The chief executive of Argentina's newly state-controlled energy company announced an ambitious investment plan Tuesday, saying YPF will need to spend up to $7 billion annually for the next five years to recover from declining oil and natural gas output.
CEO Miguel Galuccio said YPF is expected to record 6 percent growth annually with 1,000 wells drilled beginning next year. That would be the first time the company has drilled so many since 1996, before it was privatized.
Argentina's center-left government expropriated YPF by seizing a majority stake from Spain's Repsol seven weeks ago. It argues that Repsol failed to invest enough to boost production while the country sits on what could potentially be the world's third-largest reserves of unconventional gas and oil.
Galuccio, who was named to run the company last month, blamed Repsol for Argentina's 80 percent drop in crude oil output and 100 percent fall in gas production over the past decade.
But he said the situation can be reversed, saying the exploitation of just 15 percent of shale resources in the Vaca Muerta, or Dead Cow, field in southern Neuquen province would cover Argentina's energy shortage.
"We're going to change the future building a new model through massive development of unconventional energy," Galuccio, a former executive at oil services giant Schlumberger Ltd., said in announcing YPF's strategic plan.
YPF will look for both local and international partners to finance exploration, Galuccio told lawmakers, governors and company officials at the event in downtown Buenos Aires. He was joined by President Cristina Fernandez, who said YPF's strategic plan is feasible because Argentina is blessed with bountiful resources.
"It's a huge challenge, but I'm confident in my decision," Fernandez said about the takeover.
She said it would have been easier to nationalize the whole company but her government preferred to have a mixed public-private arrangement that will remain under the supervision of the U.S. Securities and Exchange Commission and Argentina's regulator.
Only two months before the takeover, Repsol had increased its estimate for the shale oil and gas that it found in Argentina to nearly 23 billion barrels, enough to double the country's output in a decade.
Repsol, however, said it would cost $25 billion a year to develop and warned that Argentina would need to overhaul its energy policy to attract the necessary investment.
Instead, Fernandez simply seized the company, giving her administration access to billions of dollars' worth of cash, enough energy to answer domestic demand in the short term, and potentially solve the government's money woes in the future.
Argentina remains shut out of global debt markets after its default a decade ago. Analysts say exploiting the bountiful shale resources will depend on whether the government can attract investors willing to put up big cash despite the risky business climate.
Congress voted overwhelmingly in May to approve the expropriation of most of Repsol's shares in YPF. The recovery of control of the national oil company has been hugely popular inside Argentina despite warnings from Europe and the United States that it could further isolate the South American country economically.
Repsol has challenged the expropriation in U.S. courts and plans to present a case to the World Bank's investment arbitration court. The Spanish company has valued the shares that Argentina seized at $10.5 billion, but it's unclear if the company will ever get compensation.