Leonardo J. Brkusic – Executive Director, Grupo Argentino de Proveedores Petroleros (GAPP), Argentina
GAPP’s Leonardo J. Brkusic discusses the current challenges of the Argentinian oil and gas industry, the need to work towards a balance of local O&G industry and infrastructure, and the technology development needed in order to attract international investments and fulfill the country’s tremendous energy potential.
You have led the Argentinian Group of Suppliers for the Oil and Gas Industry (GAPP) since 2004. Can you please start by giving us a brief overview of the organization’s mission?
We meet international standards in terms of the quality of our products and services, our companies have, on average, more than 40 years of experience, and we have a local oil and gas industry with a history of more than 100 years.
GAPP (Grupo Argentino de Proveedores Petroleros) started as an entity focused on the promotion of the commercial activities of its members. However, over time we have come to understand that we also have to help with the integral development of our companies. This underpins our DNA; we help companies to sell better and be more competitive.
We currently act as a chamber but with broader ambitions than commercial ones. Indeed, we have been supporting our member companies in several fields, such as financial lines and subsidies with financial institutions or governments, technical and management standards certifications, consultancy and support on business and production, and commercial promotion.
Expanding on the commercial support that we offer to our members, we schedule more than 15 business trips per year to countries such as Colombia, Peru, Bolivia, and México, as well as to the US and Middle East in order to promote our industry in general and our members in particular. Every year we try to visit new markets, for example this year we are going to Europe to visit EPC (Engineering, Procurement and Construction) companies.
In terms of GAPP’s members, what type of service provider dominates?
We are proud to say that we are really diversified and, through our company members, are represented in a broad range of fields. It is worth saying that the most important component is metal mechanicals, as it generally is in the industry, but we also cover areas such as oilfield services, engineering, software, chemicals, and explosives. Additionally, we have a lot of geographic coverage since we have companies from 11 of Argentina’s 24 provinces.
Being able to cover different areas of expertise is really important for us because it enables us to offer the complete solutions that our customers may need. GAPP was born with this purpose; putting together different companies and approaching new customers with a solid offering. This is a big difference in comparison to other associations that usually group together companies that share the same activity.
We have three different types of customers: oil companies, oilfield service providers, and EPC companies. Depending on the company, its product lines can satisfy the needs of only one, two or even all three segments.
GAPP has more than 100 members that are part of the association representing a niche that plays a major role in supporting the Argentinian oil industry. What is, in your opinion, the role of Argentine companies within the national energy landscape?
Argentina is a country that produces a marginal quantity of O&G nowadays. However, to do so we need to put great effort into stimulating more than 25,000 productive wells. That has developed a diversified industry of manufacturers of oilfield equipment and related services. We use to say that Argentina is one of a group of 15 countries worldwide that produces oil and counts on a medium- to high-range technology local industry of oilfield equipment and services.
A key priority for our members is investing in our capabilities in order to face the increase of demands in quantities and technologies once Vaca Muerta starts to be more productive. Currently, we would probably not be able to satisfy future high demand and motivate foreign companies to enter the Argentinian market. Being ready for the future and enhancing the current production capacity is a key priority for us and our members, as is looking for partnerships with those companies.
During our visits to various countries in the last decade, we have come to understand that, in order to enter a new market, approaching companies need local partners. Thus, in my opinion, Argentinian companies will be even more important in the domestic oil and gas market in future.
In this regard, for example, we were invited to visit Canada this year as their industry and way of working is quite similar to ours, and both Argentinean and Canadian companies have been developing new complementary technologies for today’s production challenges. We are trying to increase the development of our technology through partnerships, like that with Canada, in order to be ready to fulfill future needs.
As the Argentinian industry moves from conventional to unconventional oil exploitation, how have service providers evolved to adapt to the technical demands?
Unconventional oil and gas exploitation needs new technology, especially in the stimulation stages, in order to run in an efficient manner. Nevertheless, some of the technology used in conventionals can also be used in some phases of the unconventional oil and gas processes.
In this regard, we have started to partner with both national and international companies in order to develop new equipment technologies tailored to unconventionals.
The development of technology is a big challenge for the industry due to the fact that the technology developed in other countries such as US may not be 100 percent applicable to our terrain. We are working towards the development of the best technology tailored to our shale & tight plays in order to achieve a productivity level that will enable us to become more intensive in terms of output.
What are the strengths of Argentine companies compared to the competition in Latin America and the rest of the world?
The technology developed in Argentina is well recognized worldwide
The technology developed in Argentina is well recognized worldwide; we have noticed this fame after visiting more than 25 markets worldwide from Latin America to Middle East. We are proud to say that we have an industry capable of fulfilling the needs of global customers. There are only a few high-end cutting edge technologies we need to import from Asia, Europe, or the US to perform our business activities. In addition, our products and services meet the same standards as American or European products and services. We have a great tradition in supplying technology to companies in South American countries such as Colombia, Brazil, and Chile.
You have seen the Argentinian oil and gas market evolve dramatically in your 12 years in the industry; moving from being a major energy exporter and pioneer in the development of natural gas to an oil and gas importer as of 2011, with energy imports costing Argentina around USD 7 billion per year. What evolution do you foresee for the oil and gas sector in Argentina?
We were prepared for this situation because we already knew that it was going to happen sooner or later. Nevertheless, the future will be defined depending on the actions that we undertake as a country (both private sector and government) to define strategies and goals for the local O&G industry and transmit confidence and certainties to our potential international partners. We hope that the recently reached agreement with the investment firms will be a great lever for the incoming of international investors.
Independently, we believe that this situation is also an opportunity to develop technologies and add more value to the output of the oil and gas industry. This is the reason why we are going to Canada and other countries to look for partnerships in order to develop the right technologies to face the future challenges that will arise in the Argentinian landscape.
With the recent arrival of President Mauricio Macri, the new government has taken some measures to boost the oil & gas sector with a USD 11 million-plus incentivized oil program, tax exemptions to companies that invest over USD 250 million over a three-year period, and the nomination of a new minister of Energy, Mr Aranguren. How does the change in landscape and regulatory level impact Argentinian SMEs?
We have not yet perceived a direct impact of these actions on our business but we hope that it boosts the industry back to last year’s level of activity as local suppliers have been preparing to cover industry demand. We have great expectations of the short- to mid-term future but we also know that the market has to reorganize stabilize to achieve its potential. Argentina is in a process of implementation of measures and instruments that will bring results at the end of 2016.
With the excitement around Vaca Muerta rivaling the shale plays in Bakken and Eagle Ford in the US, how is the industry gearing up to unlock and maximize the resources in the region?
Vaca Muerta has already been supplying oil and gas to the country; almost eight percent of the gas produced in Argentina in 2015 was from Vaca Muerta. However, Vaca Muerta is not at the level of Eagle Ford mainly due to the huge investments in shale that have already been carried out in the US.
In addition, there is another big difference between Eagle Ford and Vaca Muerta regarding the configuration of the market. In the US the oil and gas players in Eagle Ford are different to those investing in Vaca Muerta (Exxon Mobil, BP, Petronas, Wintershall, Gazprom, Dow, Chevron, Shell, and YPF); this means that the big companies have some prospects about the potential of the shale oil and gas in Vaca Muerta and they have just started to invest in it. We would need the same level of investment, especially in infrastructure as in Eagle Ford, to achieve the maximum potential of Vaca Muerta and to enter into a proper commercial phase of our shale and tight plays.
How do you communicate the strengths of GAPP’s members when you go to international markets to attract business?
It is really important to communicate that we meet international standards in terms of the quality of our products and services, that our companies have, on average, more than 40 years of experience, and that we have a local oil and gas industry with a history of more than 100 years. Nevertheless, our main competitive cutting edge is that our products are highly tailor-made to our customers’ needs. Indeed, American and European products and services usually work under catalog specifications rather than on tailor-made demand. This reality is based on the fact that our companies historically started as niche players in the industry; finding the gap that the European and American products were not able to supply.
We know that we compete in the range of high quality supply in terms of prices, standards and reliability. Thus, our current marketing effort is tailored to create awareness of our national brand in order to gain opportunities. This is why we think carefully about which companies we promote for concrete business in order to find the correct partner for them.
According to Goldman Sachs, “Argentina has the largest and most predictable production growth outlook in Latin America over the next five years.” What are your expectations for the future of Argentina in the oil & gas industry?
We believe Argentina is going to be one of the highlights for the oil and gas industry worldwide in future years. Tight gas resources have the potential to increase Argentina´s natural gas reserves by 72 times. We are heading to a really interesting opportunity for developing newer and even more technologies for unconventional operations as we are the third commercial development of shale and tight plays. We are confident that this scenario will revitalize conventional resource plays as well, and that the productivity and competitiveness of our industry will improve.
We know that this is the moment for our companies to upgrade to the next stage based on the huge potential demand that is coming and the challenge of being the pioneers of developing the new era of technology.
It is a challenge to prepare our companies, but it is also a challenge for our country to develop the necessary infrastructure and revitalize, promote, and develop regional economies across the country. This starts in Neuquén with Vaca Muerta, includes the offshore projects in Golfo San Jorge, and includes the Austral Basins on the Atlantic Ocean shores from 2017 on.
We expect new E&P players and the approach of worldwide suppliers to the local market. We at GAPP are ready to collaborate with them with local networking and support finding local partners and business opportunities.