Chevron Corporation (CVX), EOG Resources Inc (EOG): South America’s Best Bet in Energy Might Not Be Brazil

Page 1 of 2

Chevron Corporation (NYSE:CVX)When we think about the country that is fueling all the growth in South America, Brazil is the first country that likely comes to mind. No wonder, it’s the seventh-largest economy in the world and the largest in Latin America. The resource-heavy country also possesses vast offshore oil reserves which have the potential to keep its economic machine well-fueled in the future.

However, new data from the EIA shows that Argentina has large quantities of its own of energy resources. The country is now ranked fourth in the world in terms of technically recoverable shale oil resources, with 27 billion barrels of oil. Not only that but it has estimated technically recoverable shale gas resource of 802 trillion cubic feet, which ranks it second in the world when it comes to potential shale gas reserves. These resources have the potential to turn Argentina into a global energy powerhouse as it develops its vast reserves.

For perspective, estimates for Brazil’s major offshore pre-salt reserves indicate the potential for 70-100 barrels of oil equivalent, or boe. The country’s national oil company, Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR), is still in the early stages of developing those reserves; its current goal is to reach production of 1 million barrels of oil per day by 2016. However, the company is still in the process of collecting information and mapping the pre-salt region, a project that won’t be complete until 2018. What that means is that this play has a long way to go until we know the full extent of the resource potential, but its already producing impressive results.

Argentina is a lot further behind in developing its estimated potential of more than 165 billion boe in shale reserves — on a boe basis, that is more oil and gas than Brazil’s lauded offshore oil fields. The real question, though, is how much of those technically recoverable reserves will actually be produced. While that’s a risk to exploration and production companies, the potential reward for investors is substantial because these companies are so early to the play’s development. One look at the map below will show you the vastness of the country’s shale basins:

Source: EIA

One of the most promising potential plays in the country is in the Neuquen Basin in what is called the Vaca Muerta formation, which actually means “Dead Cow” in Spanish. One of the first movers here is Chevron Corporation (NYSE:CVX) which drilled two exploratory wells into the formation last year. The company is drilling another exploratory well this year with plans to drill three more appraisal wells. It’s looking to expand its presence in the country even as it evaluates the results from those wells.

Page 1 of 2