Dead Cow: Argentina Shale: Argentina wants $5 bln investment to boost Vaca Muerta production

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Argentina wants $5 bln investment to boost Vaca Muerta production


BUENOS AIRES, Oct 15 (Reuters) - Argentina wants energy firms to invest some $5 billion to boost hydrocarbon production and generate jobs in the country's prized Vaca Muerta shale play, as well as to bring in much-needed foreign currency.

The plan unveiled on Thursday aims to substitute natural gas production for imports, savings some $5.6 billion, the government said, while adding new jobs and reversing the months-long decline in output at Vaca Muerta.

The government expects the plan to help increase tax collection by some $2.5 billion and a bump up its fiscal balance.

Argentina, which is bracing for a 12% economic contraction this year, has struggled to capitalize on Vaca Muerta, one of world’s largest reserves of shale oil and gas. In the last year, many international companies slowed investments, concerned about the lack of a clear plan for the energy sector and worsening economic crisis.


The stimulus plan means "working to guarantee the gas that Argentina needs to live and to produce, and stop the thinking that we have to import gas," Argentine President Alberto Fernández said at an event at Vaca Muerta.

The government has previously indicated that producers will need to commit to sustaining or increasing production at 2020 levels, and will be allowed to increase exports outside of the winter period when domestic gas demand is lower.


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Interesting. If I knew the situation more I could comment more. Are they LNG import heavy? If so does it pan out? Does 5bln get much is the question. 

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4 hours ago, ceo_energemsier said:

Argentina wants energy firms to invest some $5 billion

I'm sure they do. Doesn't mean it's going to happen though. 

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8 minutes ago, Ward Smith said:

I'm sure they do. Doesn't mean it's going to happen though. 

Companies went, companies left...... doubt anyone of the majors will be going back to invest 5bil$ right now, they may try to buy the rights cheap for future

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Argentina's fracking activity in Vaca Muerta slowed to zero in April



Fracking stages fell from 430 in March

Oil demand fell by more than a half in April

Fracking recovery hinges on emerging from coronavirus shutdown


Fracking activity in Argentina's Vaca Muerta shale play slowed to zero in May, as low demand, low prices and limited storage capacity discouraged new developments, a report showed Tuesday.


The number of fracking stages in the play was down from 430 in March and 350 in April 2019, according to data compiled by Houston-based services company NCS Multistage.

The pullback in activity came as the federal government locked down the economy on March 20 in an effort to contain the spread of the coronavirus.

With most businesses out of action and the 45 million population under strict stay-at-home orders, oil demand fell by more than a half to around 200,000 b/d, according to most estimates. This led refiners to scale back crude runs as diesel and gasoline demand fell by 60% to 80%, the estimates show.

Onshore storage capacity soon filled, forcing producers to shut wells and scale back drilling activity.

While a few companies have hired tankers to store crude offshore or exported surplus production, a plunge in international oil prices and demand has not been enough to keep up production.

Production from Vaca Muerta, one of the world's biggest shale plays, likely plunged in April, the first full month of the quarantine, which has been extended several times to a latest proposed end date of May 10. No official data is yet available for production in the play in April, however.

The play produced a record 123,422 b/d of shale oil in March, according to the Department of Energy, Mining and Hydrocarbons in Neuquen, a province home to most of the play in northern Patagonia.


It could take awhile for fracking activity to return to previous levels. The lack of storage capacity, closed wells and low demand "is a combo that will make recovery very slow," said Luciano Fucello, who runs NCS' business in Argentina.

Mexico City-based Vista Oil & Gas, for example, said it has shut in its shale oil production at its first development block in Vaca Muerta, preferring instead to keep down costs and preserve cash during the period of low demand.

It is uncertain how long it will take for demand to recovery. A lot hinges on the quarantine, which could yet be extended from May 10 if COVID-19 cases continue to mount. The pandemic has left 4,887 people affected and 260 dead since the first case was confirmed at the start of March, according to data compiled by Johns Hopkins University's Coronavirus Resource Center.

"We are all concerned about the economy, but we are more concerned about people's health," Argentinian President Alberto Fernandez said late Monday on a local cable news network. "I don't want urgency to infect many people. That is what I'm trying to avoid," he said, adding that the idea is to gradually lift the quarantine "so that normality returns."

On April 26, his government started allowing more businesses to start up again and people to go out more. This helped increase diesel and gasoline demand in the last week of April, Production Minister Matias Kulfas, who oversees energy affairs, said last week.

Fernando Meiter, CEO of energy research firm TNS Latam, said he does not expect fracking activity to pick up until after the health crisis, but warned that there are other hurdles. The country is at risk of defaulting on $65 billion in foreign debts on May 22, which would cut companies off from the low-cost financing they need to develop Vaca Muerta.

"You have to resolve the debt," he said. "You can't think of investment when the country is on the verge of default."

Vaca Muerta, which is being developed by majors like Chevron, Shell and Total as well as local companies including state-backed YPF and BP-backed Pan American Energy, has been driving a recovery in the country's oil production from a 28-year low of 479,000 b/d in 2017. The country's total oil output reached 518,468 b/d in March, up 3.2% year on year, according to data from the national Energy Secretariat.


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October 14, 20204:48 PMUpdated 2 days ago

Argentina readies gas plan to spur Vaca Muerta production



BUENOS AIRES, Oct 14 (Reuters) - Argentine President Alberto Fernández is readying a sweeping plan to encourage local producers to increase natural gas production, the government said on Wednesday, hoping to ramp up output from the country’s massive Vaca Muerta shale formation.

Fernández will travel to the remote region, thought to house one of the world’s largest unconventional oil and gas reserves, to officially present the plan on Thursday, the energy secretariat said in a statement.


“The aim of the plan is to encourage the growth of gas production in the coming years,” it said, adding the scheme would also push to involve more small firms, boost job numbers and increase value in the domestic production chain.

Argentina’s energy sector activity has plummeted this year due to the coronavirus pandemic and the fall in the international price of oil, which has hit higher-cost unconventional production particularly hard.


The government, which is battling falling levels of foreign reserves, said an increase in local production should cut energy imports, leading to “savings in dollars and a consequent improvement in the fiscal situation of our country.”

The government has previously indicated that producers will need to commit to sustaining or increasing production at 2020 levels, and will be allowed to increase exports outside of the winter period when domestic gas demand is lower.

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  • 14 Oct 2020 | 20:08 UTC
  • Buenos Aires

Shell, YPF target Argentina's Vaca Muerta for oil export growth, then gas




  • 14 Oct 2020 | 20:08 UTC
  • Buenos Aires

Shell, YPF target Argentina's Vaca Muerta for oil export growth, then gas



Shell mulls second full-scale development

First project is on track to reach 40,000 boe/d in 2021

YPF wants to reach 150,000 b/d of oil exports in three-four years



Shell is considering launching its second development in Vaca Muerta, helping to increase oil and natural gas production already on track to reach 40,000 boe/d over the next year, a senior executive said Oct. 14.




"We are about to make a decision" to build a plant for Bajada de Anelo next year, Sean Rooney, who runs Shell's operations in Argentina, said in an online conference by the Rio Negro newspaper. "It would be another development."

Shell is already producing some 13,000 boe/d its first development on the three adjacent blocks — Coiron Amargo Sur Oeste, Cruz de Lorena and Sierras Blancas — in Vaca Muerta's oil window, and plans to launch a plant that will take output there to 40,000 boe/d in 2021.

Vaca Muerta, one of the world's biggest shale plays, came into development in 2012-13, attracting majors like Chevron, ExxonMobil and Total for the potential to develop resources so large that it could make Argentina a global supplier of oil and gas. While the focus at first was on the gas window to plug a local deficit, attention has since shifted to the oil window for better prices and export potential.

Argentina is self-sufficient in oil — it hasn't imported crude since 2018 — and has excess capacity in pipelines, allowing companies to ramp up exports this year of Medanito, a light crude produced from Vaca Muerta and the Neuquen Basin where the play is located. Medanito exports shot up to an average of 10,500 b/d in the first eight months of 2020 from 1,340 b/d in all of 2019, according to Energy Secretariat data.

The other drivers of the increase were a drop in domestic demand during a now more than six-month lockdown for the coronavirus pandemic and a suspension in the 8% export tax since May.

Shell has made two international shipments of Medanito, helping to test market demand for the product.

"Our clients are asking for more because it is a high-quality crude," Rooney said.

According to market sources, the discount for Medanito has shrunk from Brent minus $10/b to less than $4/b.

Rooney said that if production increases enough to make consistent exports and enter into long-term supply contracts, Medanito could be sold without a discount.

"Argentina has a great potential to export oil and gas, beginning with oil," he said.




YPF, the country's biggest oil and gas producer, is following the same strategy as Shell with plans to ramp up crude exports to 100,000 b/d over the next few years from sporadic amounts this year before gradually developing gas resources for future export growth.

"We want to begin to build a production base — approximately 500,000 boe/d — that will allow us in the next three to four years to export consistently some 100,000 or 150,000 barrels of oil per day," Pablo Iuliano, the state-backed company's unconventional upstream vice president, said at the conference. "We don't want to stop there, but continue to grow."

YPF, which produces a total of around 220,000 b/d of crude throughout Argentina, has been targeting the play for production growth, first to supply the local market and then increase exports. But for YPF to reach 100,000-150,000 b/d in exports on its own will require huge investments in drilling and and continued efforts to cut costs, in particular for frac sand, labor and services contracts so that projects can be sustained despite low prices, Iuliano said.

He estimates that to export these amounts, YPF will have to drill 400 wells per year and develop "five to six blocks in parallel."




Companies likely will focus on oil for the export potential, but Vaca Muerta has more potential for gas with 300 Tcf of resources.

That likely will take longer to develop because of the huge investments needed to increase production, reduce breakeven prices and build infrastructure for exporting.

"Oil is easier to develop and the international market is easier to access," Rooney said. "To develop the gas potential of Vaca Muerta, you need big markets and big plants."

It will cost $5 billion-$10 billion to build a liquefaction plant to export the gas globally, plus billions of dollars more for drilling wells and building pipelines, he said/

"We need more time and special conditions," Rooney said.

In August, Argentina's government said it was preparing a 2020-2024 program for rebuilding gas production, including by creating a system of auctions for long-term supply contracts. Producers will be able to sell gas for delivery over four years — eight years from offshore gas projects — at market prices to be determined at the auctions, helping them to plan investments to increase output.

On Oct. 14, Argentinian President Alberto Fernandez said at a business conference that the program would be implemented in the next few days with the view to increasing exports, first regionally, then globally.

Rooney said Shell's strategy is to develop oil first to help finance its subsequent gas projects.

At YPF, Iuliano said gas can be developed slower to meet an expected rise in global demand as countries shift away from oil to cleaner sources of energy.

"Gas is going to be the energy of the transition," he said.

However, to develop the gas, costs must be brought down so that it can be produced profitably at less than $1.50/MMBtu so that exports can be competitive on the global LNG market, Iuliano added.

Most producers have said that the breakeven price is now at around $3.50/MMBtu.

Iuliano did not say what YPF's breakeven price is, but he said the company is seeking to cut costs by 30% compared with pre-pandemic levels by improving efficiency in processes, the value chain and labor.

There is a sense of urgency to harness the potential of Vaca Muerta, he warned.

"We don't have more than 10 years to develop Vaca Muerta to make it a platform for oil and gas exports," Iuliano said. "Gas has a slightly longer horizon as the transition energy for the future, but we have to do everything in no more 10 years."



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