Latin America’s national oil companies (NOCs) posted quarterly profits that would delight any investor, but with the exception of Argentina this hasn’t so far translated into significant oil and gas production increases.
The oilfield services firms touted strong growth from Latin American operations in the first quarter. Halliburton Co. reported first-quarter revenue from Latin America of $653 million, up 22% versus the first quarter of 2021. Baker Hughes Co. CEO Lorenzo Simonelli said in 2022, the firm expects “to see another strong year of growth in Latin America, led by Brazil and Mexico,”
Schlumberger Ltd. reported first-quarter revenue of $1.2 billion from Latin America, up 16% year/year and flat sequentially.
“Of course there are tremendous differences in the different regional NOCs,” Francicso Monaldi of Rice University’s Baker Institute for Public Policy told NGI’s Mexico GPI. The “two better run companies” are Brazil’s Petróleo Brasileiro (Petrobras) and Colombia’s Ecopetrol SA, “and they already have clear plans about what they want to do in terms of investment. But Petrobras is the only one that really has prospects.”
Colombia’s Ecopetrol SA recorded total production of 692,000 boe/d during the first quarter, up 2.4% year/year, with natural gas accounting for 19.8% of the total. Ecopetrol reported net income of 6.6 trillion pesos ($1.63 billion) during the first quarter, up from 3.09 trillion pesos in the same period last year.
“Ecopetrol doesn’t have that many interesting opportunities to use their cash. And they face a politically difficult position,” Monaldi said. The frontrunner in Colombia’s upcoming elections is Gustavo Petro, who has said he would halt oil and gas development in the country.
Executives at Brazil’s Petróleo Brasileiro (Petrobras), meanwhile, reiterated that production growth would be steady and would not vary despite the high price environment. Petrobras “remains committed to implement its strategic plan” for 2022-2026, said chief exploration and production (E&P) officer Fernando Borges.
The plan is based on maximizing the company’s pre-salt deep and ultra deepwater assets. Production is “long cycle” and based on an anticipation of resilient pricing, he said.
The company aims for production growth of around 20% in its 2022-2026 plan, or about 100,000 boe/d each year. But, Borges said there is “no chance” for short-term production increases that would be relevant to the global market.
Oil and gas production rose 1% year/year in the quarter to 2.8 million boe/d, of which 550,000 boe/d was natural gas. Pre-salt production rose 1.9% in the same comparison, to 2.03 million boe/d.
Higher oil prices were the driving force behind soaring profits at the state oil firm. Net income in 1Q2022 was $8.6 billion, compared to $5.6 billion in the fourth quarter of last year and $180 million in the year-ago quarter.
In Brazil, higher oil and gas prices are a political issue. Brazilian President Jair Bolsonaro criticized the company for the results, saying that higher fuel prices were squeezing ordinary Brazilians. This week, Bolsonaro’s government axed CEO José Mauro Coelho after barely a month on the job. He was the third CEO in a little over a year to lose his job over the higher prices.
“As always, Brazil faces the issue of the government subsidizing the domestic market, but cash flow will increase significantly,” Monaldi said. Given recent company restructuring, “they are in a very strong position to take advantage of the high price environment.”
Mexico’s Petróleos Mexicanos (Pemex) reported its highest profit in 18 years in the first quarter. Net income was $122 billion pesos ($6 billion), compared to a loss of 37 billion pesos in the year-ago quarter. The company said that exchange rate gains helped in the result.
But production only inched up in the quarter. Natural gas production hit 3.821 Bcf/d, up 3.3% year/year. Non-associated gas output rose 5.8% year/year. Oil output was 1.755 million b/d in the first quarter, up 2.3% year/year.
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Argentina: The Exception?
Argentina’s state firm YPF SA seems to be pushing into ramp-up mode. The Vaca Muerta shale play in the Neuquén Basin drove a 16% year/year increase in oil and gas output to 506,000 boe/d during the first quarter.
Argentina’s rig count jumped to 54 in April, compared to 33 last April, according to data from Baker Hughes Co.
Natural gas output in the quarter rose by 19.8% y/y to 38.1 million cubic meters (MMcm) or about 1.35 Bcf/day, while oil production grew 7% to 222,100 b/d. Unconventional oil and natural gas production increased by 52% and 140%, respectively, versus the year-ago period.
“I think there will be some increase of production in Argentina by YPF, but they will lose the massive opportunity with the lack of policy credibility,” Monaldi said. “Infrastructure and fiscal problems make it not easy to have the kind of investment they could have with the amazing resource base and the high price environment where all Vaca Muerta is profitable.”
Shale production nearly doubled year/year, accounting for 38% of the firm’s total output. Conventional and tight reservoirs, for their part, accounted for 52% and 10% of production, respectively. Conventional production declined 9% y/y.
YPF’s capital expenditures totaled $748 million during 1Q, up more than 50% from a year ago. The firm has laid out a $3.7 billion spending plan for full-year 2022.
This week, Argentina government officials also announced plans to lift capital controls on foreign firms working in the country to help boost production. The government is eyeing a new natural gas pipeline, and the potential for a liquefied natural gas export plant.
YPF reported net income of 26.4 billion pesos ($224.1 million) during the first quarter, versus a net loss of 2.25 billion pesos ($19.1 million) in 1Q2021.
Venezuela Sanctions Lifted?
Venezuelan oil production from state oil firm Petróleos de Venezuela SA (PDVSA) has seen a slight uptick in recent months to around 750,000 b/d. The company could also see a lifting of some sanctions which could provide additional barrels to a tight global market.
In a best case scenario, analysts see Venezuela production rising to about 1 million b/d by the end of the year. This is a far cry from the 3.5 million b/d the state company was producing at its peak two decades ago.
“I think Venezuela is unlikely to take advantage,” of the higher prices, Monaldi said. “But they will have revenues that are two to three times higher than last year which will allow them to retrofit refineries and begin some drilling. It depends a lot on sanctions relief.”
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