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Stockhouse Movers & Shakers: Oil and gas spotlight shines on Argentina

Peter Kennedy Peter Kennedy, Stockhouse Featured Writer
0 Comments| April 19, 2011

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One of Canada’s top energy sector analysts said investors should be paying more attention to companies that are active in Argentina.

Wellington West Capital Markets analyst Kevin Shaw sees five key reasons why investors should focus on growth prospects in the oil and gas sector in Argentina.

  1. The Latin American country is home to underexploited hydrocarbon basins, hosting world-class conventional and unconventional resources that are amenable to North American technology.
  2. Argentina boasts the world’s third largest recoverable shale gas resource. According to the U.S. Energy Information Administration (EIA), Argentina is host to shale resources with 774 trillion cubic feet of technically recoverable resources.
  3. Established infrastructure.
  4. An improving fiscal and geopolitical climate.
  5. An impetus to attract foreign capital to avert a pending energy crisis that would result from energy price controls which have sparked a dramatic reduction in the country’s energy reserves.

Oil and gas reserves have been falling in Argentina since the turn of the century. This is largely due to unfavourable pricing conditions, which have suppressed investment in the petroleum industry.

But recent investments in Argentina’s petroleum sector by China national companies Sinopec Corp. (NYSE: SNP, Stock Forum) and CNOOC Ltd. (NYSE: CEO, Stock Forum) is a clear sign that the investment climate has turned a corner, Shaw notes in his report.

CNOOC took a foothold in Argentina in March 2010 via its $3.1 billion purchase of Bridas Holdings. In December, Sinopec agreed to buy all of Occidental Petroleum Corp.’s (NYSE: OXY, Stock Forum) oil and gas assets in Argentina for $2.45 billion.

“In our view, this speaks to the value proposition of investing in the petroleum industry in Argentina and we believe investment by the Chinese and others will continue in 2011, particularly as exploration and development efforts ramp up in the country,’’ he said.

Shaw also notes that the efforts to attract investment mean opportunities not only for the majors but also for a select group of small cap firms, including:

Americas Petrogas Inc. (TSX: V.BOE, Stock Forum), ArPetrol Ltd. (TSX: V.RPT, Stock Forum), Azabache Energy Inc. (TSX: V.AZA, Stock Forum), Crown Point Ventures Ltd. (TSX: V.CWV, Stock Forum) and Madalena Ventures Inc. (TSX: V.MVN, Stock Forum).

The available opportunities include 26 identified hydrocarbon basins covering 456 million acres. Of that amount, only five are in production. Two of the five – the Neuquen and San Jorge basins – account for 75% of the oil and gas production in Argentina and 70 per cent of the reserves.

The other three – the Noroeste, Cuyo , and Austral account for less than 15% of the oil production and reserves in Argentina. However, the gassier Austral Basin accounts for over 20% and 35% of the gas production and reserves, respectively.

Below is a full list of publicly-listed Canadian companies which are active in Argentina.

Americas Petrogas Inc. (TSX: V.BOE, Stock Forum) is currently drilling two shale gas wells in the Neuquen Basin, where its oil and gas properties cover two million acres. To date, Americas Petrogas has been successful on nine of 11 wells on its conventional plays and has production of 800 barrels per day. In terms of conventional upside, nine of the company’s 16 blocks are prospective for shale gas.

Antrim Energy Inc. (TSX: T. AEN, Stock Forum) is an exploration and production company with assets in Argentina, the UK, North Sea and Tanzania. In Argentina the company has 1,800 barrels of energy per day (equivalent) of production (80% natural gas) and nine million barrels of energy of reserves from its 25% non-operated working interest in the Tierra del Fuego project in the Austral basin, as well as a 50% working interest in the Cerro de Los Leones exploration block in the northern part of the Neuquen basin.

ArPetrol Ltd. (TSX: V.RPT, Stock Forum) is a pure play Argentinean E&P company that recently completed a reverse takeover of RPT Resources Ltd. in a go-public transaction that closed in March 2011. The company has current production of 350 barrels of energy per day from its 100% working interest and operated 34,000-acre Faro Virgenes block in the Austral basin. In the Neuquen basin, ArPetrol operates a 20% WI (with a 50% back in option at casing point) in the 50,000-acre exploration block called Blanco De Los Olivos Oriental. The company plans to drill six wells and is budgeting US$15 million for 2011.

Azabache Energy Inc. (TSX: V.AZA, Stock Forum) is a Canadian junior with assets in Argentina and Columbia. In Argentina, the company has a high working interest (80% to 100%) across four exploration blocks, spanning over 250,000 acres in the Neuquen Basin. In terms of gas prospects, the company has conventional gas potential of 200 + billion cubic feet on its Cuvunco, El Corte and Cuvunco Norte blocks. Azabache’s Loma el Divisado block is mostly oil prone.

Crown Point Ventures Ltd. (TSX: V.CWV, Stock Forum) is a Canadian junior with assets in the Neuquen and San Jorge basins in Argentina. The company has amassed a 290,000 net acre land position over four blocks, with a well diversified mix of development and exploration plays Crown Point recently commenced its 2011 drill program with the first five wells of a 15-well program focused on multi-zone light oil targets at its flagship El Valle development property in the San Jorge basin.

Gran Tierra Energy Inc. (TSX: T.GTE, Stock Forum) is a Canadian-based E&P with producing and prospective properties in Colombia, Brazil, Peru and the Neuquen and San Jorge basins in Argentina. In Argentina, the company has interests in 12 properties (10 operated) over 1. 3 million net acres and is the largest land holder in the Noroeste Basin. In January 2011, GTE acquired Petrolifera, which added a high working interest and operatorship in five contiguous blocks in the Neuquen and over 3,500 barrels of energy per day of production. Gran Tierra is planning to invest $54 million in Argentina this year.

Madalena Ventures Inc. (TSX: V.MVN, Stock Forum) has several high impact exploration plays over 221,000 net acres and three blocks in the Neuquen basin. The company has both oil and gas plays with conventional and unconventional potential and is in the midst of a very active first half of 2011 program, with exploration activities ongoing on all of its blocks.

Kevin Shaw bio

Kevin Shaw is an engineer with a B.SC. in mechanical engineering with a minor in petroleum and an MBA from the Haskayne School of Business and the University of Calgary. Shaw’s previous employers include Imperial Oil Resources, junior E&Ps, and consulting firms.

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