The Vaca Muerta has gone “from a great opportunity to a fact.” The fact is that the giant shale formation is beginning to deliver on high expectations, according to GermÁn Macchi, Argentine country manager for PlusPetrol.
Recent test wells the company drilled there “were better than the upper case,” producing more and richer gas. He was one of nine operators who reported equally strong results at a recent update meeting on the Vaca Muerta in Houston put on by the IAGP—the Spanish acronym for the Argentine Institute of Gas and Oil.
Two years ago when the group representing Argentina’s oil and gas industry held a similar day-long gathering, the talks focused on the formation’s huge potential because production was sparse. This time it distributed a map showing a number of blocks with pilot projects in progress and a growing number with commercial development. The fact is the rock is productive.
Now operators have moved on to worrying about the need for more rigs, roads, pipelines, water, and sand. With promising results and high prices paid for oil and gas—which sells for a subsidized price—they see problems ahead.
The equipment available for drilling and completions “needs to improve significantly,” said Javier Gutierrez, global operations manager for Tecpetrol. If not, “new operators coming into the Vaca Muerta will stretch those resources to the breaking point.”
Those in the packed room heard a message over and over, the rock is really productive, but: “It will take many other ingredients than the rock to make it a global super basin,” said Ed Kruijs, Shell technical manager, Argentina.
They were speaking to service companies who were asked to be ready to expand and government officials who will need to support the regulations and construction needed to sustain a decades-long effort to develop the formation. The cost of drilling a well there is down by 50% or more, but it is lagging behind the costs of the Permian Basin, where there have been similar reductions from a lower base cost.
“We are in a position within our company where we are competing for capital,” said James Blaine, project executive for international projects for ExxonMobil, adding that while the cost of the Argentine operations run by its XTO Energy division are high compared with the Permian, “these are early days.”
“We do see a path to success. The question is, how fast will we get there?” Blaine said.
A big reason for the hopeful tone has been government policy changes loosening regulations on money and equipment flowing in and out of Argentina.
For example, the country eliminated a rule discouraging imports of used equipment by charging the same import duty it would on higher-value new machinery. An executive with an oil tools rental company asked about changing a rule that prevents it from exporting worn tools back to its shops in the US for repairs it cannot do in Argentina.