--Neuquen to create sovereign wealth fund based on oil
revenue
--Neuquen oil production expected to double in four years
--Neuquen holds some of the world's most abundant unconventional
energy resources
By Taos Turner
BUENOS AIRES--Argentina's Neuquen Province plans to set up a
sovereign wealth fund to save some of the royalties it expects to
reap from the development of its vast unconventional oil and gas
resources.
Neuquen Governor Jorge Sapag compared the plan to Norway's
decision to sock away the windfall revenues from oil and gas
production in the North Sea.
"Forty years ago Norway was a very poor country," Mr. Sapag said
in an interview. "Like Norway, I think we can have a fund to offer
... pensions. I'm not saying we'll be as lucky as Norway, but we
are putting together a similar model."
Oil producing countries and even states like Alaska have
channelled oil and gas revenues to state-owned investment funds for
decades. But a provincial oil savings fund like the one proposed by
Mr. Sapag would be novel in Argentina.
"This would be the first fund of its kind in Argentine history,"
said Veronica Sosa, an economist at Economia y Regiones, who
specializes in provincial economies.
Mr. Sapag said his government also plans to take its oil and gas
company, Gas y Petroleo del Neuquen, public as Norway did with its
state-run energy giant Statoil ASA (STL.OS).
Mr. Sapag hopes to list 30% of the company's shares on stock
exchanges in Buenos Aires, New York and Toronto as early as next
March, with the province retaining a 70% stake.
Neuquen accounts for 22% of Argentina's total oil output, though
its share will rise sharply if big investments in unconventional
oil and gas production materialize.
Argentina ranks third in the world, behind China and the U.S.,
in potentially recoverable shale-gas reserves, with 774 trillion
cubic feet, according to the U.S. Energy Information
Administration. Argentina is also thought to have lots of shale
oil.
With much of that underneath its soil, Neuquen is the lynchpin
of the Argentine government's ambitious plan to end the country's
dependence on imported energy by reversing over a decade of
declining oil and gas output.
Neuquen's unconventional energy riches are located in an area
known as Vaca Muerta, or "dead cow" in Spanish, which is about the
size of the state of New Jersey.
"I'm very, very optimistic," Mr. Sapag said. "We know not only
that the quantity of our unconventional oil and gas reserves is
good, but we know the quality of them is very good."
Neuquen hopes to replicate the unconventional energy boom in the
U.S., where a technique called hydraulic fracturing, or fracking,
is used to extract oil and gas from shale rock and so-called tight
sands formations.
Fracking has allowed the U.S. oil and gas industry to tap
reserves that were previously thought to be impossible or too
expensive to extract. The technology has been so successful that
the U.S. is expected to surpass Saudi Arabia as the world's top oil
producer by 2020, according to the International Energy Agency.
Industry executives and analysts say Argentina possesses all the
geological characteristics necessary to become a global energy
powerhouse. The challenge will be to make the country more
investment friendly, analysts say. Constantly shifting policies,
heavy government intervention, price and export caps, as well as a
ban on sending dividend abroad have discouraged investment despite
the appeal of the resources.
Argentina's government will have to provide assurances that
contracts will be honored and it will need to allow investors to
turn a profit for the money to flow.
President Cristina Kirchner's decision to expropriate YPF SA
(YPF, YPFD.BA) from Spain's Repsol SA (REP.MC) hasn't helped
attract the billions of dollars Argentina needs to put its
unconventional energy into production.
So far, Argentina has not publicly offered to pay Repsol a dime
for the takeover and Repsol is seeking around $10.5 billion in
compensation.
Mr. Sapag says Neuquen will double oil production over the next
five years thanks to shale oil discoveries and he expects the
economy to grow 70% over that period.
YPF will play a big role boosting Neuquen's production oil and
gas output, he said.
After the expropriation, YPF said it would invest $37 billion
between 2013 and 2017.
That plan got a big boost last week after Mrs. Kirchner said the
government would allow YPF to charge $7.5 per million British
thermal units for new natural gas production.
That's over three times what YPF charged for gas last year and
it's well above the benchmark natural gas price of $3.65 in the
U.S.
YPF Chief Executive Miguel Galuccio said the higher price will
make investing in Argentina, and in YPF, more appealing to foreign
investors.
Companies already working in Neuquen include Apache Corporation
(APA), Chevron Corp. (CVX), Exxon Mobil Corp. (XOM), Total SA (TOT,
FP.FR), Petroleo Brasileiro SA (PBR), Royal Dutch Shell PLC (RDSA,
RDSA.LN) and Wintershall AG.
"If any of those companies finds the vocation to invest billions
of dollars then the process will move much faster," said Mr. Sapag
in reference to the oil and gas production boom he expects to see
in coming years.
Neuquen has already stopped the decline in production that last
year helped turn Argentina into a net energy importer for the first
time in almost two decades.
Over last five years, gas production fell 25% in Neuquen and oil
output dropped almost 30%, Mr. Sapag said. This year, production of
both has stabilized.
Unconventional gas now accounts for 10% of all gas produced in
Neuquen and unconventional oil makes up 5% of total output.
"We're at an inflection point," Mr. Sapag said.
Write to Taos Turner at taos.turner@dowjones.com