% of gross shale oil output, and 78.2% of shale gas output (mainly associated gas to shale oil)
Stagnant shale oil output compared to December 2013, despite incorporating 62 new wells to production
0
2,000
4,000
6,000
8,000
10,000
12,000
ene/11
mar/11
may/11
jul/11
sep/11
nov/11
ene/12
mar/12
may/12
jul/12
sep/12
nov/12
ene/13
mar/13
may/13
jul/13
sep/13
nov/13
ene/14
mar/14
may/14
bopdSHALE OIL PRODUCTION IN ARGENTINA
YPF
Other companies
0.000.100.200.300.400.500.600.700.800.901.001.101.20
ene/11
mar/11
may/11
jul/11
sep/11
nov/11
ene/12
mar/12
may/12
jul/12
sep/12
nov/12
ene/13
mar/13
may/13
jul/13
sep/13
nov/13
ene/14
mar/14
may/14
Million cubic meters/daySHALE GAS PRODUCTION IN ARGENTINA
YPF
Other companies
Shale production at initial stages in Argentina
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
2011 2012 2013 2014 (p)
MMboeACCUMULATED SHALE PRODUCTION -‐ ARGENTINA
Shale Oil Shale Gas
26
US accumulated shale production all basins
020406080100120140160180200220
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
ene/11
mar/11
may/11
jul/11
sep/11
nov/11
ene/12
mar/12
may/12
jul/12
sep/12
nov/12
ene/13
mar/13
may/13
jul/13
sep/13
nov/13
ene/14
mar/14
may/14
Producing wellsbbls/d Oil
SHALE OIL ARGENTINA
Shale Oil Wells in production
27
Different strategies define different potential markets for equipment and services
• Differing strategies between YPF and rest of Operators
• YPF: reducing costs on vertical black oil shale wells
• Other Operators focusing in assessing wet gas shale play with expensive horizontal wells until they define which type of development strategy will be implemented
• Shale gas oriented; deeper wells
• 15+ stages of fracs per well compared to 5 stages per vertical well
• Very high pressure while drilling, testing and initial production (9,000 psi)
Productivity of shale oil still low, requires increases and horizontal wells
28
Accelerated decline of wells drilled in 2013 campaign; Loss of incremental contribution by 2014 wells; Better performance by a group of wells drilled by YPF in past 3 months ay Northwest of Loma Campana
020406080100120140160180200220
0
20
40
60
80
100
120
140
Jan-‐11
Mar-‐11
May-‐11
Jul-‐1
1
Sep-‐11
Nov-‐11
Jan-‐12
Mar-‐12
May-‐12
Jul-‐1
2
Sep-‐12
Nov-‐12
Jan-‐13
Mar-‐13
May-‐13
Jul-‐1
3
Sep-‐13
Nov-‐13
Jan-‐14
Mar-‐14
May-‐14
Wells in productionbbls/d per well
SHALE OIL PRODUCTIVITY -‐ WELLS IN EFFECTIVE PRODUCTION
Number of wells in production (right) Average production per well (left)
20 27
101
62
-‐
20
40
60
80
100
120
-‐
2,000
4,000
6,000
8,000
10,000
12,000
14,000
Jan-‐11
Mar-‐11
May-‐11
Jul-‐1
1
Sep-‐11
Nov-‐11
Jan-‐12
Mar-‐12
May-‐12
Jul-‐1
2
Sep-‐12
Nov-‐12
Jan-‐13
Mar-‐13
May-‐13
Jul-‐1
3
Sep-‐13
Nov-‐13
Jan-‐14
Mar-‐14
May-‐14
New wells in the year
bopd
YPF -‐ SHALE OIL OUTPUT BY YEAR OF TIE-‐IN TO PRODUCTION
2011
2012
2013
-‐
20
40
60
80
100
120
140
0
2,000
4,000
6,000
8,000
10,000
ene/11
mar/11
may/11
jul/11
sep/11
nov/11
ene/12
mar/12
may/12
jul/12
sep/12
nov/12
ene/13
mar/13
may/13
Wells/bopd per well bopd
SHALE OIL BY YPF -‐ YEAR-‐ON-‐YEAR VARIATION
Net production increase (left) New producing wells (right)Average increase of production per well (right)
-‐
20
40
60
80
100
120
140
160
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39
bopd
Months of production since initial tie in
YPF -‐ NORMALIZED SHALE OIL PRODUCTION CURVES -‐
Normalized by effective days in production
Normalized by calendar days
Vaca Muerta - Production of specific shale gas wells
29
• Analysis considering average production per month of operation of each specific shale gas well
• Very few shale gas wells
• Some wells with very good initial production rates
-‐
20,000
40,000
60,000
80,000
100,000
120,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
m3/d
Month of effective rpoduction since completion
NORMALIZED SPECIFIC SHALE GAS WELLS -‐ EFFECTIVE PRODUCING DAYSEl Orejano x-‐2Cerro Las Minas x-‐1Loma del Molle x-‐1Las Tacanas x-‐1Cerro Arena x-‐5A. Pichana xp-‐1001YPF.Nq.EOr.3YPF.Nq.EOr.x-‐4(h)YPF.Nq.EOr.x-‐5(d)YPF.Nq.EOr.x-‐6(h)A.Pichana.e-‐1002(h)Sierra Chata-‐x-‐97
Remaining obstacles
30
Repsol issue Settlement reached; payment in bonds in May
Prices of oil and gas
Resumption of increases of domestic price of oil and subsidies for gas at 7.5 US$/MMBTU
Rigs and fracking crews
Imports authorized; bureaucratic restrictions; growing fleet ; not enough for Upside case
Labor Lack of qualified personnel; Union activism and
high salaries
Local content Political pressure; difficulties in accomplishing
by domestic suppliers
Regulatory framework
Consensus to establish stable rules; negative precedents; need to increase production
Players Good base of qualified companies; especially
majors; lack of domestic capital
• Agreement with Chevron implicitly valuing Vaca Muerta play at a 10,300 US$/acre
• Dow into a financial deal with YPF for shale gas
• Wintershall in private deal for shale oil with GyP Neuquen
• Large deal between Shell and Total
• Recent deal by YPF selling part of Apache’s acreage to Pluspetrol
Recent agreements in Unconventional
31
• MOU by Petronas with YPF
0
2,000
4,000
6,000
8,000
10,000
Nov-‐09
Oct-‐10
Oct-‐10
Nov-‐10
Nov-‐10
Jun-‐11
Jun-‐11
Aug-‐11
Sep-‐11
Nov-‐11
Dec-‐11
Dec-‐11
Mar-‐12
Dec-‐12
Apr-‐13
Jul-‐1
3Au
g-‐13
Sep-‐13
Oct-‐13
Dec-‐13
Jan-‐14
Feb-‐14
Apr-‐14
US$/ACRE
EVOLUTION IN TIME OF ESTIMATED NET VALUE PER ACRE
• Government decided to partially reduce subsidies
• Unclear scheme
• Government will fund additional income to companies, either through increases on tariffs, or financing of investments, or direct subsidies to companies
• Government decided to secure financial capacity of companies
• First decision to “do something with the sector” • Increases in tariffs for gas transportation and distribution
companies
• Expected increases for power utilities and generators
Gas and Power companies
32
• More intervention by Government in the short term is leading to more aggressive incentives, though a turnaround should be expected for mid term
• Further Radicalization – Low probability • Turn the E&P business into service contracts based on Decree 1277?
Forced reinvestments?
• Political control at YPF by politicians and unions (has not happened)
• Soft improvement – High probability • Provide for higher oil and gas prices in exchange for reinvestment?
• Maintain concessions with companies
• Some associations for future shale development and domestic financing for YPF
Potential scenarios
33
• Important recovery on valuations for publicly traded E&P and energy companies with activity in Argentina
• Impressive interest by Investment Funds and Banks
• Potential financial turmoil in Argentina remains as the main risk for companies; However, Neuquen basin oil price already recovered to pre devaluation level, and gas prices have been maintained
• Project for a new Hydrocarbons Law favored by YPF, may close the access to prospective acreage inducing partnerships with YPF
• Potential opportunity to position, as a negative scenario for investments in E&P business is not sustainable
The settlement with Repsol and influence on rest of the industry
34
Potential E&P Scenarios
• Transition may lead to more aggressive incentives and turnaround with new Administration by December 2015
• Potential for higher tariffs to reduce subsidies
• Imports of energy affect Argentine economy, and prevent resumption of growth • Next two years may be influenced by macroeconomic disorder
• Increasing domestic production of oil and gas demands a significant effort in attracting oil and gas investors
• Need for a drastic change; Potential turnaround under a new Government
• Companies under “assessment mode” positioning for a potential change in political environment 35
36
• Implicit recognition of wrong policies and need to increase production through moderate incentive programs to provide for higher prices
• Expected domestic oil and gas prices to continue increasing, as well as increases of income for utilities
• YPF is strongly supported by Government
• 2014 and 2015 represent transition years into a future improved E&P business framework, as economy continues to be affected by expensive imported energy
Some Conclusions on E&P Business Environment in Argentina
