Can you provide me with more information on Corporación América’s (CA) purchase of CGC in 2013?

Certainly, CA’s purchase of CGC in 2013 was part of their strategy to diversify their assets and expand within the oil and gas industry. The Austral Basin in Santa Cruz, which extends into Chile and into the Island of Tierra del Fuego, was identified as a great opportunity due to being underdeveloped and underexplored. At the time of the purchase, CGC was producing over 10,000 barrels of oil equivalent (boe) per day, and nearly the whole onshore part of the basin had been controlled by Petrobras for the last 15 years. However, it never was Petrobras’s main focus. After buying CGC, the next step was to expand within the Austral Basin and to perform as operators in the areas where CGC had assets. On April 1, 2015, they started operating all the areas that they purchased from Petrobras in the Austral Basin, becoming the operator and owner of a large portion of a basin with huge potential. From that date on, CGC raised its production to almost 25,000 boe per day.

What is the significance of CGC’s purchase of Petrobras’s assets in the Austral Basin?

The purchase of Petrobras’s former assets means that CGC now controls 13,900 square kilometers (3.4 million acres) in exploitation blocks and 37,460 square kilometers (9.3 million acres) in exploration blocks. The Austral Basin is home to maturing fields, new discoveries, and a diverse geology that includes three regions known as Platform, Slope, and Deep Areas, with five reservoirs that proved hydrocarbon. The basin has larger gas reserves than oil reserves (67% are gas, 33% oil), a fact that was also decisive in CGC’s move towards consolidating its position there. Opportunities in the Austral Basin abound, but the company highlights a tight-gas discovery with the potential to produce up to one trillion cubic feet of gas. Essentially, it is as if CGC had an entire basin to itself.

What is CGC’s strategy to develop the resources in the Austral Basin?

CGC’s strategy is to use the assets in the Austral Basin as a platform for company growth by doubling oil production and tripling gas production by 2020. The current reserve-to-production ratio of CGC´s blocks in the Austral Basin is almost 12 years, with a combination of mature and young fields. Part of the strategy is also to develop these areas in partnership with investors with additional capital. More companies will need to arrive in order to bring the basin to a similar degree of maturity as Neuquén or San Jorge. Although CGC aims to manage most of the areas as the operator, it would welcome other companies operating the blocks that are not part of CGC’s core strategy. From shale to low-risk exploration, and from building pipelines to optimizing current operations, so much is yet to be done in the Austral Basin.

Where will companies like CGC find financing to make investments such as the purchase of Petrobras’s assets?

Companies like CGC can obtain financing from a mix of local and international capital. Local capital can provide some financing, and CGC financed its purchase of Petrobras’s assets through a local loan. However, high and volatile interest rates for peso-priced debt pose a challenge. When it comes to dollar-priced debt, the challenge is the short maturity schedules offered after Argentina’s risk profile. Maturity schedules of no more than two to three years are normally offered in the domestic market. International markets can offer longer terms as regards financing options.

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