[Editor's note: A version of this story appears in the March 2019 edition of Oil and Gas Investor. Subscribe to the magazine here.]

In 2018, oil production in Argentina reached nearly 500,000 barrels per day (bbl/d), up 2% from 2017 and halting a multiyear decline. Approximately 15% of the 2018 production was from unconventional sources.

So far, except for a couple of wells drilled in the San Jorge Basin in the D-129 shale formation, the majority of shale exploration and development has centered on the Neuquén Basin, specifically in the Vaca Muerta shale formation. Recent announcements from YPF, Petronas and Shell indicate moves toward full-scale development. Additional announcements from Chevron Corp. and YPF on investments totaling $800 million to drill 20 wells in the Vaca Muerta in 2019 further support the play’s prospects for growth.

Longer term, Stratas Advisors estimates production could ramp to more than 600,000 barrels of oil equivalent per day (boe/d), up from 97,000 boe/d in 2017. Incentives to invest and develop the Vaca Muerta to support the “New Gas Plan” and an agreement with the Provincial Government for reduced labor costs underpin this growth outlook. Plans to reduce import tariffs on facilities for oil field exploration and production and efforts to contain and reduce costs provide additional tailwinds for operators. Total well counts are expected to climb to about 5,800 by 2030.

The Vaca Muerta shale formation is the primary hydrocarbon source rock in the Neuquén Basin in Argentina. It’s located at depths of greater than 9,000 feet in the basin center and is more than 700 feet thick there; it thins toward the basin boundaries and outcropping around the basin margins.

The play spans 7.4 million acres in the basin and was formed in a deepwater marine environment containing Type-II kerogen, mainly stratified black and dark grey shale, with lithographic lime-mudstone from the late Jurassic to early Cretaceous.

The formation is productive for gas and gas condensate in the deeper basin areas and oil around the shallower basin margins. The Vaca Muerta has average total organic carbon content of 5%, but it spikes to 12% in areas of the northern basin and ranges from 1% to 8% in areas of the south basin. Average vitrinite reflectance value (Ro) of the formation is 1.17%. Notably, the play is characterized with a range of thermal maturities, including immature ares near the margins of the oil window to less than 0.6% Ro to wet gas.

There is a small area of dry gas with 2% Ro in the basin center on the western edge. Numerous wells have been drilled to test the Vaca Muerta since 2009.

Well data indicates that the formation is anisotropic and highly overpressured throughout the formation with pressure gradients ranging from 0.67 to 0.97 psi per feet.

YPF is the largest producer in the play with about 110,000 boe/d. The company is projected to accelerate production during the coming years, reaching 365,000 boe/d by 2030. Total play level production at that time is estimated at 620,000 boe/d. During the next five years, YPF is targeting a 150% growth in unconventional oil and gas production with plans for more than 1,700 wells using an average of 18 operated rigs.

At present, roughly 14 major operators are involved in the Vaca Muerta. YPF controls 42% of the acreage; Gas y Petroleo, a state company of Neuquén, about 12%, and the remaining 46% of acreage is distributed among other companies, including Chevron, Equnior, Total, ExxonMobil Corp., Pan American Energy, Petronas, GrowMax Resources, Pampa Energia, Pluspetrol, Shell, Tecpetrol and Wintershall.

New technologies are reducing costs and improving results. Completed well costs (CWC) fell to US$8.2 million in mid-2017 from US$16.2 million in 2013 as new approaches to drilling and completion reduced drilling times and improved production. Current estimates indicate CWC is about US$7.5 million. For reference, drilling times improved by about 50%. Shifts in pad drilling have unleashed time savings in rigging up and rigging down, decreasing costs and increasing rig efficiencies. At the Loma Campana block, it now takes 20 to 22 days to reach the Vaca Muerta, a substantial improvement from just a few years ago.

Since 2015, YPF has collaborated with Schlumberger Ltd., applying a dynamic unconventional fracture model to optimize hydraulic fracture stimulation design. The optimized stimulation design is based on a hybrid treatment from inputs using four clusters per stage designs and a slickwater design using eight clusters per stage. This stimulation result shows higher flow rates than slickwater-only treatments.

With advanced technology and optimized fracture models, YPF is leading the charge to slash drilling and completion costs to about US$11/boe from US$29/boe in 2015. Development costs are expected to drop to $8/boe by 2023. Opex fell to US$7/boe in 2017 from $16/boe in 2015. Future operating costs are estimated to reach US$6/boe by 2023.

Well productivity has improved continuously in the past three years. Moreover, EUR increased 35% from 660,000 boe to 900,000 boe in 2018.

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