Argentina’s YPF to ramp up Vaca Muerta spending
Tuesday, Jun 13, 2017
Argentina’s YPF plans to invest as much as US$4 billion per year up to 2020 in the Vaca Muerta shale play, which it is targeting for long-term growth in oil and natural gas production.

State-run YPF’s CEO, Ricardo Darre, announced the plans on a recent press junket to Loma Campana, the company’s biggest Vaca Muerta block.

“We have to prioritise our investments with a company roadmap in unconventional resources and with a spending plan,” Darre said.

“We want to accelerate the development of Vaca Muerta to the point where the play can provide 50% of the gas that the country will need in 2021, and 60% of the oil in 2020,” he added.

Argentina produces 120 mcm per day of gas, but consumes 130-180 mcm per day. The shortfall is met with imports, which averaged 30 mcm per day in 2016.

In terms of oil, the country produces 500,000 bpd, most of which is run through its refineries.

Light crude is imported to make up for any shortfall. The shale oil from the Vaca Muerta, however, is light, and should therefore offset the country’s shortage of such crude as output rises, allowing for more of its heavy oil production to be exported. The country exports about 10% of its crude, all of which is heavy, according to data from the Argentine Ministry of Energy.

For Darre, the key to achieving these goals is to bring down drilling and completion costs, an effort that in turn will encourage more foreign companies to develop the play.

“More capital is going to arrive once we show that the hydrocarbons are there and we have lowered the costs,” Darre said.

YPF, the most active company in the Vaca Muerta, is producing about 65,000 boepd from the Vaca Muerta, with most of its output coming from Loma Campana, which it is developing in partnership with Chevron. It is also developing blocks with Dow Chemical and Petronas, and it intends to set up more such partnerships.

Darre said the company would launch 13 new pilot projects over 2017-18, taking the number of blocks it has under development to 17 in 2019.
Most of the pilots will be smaller, with three or four wells apiece to test the potential. This will make it easier to come up with the financing, the company has said.

Of the new pilots, two are set to be launched this year in partnership with Schlumberger and Royal Dutch Shell, plus another three partnering with BP-controlled Pan American Energy (PAE), Total and Wintershall.
However, Darre warned that finding more new partners might not be easy.

“Today, Vaca Muerta is pure resource,” Darre said. “The problem is that with the price [of oil] at US$55 per barrel, investors say to me: ‘Come and see me next year’.”

YPF has made progress with reducing its costs, cutting them in half to US$8.1 million per well in the first quarter of this year on horizontal wells of 1,500 metres with 17 laterals. This is half of what it was spending in 2012 and 2013, when it started developing the Vaca Muerta.

The pilots will help YPF to find new ways to reduce development costs further, with the company having set a target of reaching US$10 per barrel at the end of 2018 compared with US$13 per barrel this year.

Separately, YPF has said it is planning to invest US$56 million to double the capacity of a 2 mcm per day gas processing plant in Rio Negro, making it possible to ramp up production from Estacion Fernandez de Oro, where it is targeting a tight play.

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