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Interview

Juan Pablo Gozio – Co-founder & Partner, Emerald Resources, Argentina

21.09.2016 / Energyboardroom

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Juan Pablo Gozio of Emerald Resources Argentina explains the company’s plan to fully establish themselves in the Argentinian midstream sector by partnering with some of the largest energy companies in the world.

You established Emerald Resources six years ago, what was the driver behind the decision to start up your own enterprise?

Emerald Resources is still a small company … nonetheless, we can provide decades of experience in the oil and gas industry

Six years ago, Marcelo Sampataro—my good friend and partner—and I, realized that the industry in Argentina had one main differentiator in its value chain in comparison to other large markets such as the US: Argentinian midstream assets, which are typically owned by individual companies, are all owned by the domestic upstream segment; simply because the large midstream companies present in the US, Norway and the Middle East are not present in the country. We identified a significant opportunity in the midstream segment: acquire some of those assets and operate them when the domestic oil and gas industry starts to gain momentum. The upstream segment is in need of cash to finance capital intensive exploration and production activities and thus has a natural desire to sell their midstream assets. Seeing this opportunity, we are currently entering strategic partnerships to acquire midstream assets in an effort to leave the pure consultancy business. Emerald Resources is still a small company in comparison, nonetheless, we can provide decades of experience in the oil and gas industry.

Emerald Resources is also established in the gas trading business of Argentina, to what extent are you trading off your operations in this establishment for the benefit of acquiring assets?

Gas trading was our initial business focus and still accounts for 60 percent of our business today. However, we anticipate a drastic shift of business activities towards our planned midstream operations. That does not mean we want to limit our gas trading activities, however, we want to acquire hard assets in the midstream segment and diversify our business portfolio into this area for this to become our core business. Frankly speaking, we started gas trading simply because we had the expertise and know-how to succeed in this segment enough to maintain a constant cash flow, pay our bills and ourselves and invest further into developing our business. We do not want to minimize our gas trading business at all; the plan is to maintain what we have as second—and reliable—revenue stream! The plan is to grow the other side of our business while maintaining our trade volume.

You have successfully finished projects all across the oil and gas value chain; how would you define your current position in the value chain?

We acted as a consultancy in a variety of projects across the entire oil and gas value chain; those projects have included the assessment of some E&P assets and the value analysis of mature fields. We carried out these kind of projects across the whole region including in Peru or Colombia. Although we were succeeding as consultants, we were unsatisfied with our share of the pie: why help the business of others, if you are not part of the business? This is why we decided to find US companies seeking to tap into the vast potential of the Argentinian oil and gas landscape; we provide local know-how, network and support the complete investment process and are in return part of the business shareholders. This process of co-investing into Argentina is tailored to the midstream business, hence why I would position ourselves in the midstream segment—at least for the next five years.

How does the Argentinian business environment compare to its regional neighbors?

In regional comparison, Argentina offers a friendly business environment similar to Chile, or Peru. Frankly, the only tough market is Brazil—especially in the current context. What differentiates Argentina from the other countries are the recent political developments opening up the country, in combination with the genuinely great potential this country has to offer to the industry. These developments were one of the key drivers that let to our most recent partnership with Energy Transfer Partners (ETP), one of the largest energy companies worldwide. In partnership, we seek to fully realize this potential to our mutual benefit.

What is your method of financing these ambitions?

We are working closely with local private equity funds specialized in Latin America. Additionally, we have our own cash and are always seeking to realize these projects in partnership with strategic partners who carry their share of the financial burden.

Some commentators argue that the Argentinian pipeline infrastructure is not developed enough. How do you perceive the state of the pipeline infrastructure in Argentina?

I would disagree with this statement: the pipeline system in Argentina is a little bit overdeveloped! If scrutinizing the networks from TGN & TGS—Argentina’s largest gas transportation companies—it becomes apparent that there is no need of expansion in the next five years. Of course it depends on how fast Vaca Muerta is going to be developed. Some years ago, when oil and gas prices were still skyrocketing, Argentina’s hydrocarbon resources were at the vanguard of being exploited. Having anticipated these developments, the downstream gas network was enhanced significantly. Unfortunately, the landslide in commodity prices hindered the development of Argentina’s hydrocarbons, hence why we have a small overcapacity in our transmission system.

How would you define the overall objective of Emerald Resources?

Our dedicated mission is to be part of the deals rather than consulting on these deals! We do not want to be silent bystanders anymore; together with ETP, we will invest into Argentina’s midstream segment and acquire existing midstream infrastructure. We are confident that the development of Vaca Muerta will significantly enhance Argentina’s hydrocarbon production and thus naturally result in increased demand for all midstream processes.

A lot of other Argentinian companies are trying to partner with companies from abroad in order to invest as partners into the country. What do you offer to potential partners?

In my experience, a trusting relationship is the most significant aspect of these partnerships. As company, we have the genuine track record, transparency and sincerity to be a trustworthy partner. The trustworthy relationship, however, expands from the simple company to company relationship to the country itself. In the past it has been a challenge to promote Argentina to foreign investors, the change in administration, however, has changed the perspective of many foreign investors allowing companies such as ours to succeed in attracting strategic partners to Argentina.

How would you assess the attractiveness of Argentina to foreign investors?

Frankly speaking, our government and YPF are in dire need of investors coming into the country, hence why the business environment has changed significantly already and will change even further in the short-term future. A current challenge from a macro perspective is, that a lot of memorandums of understandings are signed which foresee investments, the real investments, however, have not arrived yet. I believe that Argentinian companies such as ours are contributing significantly to drive the development of the country; we are part of the investment efforts and will support the drive of the operations significantly.

Frankly speaking, our government and YPF are in dire need of investors coming into the country, hence why the business environment has changed significantly already and will change even further in the short-term future

What can you tell us about your newest partner Energy Transfer Partner (ETP)?

ETP is one of the most distinguished energy companies in the world and has significant experience in the midstream segment. In the US, for instance, they established the first gas processing plant to ever operate in the US market, today they process 2.5 times of the entire Argentinian natural gas production and transport five times of the Argentinian natural gas production; by complementing their global know-how and technological expertise with our country specific expertise and track record of excellence, the success of our partnership is imperative.

What are the challenges to overcome in finding the right partners and what are the most frequent questions you need to answer?

Through Tom Sawyer, our partner and a common friend, access to the top management from ETP has been made possible, which allowed us to fulfil the first step: establish a trusting relationship on eye level. In this case, communication in between both parties has been excellent and we are completely transparent to one another. When discussing the potential of a partnership, most questions regarded Argentina as a country, not our company background. The business environment in Argentina at large was the main concern—in the context of the economic and political environment of the past decade, this does not come to surprise—we succeeded in forwarding the message send by our new government and ultimately projected the real image of Argentina. We were completely honest in all of its aspects: one aspect we made sure to communicate is, that we cannot possible provide a political trajectory surpassing the next four years—should the ruling party change again, it is impossible to predict what will happen. The final result of this dialogue was, that every stakeholder aligns in the believe that we have a great opportunity in Argentina..

Where will we see Emerald Resources ten years from now?

We are not far enough to project our size in ten years. Obviously, we seek sustainable and profitable growth but as of now I cannot reveal any tangible numbers because we genuinely do not know. The existing action plan, however, foresees to build up an asset base structure for Emerald Resources within the short to medium term future.

What is the message you would like to be heard around the world?

Argentina is currently in the spotlight of the global oil and gas industry—and rightfully so! We have the resources, we have a long history in this industry, we have the know-how, the manpower and now we also have the right administration to allow the full exploitation of this tremendous opportunity! Emerald Resources is prepared to support any investor to come into Argentina. We have the experience, network, know-how and capacity to support greenfield and brownfield projects across the entire value chain. In Argentina, you need to have a company that can introduce you to the right decision maker—and that is us. We are already able to support the aspirations of a success story such as ETP, which showcases just how much we can do. We are open for business!

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