More energy for Argentina: Palermo Aike
More energy for Argentina: Palermo Aike
Vaca Muerta's little brother could give an additional boost Argentina's energy surplus
Welcome Avatar! Today we will go over one of the latest oil and gas exploration projects in Argentina, considered to be the little brother of Vaca Muerta: Palermo Aike, its potential output and investment ideas around this new exploration region.
In August YPF will start exploratory drilling of Palermo Aike, a new oil region south of Vaca Muerta, in the south of Santa Cruz.
Palermo Aike presents higher temperature and pressure conditions than Vaca Muerta, which requires the use of special tools and deep drilling motors resistant to temperatures higher than those of the rock in the Vaca Muerta formation of Neuquén.
Palermo Aike is an extension of 12,600 square kilometers and has geological similarities with the known oil deposit of Vaca Muerta, albeit a bit smaller. In the case of gas it could be a third of Vaca Muerta deposits, and with regards to oil, Vaca Muerta can produce about 16 billion barrels, while Palermo Aike in Santa Cruz could reach 6.6 billion.
A lot of potential, and with this new Palermo Aike zone Argentina is cementing its position as second biggest oil & gas reserves on the continent after Venezuela.
Autist : About the name “Palermo” in Buenos Aires: this is just one neighborhood, but every neighborhood that is up and coming entrifying will be nicknamed “Palermo something”, so property owners can up their asking prices some more. Examples are “Palermo Queens” for the area in Villa Crespo between Avenida Córdoba and Corrientes, and jokingly I always call the area between Corrientes and Warnes “Palermo Bronx”, since it is only recently being visited by the Gods of gentrification.
The formation is located in the Austral Cuenca, more precisely in the city of Río Gallegos. The existence of hydrocarbons is already detected in a larger area, so in theory it could compete with Vaca Muerta in terms of dimensions and the real difference will be rock quality.
However, to confirm this difference with a higher degree of certainty, perforations need to be carried out first.
Start of exploration activities & CGC
The president of YPF, Pablo González, confirmed that YPF will begin drilling tasks in Palermo Aike between the 15th and 20th of August 2023.
This is the first time that a well is fractured in the conventional one outside the province of Neuquén (Vaca Muerta) and in this case by two Argentine companies. YPF will start perforations under a new alliance with another Argentine company: CGC (Compañía General de Combustibles S.A.).
CGC is an Argentine company dedicated to the exploration and production of hydrocarbons, mainly around gas transportation from Argentina to Chile and Brazil. CGC has interests in 12 oil and gas areas in Argentina and Venezuela.
In less than a month from now, a horizontal pit will be made near Cañadón Deus, an area located within the concession of El Cerrito, which belongs to the private company.
According to information from both companies, the drilling will reach a vertical depth of 3,500 meters and a horizontal extension of 1,000 meters. The process will take between 45 and 60 days and it is expected that the first productivity results will be known between November and December of this year.
It is noteworthy to mention that as you can see from the above map, CGC owns most of the lands necessary for exploration.
Production and development activities by CGC in the Southern Cuenca are carried out in compliance with 26 exploration concessions and 3 exploration permits, expiring between 2026 and 2058 and representing more than 67% of their total production and reserve base.
In January 2018, CGC extended the concession for the production of non-conventional hydrocarbons in Campo Indio Este-El Cerrito for an additional period of 35 years.1 These concessions represented 41% of its total production in 2021.
Another interesting fact is that CGC bought Sinopec Argentina Exploration and Production in that same year.
Autist note: if you’re interested in reading more about energy in Argentina, these are some additional articles specifically about Argentina’s energy independence and surplus starting 2024 onwards, and a detailed overview of the Vaca Muerta region:
Santa Cruz as a potential Neuquén 2.0
Since 2018 CGC has carried out dozens of exploratory wells and advanced with the fracture in two of them in 2021 and 2022 with positive results.
The province of Santa Cruz hopes that the development that YPF will carry out in Palermo Aike will encourage new companies to invest in the exploration and exploitation of its unconventional resources.
Santa Cruz has the resources and the infrastructure ready to be able to develop the unconventional potential. Now the need is for large companies to step in that want to invest in the province to help explore and exploit the Shale.
The province has an infrastructure of pipelines, gas compressor plants, and oil treatment plants with additional capacity.
In addition, the region counts with the gas pipeline Gasoducto San Martín and is located near the port of Punta Loyola, which would facilitate the exportation of the oil production to markets in both the Atlantic and theific.
Potential Investments
As I’ve mentioned before in previous articles related to energy in Argentina, the easiest play to lift on this trend is to invest in YPF, Pampa, Vista energy or other local companies.
YPF definitely always has the head start just because it is partially owned by the state, and like we’ve seen above, they are the first to start perforations.
YPF is also the company with a very interesting history you can read here:
It is a shame CGC is still a private company that can’t be traded on the S&P Merval, otherwise I’d sure drop some chips on it.
Another, far more adventurous investment with a lot more work involved, would be to rake up a lot of land in the Santa Cruz region of Palermo Aike.
As we’ve seen above, CGC owns the majority of the drilling rights already in that region, but the region is big enough to scoop up some additional hectares for next to nothing in a pooled investment — the price per hectare is low in southern Patagonia, but the land for sale is only sold in bulk, so it ends up being a considerable sum.
The plus side is that land is still very cheap, the downside is that land is only sold in immense quantities, making it an investment that will run in the millions, just because of minimum number of hectares.
What about property rights, Mara? I hear you. That is an additional detail that cannot be overlooked. The Argentine Constitution protects private property, but enables expropriations in cases of public utility, through a law and with payment of compensation.
The national Constitution establishes in its article 17 that “property is inviolable” and that “no inhabitant of the Nation can be deprived of it”.
But in the same article it clarifies that in exceptional cases, “the expropriation because of public utility, must be qualified by law and previously compensated”. Property is protected by the Constitution, except in cases of public interest.
The law of expropriation of the specific item in question must be approved by Congress with a simple majority. So it is not that easy, and when it does happen, you will receive compensation. But as you can see, a play like this carries multiple risk factors.
After this article I will personally be investigating some more around the shareholders and funding of CGC, and see what we might dig up there :)
See you in the Jungle, anon!
Also see this study from September 2018 for underground gas storage in the region