Spain’s largest integrated oil and gas company Repsol YPF (REP) revealed yeasterday a 2010 exploration plan for its Argentine counterpart – YPF. With a declining trend in proved reserve base in the past few years, the 2010 plan includes a broad goal of reversing this position along with modest investment. 

The company intends to define potential for unexplored blocks in Argentina and conduct offshore exploration in the Argentine Sea and Malvinas basin. It expects to invest approximately $100 million during the second half of 2010 to search oil in the Malvinas basin, 289 kilometers off the Argentine coast.
 
The exploration will be conducted by a consortium led by YPF (owns a 33.5% stake), along with Pan American Energy (33.5%) and Brazil’s Petrobras (33%). 

A search for hydrocarbon in some of the still unexplored blocks coupled with the offshore initiatives are welcome developments for the company as it has been lagging in reserve base improvement front since last few years. 

Over the last three years, YPF incorporated about 300 million barrels of oil equivalent to its proven reserves. However, those new reserves have not been able to offset the overall decline in reserves, as YPF has been producing at a much faster rate than its discovery of new oil and gas.
 
Although this Argentine plan could boost the company’s development of crude reserves, we still believe that the list of challenges facing Repsol will continue to weigh on its valuation, limiting its upside from current levels. Our Neutral recommendation remains unchanged at this stage.
Read the full analyst report on “REP”
Zacks Investment Research