Senior Vice President
09:45 - 10:15
Wednesday, 18 September 2019
T2.3 Will Argentina resolve the bottlenecks to unlock its O&G potential?
Argentina has tremendous growth potential due to its rich oil and gas shale reserves. The Vaca Muerta shale play is bigger than the Permian Basin from a geographic perspective. It has the potential to be the next Permian, but there are several major bottlenecks currently affecting the area:
- Proppant: This is the biggest bottleneck. Frac sand is trucked for up to 1000 km, significantly increasing costs at the well site. Demand is expected to increase from 0.8 million tons in 2018 to 2Mt in 2021.
- Infrastructure: Rail and road infrastructure is old and unreliable. Current infrastructure is not sufficient to transport the amount of oil and gas to the demand or export centers, therefore the existing infrastructure will not support current growth expectations. Gas storage facilities are also needed to make the monetization equation more balanced.
- Labor: Services companies are forced to hire more people than needed for fracking operations and sand hauling due to the positions taken by unions. The government is trying to improve relations between companies and unions.
- Pressure pumping: Services companies are struggling to achieve the desired margins. Supplier health is a major issue that operators have to address in order to attract new investments. Currently there are only six active pressure pumpers in Vaca Muerta, with supply capacity of 665,000 HHP.
- Macro-economic: An increase in intra-banking interest rates, a devaluation of the peso, and rampant inflation could make some international E&P companies weary of investing in the country.
Despite these challenges, total wells fracked in Vaca Muerta are forecasted to increase from 143 wells in 2018 to 249 wells in 2021, representing a 20% CAGR. With this number of wells, oil production is set to reach between 200,000 bpd by late 2021, while natural gas output is expected to exceed 3 bcf/d. Despite the small number of wells, productivity already competes with the best US plays. Further optimization of well design might also make results in the liquids-rich Loma-Campana area competitive with major US basins.
The geological thickness of Vaca Muerta is among the highest in the world, making it one of the leading shale plays. Certain areas of the formation have up to 1,200 feet in thickness, compared to 1,000 feet in the Permian Basin. However, the formation is not homogenous so choosing the right landing horizon is key in order to minimize costs. An increase in lateral lengths is also important in order to improve economics; lateral lengths have increased from an average of around 3,000 feet in 2011 to around 7,000 feet in 2018.
Rystad Energy believes that Argentina has the potential to become the next big player, but support from the government is key to achieve this goal.