Argentina's oil production declined 1.6% in January on the year, extending a slide that started in 1998, energy ministry data shows.
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Crude production dropped to 524,947 b/d in January from 533,261 b/d in January 2015, and was 1.4% less than the 532,228 b/d in December, the ministry said. This means that January's production was 38% less than the record 847,000 b/d in 2004.
"Most of the fields in Argentina are mature and they are declining in production," Alejandro Gagliano, a partner at Giga Consulting, an oil industry consulting firm in Buenos Aires, said Tuesday. "A lot of investment is needed to sustain production."
Argentina has not attracted much oil investment since a 2001-02 economic crisis ushered in a populist-left government whose policies cut profit potential and made it harder to plan business. These included price caps, trade restrictions and bans on paying dividends abroad.
A lack of access to foreign capital markets and low interest rates, a response to the country's $100 billion bond default in 2001, further discouraged spending. Foreign companies left, and those that stayed reduced spending.
The country's rig count fell to around 45 in 2002 from 50-100 in the mid-1990s, when production was growing after the county started opening up fields for private investment. More rigs were deployed during the 2000s, reaching an average of 60 to 90, according to Baker Hughes. The fleet reached a peak of 112 in November 2014, holding steady at above 100 between March 2014 and November 2015.
However, the rig count dropped to 90 in December, 71 in January and 64 in February, according to Baker Hughes.
The pullback coincided with a change in government and the summer holidays. Mauricio Macri, a conservative politician, won the presidency in November and took office in December, a time when many workers go on vacation.
But more so, concerns about the policies of the new administration was a leading reason for sidelining rigs, Gagliano said.
"This is having an impact on production curve now," he said.
Gagliano expects a reversal of the downturn will come as soon as oil companies see that the government can sustain its policies, he said.
A key policy of the Macri government was to lock in domestic crude prices at $54.90/b for heavy crude and $67.50/b for light crude in January. While that was 10% less than in 2015, it is still higher than global prices now running below $40/b of global oil.
Energy minister Juan Jose Aranguren has said he wants to sustain oil production because many provinces rely heavily on the oil sector for tax revenue and jobs. Strikes can have a direct impact on production at refineries, leading to shortages. This is because most refineries run domestic crude and are operating at more than 90% run-rates.
To help the provinces in the south, which produce a heavier crude of which about 30% is exported, the new government has rolled out a $10/b subsidy for exporters.
Despite the incentives, companies have been slow to bring rigs back on line since suspending them between December and February.
YPF, the state-run energy company, is starting to do so, with five rigs poised to reenter the fields in the southwestern province of Neuquen. This would be in response to the federal government paying off a multi-billion dollar debt to YPF for oil incentives.
However, YPF warned this month it expected several of the 24 rigs it sidelined around the country in December to remain out of business. The company has cut capital expenditures plan by 20%-25% for this year, a move that it has said will lead to flat production this year compared with 2015.
Even so, Aranguren said in February that he doesn't expect the low global oil prices to have a big impact on long-term investment plans in Argentina, including in the development of the country's huge unconventional oil and natural gas potential in plays like Vaca Muerta.
These projects are for 35 years, and so are less affected by short-term price fluctuations other than potential delays in investment decisions, he said at the time.
YPF and Chevron were the first to enter into production at Vaca Muerta, reaching 54,000 b/d of oil equivalent at the end of 2015 as part of a $16 billion long-term development project. Dow Chemical and YPF have agreed to begin a $2.5 billion shale gas project in 2016, while ExxonMobil has launched a $14 billion shale project. Total, Shell and Malaysia's Petronas are following suit in the pilot phase.
YPF, which produces 42% of Argentina's crude, boosted output 2.4% to 229,046 b/d in January from 223,701 b/d in the year-earlier month, according to the Energy Ministry.
However, for national production to recover, more companies like BP-controlled Pan American Energy, Argentina's Pluspetrol, China's Sinopec, Brazil's Petrobras and Argentina's Tecpetrol must step up investment. The Argentine Oil and Gas Institute, an industry group, estimates that $20 billion annually must be invested per year to sustain production growth.