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Argentina’s YPF SA and China’s Sinopec recently signed an M.O.U. to develop oil-and-gas projects in Argentina. Local oil prices are decoupled from the international marketplace. A barrel of oil in Buenos Aires sells for $77 compared to about $50 on the global market.
Jagercor Energy (CSE: JEM) had signed an agreement to have the right to drill 8 wells in the Catriel Oeste project in the Rio Negro Province of Argentina. JEM is funding the drilling and keeping 70% of the proceeds from the producing wells, just paying royalties and provincial taxes.
“We have monthly income of about $200,000 from our first low cost drilling program at Catriel Oeste development project,” stated JEM President & CEO Edgardo Russo in an exclusive interview. “This means we can operate and explore new business opportunities without going to the market and raising more money.”
Mr. Russo has spent 20 years in the oil & gas industry in Argentina, mainly in YPF SA, the largest integrated oil company of Argentina. At one time he led more than 700 employees operating 15 rigs. As CEO of YPF Servicicios Petroleros, his duties included planning, engineering, purchasing and finance.
“I have worked at YPF for 17 years,” confirms Russo, “starting as an engineer and moving eventually to General Manager. In 2013, I made a decision to leave the company and join an elite team to build something significant from the ground up.”
An engineer by trade, Russo has a strong track record on the operational side - dealing with unions, local communities relations, permitting and regulations. The South American petroleum basins are dominated by massive state run companies that have large oil and gas concessions.
“Our business model is focussed,” stated Russo. “We will acquire mature fields with upside production at low cost of entry, looking to generate cash from them as quickly as possible. The exploration money tends to flow to the big fields like Vaca Muerta, leaving a lot of smaller concessions that are under-invested. That is our opportunity. Because if we have knowledge and expertise in Argentina, we can achieve production out of the ground at a very low cost with a very small targeted investment.”
Jagercor’s long term business plan includes farm in/out agreements with operational control, aiming to reduce expenses, maximize recovery, and boost the return on investment throughout the life of an oil or gas asset.
JEM’S team includes Director Matias Bullrich, a capital markets veteran who spent over 10 years at Morgan Stanley as a banker raising funds for clients and since 2001 on the investment side, where he has managed portfolios of debt and equities. CFO Alejandro Cher?acov is a former YPF player who participated in financings that raised over $3 billion in the past two years.
“Jagercor is not a large company, but we have attracted some big talent,” states Russo. “In the next 12 months we are going to focus on the northern part of Catriel Oeste – where our best producing well is. We anticipate drilling a couple more wells there with our own cash flow from oil sales.”
Russo is also pursuing acquisition opportunities. Low oil prices outside Argentina mean that international petroleum companies have very little cash to spend in South America. That has created a buyer’s market for small and medium sized oil fields.
“We have a strong technical team that has proven its ability to locate good assets and produce cheap oil,” stated Russo. “In the short term, we are looking to string together some solid base hits. This is a powerful and responsible way to build shareholder value.”
In October 2014, Argentine lawmakers passed a new hydrocarbon bill designed to boost investment in Argentina’s vast shale deposits with the end-goal of reducing the country’s reliance on energy imports. There are now nationwide rules for royalties and concessions, providing greater certainty for investors.
“The new legislation has a positive effect on Jagercor’s business objectives,” stated Russo. “We now have a legislated assurance that the business environment in Argentina is not going to change. In this environment, we can make money and build shareholder value.”
Russo sees changes on the economical horizon which could make Argentina a more competitive destination for international investment.
“Argentina currently has a large deficit of energy. We import hydrocarbons and fuels from Africa, the Caribbean and Bolivia. Everybody is focussed on reducing energy dependence – which means attracting more money from the rest of the world,” explains Russo.
Russo believes that the current political and business environment have created a perfect window of opportunity to acquire further concessions at low prices, so the time to invest is now.
The U.S. Energy Information Administration states that Argentina has the world's 4th largest recoverable oil resources at 27 billion barrels – worth over $1 trillion at today prices.
Jagercor is 12 months old but has already delivered on it stated objectives of generating quick cash flow from under-developed mature oil fields in Argentina.
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