By Ilda Sejdia, Evaluate Energy Latin America is definitely a fascinating region in terms of high levels of oil and gas exploration, major recent discoveries, and the ever-changing relationships between state-controlled companies and their independent counterparts. The region has 329 Bbbl of oil and 8 Tcm (268.3 Tcf) proved gas reserves as of year-end 2012, and has seen many new licensing rounds in recent times which provided great investment opportunities for international oil and gas companies of any size. Evaluate Energy provides a quick overview of the main activity in the region and the companies to keep an eye out for in the coming months. The discovery of spectacular presalt oil reserves in Brazil has raised the profile of the country on the global oil and gas stage. According to Brazil’s oil regulator, ANP, presalt deepwater fields have the potential to double Brazil’s oil reserves and peak output could reach 2.5 MMb/d. This would double Brazil’s current production and bring the country level with major exporters in the region, such as Mexico and Venezuela. Altogether, 71 companies participated in this year’s licensing rounds, with 30 companies (12 domestic and 18 international companies) being awarded exploratory areas. As expected, state-controlled Petrobras was involved heavily in all rounds and is entitled of a mandatory 30% share in all presalt production-sharing agreements (PSAs) following discoveries. Petrobras has also opened up to international involvement in Brazil, forming consortiums with major global oil and gas players, such as Total, Shell, and China’s CNPC, to help cope with the burden of the high costs involved. Another success story has been seen in Colombia where Ecopetrol has increased oil and gas output by 18% per year on average since 2008, and on more than one occasion has exceeded Petrobras in terms of market capitalization, assuming the status of Latin America’s largest listed company. Colombia as a whole has also had a good few years, with a greater degree of market liberalization following the part privatization of Ecopetrol, new regulations promoting foreign investment in the oil and gas sector being introduced and improvements in security both having a positive impact. In Argentina, shale prospects are high with the Vaca Muerta play in the Neuquén basin estimated to have 661 Bbbl of oil and 35 Tcm (1,181 Tcf) of natural gas, but this is at an early stage of development, with mainly testing taking place so far. It has attracted major companies with vast shale experience in North America such as ExxonMobil, EOG Resources, and Total, as well as exciting junior companies such as Americas Petrogas and Madalena Energy. Argentina has introduced flexibility within the energy sector by allowing companies to export up to 20% of total output tax free, as well as exemption from foreign exchange controls for companies that invest at least US $1 billion over five years. Moreover, to avoid putting off foreign investors, it has offered a $5 billion settlement to Repsol in an attempt to end the dispute over YPF, which is very likely to be accepted by Repsol in order to build its post-YPF strategy. Skepticism still remains around the political risk associated with Argentina, which is unfortunately a common theme throughout Latin American countries. There have been many occasions of government intervention driving away foreign investment across the continent, in the form of unsustainable subsidies combined with low prices, foreign currency controls or occasionally the seizure of foreign-owned assets. Companies To Watch In Latin America Pacific Rubiales Energy Corp. is a TSX-listed oil and gas company with Latin American crude oil and natural gas activities in Colombia, Peru, Brazil, Guatemala, and Belize. The company has undertaken aggressive M&A activity in recent times, with total acquisitions of $3.8 billion and $7.25 billion for 2012 and 2013 respectively. The oil-focused company reported 117,219 b/d (net after royalty) in Q3 2013, representing an increase of 37.8% over the corresponding period in 2012. Its most recent M&A transaction involved the acquisition of Petrominerales for CAN $935 million, gaining the company 18 exploration and development properties in Colombia, four blocks in Peru and stakes in two Colombian pipelines, and also increased its oil production by 23,000 b/d, according to Q3 2013 results. Madalena Energy is a junior company involved in the exploration, development, and production of oil and natural gas in Argentina and in Canada (Alberta). During Q3 2013, Madalena Energy reported strong production results; 1,177 boe/d (46% oil and liquids), an increase of 374% compared with the corresponding period in 2012. Overall, the company is improving. The company reported a decreased normalized net loss of $922,000 and a 6.07% decrease in general and administrative costs. The company is investing in continued improvement, which can be seen by the 89% increase in capital expenditures compared with Q3 last year, which can be mainly attributed to the company’s Ostracod oil project in Canada. Continuing this positive trend, Madalena Energy announced the closing of a private placement in December 2013, with aggregate combined gross proceeds of $12.2 million that will be used to further its domestic oil assets in West-Central Alberta and drill an additional well in the Vaca Muerta formation in the southern portion of Coiron Amargo where Petrobras announced a successful discovery, recently. Gran Tierra Energy Inc. has crude oil and gas production activities in Colombia, Argentina, and Brazil and exploration activities in Peru. Net income for Q3 2013 was $33.1 million; a decrease of 26% in the comparable period in 2012. The oil and gas production increased 13% over the corresponding period last year. This can be attributed to increased drilling activity and the reduced impact of pipeline disruptions in Colombia, as well as higher production in Brazil, but partially offset by reduced production in Argentina. An interesting feature of Gran Tierra is that its capital structure is debt free since Q3 2011, thus offering a healthy financial foundation that will enable the potential growth in Peru and Brazil. Moreover, the company announced at the beginning of December 2013 more positive drilling and logging results in Colombia from the Moqueta-12 (Putumayo basin) delineation well and the Mayalito-1 (Llanos basin) exploration well.
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