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Interview

Gustavo Smidt – Executive Director, CEOPE, Argentina

Gustavo Smidt_Exeuctive director_CEOPE

Gustavo Smidt, executive director of the Cámara de Empresas de Operaciones Petroleras Especiales (CEOPE), discusses the Argentinian oil and gas industry’s challenges, the necessity of stabilizing the market in order to attract new capital investment, and the strengths of the local oil services business network.

Could you introduce to our international readers your role within the chamber as well as the successful history of CEOPE?

The role of oil and gas service providers has not changed despite market evolution; however the technology used in the exploitation of the terrain has had to align itself with new business trends.

CEOPE was founded in 1966 and has gone through different stages since then according to national economic performance. Notwithstanding, the chamber has been strengthening its presence and its influence, leveraging itself in the volume and quality of its company members to become what it is today.

As executive director of the organization, my main responsibility is to coordinate the activities of the chamber and associated companies. Currently, the chamber has approximately 40 oil service company members; including Weatherford, Baker Hughes, Schlumberger, Bolland, Halliburton, and San Antonio.

Nevertheless, during our recent history, the activities of the association have been more focused on giving support to our members in topics related to labor and negotiation with the unions. This is due to the fact that in Argentina the unions have tremendous power in comparison to other countries and, within this scenario, CEOPE acts as a representative of its members in order to defend their interests.

In addition, the role of the unions has gained more relevance in the last few years because of the economic energy crisis where the companies threaten with firings and the unions ask for wage increases. CEOPE also gives support to company members in subjects such as material importation, and technical back up.

The oil and gas industry in Argentina is transitioning from conventionals to unconventionals. How are oil and gas service providers responding to this transition?

The role of oil and gas service providers has not changed despite this market evolution; however the technology used in the exploitation of the terrain has had to align itself with new business trends. Nevertheless, the companies that are ready to face this new era are those who have already run projects with this technology in other countries such as the US. These companies have brought to Argentina their experts in the unconventionals field in order to transfer their know-how to the new generation of professionals and build up knowledge around unconventional resources.

I am proud to say that the oil service provider industry of Argentina is well consolidated and has been able to adapt itself to the transition from conventionals to unconventionals. Shale is a great opportunity as well as a big challenge for companies looking to increase their business in Argentina. The necessary technology can be obtained through in-house developments or partnerships.

What is the potential of the business network of Argentina for building the partnerships needed to develop current exploitation projects?

All companies need partnerships in order to develop their businesses; there are few companies able to do so totally on their own. Indeed, when a foreign company comes to Argentina it needs the services and the market knowledge of local companies to run its business.

The big challenge facing the national industry is the shortage of work due to the decrease of new recruits as a consequence of the fall in oil prices to approximately USD 48 per barrel. Even though the government is subsidizing part of the oil price fall by paying USD 63 per barrel in Neuquén, there are still some companies that are running their business at a loss due to the low productivity and high exploitation costs of the industry.

It is worth saying that due to the fall in oil prices there have been big bankruptcies in the US that have destroyed around 260,000 jobs. Nevertheless, the situation in Argentina has been approached differently in order to avoid this labor destruction. Companies and the government are assuming costs through price subsidies and avoiding firings. All the aforementioned factors make the evolution of the Argentinian industry unpredictable in the long term and the economic and social costs are potentially extremely high.

Argentina currently has some long-term oil and gas projects with huge potential for the national industry such as Vaca Muerta. What investments are needed in these projects to achieve their maximum potential?

The exploitation of energy sites such as Vaca Muerta needs big capital investments in order to build the infrastructure required and, for this purpose, the entrance of new international and national investors is highly needed.

Even though investments in this field are in the long term, they are high risk and the environment does not offer the stability needed to attract new investments. It is true that Argentina is in the center of a lot of investment plans but companies are awaiting an evolution of the rest of the factors before investing.

In addition, there are certain political actions that are artificially maintaining the industry such as price subsidies and their maintenance in the mid-term future is not assured at all. It is not fair that Argentinians are financing the low productivity and the high wages of the national oil and gas industry through taxes; a highly-sensitive subject that it is currently under debate.

In my opinion, in the mid-term, the only investments will be those that come from investors that have already invested in the country such as Chevron, which invested around USD 2.6 billion, as a consequence of the high costs of leaving or disinvesting in a project.

Taking into account the political actions already undertaken and those planned for the future, do you think that President Macri and the current government will be able to attract the investment needed in the long term in order to develop Vaca Muerta and obtain its maximum potential?

The entrance of new investments depends not only on the actions of the current government; indeed the scarcity of investments is also a consequence of the global situation in the oil and gas industry.

The current national landscape affects our industry less than others because our projects are for 25 years or more. However, national legal stability and free global trade has a collateral impact on business decisions and, in this regard, the oil and gas industry has advanced.

Our perspective on the evolution of the industry has been more positive since the election of President Macri and some of his actions are bringing great results. However, there is still a long path to cover. Therefore, the entrance of new investments for developing the big potential of oil and gas fields such as Vaca Muerta will be conditioned by the evolution of the industry’s macro economy and the national actions taken by the government to enhance the industry.

How do you foresee the role and the quantity of company members of CEOPE in the upcoming five years?

The role and added value of the chamber has been increasing over the last few years as a consequence of the economic situation of the industry on a global and national level. The current situation has created a necessity for the companies to associate and partner with others in order to overcome their challenges and face the current threads of the industry.

In my opinion, in the current situation, it is crucial to have information in advance to be prepared to face the obstacles that may come in the mid-term future. The current and future role of the chamber is to help company members prepare for the uncertain future through sharing information and helping their development. As executive director of the chamber, I will be in charge of maintaining the proper evolution of CEOPE ensuring that our company members receive all they need to be ready for the future.

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