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Argentina's YPF to continue tight gas project without Vale

Highlights

Argentina's state-run energy company YPF said Tuesday it plans to pushforward with a tight natural gas project even after the departure of itsBrazilian partner Vale.

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YPF and Vale, a diversified metals and mining company, last year agreedto develop tight gas resources in southwestern Argentina to feed a $6 billionpotassium mine the Rio de Janeiro-based company had planned to build inMendoza, Argentina.

But Vale on Monday announced it had suspended the project, saying in astatement that in "the current macroeconomic environment, the economics ofthe project are not in line with Vale's commitment to discipline in capitalallocation and value creation."

Vale said it will evaluate the possibility of resuming the mining andtight gas project if alternatives are found to "enhance the economics of theproject."

The tight gas resources were to be developed in the Neuquen Basin withspending of $150 million in the Sierra Barrosa block.

Despite Vale's exit, YPF CEO Miguel Galuccio said Tuesday in aconference call with investors that his company plans to continue developingthe area.

"We can continue developing it with them or we can develop it at our ownrisk," he said.

Galuccio added that there is pipeline capacity to get the output toother consumers because the development is in Loma La Lata, a region withlarge gas infrastructure and production capacity.

Galuccio said Sierra Barrosa is "encouraging" in its potential, thanksto a government decision late last year to boost the wellhead price of gas to$7.50/MMBtu for supplies from new developments. That price is up from anaverage of $2.65-82/MMBtu for YPF's gas output in 2012.

"We have all the conditions to accelerate the development of the area,"Galuccio said.

Argentina is estimated to have 774 Tcf of shale gas resources, far morethan its 12 Tcf of proved reserves.

--Charles Newbery, newsdesk@platts.com
--Edited by Kevin Saville, kevin_saville@platts.com