Will Argentina be home to the next shale boom?

Argentina map
Source: DollarPhotoClub

Ever since the US Energy Information Administration (EIA) ranked Argentina 2nd on the list of countries with technically recoverable shale gas resources and 4th for oil, experts have been keeping a close eye on the country.

Argentina is home to 802 trillion cubic feet of natural gas and 27 billion barrels of recoverable oil, primarily in and around multiple prolific shale basins in the central Neuquen province, including the prized Vaca Muerta shale.

The Vaca Muerta basin, located in the established Neuquen province, holds 40% of the country’s shale gas resources and 60% of its shale oil with much of the necessary production infrastructure already in place. Investment bank Goldman Sachs, in a note, highlighted that Vaca Muerta is in the early stages of development but is showing potential for production to be scaled up economically.

“While production in the Vaca Muerta averaged 45kbls/d since the start of 2015 from 290 wells, we believe that a ramp up of production and increase in wells drilled will allow producers in the basin to reap the same rig productivity gains from a roll-out of the well manufacturing process and also see an improvement in type curves as the shift to horizontal drilling takes place” the bank said.

In the past shale activity in Argentina has been hampered by politics, export restrictions, price caps and the renationalisation of Yacimientos Petrolíferos Fiscales (YPF). However Argentina is making efforts to improve the situation with changes to the Hydrocarbons Law which includes the ability to export up to 20% of production free of tariffs, caps royalties for oil-producing provinces. Repsol was also compensated $5 billion in bonds for it’s shares in YPF.

Jorge Sapag, governor of Neuquén – Argentina’s largest hydrocarbon-producing province, speaking at the Argentina Shale Gas & Oil Summit (A-SGOS 2015) conference in Buenos Aires on Monday said “I think we now have a legal framework for investment. Businessmen need the ability to invest and to know their capital will be respected. But we need to break from this inertia of mistrust to create a climate of confidence”

As a result of Argentina’s efforts, exploration and production is picking up and foreign investors are slowly starting to return. Canada’s Madalena Energy is sitting on an astounding 3 billion boe of net recoverable resources and is drilling in four strategic resource plays this year. Chevron, one of the first majors to enter Argentina, has plans to invest $15 billion and drill 1,500 wells, with over 300 in production by the end of 2015.

In January YPF signed an MOU with Sinopec with the intention to form a joint venture “that will cover different market segments, upstream and potentially downstream”. Russia’s state-owned Gazprom has also signed a deal with YPF to secure access to the shale oil and gas-rich Vaca Muerta.

Achieving the same level of success as seen in the US shale industry will be harder for Argentina as the easy access to finance, technology and experienced labour the United States enjoys is not yet present. However, with more favourable regulations and the investment and expertise brought by foreign backers, Argentina’s shale boom could be within reach.

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