Argentina shale stimulus piques industry interest

Argentina's new government is preparing legislation to stimulate upstream investment in the Vaca Muerta shale formation, where some oil companies are repositioning in anticipation of growth opportunities.

In recent days, Chevron and Shell met with Argentina's new government authorities and the provincial government of Neuquen, which encompasses most of Vaca Muerta. Although many oil companies have interests in the vaunted shale play, over the past decade development has been driven mainly by Argentina's state-controlled YPF, as other companies await policy signals in a country known for state intervention on hydrocarbons pricing, macroeconomic distortions, transportation bottlenecks and labor strife.

Although the government has not specified the bill's provisions, Neuquen congressman Dario Martinez says the broad goal is to establish clear rules that would transcend politics.

The initiative, which the production ministry says will be presented to the congress in February, would potentially allow long-restricted profit repatriation, while also giving oil companies unfettered access to the foreign exchange market.

While he was a candidate last year, center-left president Alberto Fernandez often highlighted Vaca Muerta as key to lifting Argentina out of economic recession.

Among the companies monitoring Argentina's evolving above-ground conditions is Chevron. The US major is close to completing two of eight shale exploration wells at its El Trapial block, which it has operated as a conventional area for years.

Neuquen governor Omar Gutierrez met this week with Clay Neff, head of Chevron Africa and Latin America exploration and production. Neff also met with Argentina's new energy secretary Sergio Lanziani.

Chevron was an early mover in Argentinian shale. The company is a 50pc partner with operator YPF in the Loma Campana block, which produced 42,916 b/d of crude and 2.18mn m3/d of natural gas in January-November 2019, according to energy secretariat data.

The US firm also holds a 50pc non-operating stake in YPF's shale oil exploration project in the Narambuena block.

This week, Lanziani also met with the head of Shell Argentina, Sean Rooney, to discuss the upcoming bill.

"We are working on the hydrocarbons law to bring predictability, establishing rules that are clear and equal for all," Lanziani said after the Shell meeting.

The shale formation drove a modest rise in Argentina's production last year. Oil production grew by 3.9pc year on year to 507,861 b/d in the first 11 months of 2019, according to energy secretariat data. Gas output increased 5.5pc to 135.98mn m3/d (4.8bn cf/d).

Acquisition signal

In a sign of renewed interest from foreign oil companies, Shell and Equinor picked up more shale acreage with the acquisition oil services giant Schlumberger's 49pc stake in the YPF-operated Bandurria Sur block.

In the 1 January transaction announced today, each European company paid $177.5mn for a 24.5pc stake in the 56,000-acre block. Shell and Equinor agreed with YPF to acquire another 11pc stake apiece. Once approved, the deal will result in Equinor and Shell each holding 30pc in Bandurria Sur. YPF will continue as operator with 40pc.

Bandurria Sur is in the late pilot phase of development and currently produces around 10,000 b/d of oil equivalent (boe/d).

The block is adjacent to the Shell-operated Bajada de Añelo block, in which YPF has a 50pc stake.

Shell began exploring for unconventional resources in Argentina in 2012 and currently operates three blocks. It also holds stakes in two blocks operated by France's Total and another one by Pan American Energy, a 50:50 joint venture between BP and Bridas. It also holds stakes in two offshore areas.

For its part, Equinor has an interest in the YPF-operated Bajo del Toro block, and a 90pc stake in the neighboring Bajo del Toro Este and Aguila Mora Noreste blocks. Neuquen's provincially owned Gas y Petroleo de Neuquen (GyP) holds the balance. The Norwegian firm also has stakes in eight offshore assets, six as operator and four in partnership with YPF.

By Daniel Politi