Argentina shale play thwarted by costs, policy: Shell

Shell sees potential in Argentina's Vaca Muerta shale formation but it is investing at a slow pace because of high structural costs and policy concerns, warned Sean Rooney, chief executive of the company's Argentina operations.

Argentina has "one of the world's best unconventional resources" but Shell is "growing so slowly" in Vaca Muerta because costs "have always been higher than in North America", sand and other inputs are costly, and specialized services are limited, Rooney said in unusually frank remarks on a webinar this week.

Companies also contend with controlled oil prices, export taxes and a government penchant for direct intervention, including a "freeze" on pump prices, he said.

Although not an officially stated policy, pump prices had been effectively frozen since President Alberto Fernandez took office in December 2019 until August 2020, when state-controlled YPF increased retail fuel prices across the country by an average of 4.5pc. Other retailers followed.

Shell has twice exported light sweet Medanito crude out of Vaca Muerta this year, joining the ranks of companies that are boosting overseas sales at a time suppressed domestic demand.

Even though the light crude produced in Vaca Muerta is popular abroad, Argentina's system of export permits "does not facilitate long-term contracts," Rooney said.

Companies are also reluctant to invest because of capital restrictions and limits on repatriating profits. "The most important challenge is investor trust" that goes beyond the current pandemic-related slowdown, he said.

A new gas subsidy plan expected to be unveiled soon will help revive production, but the greater government intervention is exactly what scares away investors, Rooney said. "I don't like incentives like direct subsidies on price."

By Daniel Politi