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Argentina downplays impact of lower oil price on Vaca Muerta investment

Argentine Cabinet Chief Jorge Capitanich said Friday a decline in international oil prices won't cut investment in the development of large shale resources in Vaca Muerta due to a drop in drilling costs at the play.

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The country's state-run energy company, YPF, has on its own and in partnership with other companies increased the efficiency of its investments "with the goal of reducing the cost of the development of each well," Capitanich said in a televised press conference.

He said YPF, which is the only company so far to put Vaca Muerta into production, in a partnership with Chevron, has cut drilling costs on the play to an average of $7.5 million per well from an initial $11 million.

This reduction has made the investments in Vaca Muerta "less sensitive to the price of crude," he said.


Capitanich spoke after a steady decline in global oil prices pushed the price of West Texas Intermediate, the reference price followed in Argentina, to what he said is a four-year low of $69/b from more than $100 in June.

This has raised concerns of a slowdown in investment in developing Argentina's shale resources, estimated at among the world's largest and a key for turning around a decade-long decline in conventional oil and natural gas production that has led to a surge in energy imports.

But Capitanich said that as drilling Vaca Muerta becomes more efficient, development costs will continue to drop and make investments viable even if oil prices are lower.

"Efficiency will make it possible to guarantee profitability," he said.

YPF and Chevron are producing about 31,000 b/d of oil equivalent, mostly of light crude, from a first project at Vaca Muerta.

YPF plans to launch another partnership with Malaysia's state-owned Petronas for an initial $550 million to drill into Vaca Muerta, and has entered talks with ExxonMobil and Gazprom on other possible projects in that play.

At the same time, BP-backed Pan American Energy, Exxon, Shell, Tecpetrol, Total and other companies have started drilling for shale resources.

Capitanich said these investments in unconventional plays as well as increasing the development of conventional hydrocarbon reserves will boost domestic oil and gas production so that the country can reduce energy imports, which are expected to reach the equivalent of $12 billion this year for an energy deficit of $7 billion, he said.

In 2015, the imports will decline "significantly," he said.

Argentina imports mostly diesel, fuel oil and gas, and smaller amounts of crude and gasoline.

"Argentina is on track to reduce its energy deficit thanks to more local investment and more capacity for the substitution of energy imports," Capitanich added. "Argentina is increasing its energy investments, and this is helping to reduce energy imports."

--Charles Newbery, newsdesk@platts.com
--Edited by Jeremy Lovell, jeremy.lovell@platts.com