Chevron, YPF sees Argentina as possible shale oil pioneer
BY TAOS TURNER
BUENOS AIRES -- Just as U.S. companies have revolutionized the global shale gas industry, businesses working in Argentina have the opportunity to set new standards in shale oil production, according to executives from Argentina's state-run oil company, YPF, and Chevron.
YPF Chief Executive Miguel Galuccio and Ali Moshiri, president of Chevron's Latin America and African operations, said Argentina's unique geology and infrastructure give the country advantages over other shale-oil and gas producing nations.
"From the geological point of few, after the U.S., Argentina is No. 2. Some people say China is No. 2 but really...in terms of shale oil Argentina is No. 2," Mr. Moshiri said in a meeting with the foreign press Wednesday.
Argentina's shale oil and shale gas reserves are located mainly in the Vaca Muerta formation, which means "dead cow" in Spanish, in the Andean province of Neuquen.
"The potential in Vaca Muerta is big enough to make Argentina energy independent," Mr. Moshiri said.
And that is exactly what Argentina is seeking after years of declining oil and natural-gas production turned the country into a net energy importer. Argentina now spends billions of dollars each year to import expensive gas from Bolivia and Trinidad and Tobago even though it is sitting on vast reserves.
Argentina ranks third in the world, behind China and the U.S., in potentially recoverable shale gas reserves, with 774 Tcf, according to a study by the U.S. Energy Information Administration. Argentina is also thought to be home to vast quantities of shale oil.
Mr. Moshiri said the global energy industry has a great deal of experience developing shale gas resources, but that it has comparatively little experience with shale oil.
He said most of the world's shale gas has been developed from geological layers requiring horizontal drilling. In Vaca Muerta, in contrast, "everything is in a stack," meaning Chevron and YPF may be able to access the oil using vertical drilling techniques, he said.
"I think maybe Vaca Muerta will be the place that everybody comes to look at to see how to develop shale oil," he said.
Another advantage of Vaca Muerta is that its shale oil riches are located in sparsely populated areas of Neuquen.
"In some countries, the trucks have to take the public road, but here they can have their own private road, their own infrastructure. The possibilities to increase efficiency and boost production are higher than any place else," said Mr. Moshiri.
Mr. Galuccio said cutting costs and ensuring operational efficiency is crucial to developing Vaca Muerta's resources. YPF has already cut the cost of drilling a well to $7.5 million. That is down about 20% from the beginning of the year, according to company data.
"We're very happy on two fronts on how Vaca Muerta is coming along. One, on the production front because the quality of the wells is better than we thought. And second, on cost efficiency because we've reduced costs to what we expected to have them toward the end of the year," Mr. Galuccio said.
Argentina's government has sharply restricted the purchase of a wide range of imported goods in recent years to trim the country's import bill. But Mr. Galuccio sees no trouble importing equipment and technology to develop Vaca Muerta's shale oil.
On Wednesday, YPF and Chevron signed the broader terms of a deal that would see the U.S. oil major invest as much as $1.5 billion in a pilot program to develop shale oil deposits. The two companies expect to finalize the deal in July.
Complete development of the first cluster of shale oil wells subject to the agreement will require more than $15 billion in investment, YPF said.
Mr. Moshiri said the deal will be retroactive to when YPF began work on the clusters earlier this year.
YPF is already producing about 7,000 bopd of shale oil in Neuquen, up from 4,000 day in early January.
Chevron's pledge to invest in Argentine shale oil with YPF was first announced last December. But the deal soon ran afoul of a decades-old legal dispute involving claims that a company bought by Chevron caused environmental damage in Ecuador.
Ecuadorian courts ordered Chevron to pay $19 billion, and last year an Argentine judge slapped an embargo for that amount on Chevron's assets and income in Argentina at the behest of Ecuadorian plaintiffs in the case.
"The Ecuadorian case is separate from our negotiation and discussion regarding Vaca Muerta and YPF," said Mr. Moshiri. "They are two completely separate issues. We are hoping that we'll be able to resolve the legal issue but that doesn't stop our progress moving to the commercial decision."
Mr. Galuccio declined to comment in detail on a separate legal dispute involving Argentina's expropriation last year of a 51% stake in YPF from Spain's Repsol. But he seemed to indicate it was unlikely to derail the Chevron deal.
"There is a lot of good will on both sides, from the Spanish government and the Argentine government to reach an agreement or to settle the dispute," Mr. Galuccio said.
Mr. Galuccio said some analysts are focusing too much on the legal disputes and on how much money foreign oil companies will invest in Argentina together with YPF.
"People are missing the point. YPF is going to drill 132 wells this year no matter if Chevron puts a penny into Argentina or not," Mr. Galuccio said.