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Exxon plans to boost shale gas output in Argentina: governor

Buenos Aires — ExxonMobil plans to ramp up natural gas production from the Vaca Muerta shale play in Neuquen, Argentina, the governor of that province said.

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Neuquen Governor Omar Gutierrez said he met with senior executives of Exxon and its XTO unit in Houston, Texas, last week during a road show to promote a series of tenders for 56 blocks in the southwestern province, according to a statement Monday.

The Irving, Texas-based company "is evaluating the potential of gas development in the Los Toldos 1 Sur block," and is poised to request a 35-year production license for the block, Gutierrez said.

Exxon's focus is to be on developing gas from Vaca Muerta, among the world's most promising shale plays, where the company will have invested $750 million by the end of this year, the governor added.

Exxon was not available for immediate comment on the governor's statement.

The focus on gas has been driven by an extension of pricing incentives this year through 2021, as the quicker a company can get a block into production, the more they can profit from the higher prices, Gutierrez said.

The incentives are designed to pay producers $7.50/MMBtu for output through 2018 and then gradually decline to $6/MMBtu in 2021, before free-market pricing takes effect in 2022, when prices are expected to average $4/MMBtu, or about $1/MMBtu less than current market averages.

The pricing incentives, which started in 2013, have led a rise in output from Vaca Muerta and several tight plays to 123 million cu m/d in 2016, up 8.2% from a 10-year low of 113.7 million cu m/d in 2014, according to Energy Ministry data.

Gutierrez said Exxon plans to enter into the production phase in May, without specifying on what block. The company will drill horizontal wells with laterals of 2,500-3,000 meters (8,202-9,843 feet), he added.

By tapping into its experience in US shale plays and using advanced technology, Exxon and XTO expect to "accelerate gas production" to reach 5 million cu m/d in the next two to three years from the blocks it operates or has stakes in, according to the statement.

Last year, XTO launched a pilot project on the combined blocks of Bajo del Choique and La Invernada with an investment of about $250 million. If the results prove promising, an additional $13.8 billion will be invested in the development of the combined block by drilling 556 horizontal wells, each with 2,500-meter legs and 25 frac stages, according to the company's investment plan approved by the Neuquen government in 2015.

Exxon is part of a new wave of investment in Vaca Muerta that gained speed this year after the governments of Argentina and Neuquen reached an agreement with companies and labor unions to extend the gas pricing incentives, cap tax pressure, improve labor productivity and expand infrastructure capacity. The aim is to bring down drilling and completion costs, helping to boost profit potential.

Tecpetrol, a leading local producer, recently announced a $2.3 billion investment to ramp up gas production to 10 million cu m/d from a Vaca Muerta block over the next three years.

Gutierrez has said he expects more companies to come forward with investment plans this year, initially with a focus on gas.

The country expects to close a 30% gas deficit by 2021-22, allowing it to resume exports to the region.

Neuquen produces 20% of the country's 510,000 b/d of oil and 48% of its gas, according to data from the Argentina Oil and Gas Institute, an industry group.

--Charles Newbery,

--Edited by Derek Sands,