BP tells Argentina to return to market-based pricing

Argentina must return to market-based pricing in the oil and gas sector over the long term, according to BP CEO Bob Dudley.

"The oil and gas industry responds to price signals," Dudley told the Argentina Business and Investment Forum in Buenos Aires on Wednesday. "We can deal with price cycles, [but] when things are fixed too hard, and then change... then it becomes more difficult."

In Argentina, where BP subsidiary Pan American Energy (PAE) is the second largest oil and gas producer, the government regulates prices of both commodities.

Argentina will need to rejoin the global oil and gas market "in the right way [and at] the right pace, because this is a big change in the country," Dudley said, adding that the South American nation will also need "to create labor flexibility that will create good jobs."

Despite these challenges, pro-market reforms undertaken in the first nine months of President Mauricio Macri's government appear to have ushered in a new age of stability and transparency for operators after 12 years of populism under the Peronist Kirchner dynasty, Dudley said.

"In this first phase, there's been a great signal sent to the world about Argentina being open for business," he said.

The CEO cited Macri's lifting of currency and capital controls as crucial to improving the investment climate.

PAE will invest over US$1bn in Argentina this year as it did in 2015, Dudley said, adding that BP and its partners are in talks to expand both upstream and downstream operations in the country.

The world will need one-third more energy over the next 20 years, according to Dudley, explaining that Latin America will be crucial to meeting the extra demand.

Citing a global shift toward a low-carbon economy, he said that BP is increasingly weighting its investments toward natural gas, making Argentina's Vaca Muerta shale deposit an attractive destination to allocate capital.

Dudley said that Vaca Muerta today reminds him of where the US shale industry was about eight years ago.

For context, he said that approximately 10,000 shale and tight wells have been drilled in the US, compared to about 750 in Argentina.

"There's no lack of using the cutting-edge technology here, it just isn't at the scale yet [of shale in North America]," Dudley said.

"The last dozen years have been very difficult, and in many ways Argentina has taken itself off the radar screen of foreign investment," he said. Now "I think it's wide open in terms of the Macri government and the steps that they're taking."