Vaca Muerta Rising: Building Unconventional Production From the Ground Up in Argentina
Authors: Rassenfoss Stephen 
Published: January 2018

Vaca Muerta Rising: Building Unconventional Production From the Ground Up in Argentina

What is unconventional exploration and production in Spanish? YPF goes with “no convencional.”

The translation, not conventional, is a literal description for the sort of ultra-tight reservoir rock in the Vaca Muerta, the huge formation that the Argentine oil company says can return the country to the ranks of energy-exporting nations.

Not conventional is also the essential mindset required to do something nobody else in the world has accomplished: develop a massive shale play outside the US and Canada.

The potential is there. The US Energy Information Administration ranks Argentina second in the world among unconventional formations for technically recoverable gas and fourth for oil.

When YPF announced the discovery of a world-class shale play in 2011, it marked the start of years of work to solve a multidimensional puzzle presenting daunting geological, business, and political problems that has stymied the global spread of unconventional development. In the 6 years since then, YPF has shown it is possible to make money drilling and completing wells when oil prices are around $50/bbl while developing a block with Chevron.

 

Vaca Muerta Rising: Faster and Cheaper Without Losing Better

After Gustavo Astie, executive manager for unconventionals at YPF, presented what he thought was an aggressive growth plan for the coming year to YPF management, he was asked: Would it be possible to go faster?

The answer was, there are limits. In the past 6 years, YPF has built a foundation for profitably developing the Vaca Muerta, but it is just now beginning to see if what worked in the initial pilots can be transferred elsewhere in the huge formation.

When it comes to the pace of development, YPF needs to work with corporate partners providing much-needed money as well as expertise. Those partners include some of the biggest, most technically savvy companies in the industry, which took their time getting into unconventional development.

 

Vaca Muerta Rising: A Trip Along the Learning Curve

A drive down a gravel road in the Loma Campana follows the steep early learning curve in the Vaca Muerta.

There are large pump jacks on old single wells left from the early days when vertical wells were drilled on scattered sites in a place that looks a lot like West Texas.

There are pads with four vertical wells forming a rectangle. That pattern reduced the time needed to drill the wells by shortening the trip from well to well for older rigs not built to walk or slide on skids. Still it used two rigs, and the wells were far less productive than horizontal ones.

A flexible pipeline snakes along the edge of the road leading to a fracturing site where it supplies the fresh water needed for the job. Flexible water lines have become a common sight, replacing fleets of trucks pounding down the bumpy, unpaved roads.

 

Vaca Muerta Rising: Forces Favoring Shale Development are Aligned in Argentina, for Now

It is easy to fixate on what it will take to extract huge volumes of oil and gas from the nearly impermeable rock within the Vaca Muerta.

But in terms of the future of the huge Argentine unconventional formation, “the aboveground risk is far more important in the pace of development,” said Robert Lewis, a senior research analyst covering Latin America upstream for IHS Markit.

Scaling up this unconventional play will require spending billions of dollars a year and support from government policies that promote a stable investment climate, the ability to move money and goods in and out of the country, affordable deals with labor unions, and improved infrastructure.

 

Vaca Muerta Rising: Creating a Family-Friendly Oilfield Boomtown

Añelo is a small town in an arid, sparsely populated area with a new supermarket, police station, bank, skate park, hotel, and hospital.

In the past decade the population has roughly tripled to 7,000, and in 5 years, it is expected to nearly triple again to 20,000.

The catalyst for this boom is the development of the Vaca Muerta, an enormous unconventional oil formation that extends under the town.

As the town nearest to YPF’s office for this huge play, Añelo has recently attracted a cluster of service company offices, warehouses, and equipment yards on the edge of town. And more growth is expected as the national oil company scales up development.

For YPF, the goal is to turn the fast-growing town into a good place to live for workers and their families. But that is hardly a sure thing.