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Vaca Muerta making moves

Argentina's unconventional oil and gas play is gaining momentum, and drawing more international interest

Argentina's Vaca Muerta shale has established itself as the leading, and for now potentially the only, viable shale play outside North America. Output has risen steadily and costs are falling as more wells are drilled. The national oil company YPF is leading development, but nearly every major has a significant foothold and is pumping money into Vaca Muerta.

Start with production. The overall figure, nearly 80,000 barrels of oil equivalent per day, split evenly between gas and oil, is unspectacular but rising steadily, up 60% from the start of 2016. Most of this comes from the Loma Campana joint venture between YPF and Chevron, by far the most developed shale project in Vaca Muerta, but other pilot projects are also starting to contribute output. Analysts at Wood Mackenzie consultancy expect output to rise to 113,000 boe/d by next year, potentially hitting 1m boe/d over the next 15 years.

As drilling ramps up, YPF is starting to bring costs down. Initial wells at the Loma Campana project topped $16m a piece, but that has been halved to around $8.2m. Somewhat concerning for YPF is that cost declines have stalled over the past nine months, though the company's chief executive Daniel Gonzalez told analysts in August that some recent wells came in under $8m and he expects the cost to continue to fall. However, YPF is moving to drill longer lateral wells with more frack stages, tracking recent moves by US shale drillers that have helped push breakeven prices much lower. The bigger wells are costlier but more economic if they squeeze more crude from each well. The longest lateral drilled to date has been around 9,000 feet, according to Gonzalez, and the company is targeting 1m barrels of oil equivalent ultimate recovery from those wells, comparable to similarly constructed wells in the Permian play in Texas. "If we can get close to those marks, the economics of those wells are just going to be much more compelling than the previous wells," Gonzalez says.

The steady progress is catching the attention of the world's oil majors, nearly all of which have struck a claim in the Vaca Muerta. The latest entrant was Statoil, which signed a deal in late August with YPF to help develop the Bajo del Toro block, which abuts ExxonMobil's Bajo del Choique project. BP, through its Pan American Energy joint venture with China's Cnooc, has the biggest footprint among the majors, with four operated projects. Total and Shell both have three blocks and ExxonMobil holds two licences.

The majors are starting to pump serious money into the play. Shell finalised a deal with YPF in August that will see the companies spend at least $450m at the Bajada de Añelo block over the next five years. BP's Argentine subsidiary, Pan American Energy, has agreed alongside YPF and Total to invest $0.675bn in the Aguada Pichana Este shale gas pilot development. ExxonMobil will have spent $0.75bn on its own pilot shale-gas projects by the end of this year.

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