Trafigura invests in Argentinian shale wells to boost local crude supplies

Commodity trading group Trafigura has agreed to invest around $75 million to help develop oil wells at Argentina's giant Vaca Muerta shale play in order to secure crude supplies for its local refinery, the company said late June 28.

Following a deal with operator Vista Oil & Gas -- the third-largest crude producer in Argentina -- Trafigura said it will help to develop 20 oil wells in the Bajada del Palo Oeste block as part of a $250 million joint investment.

Under the terms of the deal, Trafigura will invest around $75 million, of which $25 million is a purchase price for a 20% participation in the production of the wells covered by the agreement. The remaining $50 million covers Trafigura's contribution to the development costs of the 20 wells, it said.

Vista will be the operator of the shale wells and keep 80% of the production from the wells while contributing the remaining 80% of the investments, it said without giving details of the expected volumes from the development.

Trafigura -- the world's second-biggest independent oil trader -- currently owns and operates Argentina's 31,500 b/d Bahia Blanca refinery near Buenos Aires, the Campana fuel terminal, and Puma Energy's network of 350 service stations.

"This alliance allows us to strengthen our business in Argentina and integrate the supply of crude oil for our refinery and the subsequent supply of fuels for our network of service stations, wholesale clients and the export market to neighboring countries," the head of Trafigura Argentina, Martin Urdapilleta, said in a statement.

Crude supply deal

Vista -- Argentina's second-largest shale oil operator -- has been focusing its investment on Bajada del Palo Oeste, its core asset in the play's oil window now producing about 24,000 b/d of crude, according to data from the Argentine Oil and Gas Institute. Vista has operated the block for over two years with 28 wells currently in production.

The deal marks the first such strategic agreement that Vista has made with another company to accelerate the development of its main shale oil block Trafigura said.

"[The deal] will also help to generate more production, and thus continue to expand energy exports that are essential for generating foreign exchange that the country needs, whilst preserving and always supplying the local market," Vista CEO Miguel Galuccio said.

Argentina's oil production is expected to rise over the next two decades. S&P Global Platts Analytics expects combined crude and condensate output to climb from roughly 500,000 b/d in 2021 to 1.1 million b/d in 2040.

Vista is seeking to ramp up production and exports. It produced an average of 32,930 b/d in April, according to the latest data from the Argentine Oil and Gas Institute, an industry group. Of that, 24,030 b/d came from Bajada del Palo Oeste.

The company set a target in February to end the year with 40,000 boe/d of oil and natural gas production, up from an average of 34,100 boe/d in the first quarter of 2021.

Vista exported 1.1 million barrels of Medanito, a light crude from Neuquen Basin, the southwestern home of Vaca Muerta, in the first four months of this year, compared with 2.5 million barrels in all of 2020 and 95,000 barrels in all of 2019, according to data from the Argentinian Energy Secretariat.

Spot Medanito crude prices have risen since mid-April, when S&P Global Platts launched its FOB Argentina assessment.

Medanito was assessed at $71.79/b June 29, up from $64.60/b April 19, following a rise in benchmark Brent prices.

Under the shale well agreement, Trafigura said Vista has also committed to supplying it with 380,000 barrels per month of crude for the Bahia Blanca refinery for 18 months.

Traders in, majors out

Independent commodity traders see a growing role as owners of producing oil and gas assets as many Western integrated oil companies start to scale down their upstream portfolios and pivot to renewable and low-carbon energy.

Speaking at an industry event earlier this month, the CFO of top independent oil trader Vitol said the company will look for upstream assets with a short payback cycle such as shale, given growing uncertainty over future oil and gas demand.

At the same event, Trafigura's CFO said the company remains "pretty open" to investment opportunities in oil and gas while its CEO, Jeremy Wier, expressed 'concern' over the supply implications of a current upstream spending slump into oil and gas.

Weir said the required future upstream spending could also be dependent on higher oil prices than today's levels of around $70-$75/b due to higher costs of capital, rising carbon prices and any inflationary pressures.

Trafigura recently completed the acquisition of a 10% stake in the giant Vostok Oil development in northern Russia from Rosneft. Trafigura paid Eur1.5 billion ($1.8 billion) of its own cash to help pay for a 10% stake in Vostok, which Rosneft has valued at Eur7 billion.