Exxon Mobil to invest over $10 billion in Vaca Muerta shale development

Map of Argentina
Source: DollarPhotoClub

Exxon Mobil Corporation – the world’s largest oil explorer by market value – has announced that it may invest as much as $10 billion in the Argentine prolific shale formation Vaca Muerta. The company has already invested $200 million in the basin that holds the world’s second largest shale deposits.

Exxon’s investment will begin with a $250 million pilot project in the coming months, which, if the pilot is successful, could lead to full development in the basin during a period of 20 to 30 years. According to Exxon’s Chairman and Chief Executive Officer Rex Tillerson, this long term development could involve additional investment “that would be well in excess of $10 billion.”

Exxon Mobil – keen to offset the losses sustained due to a $35 billion wrong-way bet on U.S. natural gas and a Russian exploration venture that was derailed by international sanctions – has designated Vaca Muerta as one of nine “key activity” areas in the Western Hemisphere and one of just four in South America, according to company data.

In May 2014, Argentina announced it would open up it’s gas and oil-rich Vaca Muerta shale formation to major energy investors. At the time, the rules stated that global energy companies, if interested, would have to form joint ventures with Argentina’s Gas y Petroleo de Neuquen, with 50-90 percent stakes, depending on the block size and resources.

Argentine President Mauricio Macri, who took office in December, has also been courting foreign investment to tap into the country’s unconventional potential.

“I am very encouraged by the changes that have occurred here in Argentina, with the change in government,” Tillerson said, after meeting President Macri in Buenos Aires last week.

Argentina is in the throes of an energy crisis. Only recently the right-of-centre administration of President Macri, which came to power after 12 years of populist-left rule, had to back-track on energy price hikes after a wave of protests.

According to Platts, the government raised the rates in April, making it possible to double the wellhead price of gas to $5.20/MMBtu and provide incentives of up to $7.50/MMBtu to encourage exploration and drilling. The goal is to turn around a 16% decline in production since 2004 that has brought shortages and a surge in imports of diesel and gas.

However, the price rises of up to 2,000 percent, caused wide-spread protests and forced the government to reconsider. As a result new gas price increases are limited to 400 percent for residential customers and 500 percent for hotels, clubs, shops, and small to medium-sized businesses.

Despite the U-turn on gas prices, Energy Minister Juan Jose Aranguren said the conditions for investing in the energy are still good. “Our main goal is to have sufficient energy supplies for the Argentines,” Aranguren said.

In 2013 the Energy Information Agency estimated the amount of technically recoverable shale gas reserves in Argentina at 802 trillion cubic feet and 27 billion barrels of technically recoverable shale oil.

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