Argentina rig count, fractures decline on policy doubts

The number of active drilling rigs in Argentina plunged by 35pc over the past seven months in a further sign of uncertainty over the new government's energy policies.

Argentina registered 72 active drilling rigs in July 2019, the month before a crucial primary that signaled the departure of business-oriented president Mauricio Macri. In January 2020, the rig count declined to 47, according to data from US oil services firm Baker Hughes.

The drop was particularly acute in rigs drilling for natural gas, which dropped 61.5pc, from 13 in July to five in January. Oil rigs suffered a more moderate decline of 24pc during the period.

The decline in rigs in Vaca Muerta, Argentina's star shale formation, was in the same proportion as that of the entire country.

The drop in shale activity is also evident from hydraulic fracturing data. Activity sank by 26pc month over month in January with a total of 346 fractures in Vaca Muerta, compared with 467 in December, according to data provided by Luciano Fucello, country manager of NCS Multistage, a US-based services firm.

The decline in upstream activity began in August, when the Macri administration imposed a 90-day fuel and crude price freeze that followed a sharp peso depreciation sparked by the primary that gave opposition presidential candidate Alberto Fernandez a substantial lead. Fernandez went on to win the 27 October presidential election and took office on 10 December.

Since then, most oil and gas companies have been waiting for policy signals before making new investments, while the government is focused on a ballooning debt crisis.

In a speech to lawmakers yesterday, Fernandez reaffirmed a proposal to insulate shale activity from the wider economy, vowing to present legislation "to promote and stimulate national and international investment." But the speech was short on details.

One signal to watch are retail motor fuel prices. Although not an officially stated policy, pump prices are effectively frozen. State-controlled YPF backtracked on a planned 5pc fuel price increase late last year.

Other companies follow YPF's lead on fuel price increases and are now holding off to protect market share. The recent drop in international oil prices has helped to ease the domestic price distortion for now.

Argentina's oil production rose by 4pc year on year in 2019 to 508,600 b/d, while gas production increased 5pc to 135.2mn m3/d (4.8bn cf/d), according to data from Argentina's energy secretariat.

By Daniel Politi