Comments: Argentina's Shale Play
Authors: Donnelly John 
Published: February 2015

Editor's column
After months of speculation, development of one of the world’s most promising shale plays, Argentina’s Vaca Muerta field, is entering a new phase and attracting strong interest from supermajors.
The Vaca Muerta formation in the Neuquén basin is a world-class source rock. The basin is located in west-central Argentina and is the leading producer of hydrocarbons in Argentina covering 137,000 km2. The recent compensation deal between Repsol and the Argentine government over the government’s 2012 expropriation of oil producer YPF eliminated a huge roadblock to international investment in the country’s most potentially prolific shale play. The compensation agreement offered USD 5 billion worth of government bonds in exchange for the Spanish company agreeing to drop its lawsuits against Argentina and YPF for the expropriation. Repsol had threatened to sue companies that struck shale deals with YPF. The investment uncertainty and threat of litigation kept most operators out of Argentina, despite the country’s promising shale prospects. The US Energy Information Administration lists Argentina as the fourth-largest holder of technically recoverable shale oil resources at 27 billion bbl.
With this hurdle lifted, Argentina hopes that operators now will flock to the country, leading to a shale boom like the one that has occurred in North America. Last year, Chevron braved the waters, agreeing to invest USD 1.24 billion in a Vaca Muerta joint venture. In September, Dow Chemical signed a deal to invest up to USD 120 million to 16 shale gas wells with YPF. Last month, there were reports that Malaysian state oil company Petronas had signed a memorandum of understanding with YPF for a joint venture in the shale play, and there were further reports that ExxonMobil and Wintershall had expressed interest. Shell entered the Vaca Muerta play in 2011 and has been cautious about investment, but now says it will triple upstream spending to USD 500 million this year, compared with USD 170 million in 2013, given the changes taking place.
Also attracting investors are Argentina’s attempts to liberalize oil and gas prices closer to international levels and expectations that the country might modify its existing hydrocarbons law. The existing law governed a local petroleum industry that was self-sufficient and a regional exporter, but the country now faces rising import costs and occasional shortages. The government has promised companies that invest more than USD 1 billion over 5 years that they will be exempt from some foreign-exchange rules and will be allowed to sell 20% of their production outside the country at international prices. YPF controls about one third of Vaca Muerta’s acreage and wants to drill hundreds of wells to produce at least 100,000 BOPD by the end of the decade.
As with other countries outside North America, development of shale is anything but certain. In addition to the need to attract operator investment, the country lacks drilling equipment and technical labor and does not have a robust service sector. But outside North America, Argentina appears to be the most interesting global shale play this year and one that Argentina desperately needs to help turn around its energy sector. JPT