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Interview

Omar Gutierrez – Governor of Neuquén Province, Argentina

Omar Gutierrez_Governor of Neuquen

Omar Gutierrez, governor of Neuquén, is in charge of the second biggest unconventional oil and gas basin in the world after Eagle Ford. He talks achieving economic and social stability in Argentina as well as the profitable investment opportunities in the Neuquén Basin.

The province of Neuquén contains the second biggest unconventional oil and gas basin in the world after Eagle Ford. What are your main priorities as governor to ensure the development of production?

“Neuquén is currently producing around 50 percent of the total gas consumed in Argentina”

Neuquén is currently producing around 50 percent of the total gas consumed in Argentina but the gas price per million of BTU was not adequate considering the quality of our product. Therefore, Neuquén citizens have made the value recognition of the wellhead gas of our production as one of their priorities over the last few years.

In the past, the market was reimbursing us between USD 2.20 and 2.40 per million of BTU depending on the month, but now this price has been incremented to USD 5.30 and 5.60 per million of BTU in winter and summer months respectively.

Nowadays, close to 25 percent of the national gas consumed is imported from foreign countries; however, ever since the feasibility of the unconventional gas extraction in the Neuquén Basin was demonstrated and the gas price of our products was properly settled, this curve can be reverted and can bring back Argentina to export status.

One of my main priorities is advancing towards the creation of an attractive scenario that can offer profitable opportunities to attract national and international investments and ensure the development of our energy potential.

What are the investments that the province needs in order to develop the Neuquén Basin production, maximizing oil and gas extraction, and solving the Argentinian energy crisis?

Every crisis brings with it opportunities and Argentina, hand in hand with Neuquén, has the possibility of growing oil and gas production and solving the energy crisis. Indeed, the Neuquén Basin gas production has experienced a growth of 8.5 percent among the last year.

Neuquén is working towards the turnaround of the Argentinian oil and gas production negative curve, leveraging this advancement in the development of its own oil and gas unconventional basins, which represent around 30 percent of the total gas produced in the province. In addition, it is worth mentioning than only 9.5 percent of the 32,000 square kilometers of Vaca Muerta’s surface is under exploitation, thus there is a huge potential ahead.

However, in order to continue with this trend and reach the expected levels of production, the province needs certain amounts of investment tailored to infrastructure development that would enhance the efficiency and productivity ratio, gaining competitiveness. The big obstacle facing the development of the basin was the settlement of a proper gas price according to the high quality of our products and permitting profit returns, but this has already been solved.

I am proud to confirm that there are already some projects in progress such as the enlargement of the routes that get to Añelo (Vaca Muerta’s epicenter) or the construction of a train line that will connect the Pacific to Vaca Muerta’s basin, this last supported by YPF. We are really conscious that the investments that are going to be carried out now will be the lever to obtain more investments in the future.

Neuquén has an infrastructure base that considerably reduces the amount of investment needed for its development. What is your assessment of Neuquén’s infrastructure in comparison with those of other provinces?

Neuquén was an energy producing province in the past, indeed it used to have a higher level of production that what it has now and therefore it already has part of the infrastructure developed. In the last few years, the curve of oil and gas production has been continuously declining but gas extraction and treatment facilities and the gas pipelines to transport it to center of consumption among others are still there on idle capacity. However, they can be used for the unconventional development of the Neuquén Basin.

Neuquén is the only province which owns an oil and gas company, Gas y Petroleo de Neuquén. What is the relationship between YPF as a state-owned company and Gas y Petroleo as province-owned company?

The relationship between YPF and Gas y Petroleo de Neuquén is based on complementation and integration, developing projects in the Neuquén Basin together or separately with other companies.

However, we clearly know that for Vaca Muerta’s development we need to foster investments coming from companies that already have a presence in the basin and the entrance of new investments coming from companies that still do not yet have operations in Vaca Muerta. We know that there is a huge quantity of energy resources, there is a price, there is human capital fully capable, and that a tradition exists in the development of conventional and unconventional; but we need investments in order to reach the full potential of the Neuquén Basins.

You have carried out several road-shows in countries such as Russia and the USA. What are the main conclusions that you get from international stakeholders?

Argentina is currently in the middle of a transformation process and since president Macri took office in December 2015, economic reforms have been implemented at an unimaginable speed. The international investors are highly satisfied with the latest advancements but more time is needed in order to get their trust and Neuquén is in the middle of this frame.

“The first movers to invest in unconventional development in Argentina will have a competitive edge”

Nevertheless, when I am doing my international visits I let them know that the first movers to invest in unconventional development in Argentina will have a competitive edge over the rest of the competitors. Neuquén is a land of opportunities and is opening itself to international markets in order to get those investments that will enable the development of its hydrocarbons. We want to contribute in the advancement towards a solution to the energy crisis, fulfilling the national demand, and bringing Argentina back to exporter status.

What steps has Neuquén made to ensure the economic and social stability that will increase the attractiveness of Argentina, building the trust of the potential national and international investors?

Neuquén is in the front of the energy matrix diversification process of the country, developing renewable energy projects such as hydroelectric and wind. In this regard, we are in the final stage of signing a financing agreement of USD 1.5 billion for a hydroelectric project called Chihuido that will create huge social and energetic benefits with the generation of approximately 640 megawatts and the creation of more than 5,000 jobs. In addition, such a project will be the lever for the opening of five new dams that will increase the aforementioned benefits. The hydroelectric potential of the province is huge as it owns the second largest hydric basin in Argentina and 95 percent of the water that flows through the basin it is not being exploited.

We are fully aware that the energy SME community of the province has a big impact in jobs and wealth generation and, as a consequence, the provincial government of Neuquén is working to strengthen such business networks by offering tax incentives and capacitation programs, among others. Neuquén is working towards achieving economies of scale and to get that we need consolidation and investment from both big and small companies.

In my opinion, the model that is being developed in Neuquén is a model that should be followed by the rest of the provinces and would ensure the social and economic stability that would attract national and international investments. From the energy perspective, Neuquén is strengthening and developing a plan towards conventional and unconventional production and renewable energy development that, together with other political actions, will create the social and economic stability deserved.

The high oil and gas production costs in Argentina create an industrial challenge. During your speech at Club del Petroleo you commented that efficiency and productivity do not mean firings, but mean new investments that would create new jobs. How do you aim to gain efficiency and productivity in the province?

The increase in the price of our products as a result of their high quality is a cornerstone in the advancement towards the efficiency and productivity improvements of the business community. In addition, we need to get the investment that will enable the technological developments required to improve the product in quality and quantity.

The efficiency and productivity improvement is a continuous process that will be advancing inasmuch as new technologies will be incorporated reaching economies of scale. All the industry stakeholders must be aware that, within an environment where the price is generally determined by the international market, the advancement towards structural cost optimization is crucial to survive and compete.

If we were able to reduce our production costs at the same level of other countries such as US, currently close to half of the oil and gas production costs in Argentina, the profits would enable us to invest in better technologies that would be translated into new jobs.

Considering the strong power of the unions in Argentina and given the complicated situation of the industry, how do you facilitate the relationship between companies and unions in order to improve and ensure the sustainability of the province?

As governor of the province of Neuquén I regularly meet with companies, unions, employees and chambers in order to strengthen the common commitment towards industry development.

There is a logical virtuous cycle starting with the attraction of investment that will enable more exploration activities and, as a consequence, the production will increase, creating new jobs. All of us are aligned to the same direction and we must think as a whole collective rather than as individual organizations.

What is your last message to our international readers about the potential in Argentina in general and in Neuquén in particular?

Neuquén has high-qualified human capital in conventional and unconventional exploitation and it has the energy resources in quality and in quantity. Nevertheless, the bottleneck of the potential is the investment needed to its development.

From the central and provincial government we are actively looking for such investment carrying out several road shows in US, Russia, Chile or Canada communicating the big and profitable investment opportunities existing in Argentina.

We strongly believe that the improvement of the competitiveness of the country and the province of Neuquén will attract the national and the international investments needed to take advantage of the existing energy opportunities in the unconventional resources and in the renewable energies. This is the path of development to solve the energy crisis of Argentina.

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