Argentina's YPF to invest $1.5 billion to ramp up Vaca Muerta output

Argentina's YPF said March 19 that it plans to invest more than $1.5 billion this year to ramp up oil and natural gas production in the Vaca Muerta shale play, a latest move by the state-backed energy company to rebuild output from a slump in 2020.

The investment "will translate into a significant increase in oil and gas production" compared with 2020, YPF chairman Pablo Gonzalez said in a statement.

The aim is to boost shale oil output by 56% and unconventional gas output — shale and tight — by 70% this year compared with 2020, the company added.

Gonzalez made the announcement as part of a series of visits to the provinces where the company has operations, with the latest stop in the western province of Neuquén, home to the brunt of Vaca Muerta, one of the world's largest shale plays.

In a March 5 conference call with investors, YPF CEO Sergio Affronti said the company will boost its total investment 70% to $2.7 billion this year in a bid to return to production growth. Of the investment, 80% will go into the upstream sector, with $1.5 billion in oil and $600 million in gas, he said at the time.

With the increased investment, the company wants to rebuild total hydrocarbon output from a 9.2% decline in 2020 on the year, as a nearly eight-month lockdown of the economy for the coronavirus pandemic slashed demand and forced the company to shut wells because it could not sell all of the production. A plunge in oil and gas prices and restrictions to keep workers safe also discouraged activity.

While average production is expected to average 208,000 b/d for oil and 35 million cubic meters/day for gas this year, in line with the 2020 average, the company is betting that the increased investment will start to turn this around in the middle of the year, led by Vaca Muerta. Indeed, YPF plans to drill 90 wells in a cluster of three blocks in the play's oil window — Loma Campana with Chevron, Bandurria Sur with Equinor and Shell, and La Amarga Chica with Petronas — with a target of boosting crude oil production by 60% from those blocks to nearly 53,000 b/d at the end of 2021 from a current 33,000 b/d, Affronti said March 5.

The plan is to continue the drilling pace at 90 wells/year on this cluster of blocks through 2024 before ramping up in activity from 2025 to reach a 130,000 b/d plateau in 2027, according to a company forecast.