Energy / Oil and Gas
Argentina

Profits For Oil Producers Just Dropped 30 Percent Across This Entire Nation

Burgess COMMENTARY

Peter Burgess

Profits For Oil Producers Just Dropped 30 Percent Across This Entire Nation

Tough week for the U.S. oil and gas industry. With the Department of Interior annulling 25 leases in Colorado's Mancos shale (for environmental reasons), and then cancelling 15 leases on tribal lands in Montana. Topped off by the release of a new 5-year offshore drilling plan that closes the Atlantic, Pacific and much of the Arctic to exploration.

But things were even worse for oil producers in another part of the world. Where the government made a surprise about-face on pricing policies -- with major impacts on E&P profits.

Argentina.

Earlier this year, things had been looking great for Argentinean oil developers. When the government said it would fix domestic crude prices at around $67.50 per barrel -- significantly higher than world prices, in a bid to encourage exploration and development across the country.

But news late last week suggests those attractive subsidies are now off the table.

Reuters cited industry sources in Argentina as saying that the government has now backtracked on the crude pricing plan. With the country apparently planning to eliminate higher crude prices immediately.

Companies interviewed by the news service said they now expect the local oil price to fall by as much as 30%. Prices across the country had reportedly been averaging $58 per barrel recently -- well above the ~$45 per barrel pricing that has been prevailing internationally.

Stocks of Argentinean oil producers fell as much as 40% on the news. Which is going to put a lot of fear into investors, in a place that was formerly shaping up as one of the best petroleum markets on the planet.

The big question is, how will this move affect development in Argentina's shale patch? Up until now, major E&Ps globally have been flocking to the country's Vaca Muerta shale -- with several billion-dollar deals struck here over the past year.

The change in pricing will almost certainly be causing a reevaluation of these prospects. Watch to see if companies now pull out -- or if there's a sense the promising geology here can be profitable even at lower prices.

Here's to turning it around,

Dave Forest http://oilpro.com/davidforest

Photo: Argentina's President-elect Mauricio Macri waves after being sworn in.