Globe says Petrolifera, Petro Andina douse exit rumours
2007-11-21 07:14 ET - In the News
Also In the News (C-PAR) Petro Andina Resources Inc
The Globe and Mail reports in its Wednesday edition that Canadian oil companies operating in Argentina have no plans to pull out of the country, despite an export tax regime that will cut into what they receive for crude production there. The Globe's Norval Scott writes that Calgary's Petrolifera Petroleum said Monday the decision effectively sets a ceiling of $42 (U.S.) on the price of a barrel of light crude oil produced in the country.
This, it said, would likely result in an 8-per-cent reduction in the company's cash flow from operations, and cause it to re-examine its capital budget in Argentina. After the release, Petrolifera's stock fell more than 18 per cent. Petrolifera issued another statement Tuesday saying it is not withdrawing from Argentina, contrary to some news reports.
Petro Andina Resources produces around 7,400 barrels a day of oil in Argentina, said that the changes would likely set a ceiling for the amount it realizes from production of around $38 (U.S.) a barrel when the index price exceeds $60.90 (U.S.). That's a small drop from the $38.32 (U.S.) it realized for the first nine months of 2007. Petrolifera rose 15 cents to $10.75 in Toronto, while Petro Andina rose 66 cents to $14.20.
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Petrolifera says re-examining not leaving Argentina
2007-11-20 10:34 ET - News Release
Mr. R.A. Gusella reports
PETROLIFERA PETROLEUM SEEKS TO CLARIFY PRESS REPORTS ABOUT PLANNED ACTIVITY IN ARGENTINA
Petrolifera Petroleum Ltd. wishes to clarify its position with respect to its continuing activity in the provinces of Rio Negro and La Pampa, in Argentina. There have been erroneous reports in the media that the company is withdrawing from Argentina. These reports are not correct.
Petrolifera has a significant asset base in Argentina, primarily associated with its Puesto Morales/Rinconada concession in Rio Negro province, Argentina. The company also owns extensive acreage under its Vaca Mahuida concession and is scheduled to be awarded the Puesto Guevara concession in Rio Negro province. In La Pampa, Petrolifera holds the Governador Ayala II concession.
During the first nine months of 2007, Petrolifera produced an average of approximately 8,400 barrels per day of crude oil and over two million cubic feet per day of natural gas. This was in increase of 90 per cent over 2006 levels. During this period, Petrolifera invested approximately $47.4-million in Argentina, primarily in Rio Negro province and has budgeted to drill 25 new wells in the fourth quarter of 2007. It has four rigs and four service rigs currently working on its Puesto Morales/Rinconada acreage. Total capital investment for the fourth quarter of 2007, including drilling and facilities which are under construction or being completed, has been established at $45.5-million. This would bring the company's total investment for calendar 2007 to approximately $92.9-million, considerably in excess of anticipated cash flow from operations before working capital changes for the period. The company's capital budget for Argentina, in 2008, was recently established at $76-million, with 69 wells and extensive seismic programs scheduled. The decline from anticipated 2007 levels primarily relates to the pending completion of the company's permanent production facilities.
Since it embarked on its original drilling program at Puesto Morales in late 2005, Petrolifera has made a number of significant new discoveries. The company has, since its formation, drilled approximately 60 wells in Argentina, with only one dry hole and one suspended well. Several new pool discoveries have been made and the company has produced over four million barrels of crude oil, all found through the drill bit. Capital investment in Argentina, since 2005, has thus far totalled $90-million through Sept. 30, 2007, and as indicated, planned fourth quarter 2007 expenditures are $45.5-million with an announced 2008 budget of $76-million. In addition to this capital investment, Petrolifera has paid almost $30-million of royalties to the province of La Pampa and has paid over $40-million of cash income and other taxes to the government of Argentina.
As reported in Stockwatch on Nov. 19, 2007, in announcing two new discoveries and a new zone completion on its Puesto Morales concession, Petrolifera commented that in light of the recent proposed increase in Argentina's export tax on crude oil, which could adversely but minimally impact the company's anticipated 2008 cash flow, it would be re-examining its previously announced capital budget to determine which, if any, of its anticipated 2008 Argentinean projects will have to be deferred or eliminated, due to the lower level of anticipated cash flow relative to its actual and forecast sales levels anticipated to be achievable during the year.
It should be noted that in 2007 year to date, the average price received by Petrolifera for its oil production was under $46.00 per barrel, already constrained by the impact of the prevailing export tax. The new indicated ceiling of $42.00 (U.S.), when adjusted for tax and royalty effects, gives rise to the previously forecast reduction in cash flow, for an assumed 10,000-barrel-per-day sales level, and the investment community seems concerned that the new level of export tax does appear to limit the potential for realizing a portion of increases to the world price for crude oil sales, during a time when cost pressures could emerge in conducting field and other business activities.
Petrolifera wishes to clarify that a re-examination of spending plans should be considered to be in the ordinary course of business, as policy changes, such as the proposed increase in the export tax in Argentina's impact on available cash flow and also on prospective returns from reinvestment activity; however, such a re-examination does not infer withdrawal or in fact a cancellation or reduction in planned activity.
While the company does also have cash balances and an essentially unused $60-million (U.S.) available credit facility, to supplement cash flow in its operations in financing its capital programs, cash flow from operations remains the principal source of financing for new investment activity for most oil companies.
To reiterate, Petrolifera in no way stated that it was withdrawing from Argentina or was otherwise curtailing its planned activity, but merely stated that it would be re-examining its budgeted activity in light of the announced policy changes. With four rigs and four service rigs currently active in Rio Negro province and a 3-D seismic program under way in La Pampa province, Petrolifera is among the most active operators in Argentina, has become one of the largest landholders, and is among the 10 largest producers and operators in Argentina, all achieved during the past two years. Such a level of commitment and achievement is hardly reflective of an intention to withdraw from the country and Petrolifera's position has been miscast in the media and popular press.
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