Argentinian shale

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Putin Betting On An Argentinian Shale Boom

By James Stafford
Posted on Fri, 24 April 2015 16:12 |

Russia is making a play for shale gas – in Argentina.

Russian state-owned natural gas giant Gazprom signed a memorandum of cooperation with Argentina’s YPF at a ceremony in Moscow on April 23. Argentina’s President Cristina Fernandez de Kirchner was on hand as was Russian President Vladimir Putin. The move deepens an agreement that the two sides reached after a visit by Putin to Argentina last year.

The deal calls for the joint exploration and development of shale gas in Argentina’s Neuquén province. Located in west central Argentina, the province is home to the vast Vaca Muerta, a formation that is a big reason why Argentina ranks second behind only China in total shale gas reserves. Argentina is thought to hold more than 800 trillion cubic feet of technically recoverable shale gas, and the Vaca Muerta is the most sought after formation in all of South America. Other oil majors have a presence there, including ExxonMobil and Chevron.

Related: Former BP Chief Sees Oil Price Rebound Soon

Argentina and Russia see a mutually beneficial political alliance: Argentina has supported Russia in its annexation of Crimea, and Russia has backed Argentina’s complaints against the United Kingdom’s control over the Falkland Islands (known as Las Malvinas in Argentina). The Falklands are thought to hold large oil and gas reserves off their coast, but only a few British companies are exploring them.

Russia’s relations with Western Europe have been severely damaged over the conflict in Ukraine, and so it has sought allies elsewhere. The deal between Gazprom and YPF was hailed by Putin, who said the two countries are developing a “comprehensive and strategic partnership.” The two sides have even suggested they could use their own currencies (pesos or rubles) rather than U.S. dollars, due to both countries’ respective standoff with the United States.

Related: A Plot To Hold Down Oil Prices Or Just A Happy Coincidence?

Still, the real objective is (ostensibly) the Vaca Muerta.

YPF and Argentina lack the resources and expertise to go it alone in the Vaca Muerta. Due to an ongoing dispute with an American hedge fund over unpaid debt stemming from a 2001 default, Argentina has been largely locked out of international financial markets. Not only that, but Argentina’s declining oil production has opened up a $7 billion energy deficit, one that President Kirchner is keen to close. YPF estimates that closing that deficit will require $200 billion in investment over the next decade.

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That is a tidy sum for the capital-deficient South American country. Russia could offer a financial lifeline to Argentina.

Related: How The Majors Are Playing The Oil Price Slump

The Vaca Muerta will be expensive to develop and so far has been hardly picked over. The formation only produces about 45,000 barrels per day right now, a few orders of magnitude less than the most productive formations in the United States. A dearth of infrastructure, in addition to the fact that the industry has not yet reached scale, means that production costs are high. In an era of low oil prices, things will move along slowly.

YPF’s CEO said that drilling a horizontal well in the Vaca Muerta can cost $13 to $14 million. In the U.S., a similar well costs a fraction of that, somewhere in the neighborhood of $8 million or less. But even drillers in the U.S. are finding it difficult to be profitable with oil prices where they are now, so it is that much more difficult for Argentina. Still, YPF is reporting some progress. The company said that in 2016 it expects production costs to drop by at least 10 percent. It plans on producing its own frac sand to keep costs down.

Oil prices will not stay low forever. Indeed they have rallied quite a bit over the past month. If and when oil prices finally return to the highs seen before last year’s drop, Russia could provide the crucial missing link to help Argentina begin to scale-up drilling and production. That scenario is probably a long way off yet, but if it comes to pass, it would be very beneficial to both sides.

By James Stafford of Oilprice.com

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UPDATE 2-Argentina's YPF sees cost of Vaca Muerta drilling falling 10 pct

(Adds well drilling data, macroeconomic and policy context)

By Hugh Bronstein and Eliana Raszewski

(Reuters) - The cost of drilling in Argentina's vast but barely tapped Vaca Muerta shale formation will fall at least 10 percent by the end of 2016, state energy company YPF said on Thursday, part of an efficiency effort aimed at attracting much-needed investment.

The cost drop is expected to start in August when Argentina starts using its own sand in fracking, the process by which shale oil is extracted, rather than more expensive imported sand, YPF's Chief Executive Officer Miguel Galuccio said.

This may help Latin America's No. 3 economy attract the investment it needs to erase an energy deficit that costs billions of dollars per year in already low cash reserves.

YPF has already cut the cost of drilling a vertical well in Vaca Muerta to $6.9 million from a previous $11 million, Galuccio told reporters gathered on the outskirts of Buenos Aires for a demonstration of how YPF is refining fracking sand.

By the end of 2016, Galuccio said Argentina will produce all sand it needs for shale drilling.

"We are continually looking for ways to reduce well drilling costs. The sand is one form, which in itself will allow us to save 10 percent," Galuccio told Reuters.

"And there are other things we are doing which lead us to think we are going to save not only 10 percent. Our target will be much more than 10 percent."

That would come to a relief to international investors who have so far shied away from Vaca Muerta due to high costs as well as heavy trade and currency controls.

Galuccio said it currently costs $13 million to $14 million to drill horizontal wells in Vaca Muerta, located in Patagonia.

YPF is building a plant near Vaca Muerta that is set to start refining raw yellowish sand mined from the southern province of Chubut into the fine gray sand used in fracking.

YPF says it has about 300 wells producing up to 45,000 barrels per day of oil and gas equivalent, a fraction of Vaca Muerta's potential.

President Cristina Fernandez's interventionist policies have scared the most risk-hungry companies out of making anything but foothold investments in what is viewed as one of the biggest shale reserves in the Western Hemisphere.

She is barred from running for a third term in the October general election. The three leading candidates to succeed her say they are more in favor of free markets. (Reporting by Hugh Bronstein and Eliana Raszewski; Editing by Chris Reese, Ted Botha and Andrew Hay)

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YPF reduced 32% it drilling costs in Vaca Muerta

 28 MAY , 2014

 ANDREA V. PEREZ - REDACCIÓN SHS   

 ENGLISH VERSION

Experience is vital for the development of unconventional hydrocarbons and so the numbers prove it. In just one year of work YPF optimized its formula since the strong impetus that represented the deal with Chevron and now exhibits the optimal use of resources.

Following the agreement signed in July last year, Loma Campana established itself as the epicenter of the Unconventional activity in Argentina. Both companies,YPF and Chevron, have invested in the area over US$ 1.240 million this year and will add another US$ 1,600 million.

The pilot project enabled us to identify the best places to drill – “sweet spots”. This allowed significantly reduce the time and hence the cost of drilling. However, technological advances are the key. The acquisition of new equipment drillers “Walking Rigs” who joined a fleet of 19 teams improved the performance in Loma Campana with a significant impact on profitability. With the new technology applied, the oil was able to reduce the cost of drilling each well from US$ 11 million to US$ 7.5 million (-31.8%).

At the end of April 168 wells drilled in Vaca Muerta were put into production successfully. With the“Walking Rigs” equipment, YPF expects to achieve by the end of 2014 a total of 231 active wells that are part of the 180 wells that the new agreement with Chevronexpects to add at Loma Campana.

With this number, Argentina will be the third country in the world with most shale wells, behind the United States and Canada. Thus, the oil state company pushes the region to join the energy revolution that transformed the world energy map. Evo Morales talked about it: “the power of the countries today is not the missiles, but the Energy” and Latin America is on track to win his place in the geopolitical shift that is underway.

The ambition is clear: to be a leader in Latin America. The CEO of Y-TEC (the public company formed by YPFand CONICET), Gustavo Bianchi, noted that “the main objective is the knowledge, development and production of unconventional hydrocarbon deposits.”

“In Y-TEC we want to be leaders aware of shale and tight, and Petrobras is a leader in offshore deep-water. If you are a leader and other fields that are out of the YPF exploration are found, we will be ahead of the rest when it comes to a tender,” said Bianchi.

In 2013, YPF paid a total of US$ 2,170 million, 620% more than what was invested in 2011 and this year plans to increase the amount by 50%.

Energy exchange

With a strong impact on economic and social level, the activity of the Argentina oil led to the creation of 10,500 new jobs in Neuquén, direct and indirect, 25% more jobs compared with 2010. In 2013 the company contributed to provincial coffers with $2,192 million in royalties and widely expected to exceed that figure this year. The contribution in Gross revenues also set another record by reaching $537 million.

Specifically in Neuquén, YPF accounts for 90% of unconventional activities and achieved daily production of 19,000 barrels of oil equivalent. From YPF it was reported that “it was already launched a new horizontal well which reached a production of about 450 barrels of oil, auspicious to further develop the reservoir in order to maximize production data.”

Asked about the relationship with the community, YPFsaid that “while there have been doubts about the lack of knowledge, operators have not had any delay for claims.”

In addition, they emphasize that the operations in “Vaca Muerta” are performed under the strictest environmental standards and more than 20 km away from the nearest urban centers.

Regional Project

Certainly, there is much anxiety in the sector to see tangible results of the hydraulic stimulation in the national energy matrix, but the oil state company is further flying another flag of great strategic value: the acquisition of know-how.

The information that Argentina is getting from the development of unconventional is already being shared with oil companies in the region. YPF explain that a concrete example of this exchange is the memorandum of understanding (MOU) signed with the company YPFB(Bolivia), through which the oil Argentina company undertakes, “to work with the potential exploration and development of unconventional oil providing our expertise and experience knowledge”.

Additionally, Petrobras also participates as a partner in several projects in Argentina so it would be logical that when other Unconventional frontiers would be opened in Latin America, as is beginning to happen in Brazil, the ability to share the knowledge gained in “Vaca Muerta” could be analyzed.

In this line, the CEO and Chairman of YPF, Miguel Galuccio, launched the offer in the Fourth Congress of YPFB Gas & Oil. “If to have the energy control is political power, to be together and finding synergies is to have more power,” said the former Schlumberger while indicating that “in various countries of the region we have important national companies with experience and strengths that we can share for the energy growth in the region and we can get to form a G-10 energy.”

In looking to be part of this energy team, there are YPFB(Bolivia), Pemex (Mexico), Petrobras (Brazil), PDVSA(Venezuela), Ecopetrol (Colombia), Petroamazonas(Ecuador), Petroperu (Peru), ENAP (Chile ), ANCAP(Uruguay) and of course, YPF.

We also have tight

United States first learned of the exploitation of tight -compact sands- to make the shale gas revolution. The acquisition of proven technology from the United States allows the Argentina incorporate the technique and to exploit all resources at once. In this sense YPF, as other oil companies with activity in “Vaca Muerta”, is operating in the exploration and exploitation of tight gas.

In 2006, Argentina began to conduct studies on the potential of tight sands mainly in the Neuquén Basin and YPF did research on the Loma de la Lata.

In this area, the Argentina oil company reported in the first quarter of 2014 it agreed to excellent results in the development of tight gas formation “Lajas” where they drilled 10 wells and hooked and average natural gas production of 2.8 million cubic meters per day.

A value chain

The projection of a sustainable industry is a pillar to the revenue of the activity to last over time. Consulted on projects to promote the development of local inputs,YPF said that to answer this question it is essential to refer to the “SUSTENTA” program: “This initiative aims to improve productivity, competitiveness and quality of our product providers and services.”

The project involves the development of local content plans that optimize technical skills, encourage technological innovation, diversification and the formation of new regional leader’s skills for optimal management of the environment.

“As a major player in the industrial development of the country, SUSTENTA promotes the incorporation of technology and diversification in the medium and long term, to replace imports and create in the Argentine territory promoting activities related to industrial growth,” sources YPF.

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Argentina cuts shale drilling costs but no new joint ventures expected

BUENOS AIRES | BY HUGH BRONSTEIN AND ELIANA RASZEWSKI

Aug 6 Argentina needs $200 billion in investment to develop its vast but barely tapped shale fields, but no joint ventures were expected soon because of low oil prices and uncertainty ahead of a presidential election, state oil company YPF said on Thursday.

YPF, nationalized in 2013, is improving drilling efficiency and developing its Vaca Muerta shale formation in Patagonia so that international companies will invest once prices recover, Chief Financial Officer Daniel Gonzalez said in a conference call with investors.

"I would not expect any significant joint ventures to be announced soon," Gonzalez said.

He cited the drop in global oil prices and uncertainty ahead of October's presidential election in Argentina among the reasons.

The biggest joint venture so far was a 2013 pact with Chevron, under which the two companies have put about $3 billion in the Belgium-sized Vaca Muerta formation.

Brent crude was at just above $49 a barrel on Thursday, down from $115.71 intraday on June 19, 2014.

YPF nonetheless posted a second quarter net income of $252.8 million on Wednesday, a 50.5 percent increase on the same period last year.

"During the second quarter we connected a total of 46 wells, including 38 verticals and eight horizontal wells, taking the total to 360 shale wells already in production," Gonzalez said.

Shale gas production reached 43,300 barrels of oil equivalent per day primarily from the Loma Campana field, where YPF has a 50 percent stake with Chevron Corp..

"We have extended the length of the horizontal sections from 1,200 meters to 1,500 meters, and are now in the process of further extending them up to 2,000 meters," Gonzalez said.

He said YPF has also added three fracture stages, taking them to 15 to 18 per well.

"Another important improvement regarding horizontal wells is that the costs have been consistently below $14 million a well, including those with 18 fracking stages."

YPF had previously said its horizontal wells cost about $14 million per well.

"During the second quarter we drilled and completed two slim-hole wells and have two more pending completion. This can prove to be a cost efficient way to develop less productive areas of Vaca Muerta," Gonzalez said.

YPF will continue improving efficiency in order to be ready to enter joint ventures when conditions improve, Gonzalez said.

"For the time being we have a lot on our plate with Loma Campana and El Orejano," he added. (Editing by Grant McCool)

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Oil at $77? It is in Argentina. Oil has plummeted below $39/bbl in the U.S. But despite the price bloodbath in global energy markets, it fetches nearly twice that amount in Argentina -- home to some of the most expensive crude in the world. Even as prices plunged anew Monday, sending world benchmarks close to the lowest levels they briefly hit in the Great Recession, oil is still flying high in Argentina for the simple reason the government wants it that way.

Argentina plays by its own rules with oil at $77