March 5, 2018 / 3:55 PM / 3 months ago

UPDATE 1-YPF expects 35 pct shale output growth as Vaca Muerta costs fall

(Recasts, adds quotes, details on subsidy payment delays, new CEO plans)

By Luc Cohen

BUENOS AIRES, March 5 (Reuters) - Argentina’s state-owned oil company YPF SA expects shale oil and gas production to grow 35 percent in 2018, as costs in the Vaca Muerta shale play continue to fall, Chief Financial Officer Daniel Gonzalez said on Monday.

Still, declining production in mature fields means overall hydrocarbon output will fall 2 to 3 percent in 2018 after a 5.3 percent reduction in 2017, Chairman Miguel Gutierrez said.

Gonzalez said the company planned to drill 100 wells in 12 different areas of Vaca Muerta this year, after drilling costs for horizontal wells fell to $1,390 per lateral foot in the fourth quarter compared with $2,270 in 2016 and $3,050 in 2015.

The company recently finished drilling its first 3,200-meter long lateral well, and in February 2018 gas production in the 10,000-acre El Orejano area reached 5 million cubic meters per day, Gonzalez said on a conference call on Monday after posting full-year 2017 earnings on Friday.

“YPF has a total acreage of close to 5.5 million acres, reaffirming the potential in Vaca Muerta is actually huge,” Gonzalez said, adding that the company planned to launch five pilots in the Belgium-sized shale play this year, including one with Norway’s Statoil.

Argentina has the world’s No. 2 shale gas and No. 4 shale oil reserves.

Argentina’s government owes YPF $780 million in unpaid subsidies for increased natural gas production for 2017, Gonzalez said. The cash-strapped government has previously issued bonds to compensate oil companies for late payments, and Gonzalez said he expected a resolution “very soon.”

“I would rather not comment at this point on what kind of payment tenure we are anticipating or what kind of interest rates we have in mind, but ... in the next few weeks we will be able to provide more detail,” Gonzalez said.

Gonzalez said YPF Energia Electrica, YPF’s electricity subsidiary being partly sold to General Electric Co, has an implied valuation of $1.1 billion to $1.24 billion. GE plans to purchase a 25 percent stake in the subsidiary.

Gonzalez said the company is in talks with an unnamed third company about the sale of an additional 25 percent stake. Reuters reported in December that YPF was in talks with U.S. asset manager Blackstone Group LP about the additional stake.

Gutierrez added that YPF expects to name a new chief executive before the next shareholders’ meeting, which is scheduled for April 27. A six-member committee has run the company since former CEO Ricardo Darre resigned in August.

On Friday, the company posted a full-year 2017 profit of 12.7 billion pesos ($627.16 million), rebounding from a 28.4 billion-peso loss in 2016. (Reporting by Luc Cohen Editing by Susan Thomas)

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