YPF will extend holidays for some workers and idle additional drilling rigs as the global energy rout deepens and the new government administration slashes domestic prices, according to people familiar with the situation.
Argentina’s largest energy producer stopped 10% of its rigs and lengthened vacations for about 1,200 workers who were supposed to return at the end of this week, according to the people who asked not to be named because the information isn’t public. It’s the latest evidence of cost-cutting at the government-controlled oil company, which boosted output last year as Argentina kept domestic prices high.
The home to the second-largest reserves of shale gas and fourth-largest of shale oil has begun dropping its government-mandated crude prices to bring them closer to world markets. Energy Minister Juan Jose Aranguren, who came into office with President Mauricio Macri on December 10, lowered domestic oil prices and in exchange agreed last week to a 6% increase in the prices companies can charge for fuel.
The $77-a-barrel official price for Medanito crude and $61 a barrel for Escalante have been cut by about 12% as of January 6, the people said. By comparison, Brent crude, an international benchmark, traded at $31.55 a barrel in London on Monday.
In late 2014, in a bid to erase a $6bn energy deficit and sustain jobs in the industry ahead of presidential elections, Argentina increased domestic oil prices to protect drillers from a plunge in international markets. The bulk of the domestic subsidy falls on Argentine motorists who pay about 32% more to fill their tanks than neighbours in Brazil.
Pan American Energy, the country’s second-largest oil producer, will also keep drilling activities suspended at the Cerro Dragon field in Chubut province where the company had 15 rigs, the people said. Pan American Energy didn’t immediately respond to calls and e-mails seeking comment. YPF declined to comment.
Argentina’s rig count fell by 10 to 81 in December, the lowest number since November 2013, according to Baker Hughes. That number is set to fall further in January, the people said.
International crude prices declined to a new 12-year low on Monday as Morgan Stanley predicted that a strong US dollar may sent Brent oil to as low as $20 a barrel.
YPF’s American depositary receipts slumped 2.8% to $14.24 at the close in New York, the lowest since June 25, 2013. The ADRs, equivalent to one ordinary share, are down 39% in the past year.