American Energy Partners LP (AELP), the company formed by Aubrey K. McClendon three years ago, is taking its unconventional expertise south with an investment in Argentina's Vaca Muerta formation in a partnership with state-controlled producer YPF SA.
The companies over the next three years plan to invest more than $500 million in the Nuequen Basin project.
Under terms of the tentative agreement, AELP is farming into two blocks in the Vaca Muerta and would pay pay partial development costs to earn stakes in the unconventional play.
"Through our partnership with YPF, we intend to bring U.S. style shale drilling and operating expertise, completion techniques and cost structure to the Vaca Muerta, which we believe will prove transformative for the play," McClendon said.
One project consists of launching a shale oil and gas development pilot in the Bajada de Anelo block, covering about 55,500 acres. After the first phase is completed, expected by mid-2018, the project would begin full field development.
YPF and an affiliate of AELP, in partnership with Pluspetrol and Gas y Petroleo de Neuquen, also plan a second project to delineate shale gas resources in the southern portion of the Cerro Arena block, covering 92,600 acres.
"YPF is welcoming a partner that will contribute expertise of the highest level to develop shale oil and gas in our country," CEO Miguel Galuccio said Thursday at a signing agreement in Buenos Aires. "We believe that this partnership will be very enriching for our company by allowing YPF to accelerate the learning curve."
Over the next three months, the partners plan to negotiate definitive agreements to begin joint operations this year.
Under the tentative arrangement, an AELP affiliate would earn up to 50% participating interest in the blocks.
"Argentina has recently lowered oil prices, but they remain $67.5/bbl (Medanito light crude), and the devaluation has significantly reduced costs, so we expect good profitability from the Vaca Muerta," analysts with Tudor, Pickering, Holt & Co. (TPH) said Friday.
McClendon's company would take a 25% stake in the play and pay 39% of the costs, or it could pay 73% of the cost if it is able to increase its stake to 50%, according to TPH. AELP also is taking a 45% stake in the Cerra Arena exploration block and has committed to spend $60 million for exploration by the end of February 2017.
McClendon helms a privately held management team that is composed of several former Chesapeake Energy Corp. executives, who together oversaw development of more than 15,000 horizontal wells throughout the United States.
During McClendon's tenure, Chesapeake grew from a start-up in 1989 to the largest natural gas producer and driller of new wells in the United States. He was forced to retire in 2013.
YPF, which is estimated to have more than three million acres in the Vaca Muerta, has invested with its partners more than $3 billion to date to develop unconventional resources in Argentina. With partners Chevron Corp., Petronas and Dow, YPF already has ongoing shale projects targeting Vaca Muerta (see Shale Daily, July 19, 2013).
Chevron provided an initial $1.24 billion to enable the first phase of development in the Loma La Lata Norte and Loma Campana areas of the Nuequen Basin. The initial drilling program was to include 100 wells in a 5,000-acre tract, part of a 96,000-acre concession.
Malaysia's Petronas struck a $500 million agreement with YPF in 2014 (see Shale Daily,Aug. 28, 2014).
Although it doesn't have any deals on the table with YPF, Royal Dutch Shell plc also holds substantial reserves in the Vaca Muerta (see Shale Daily, Nov. 3, 2015).
YPF is Argentina's main producer, with an oil and gas production market share of more than 43%. It employs 75,000 people directly and indirectly, and it operates three refineries in the country and a network of 1,500 service stations.