Argentina's state-backed energy company YPF plans to redeploy 46 rigs in the Vaca Muerta region over the next six months, helping to revive oil and natural gas output from the country's biggest shale play after a plunge in activity during the coronavirus pandemic.
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Gutierrez said YPF CEO Sergio Affronti told him about the plans in a meeting. A press source at YPF declined to comment when asked about the rigs.
If the plan is carried out, YPF, the country's biggest oil and gas producer, would be moving forward with the development of Vaca Muerta as other companies in the play, like Chevron and Shell, also dust off plans after a plunge in activity during a lockdown of the economy forced most to shut-in production in April and May.
The lockdown, which started March 20, cut local oil demand by more than half to as low as 200,000 b/d and prevented some field work on health concerns. But a gradual easing of the lockdown — it has been extended to September 20 — has rekindled demand, encouraging producers to start drilling and completing wells again. The refinery utilization rate recovered to 67.3% in June from a low of 46.2% in April, but is still shy of the pre-pandemic levels of 80%, according to the state statistics agency Indec.
Fracking activity revives
The number of frac stages drilled in Vaca Muerta rose to 98 in August from 44 stages in July, led by Shell and Mexico-based Vista Oil & Gas, according to data from the Argentine unit of Houston-based services company NCS Multistage. While that is down from more than 650 stages in August 2019, it is up from zero in April and 28 in May.
The decline in activity during the pandemic has pushed back the Neuquen government's forecast of reaching 230,000 b/d of production by December, up from a pre-pandemic 170,000 b/d, Gutierrez said. Instead, production fell to 130,000 b/d in April and was only at 155,400 b/d in July, according to the provincial government's latest data.
Gutierrez did not provide a forecast for production growth, but said that it could be increased relatively rapidly because 105 wells have been drilled but not fracked in Vaca Muerta. Analysts have said that these wells can be put on line fast and at a low cost, meaning that the recovery in production can be quick followed by growth.
Of the wells, YPF has 85 wells that are ready to connect, Gutierrez said.
Investment still low
Gutierrez said he wants to encourage companies to step up investment in Vaca Muerta, with a target of surpassing $5 billion per year, like in 2015, up from $4.4 billion in 2019 and an estimated $2.5 billion-$3 billion this year.
"Vaca Muerta requires investments of at least $5 billion a year and the target to reach is $10 billion per year," he said.
Gutierrez said that so far companies have vowed to invest $195 billion in developing the play, of which only $25 billion has been invested.
"It's not that we have go out and look for investors," he said. "The investment is committed and the acreage is under concession."
What is necessary, he said, is for companies, governments and the labor unions to continue to cut costs, improve productivity, provide tax benefits and legal security, and widen access to financing for companies to move forward with their investment plans, including by bringing in new partners.
To show how fiscal incentives can help, Gutierrez said that after the federal government slashed the tax on oil exports to 0% from 8% in May, international deliveries began to surge, including to the US. Neuquen's oil exports more than doubled to 59,890 b/d in July from 28,300 b/d in June, and were up from sporadic shipments in all of 2019, according to data from the provincial government.
"Vaca Muerta was able to reach the world market with its oil," Gutierrez said.
While at first the light shale oil was sold at Brent minus $10/b, the discount has since declined to $4.5/b in August as buyers get to know the product, he said. "This month it will certainly be $3/b."
Export potential
Gutierrez said a driver of investment for oil companies should be the export potential of Vaca Muerta, which can be stepped up with little investment. The province, he said, has pipelines to ports on Argentina's Atlantic coast and Chile's Pacific with a total of 360,000 b/d in capacity to be filled.
There is also potential to export more gas to Brazil, Chile and Uruguay while investing in longer-term export growth by selling on the global market.
"We have to start with nearby markets such as Chile and Uruguay and then think about a liquefaction plant that allows us to export to overseas markets," he said.
The export potential, he added, has made the development of Vaca Muerta a national priority because it will bring in what the country needs most to pull out of a financial crisis in its third year: dollars. But he said that there haste is necessary to attract investment.
"We are thinking of more [development] concessions because we cannot leave the resources sleeping underground," he said. "We have come a long way but we are challenged to take the next step."