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Argentina's YPF sees steady oil output growth from Vaca Muerta

Buenos Aires — YPF is widening its exploration in Argentina's Vaca Muerta shale play for long-term oil production growth, while natural gas is poised for slower growth in the near term, a senior company manager said Friday.

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The state-backed Argentinian company is de-risking two new clusters in the southwestern play, one in the north and the other in the south, Sergio Giorgi, YPF's vice president of strategy and business development, said on a conference call with investors. This, he said, will "prepare the funnel of new developments that will be the backbone of our production growth for the next years to come."

Both of the new clusters are in play's oil window, where YPF is focusing its investment given that a glut of gas supplies and limited sales opportunities is keeping a lid on short-term growth potential for that product, Giorgi said.

The two new clusters will build on a first cluster that it has already been put into full-scale development in the center-east of the play through joint ventures with Chevron at the Loma Campana block, Malaysia's Petronas at La Amarga Chica and Schlumberger at Bandurria Sur.

This first cluster is driving the company's shale production growth, which shot up 47.9% to 82,400 b/d of oil equivalent in the second quarter of this year from 55,700 boe/d a year earlier, according to the company's latest financial results released late Thursday.

The growth was led by shale oil, which rose 58% to 32,100 b/d over the same period, Giorgi said.

MATURING CONVENTIONAL RESERVES

Despite the surge in production from Vaca Muerta, one of the world's biggest shale plays, YPF's overall hydrocarbon production dropped 5.3% to 515,700 boe/d in the second quarter from 544,600 boe/d in the year-earlier quarter. This was led by an 8.8% plunge in gas production to 40.1 million cubic meters/d from 44 million cu m/d. Oil production fell 1% to 224,000 b/d from 226,300 b/d over the same period, while output of natural gas liquids dropped 5.3% to 39,400 b/d from 41,600 b/d.

Much of the decline came from conventional fields, which after decades of production are maturing. The result is that overall production is on track to decline by 2% to 3% this year compared with 2018, Giorgi said. To offset this, he said, the focus is on driving up production growth from Vaca Muerta.

"Our shale oil production growth continues to offset the conventional production decline, and we expect this trend to continue through the year and beyond as our unconventional production will continue increasing," Giorgi said.

Indeed, in the first shale cluster, YPF expects three of the four blocks -- the fourth, Aguada del Chanar, was acquired this year and is under exploration -- to reach production plateaus of between 60,000 boe/d and 100,000 boe/d in the next five years, for a combined total of 225,000 b/d.

They will hold at those levels for more than 10 years, Giorgi said.

By the end of this year, he said these three blocks -- Loma Campana, La Amarga Chica and Bandurra Sur -- should be producing a combined 80,000 b/d of shale oil, up from 58,000 b/d in the first half.

In the other two clusters, it is testing blocks in the north of the play with partners including Chevron and Norway's Equinor to find the next spots for development. It has three pilots in the northern cluster: Bajo del Toro, Narambuena and Chihuido de la Sierra Negra -- and a fourth block under exploration, Las Manadas.

In the southern cluster, all four of the blocks are under exploration.

GAS BOTTLENECKS

With gas, YPF has put a hold on new projects due to a glut of supplies and limited sales opportunities.

"We will continue to limit our investments until we can increase demand," Giorgi said.

To do this, the company is taking steps to widen exports and increase domestic demand. For one thing, it has invested in a power plant that will consume 3 million cu m/d of gas, Giorgi said.

There are plans to start injecting gas in its first underground storage facility in the fourth quarter, and to increase sales to the fertilizer and petrochemical sector.

But most of the demand growth is to come from exports.

YPF plans to expand exports to Chile, which averaged 1.2 million cu m/d in the first half, and look for opportunities to sell to Brazil and Uruguay. All three of these countries have pipeline connections.

For longer-term export growth, the company will start selling LNG on a regular basis from the second half of this year via a floating liquefaction terminal, the first in the country. The shipments will average 2.5 million cu m/d, Giorgi said.

YPF also is in talks with potential partners for a project to build a large liquefaction terminal, details of which are to be announced at the end of the year, Giorgi said.

-- Charles Newbery, newsdesk@spglobal.com

-- Edited by Richard Rubin, newsdesk@spglobal.com

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