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Argentina to become world test field for tight oil and shale gas

Schlumberger and Baker Hugues to lead exploration

When Repsol-YPF discovered in 2011 the potential reserves of the Vaca Muerta in tight oil and Los Toldos and Totoral permits, it sent the signal to all the 50 companies having licenses in Argentina to drill more and to take their chance at the benefits of Schlumberger and Baker Hugues in the lead of the exploration services.

Since then, Argentina Government forced Repsol and YPF to demerge and recognized the strategic position of Schlumberger and Baker Hugues in the unconventional oil and gas fields in appointing:

 – Miguel Galuccio as YPF Chief Executive transferred from Schlumberger

 – Juan Garoby to head YPF unconventional resources recruited from Baker Hugues Engineering and Technology. 

Since Repsol-YPF discoveries, several institutes performed survey and analysis to  evaluate Argentina effective reserves of unconventional oil and gas.

In January 2012, the US-based Energy Information Administration (EIA) and Advanced Resources International estimated Argentina natural gas recoverable reserves to 774 trillion cubic feet (tcf) representing 300 years of the actual Argentina consumption.

If confirmed, the shale gas would propel Argentina as the third world largest country by its reserves of natural gas after USA and China.

More recently Ryder Scott consulting company evaluated the reserves in the Vaca Muerta field to 23 billion barrels of oil equivalent (boe)opening high expectations to the total reserves of the country.

While the reserves are confirmed to be in place, Argentina and the companies exploring these fields face number of challenges.

The exploration and production in Argentina is still very fragmented with YPF representing only 35% of the production and the remaining 65% being split among more than 50 companies.

This dilution of the exploration across so many operationg companies prevents them to build up experience about Argentina shale play.

Instead, Schlumberger and Baker Hugues benefit from their oilfield service activities to deploy a transverse approach and consolidate their market leadership.

Chevron, ExxonMobil, Shell, Total test the Vaca Muerta

After YPF, the largest oil and gas producers in Argentina are:

 – BP through Pan American Energy

 – China National Offshore Oil Corp. (CNOOC) through Bridas Corp.,

 – Sinopec through Occidental Argentina and Chevron are the largest producer locally.

In parallel, Argentina awarded permits to all the major companies to develop its unconventional resources, Shell started to explore the Vaca Muerta in the Sierras Blancas and Aguilo Moro licenses while Total is testing horizontal drilling and fracturing in the San Roque block.

Americas Petrogas together with ExxonMobil and Apache are successfully testing the Los Toldos and Totoral permits confirming the potential of the Vaca Muerta.

In this promising context Argentina could expect the oil and gas production to jump in a short term.

Unfortunately the actual market prices are state-controlled so that the gas is not paid more than:

 – $2.5 per mmbtu if conventional

 – $ 5.5 per mmbtu maximum if Los Toldos and Totoral permits or tight gas.

At these levels, very similar to the US market, the international oil companies have hard to plan major capital expenditure.

Anyway YPF is planning to invest:

 – $1.5 billion to drill 132 new wells in the Loma La Lata and Loma La Campana

 – $37.2 billion on next five years to increase production of crude oil by 29% and natural gas by 23% in 2017.

To consider similar program of investment the international oil companies estimate the minimum acceptable price level for the gas to be above $6 per mmbtu.

Until 2012, Argentina was self-sufficient in natural gas, but with the increase of the consumption and the lack of investment these last 10 years in new fields, Argentina is now importing 50 million cubic meter per day at a cost between $10 and $20 per mmbtu.

In this context Argentina shall need to find the way to motivate the international companies such as Apache, Americas Petrogas, Chevron, ExxonMobil, Shell and Total to move from the actual testing stage to effective mass production and thus to unlock its immense reserves of tight oil and shale gas

 For more information and data about oil and gas and petrochemical projects go to Project Smart Explorer

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