Apache Gets New 'Gas Plus' Exploration Contract In Argentina

Apache Corp. (APA) has received approval to explore and sell natural gas at higher-than-normal rates under the Argentine government's "gas plus" program, the company confirmed Monday.

Apache will sell a combined 1.5 million cubic meters of natural gas from its fields in the provinces of Neuquen and Rio Negro for $5 a million British Thermal Units.

That's close to double what Apache and other companies have been getting for a BTU for other projects. Some gas producers have been receiving an average of $2 a million BTU, far below the average market price in many countries.

That's also far below the roughly $6 Argentina pays to import natural gas from Bolivia or the nearly $13 it pays to import liquefied natural gas from Trinidad and Tobago.

"We are excited to obtain approval for the first gas plus project in Argentina and we believe this will allow future gas exploration and development of unconventional reservoirs at competitive prices," Apache Argentina President Jon Graham said in a statement.

Argentina's Gas Plus program aims to give companies a financial incentive to explore for gas by allowing them to charge higher rates for gas from new discoveries.

Apache will sell the gas to Central Termica Loma de La Lata, a local power generator. Central Termica is building a combined cycle generation plant that's set to go online in mid-2010.

Gas from the Anticlinal Campamento field in Neuquen and the Estacion Fernandez Oro field in the Rio Negro will be harder and more costly to extract than gas in other fields. To get gas from the Rio Negro field, Apache will have to extract it from a depth of around 3,500 meters. Given higher operating costs, Apache wouldn't be extracting from those fields if it weren't for the higher Gas Plus prices.

In March, Apache extended eight oil and gas concessions in Neuquen Province through 2027. At the time, Apache was producing 106 million cubic feet of gas and 5,500 barrels of oil a day at the concessions, accounting for half of the company's total Argentine output.

Argentina's gas industry has long faced unfriendly prices and unpredictable tax policies that discourage investment. Also, since Argentina devalued its currency in early 2002 and froze utility rates, companies here have voiced concern about severely reduced returns on their investments. That concern rose in recent years as inflation raised operating costs while soaring demand outpaced the supply of oil and gas, repeatedly putting Argentina on the edge of a minor energy crisis.

Amid the high demand, the government has sometimes rationed energy while power outages have affected tens of thousands of homes during extreme temperatures. The rising demand for gas and diminished supply have forced the government to import costly liquefied natural gas during the cold winter months of May through August.

-By Taos Turner, Dow Jones Newswires; 5411-4103-6728; [e-mail]