Sunday, May 4, 2014

"I think it is the most interesting place to invest over the next 3 to 5 years"

Argentina that is, so says billionaire hedge fund manager Kyle Bass. Comments on Argentina start at about 20:30 into video which can be viewed here.

I thought this was interesting to watch because due to my interest in understanding other potential oil and gas shale plays around the world I had been investigating the huge potential of the Vaca Muerta shale in Argentina which Mr. Bass refers to in his presentation. He says that he is expecting $200-300 billion dollars in FDI going into developing this shale resource. How big is the Vaca Muerta shale play? From Wikipedia:

The total proven reserves are around 927 million barrels (147.4×10^6 m3), and YPF's production alone is over 20,000 barrels per day (3,200 m3/d). In February 2012, Repsol YPF SA raised its estimate of oil reserves to 22.5 billion barrels (3.58×109 m3). The US EIA estimates total recoverable hydrocarbons from this Vaca Muerta Formation to be 16.2 billion barrels (2.58×109 m3) of oil and 308 trillion cubic feet (8.7×10^12 m3) of natural gas, more than even the Neuquén Basin's hydrocarbon-rich Middle Jurassic Los Molles Formation holds.

Of course this is just the assessment from the current scientific information available. What we have seen in the US is that these numbers tend to grow over time as the fields are developed and the information gets better. I am not playing this via the bonds like Mr. Bass. I have identified a small Canadian junior E&P company that has nearly 150,000 acres in a very prospective part of this play. The name of the company is Madalena Energy (MVN.T) (MDLNF). The company also has some interesting properties in Canada which it is also developing. I do not see this as a long term development play. I see the company proving up that their properties in Argentina are prospective and then selling out to a larger company or bringing in a partner and getting carried by the partner. One of the interesting things to note is that Madalena Energy's properties in Argentina are surrounded by all the big majors like Shell, Chevron, Petrobras, etc.. Any success by these majors is sure to generate interest in Madalena Energy's properties. Recent news is encouraging:

In late 2013, Madalena successfully implemented its first use of North American based horizontal drilling technology on its international assets focused initially at its Coiron Amargo block in the Neuquen basin. Horizontal technology was applied to the Sierras Blancas formation which is a conventional light oil reservoir sourced from the Vaca Muerta shale across the Coiron Amargo block. The CAN.xr-2(h) well was re-entered and drilled horizontally and has produced approximately 63,000 barrels of oil in the first three months of 2014. The results to date on the CAN.xr-2(h) horizontal have exceeded management’s expectations and as a result, Madalena has commenced a multi-well horizontal drilling program in Sierras Blancas for 2014. To kick-off 2014, the CAN-15(h) well was recently drilled horizontally and during testing operations the highest rates were achieved on a 12 mm choke setting, when the well flowed at a rate of 1,393 bbls/d of oil with 3,301 mcf/d of associated natural gas for a total of 1,943 Boe/d (72% oil) over a 5 hour period. (see International Operations below). The next Sierras Blancas horizontal in the multi-well program for 2014 is expected to commence drilling in Q2-2014. Madalena has a 35% working interest in the Coiron Amargo block.

 I have owned Madalena for a few months in my speculative portfolio. Madalena Energy is a high risk high reward speculation on the development of a massive new shale oil play in Argentina.

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