Expectations and Interest High for Argentina’s Emerging Vaca Muerta Shale Play; Potential Lures Explorers but Sweet Spots Still Undefined, IHS Says

IHS research series explores challenges, risks and potential of one of the most prospective unconventional oil and gas plays outside US

Monday, February 1, 2016 12:14 pm EST

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HOUSTON

HOUSTON (Feb. 1, 2016) – Despite volatile oil prices that have drastically reduced oil and gas drilling activity worldwide, operators that have weathered the oil price decline are positioning themselves to tap the potential of the next “big unconventional play.”

Many operators, particularly those with experience in the U.S. shale plays, have set their sights outside the U.S. on the Vaca Muerta shale formation, Argentina’s highly prospective, but largely unproven, unconventional play in the Neuquén Basin, according to new analysis from IHS (NYSE: IHS), the leading global source of critical information and insight.

According to the IHS Energy research entitled The Vaca Muerta Insight Series, the Neuquén Basin is similar to other “super basins” around the world such as the Permian Basin in the United States in that it possesses numerous desirable geologic traits. Those traits include very thick, high quality, organic-rich shales, multiple unconventional targets, and the potential to deliver billions of barrels of oil equivalent.

“Many geologists will tell you it’s all about the rocks, and certainly these Vaca Muerta shales have the potential to provide prolific production,” said Graham Bliss, Ph.D., senior director of research at IHS Energy, and one of the authors of the analysis. “The geologic characteristics of the Vaca Muerta are promising, but they vary significantly depending on depth and location. In addition, the ‘sweet spots’ of the play have not yet been determined, and there has been relatively little drilling to clarify the play’s potential.”

Exploitation of the Vaca Muerta is comparatively new, IHS said, and so far has taken place over a relatively small area of the more than 115,000 square kilometers of the Neuquén Basin. Development has focused primarily on the YPF-operated (Chevron joint venture) Loma Campana project, and few wells have been drilled outside that project. In fact, even the Loma Campana drilling has been minor compared to its North American analogues.

The IHS analysis said slightly more than 400 wells have been drilled in the play, as compared to the Eagle Ford shale play in the U.S., which has recorded more than 14,000 wells drilled since 2008. Fewer than 10 percent of the existing wells in the Vaca Muerta are horizontal, and recent positive results suggest that horizontal wells will play an increasingly important role going forward, the IHS report said.

In terms of comparison to U.S. shale plays, there is no simple U.S. analogue, but the Eagle Ford in south Texas comes closest when several key geologic parameters are considered, IHS said. The principal belowground difference between the Vaca Muerta and the Eagle Ford is the former’s greater thickness—which ranges from between 100 meters and 200 meters in the most prospective areas—an important consideration for operators when considering economics and well type.

Average Eagle Ford wells produced at a higher rate than the first horizontal wells from the Loma Campana block (see attached figure). Initial production (IP) rates for the Eagle Ford are approximately 600 barrels per day, while for the Loma Campana IP rates are about 520 barrels per day.

Bliss said the Vaca Muerta play is still in its “proof of concept” phase as YPF, Argentina’s state-controlled oil company, and other operators, search for the right conditions to establish economic production. “We are very early in the development of this play, so there is likely to be a steep learning curve for operators, particularly as they move away from the Loma Campana area,” Bliss said. “However, with production approaching 50,000 barrels of oil equivalent per day, it is one of the most successful unconventional domains outside of North America, so all eyes are on the Vaca Muerta to understand its potential.” 

To be successful, said the IHS report, the Vaca Muerta play will have to attract many more operators, service companies and investors. Currently YPF, several international majors (including ExxonMobil, Chevron and Shell) and a handful of small independent and Argentine operators dominate the play. But that may quickly be changing, since just last week, U.S. shale veteran Aubrey McClendon, co-founder and former CEO of Chesapeake Energy and now CEO of American Energy Partners, announced his company had signed a preliminary, three-year, $500 million agreement with YPF for the exploration and development of the Vaca Muerta.

Despite their importance, the rocks (geology) represent just one piece of the puzzle operators must consider when operating in regulatory environments outside the U.S. To that end, IHS has prepared three scenarios to help operators better assess both the belowground and aboveground risks. These drive three supply outlooks based on rig and well schedules and the capital investments required to carry out these schedules.

The recent election of Mauricio Macri as Argentina’s new president and his proposed economic policy reforms increase the likelihood of a more favorable business environment in Argentina, noted the IHS report. Macri’s administration aims to reverse many of the policies that have kept investors at bay. Among the main items remaining on the administration’s agenda include addressing the country’s capital controls, as well as settling the country’s outstanding debt dispute. However, the wide range of economic challenges will require a skillful balance between adhering to the Macri administration’s policy goals and working with a split legislature and other major players, including the labor unions, and provincial governors.

“The most immediate concern relative to investment in the Argentine energy sector right now is the economy,” said Paula Diosquez-Rice, principal economist at IHS. “Argentina continues to battle high inflation, a depreciating currency, low commodity prices and low demand. The new exchange rate floatation system will imply more market-driven changes in the exchange rate and thus more volatility, so controlling inflation and gaining access to external financing are essential to bringing the Argentine economy to order and providing a framework for regaining investor confidence. If the government can stabilize the economy and restore investor confidence, it will be open season on the Vaca Muerta.”

To speak with Graham Bliss, Paula Diosquez-Rice, or one of the other authors of the IHS analysis, please contact Melissa Manning at melissa.manning@ihs.com. For more information on the IHS Energy Vaca Muerta Insight Series, please contact dyene.galantini@ihs.com.

 

IHS CERAWeek 2016

The industry’s response to volatility and uncertainty in a time of low oil prices; a look at what’s ahead for markets, investment, and costs and technology will be key themes explored at  IHS CERAWeek 2016, which will be held February 22-26, 2016, at the Hilton Americas Hotel in Houston. In addition, speakers at the event will address the environmental agenda, including climate policy and responses to the COP 21 climate conference in Paris; the changing structure of the electric power industry; prospects for renewables; emerging competitive strategies and industry structure; and regulatory policy and geopolitics.

IHS CERAWeek is recognized as a leading forum offering insight into the energy future. Chaired by Daniel Yergin, IHS CERAWeek 2016 — Energy Transition: Strategies for a New World will mark the event’s 35th anniversary and will convene more than 2,800 delegates from more than 50 countries and more than 300 speakers to provide fresh insights and critically-important dialogue on the most urgent issues and realities to be faced in energy markets, technologies and geopolitics.

Mexican President Peña Nieto will join a distinguished group of speakers that will include U.S. Secretary of Energy Ernest Moniz; the CEOs of ConocoPhillips, GE, Royal Dutch Shell and Siemens; energy ministers from Norway and Mexico; and officials from the U.S. Federal Reserve Board, Federal Energy Regulatory Commission, Energy Information Administration and Texas Public Utility Commission. (A complete list of speakers and conference program information are available at www.ceraweek.com)

Registration Information

IHS CERAWeek 2016 will be held February 22-26 at the Hilton Americas Hotel in Houston, Texas. Further information and delegate registration is available at www.ceraweek.com.

Media Accreditation

Media registration is now open. Members of the media interested in covering IHS CERAWeek 2016 are required to apply for accreditation. Applications can be submitted via the following link: http://on.ihs.com/cwmediareg

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IHS (NYSE: IHS) is the leading source of insight, analytics and expertise in critical areas that shape today’s business landscape. Businesses and governments in more than 140 countries around the globe rely on the comprehensive content, expert independent analysis and flexible delivery methods of IHS to make high-impact decisions and develop strategies with speed and confidence. IHS has been in business since 1959 and became a publicly traded company on the New York Stock Exchange in 2005. Headquartered in Englewood, Colorado, USA, IHS is committed to sustainable, profitable growth and employs approximately 8,600 people in 32 countries around the world.

 

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