Houston (Platts)--5Jan2015/514 pm EST/2214 GMT

The new year finds Latin American oil producing nations strapped for cash at a time when a cache of important new finds require significant capital outlays for development. Production declines in recent years have taken a bite out of the region's revenues, making matters worse.

The first of a two-part Platts outlook on Latin America details what producing countries are doing to weather the current industry down cycle and position themselves for a hoped-for recovery.

ARGENTINA

Among the world's largest nations for shale potential, Argentina is attracting global majors, helped by 2014 oil reform that is calming concerns about a shaky economy and profit-damping public policies.

Chevron made the first bet, teaming with state-run YPF in 2013 on a $16 billion shale development project to drill more than 1,500 wells that would produce 50,000 b/d of crude and 3 million cu m/d of associated natural gas. By the end of 2014, they were producing 35,000 b/d of oil equivalent from Vaca Muerta, the country's largest shale play.

Others have followed. Malaysia's Petronas has teamed with YPF on a three-year, $550 million shale oil pilot in Vaca Muerta to start in 2015, while Shell and Total plan $250 million-$300 million of investment in their first shale efforts. This comes after conventional oil and gas production dropped 20% in the past decade as price controls, unstable regulations and restrictions on sending profits out of the country soured investment.

The decline led to a surge in energy imports and an energy policy turnaround. The government cut export taxes, allowed energy prices to rise, and reformed oil policies to provide tax breaks, longer field licenses and other incentives.

Industry group Argentine Oil and Gas Institute estimates the energy sector needs $20 billion/year of funding in the next two decades, including $10 billion-$12 billion in upstream. But with the economy in recession, inflation at 40% and global oil prices down, investment decisions could take longer.

BOLIVIA

Bolivian President Evo Morales, an ally of Venezuela's Nicolas Maduro and Ecuador's Rafael Correa, has acknowledged his country will see some negative fallout for Bolivian gas from the knock-on effect of dropping oil prices. As a result, state-owned YPFB has reduced investment plans for 2015-2019 to $2.42 billion/year, from $3.03 billion booked for 2014. Analysts point to a weakness in exploration for new fields.

Output in 2014 averaged around a record 63 million cubic meters/day, according to government officials.

While gas revenue stands to fall, the oil price slide helps to support the competitiveness of Bolivian gas compared with Brazilian offshore oil and shale production in Argentina.

BRAZIL

State-run oil company Petrobras started to reap the fruits of its ambitious investment spending in 2014 as crude oil production rose throughout the year. But tumbling oil prices and an ongoing corruption investigation could mean big changes for the company in 2015.

Petrobras said in November it expects output to grow 5.5%-6% this year from 2013's 1.931 million b/d. That will be the company's first significant output growth since 2010, although down from the 7.5% target set at the start of 2014. Driving output growth are subsalt fields -- billions of barrels of crude trapped miles below the seabed by a thick layer of salt.

Latin America's largest country produced a record 2.393 million b/d in October, according to the latest data from Brazil's National Petroleum Agency ANP. Subsalt fields accounted for 607,149 b/d in October. Output should continue growing in 2015 as Petrobras and its subsalt partners ramp up production from the 10 new production facilities installed over the past two years.

But financing the $221 billion in spending planned for the next five years to raise output to 3.2 million b/d by 2018 could be difficult this year. Petrobras has delayed filing up-to-date financial statements while it evaluates the impact of an alleged bribery and kickback scheme revealed by former downstream director Paulo Roberto Costa, who testified Petrobras was bilked out of billions. The company needs to resolve law enforcement investigations and shareholder lawsuits in Brazil and the US related to the allegations.

Petrobras officials said the company will weather the storm by cutting costs, raising product prices and increasing crude oil and natural gas output. Startup of the Refinaria do Nordeste refinery should also slash about 100,000 b/d in product imports.

Oil majors looking to enter or expand in Brazil will get an opportunity to buy new acreage in first-half 2015, when ANP hosts its 13th round of new exploration and production concessions. Blocks up for bid will focus on the Eastern Margin of Brazil's Atlantic Ocean coastline.

COLOMBIA

Colombia's oil panorama, one of the global industry's brightest in recent years, turned gloomy in 2014 and odds are against sunny skies returning in 2015 if the current lower price trend holds firm.

Leading players Ecopetrol and Pacific Rubiales Energy announced cuts to 2015 capital investment of 25% and 40%, respectively, an indication of reductions across the board. A majority of the 37 members of the Colombian Petroleum Association polled recently said they would divert part of their budgets from Colombia to other countries, mainly Mexico, where the geology and regulatory framework is perceived as more inviting.

Lower investment translates into fewer wells and ultimately lower production. Exploratory wells drilled in 2015 probably will mark a decline from the 110 drilled in 2014, which was a drop from 115 in 2013 and 131 in 2012.

After output nearly doubled from 2005 to 2013, when it averaged 1,007,000 b/d, Colombian production declined in 2014 to 990,000 b/d and caused big headaches for a government that relies on oil royalties and taxes for 20% of its budget. No mega-discoveries of oil have been made since the early 1990s, and crude reserves are in decline when figured as years of inventory. The finance ministry projects a rebound in 2015 crude production to 1,030,000 b/d, which may be overly optimistic given oil price and capex scenarios.

--Starr Spencer, starr.spencer@platts.com and staff reports
--Edited by Kevin Saville, kevin.saville@platts.com

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