YPF plays down hopes for quick shale boom

Argentina's state-controlled YPF is seeking to lower investor expectations for significant near-term growth from its shale assets concentrated in the Vaca Muerta formation.

"I would not expect any significant joint venture to be announced soon," YPF chief financial officer Daniel Gonzalez said today in a conference call. "Expanding our horizons in Vaca Muerta provides us with more projects to eventually team up when conditions both locally and globally allow us to do so."

While several foreign oil companies, including Shell and Total, hold significant acreage in Vaca Muerta, most have not moved beyond the exploration phase and YPF continues to account for most of the formation´s output.

YPF's unconventional production for the second quarter averaged 43,300 boe/d, only a slight increase from 41,700 boe/d produced in the first quarter.

"The pace of growth was slower than in previous quarters," acknowledged Gonzalez.

The number of rigs dedicated to unconventional production remained unchanged in the second quarter at 19 drilling rigs and eight workover rigs. Most of those rigs are deployed in the Loma Campana area, where the company has a 50:50 partnership with Chevron, and El Orejano, which it is developing with Dow.

While overall activity has decelerated, YPF is drilling more horizontal wells. In the second quarter, YPF drilled a total of 46 shale wells, of which 38 were vertical and eight horizontal, bringing the number of shale wells currently in production to 360.

Horizontal wells cost around $14mn with 18 fracture stages, although the formation's "sweet spot" continues to be developed with vertical wells that cost around $7mn per well.

YPF is also expanding exploration in other areas of Vaca Muerta beyond Loma Campana and El Orejano, including drilling the first well that is part of a joint venture with Malaysia´s state-owned Petronas.

"We are keeping activity flat but we have continued our delineation projects," said Gonzalez.

The slowdown is impacting conventional projects as well. YPF's total rig count remained flat in the second quarter at approximately 75, 60 of which are drilling for oil and the rest for natural gas.

YPF faces rising local costs because of double-digit inflation and a strong peso.

"We are in a challenging cost environment because our costs in dollars tend to go up, but because we continue to increase production we definitely count on diluting that cost base on a per barrel basis," Gonzalez said.

YPF´s production rose by 2.6pc in the second quarter to 569,300 b/d of oil equivalent (boe/d), compared to the same period last year. This compared with a 10.2pc increase in the first quarter, on the year, to 583,800 boe/d.

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