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Interview

Alberto Saggese – President & CEO, Gas y Petróleo de Neuquén, Argentina

The President & CEO of Gas y Petróleo de Neuquén highlights the significant potential of Neuquén’s far west gas assets, describing its specific challenges due to its remote location, and the incentives needed to attract more investors.

You were appointed the president & CEO of Neuquén’s GyP in 2014, what have been your major priorities since assuming the position?

GyP now produces 500.000 m3 of Natural Gas and 60 m3 of oil per day, and has four non conventional pilot projects in progress in association with Shell, Total, Exxon, and Wintershall.

My main priority was to encourage our partner companies to declare the commerciality of the blocks and initiate pilot projects, thus establishing the potential of the unconventional resources within the blocks and accurately valuing its prospects. Another priority was the promotion of GyP conventional prospects and encouragement of their development. As a consequence of that, GyP now produces 500.000 m3 of Natural Gas and 60 m3 of oil per day, and has four non conventional pilot projects in progress in association with Shell, Total, Exxon, and Wintershall.

You worked for various international and local oil companies prior to becoming CEO of GyP; to what extent does this experience support your efforts to attract partners to Neuquén?

My previous experience in International Operating Companies complements my work for GyP significantly; the type of partners we have are operating in Argentina through domestic affiliates, which means that the important decision making capacity lies outside Argentina. Often it is helpful to understand the decision making process in countries where the decision is made as it helps to facilitate the process from the start in the right manner. As partner, we help with technical decisions and even collaborate with operating committees in an advisory role; however, we are not engaged in day-to-day operating decisions.

One major hot topic in the industry is increasing productivity and efficiency; how does GyP advance in these two dimensions in the context of the high production costs and the strong power of the unions in the Argentinian business landscape?

We promoted with our partners workshops in certain topics like drilling, exploration, administration and legal procedures as well as environmental issues. In these workshops, experiences can be shared and best practice solutions consequently established. The aim of these workshops is to create synergies between all of our partners which has been greatly appreciated. Nowadays workshops have already gained autonomy from our organization.

Concerning the unions, we do not have a direct link, but as one of GyP’s directors is the General Secretary to one of the most significant unions in the industry, we have a unique opportunity to communicate with him the challenges, needs and thoughts of the industry.

What are the key assets in Neuquén and how does the current permit holder profile look?

The main issue we’re facing in Neuquén is that major assets are already distributed among a handful of key players; in Vaca Muerta all the high profile spots are already under concessions. The majority of oil and gas assets are under concession rights owned by majors such as YPF, Petrobras, Total and Exxon among others. Therefore, the development of these high profile assets depends on the concession holders’ investment policy as their rights of concession must be respected. Consequently, the areas not under the possession of majors are mostly the gas assets in the dry gas window of Vaca Muerta and I’m confident that the investments of new players should be directed into this area. However, the assets are in undeveloped, remote locations which pose certain challenges in developing the area to its full potential. For the aforementioned assets we need appropriate investment incentives to attract companies willing to sustainably commit to these assets and the benefit of Argentinian energy consumption, as we will not be able to stem that challenge alone.

What are the specific challenges with the dry gas assets and how are you addressing those?

The aforementioned assets located in the west of Neuquen are distant from the necessary infrastructure and logistics. We are in contact with specialized companies, which are working on an infrastructure development masterplan as we speak and I am confident that we will solve the challenge in the near future.

How do you anticipate the development of these sites?

It is arduous to accurately predict future development, simply because the major investments are currently focused on oil and associated gas assets and I don’t see any project or pilot for the dry gas assets in the short-term. Although the government gives clear price incentives, gas is not a commodity therefore it depends largely on the internal market, which in Argentina still lacks investor confidence. The issue is, that these kinds of investment are typically set out for a period of 35 years or more, hence the price today—currently at USD 7.5 per MM BTU—must be complemented by a sense of sustainability for investors to be assured of their return on investment.

Could you please expand on the current and future investments in GyP’s pipeline?

We currently have four pilot projects running, with significant investments; USD 250 million from TOTAL, USD 300 million from Shell and another USD 300 million from Wintershall. Almost totaling at USD 1 billion—just for pilots to determine the real value—the possibilities of the areas should be obvious given the former investment volumes.

What is the rationale behind these pilots?

The pilots are set-up as mini development projects with the ambition to determine if the correct path of the potential well is chosen. It comes down to a matter of break-even and what potential earnings are. If earnings are apparent, the company goes ahead with the development and production – it’s just that simple. We’re currently at the mid-stage of the learning curve which eventually will tell us if a project would be worth the investment or not, by allowing us to put a clear value on the apparent assets; I believe another four year period will be needed to achieve clear results.

Could you please outline the feasible business case you’re seeking to find?

I believe that we have the perfect business case; we have the best rocks capable of producing enough gas to provide Argentina’s market. 40 percent of Argentina’s gas consumption depends today on imports and the challenge is to replace imports with local production, an unmatched utopia for business!

Where do you hope to lead GyP in the next four years?

We will be the vehicle to drive development within Neuquén’s government; an efficient and effective executioner of incentivizing policies for the benefit of the whole region.

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