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The situation seen in the U.S. oil and gas industry in the past decade might be replayed in Argentina. Oil and gas production in the U.S. was on the decline until unconventional reserve discoveries turned the fortunes of the industry. Similarly, the discovery of unconventional energy resources in Patagonia by YPF S.A. (NYSE: YPF ) seems to bolster the company's prospects.
What it's all about
According to the U.S. Energy Information Administration, Argentina holds the world's third-largest reserves of shale oil, behind the U.S. and China. The discovery of 927 million barrels of oil equivalent (BOE) by YPF is more than double the country's annual consumption of 400 million to 450 million barrels. This discovery is expected to boost Argentina's production, and position it among the world's leading producers of shale oil.
In recent years, production from Argentina-based YPF has declined due to depletion of its reserves. The discovery of huge quantities of unconventional oil to be extracted from tight sands or shale rock formations has given a new lease on life to the company. The icing on the cake? According to consulting firm Wood Mackenzie, the discovered shale formation is among the "best in the world."
Argentina, Latin America's third-largest economy, is facing high energy demands due to strong economic growth. Against the backdrop of decreasing production, the country is constantly dependent on oil imports. The already discovered 4.5 trillion cubic feet of unconventional gas in the Loma Lata Norte area in Neuquen province is expected to improve production. Along with YPF's latest discovery, it should help Argentina bridge the gap between demand and supply.
The Neuquen province, which is the second most sought after oil and natural gas reserve in Argentina, is attracting companies like Apache (NYSE: APA ) , ExxonMobil (NYSE: XOM ) , and Total (NYSE: TOT ) to take advantage of the shale reserves.
YPF now has the opportunity to reverse its declining production and tap the burgeoning demand of Argentina's growing economy. The stock is worth keeping an eye on as it has the potential to see growth in the near term.
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