Oil production from the vaunted Vaca Muerta shale deposit in the Neuquén basin in Western Argentina has come roaring back after months of slower exploration and production activity.

Vaca Muerta reached a record high of 124,000 b/d in December, and it can continue toward 145,000–150,000 by the end of 2021 if current activity levels continue, according to a new analysis by Rystad Energy.

During its earnings call in January, executives at oilfield services giant Halliburton Co. backed this assessment, saying they saw “stronger stimulation activity” in Argentina in the fourth quarter.

In November, executives at Argentina’s state energy firm Yacimientos Petrolíferos Fiscales SA (YPF) said their oil and gas fields were starting to return to work after the complete shutdown last April that became “the worst” month in the company’s history.

YPF shale production in the Vaca Muerta formation has returned to pre-Covid levels, as wells have come back online at the flagship Loma Campana field.

However, overall Vaca Muerta natural gas production, which showed monthly declines through most of 2020, has yet to recover to pre-pandemic levels. Production fell below 900 MMcf/d in December for the first time since October 2018.

“While the gas window of Vaca Muerta offers ample potential for proven low-cost development, we remain conservative about the chances of the gas portion of the play to grow substantially in the medium term,” Rystad researchers said.

Experience Gained

Argentina is the only country in Latin America commercially producing from its shale deposits.

This year Colombia’s state oil company Ecopetrol SA is planning to launch a hydraulic fracturing (fracking) pilot in the Valle Medio del Magdalena basin. Meanwhile, Mexico’s government, despite proven non-associated gas in prolific basins such as the Burgos, Sabinas-Burro Picacho and Tampico-Misantla, is against fracking and has halted unconventional plans.

The experience gained from close to a decade of work in Argentina is starting to pay off, with the average well completion speed in Vaca Muerta more than doubling since 2016.

“Contrary to major U.S. unconventional basins, where operators have largely reached an inflection point, Vaca Muerta’s oil development is only now entering a manufacturing mode, though the downturn has induced a certain degree of high grading too. We have seen a 6–7% improvement in most well productivity metrics for Vaca Muerta oil wells between 2019 and 2020,” Rystad researchers said.

They added that Vaca Muerta “already competes with the best U.S. tight oil basins in Texas and New Mexico from a well productivity perspective,” and that present value 10 (PV10) wellhead breakeven oil prices in Vaca Muerta’s oil window “are already at the same level as the best U.S. tight oil plays.” PV10 is an estimate of the value of proven oil and gas reserves, which is calculated using the present value net of forecast direct expenses, discounted at an annual rate of 10%. 

Escobar FSRU

Despite Vaca Muerta, Argentina’s domestic natural gas production is not sufficient to meet its natural gas needs throughout the year, and analysts have suggested the country might be poised to need additional imports.

This week, a federal judge in Argentina removed a suspension on the country’s floating storage and regasification unit (FSRU) at Escobar. The import plant had been shut because of concerns over safety.

Government officials had warned the unit was needed to meet natural gas needs. Because of growing domestic production, Argentina had shut one of two gasification terminals in 2018, leaving the Escobar plant in Buenos Aires province as the only import option.

“We now have the peace of mind to be able to count on the strategic Escobar plant to plan with certainty our natural gas supply for the upcoming months,” Energy Minister Dario Martinez said.

In a bid to stimulate natural gas production, in December the national government handed out 23 contracts as part of “Plan Gas 4.” Winning companies included YPF, Tecpetrol SA and Pampa Energia SA. 

As part of the plan, winning companies would be able to sell natural gas to the market at a combined weighted average of $3.54/MMBtu through 2024. The aim of the plan is to bolster production so that distribution and power demand can be met through domestic production.

Fitch Ratings analysts said the weighted average price assigned of $3.54 is “sufficient to compensate for lifting costs,” which Fitch estimates range between $2.00-3.00, but are not enough to stimulate new developments in places like Neuquén.