LatAm: Investing in the future

LatAm: Investing in the future

Taken as a region, Latin America has the second largest

proven crude oil reserves globally. While the recent

news there has not been the best - inflation, fluctuating

currencies, etc - the overall picture for the oil industry

in 2016 and beyond is largely optimistic. Given low

oil prices, this may seem counter-intuitive, but two

countries in particular - Argentina and Mexico - are

having a considerable influence on the overall oil

market outlook.

Outlook

The news from Argentina is particularly encouraging.

The election of Mauricio Marci as president in

November 2015 looks likely to deliver the sort of

macroeconomic stability that is vital for attracting

foreign direct investment during the current oil and gas

market downturn. His pro-oil credentials in support of

promoting investment and a more credible framework

for the oil and gas sector are welcome news.

The other highly encouraging news is Argentina’s

resolution of the international debt issues that have

hung over it for the past 14 years. The deal agreed with

the majority of its bondholders will potentially have a

major positive impact by reopening the country’s door

to global capital markets and supporting the return of

international investors and rating agencies.

The opportunities for international oil companies are

certainly there. The ‘super well’ in Argentina’s Vaca

Muerta is home to the second largest reserves of

shale gas and the fourth largest reserves of shale oil

in the world. While the oil majors are already leading

the charge to participate in this sort of opportunity,

Argentina’s energy company YPF has highlighted the

diversity of the country’s investor mix through joint

ventures with Asian NOCs Sinopec and Petronas.

Lance T. Kawaguchi

Managing Director

Global Sector Head - Resources

and Energy Group Payments and

Cash Management

In Mexico, the historic reforms set in train in December

2013 are now coming to fruition. The constitutional

changes signed then by Mexican President Enrique

Peña Nieto were followed by secondary legislation that

officially opened Mexico’s oil, natural gas and power

sectors to private investment. The national oil company

Pemex is now able to partner with international

companies with the expertise and capital needed to

explore Mexico’s vast deep water and shale resources.

The most recent consequence of this change has been

the highly positive results in the country’s onshore

oil and gas bidding round. This comfortably beat

expectations, with participating companies taking all of

the available 25 contract areas of mature onshore fields.

Despite the higher breakeven costs for deep water

resources, bidding is also proceeding for ten deep water

territories in 2016.

Treasury activity and needs

This flurry of activity in LatAm has knock on

implications for the treasuries of both domestic and

foreign oil and gas companies. Domestic treasuries

tend to have fairly manual processes, with limited

adoption of technology and automation best practices,

plus minimal use of global standards such as SWIFT.

As a result, there is currently serious interest among

domestic oil company treasuries in the best ways to

close this gap, as their companies begin to trade with

global and international partners.

By the same token, because the now-open oil markets

of Argentina and Mexico have been largely closed to

outside participation for so long, foreign and global oil

companies also have a learning curve to climb. Those

that bid successfully for licences will have new payment

and receivables flows to manage. They are therefore

eager to discover which banks can combine a local

physical presence in the key LatAm markets with global

capabilities and networks.

Published: March 2016

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