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Argentina shale deals follow political shift

ExxonMobil and Dow Chemical have announced plans to invest in Argentinian oil following the election of Mauricio Macri

Argentina’s president Mauricio Macri has been in office for less than two weeks, but his election victory is already being felt in the oil industry. ExxonMobil and Dow Chemical this week separately announced plans to invest a total of around $750m in the burgeoning Vaca Muerta shale, a sign that investors have been waiting for the political winds to shift in Buenos Aires.

At an announcement ceremony attended by Macri, state-run oil company YPF said that it and Dow Chemical planned to invest $500m in 2016 on developing the Orejano shale-gas block in Vaca Muerta, a vast shale formation in Patagonia thought to hold tens of billions of barrels of oil and gas. The companies plan to drill 30 new horizontal wells in 2016 to add to the existing 19 producing wells and lift production from 0.75m cubic metres a day (cm/d), about a fifth of YPF’s shale-gas output, to 2m cm/d.

The investment will come on top of the $350m the companies have spent since announcing the joint venture in September 2013. YPF said investment could eventually reach $2.5bn. 

In a separate announcement, the province of Neuquen said that ExxonMobil would spend $249m alongside province-owned Gas y Petroleo (GyP) at a Vaca Muerta pilot development project at the oil-rich La Invernada-Bajo El Choque Block. ExxonMobil announced it’s first operated shale discovery in Argentina at the Bajo El Choque area in May 2014. At the time, the company said the Vaca Muerta test well flowed at 770 barrels a day (b/d) of oil, rivaling some of the best US shale wells.

ExxonMobil and GyP will drill five new horizontally drilled and fracked wells, and associated pipeline and production facilities in the pilot phase.

The Argentine government will hope that is just the first step. If successful, the statement said, the next phase would be full-field development, which could see around 550 wells drilled and $13.8bn invested. That would rival the scale of Chevron’s $15bn development with YPF.

While YPF has led development of the Vaca Muerta, the much smaller province-owned GyP has in some ways been more successful attracting oil-major partners than its more politically charged state-owned rival. In December last year, GyP said it was pushing forward with $500m in early stage exploration alongside Shell and Total. In 2012, the company floated the idea of listing itself on the Toronto stock exchange to help raise capital to fund its share of the project’s investments. It may re-visit those plans as the investment climate improves.

Many international companies snapped up acreage in Vaca Muerta after its discovery was announced in 2011, but most were cautious about spending money in the country’s oil and gas fields. Controls on the flow of cash and equipment into and out of the country have made doing business in the country uncertain and costly. Unpredictable energy policy, including the 2012 nationalisation of YPF, didn’t help.

Macri’s election, and his appointment of former Shell Argentina chief executive Juan Jose Aranguen as energy minister, has offered hope for the development of the Vaca Muerta. Macri ran on a business-friendly platform and has pledged to tame inflation and lift currency controls. In his first public comments as energy minister on 14 December, Aranguen said that natural gas prices would be increased to spur new investment.

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