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Argentina oil, gas production poised for growth, yet hurdles stand in way

Neuquen, Argentina — Argentina is on track for faster oil and natural gas production growth as companies enter full-scale development in the Vaca Muerta shale play, but hurdles must still be surmounted, a government official and industry insiders said Wednesday.

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"We are going to have energy that will be all the time more abundant, better in quality and cheaper," Neuquen Governor Omar Gutierrez said at the IDEA Vaca Muerta seminar in the city of Neuquen.

Vaca Muerta, one of the biggest shale plays in the world, is coming into development -- the first outside North America. But so far little has been done in comparison with the potential. Only one-third of the play's 30,000 sq km of acreage is under concession and just 5.4% is in full-scale development, Gutierrez said.

Despite this, the first full-scale developments have made it possible "to gradually reduce gas imports and allow us to start exporting oil and gas," Gutierrez said.

He spoke a day after ExxonMobil said it will proceed with a long-term oil and gas development project on a block in Neuquen, targeting Vaca Muerta. The US-based company plans to drill 90 wells to take production to 55,000 barrels of oil equivalent a day in five years from the Bajo del Choique-La Invernada block, joining the likes of Shell, Total and BP-backed Pan American Energy in projects for the mass development of the play.


The projects -- less than a dozen so far -- have turned around more than a decade of decline in oil and gas production, helping to build a surplus that companies and the government expect will build a surplus for export.

Argentina's total oil production rose 4% to 507,000 b/d in April year on year, led by a 64% surge in shale oil output, while gas output increased 2% to 132 million cubic meters/day over the same period, driven up by a 107% surge in shale gas, according to the latest Energy Secretariat data.

The Energy Secretariat has said that production could double to 1 million b/d of oil and 260 million cu m/d of gas by 2023, allowing exports to surge to 500,000 b/d and 80 million cu m/d by that time. That would be up from an average of 30,000 b/d and 6 million cu m/d this year.

When asked for production forecasts, most analysts and executives declined to provide numbers.

Gaston Remy, who runs Mexico-based Vista Oil & Gas, which is developing a shale oil block, said development of the play is gaining traction and the velocity of growth depends on getting over several hurdles. These include building midstream infrastructure, finding buyers in export markets and raising capital. Another key is for more companies to start projects, he said.

Regardless of the pace, he said the potential for export growth is high.

"We are almost balanced in oil supplies so all of the production from the new projects will go not just to offsetting the decline in conventional oil production but to export markets," he said.

Remy said he expects more players to take a shot in the play, building off the momentum of the recent launches by his company as well as Exxon, Shell and Malaysia's Petronas with YPF.

"The projects are really ambitious in terms of production," he said.

All of these latest projects are aimed at producing at least 50,000 barrels of oil equivalent a day, mostly oil.


Still there are hurdles that could slow the pace of development, said Daniel Gerold, an oil consutant at G&G Energy Consultants.

In oil, there is pipeline capacity in place to increase exports immediately, but a recent decline in international oil prices could slow projects, he warned.

Some companies have cut their costs so that they can produce at less than $40/b, allowing them to ride out price declines, he said.

But there is still "a risk" that a further decline in prices could curb the export potential, he said.

Another setback is an export tax of nearly 10%, he added.

With gas, the big challenge is to expand the market. The country is running a surplus of gas in terms of pipeline capacity, leading producers in Vaca Muerta to expand exports to Brazil, Chile and Uruguay. YPF is starting to sell its first gas from a floating liquefaction terminal.

But to really ramp up gas production, the country must build a large onshore terminal, said Gutierrez.

"This will allow us to sell to China and Japan," he said.

-- Charles Newbery,

-- Edited by Valarie Jackson,