The Latin America renaissance

According to a recent assessment by Wood Mackenzie’s Asset Risk Index (ARI) Service, Latin American governments are moving beyond resource nationalism and towards resource maximization. By taking a more holistic view of the oil and gas industry, governments are focusing in maximizing value via employment generation and industrialisation, coupled with higher revenues for expanding oil and gas output.

RoseAnne Franco, Country & Asset Risk Manager for Wood Mackenzie, commented: “States are also signaling more pragmatism regarding local content requirements and more receptiveness to foreign investment. While national oil companies (NOCs) will continue to play an important role in the industry, governments are also demanding more transparency and accountability”.

Mexico and Argentina, two of the region’s most strident resource nationalistic countries, have introduced reform and incentives over the last 18 months.

Mexico

President Enrique Pena Nieto has passed ambitious energy reform that liberalises the oil and gas sector. Discussion is currently underway over associated secondary legislation, which is anticipated to be completed before the next congressional ordinary session in September.

Franco said: “Mexico will offer a variety of opportunities – deepwater, tight oil, heavy oil and unconventional plays, among others. The first licensing round is expected in 2015. Wood Mackenzie forecasts Mexico’s risk environment will improve in the near term, but the increase in oil and gas activity will also likely raise risks over the forecast period”.

Argentina

Wood Mackenzie highlights the re-nationalisation of YPF, the Argentinian national oil company, in May 2012 proved to be an inflection point.

“Within months of the nationalization, the government of President Cristina Fernandez de Kirchner was seeking to re-engage with the oil and gas industry. Over the last 18 months, the administration has introduced incentive programmes and critically reached resolution with Repsol over compensation for it nationalized interests”, explains Franco.

“Recent efforts have yielded early results with state-controlled YPF signing agreements with Chevron and Dow Chemical. In mid-2014, the Fernandez de Kirchner administration is discussion an expansion of E&P incentives.

“While there is a downside risk in the near term due to economic uncertainty and a possible default, Wood Mackenzie anticipated further improvement in Argentina’s risk environment over the forecast period. The velocity of the improving environment will be defined by the October 2015 presidential election”.

Adapted from a press release by Emma McAleavey.

Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/28072014/latin-american-renaissance-1012/