Interest in Argentina’s emerging shale resource plays has escalated since the country revised its national hydrocarbon laws in 2014 to attract more investment. An estimated $200 billion is needed to develop the massive Vaca Muerta Shale resource, which is estimated to hold 308 trillion cubic feet (Tcf) and 16.2 billion barrels (Bbbl) of technically recoverable shale gas and oil resources, respectively.
In January, a well-known investor came calling. American Energy Partners LP (AEP), which is led by Chesapeake Energy Corp. co-founder and former CEO Aubrey McClendon, and Argentine state oil company YPF announced a preliminary agreement to develop 55,500 acres of the Vaca Muerta in the Neuquén Basin. The first phase involves a three-year, $500 million pilot project. The partners expect to begin full-field development after the completion of the initial phase in mid-2018, along with the delineation of shale gas resources in an additional 92,600 acres.
Since the election of Mauricio Macri as Argentina’s president in November 2015, YPF’s partnership activity with international E&Ps has grown substantially. The list of international operators already developing Argentina’s unconventional oil and gas resources in partnership with YPF includes Malaysia’s Petronas, Chevron Corp., Total Austral S.A. and Dow Chemical Co.
AEP is leveraging its management’s extensive experience in unconventional resource development in the U.S. as it expands investment internationally. While at the helm of Chesapeake Energy, McClendon led delineation of several U.S. onshore resource plays, most notably the Marcellus Shale. He and AEP’s leaders have continued to hone drilling and completion techniques in the Utica Shale and the emerging Woodford Shale.
The AEP team brings potentially game-changing knowledge to Argentina’s Vaca Muerta Formation. Miguel Galuccio, YPF president and CEO, said the joint venture would “accelerate the learning curve.” Through proven techniques developed in U.S. plays, Chesapeake, other producers and, subsequently, AEP bettered safety practices, EUR rates and unit costs while decreasing environmental risks, including subsurface water contamination during hydraulic fracturing. The application of AEP’s technical know-how could enhance drilling and completion techniques and in turn advance recovery rates, commerciality, reserve additions and environmental stewardship in the Vaca Muerta. These efforts could further the play’s viability while augmenting stakeholder relationships and productivity.
The partnership supplies AEP with a strong acreage position in a prime, unfolding international play and extends its portfolio’s reach beyond the depressed natural gas prices of the U.S. Appalachian region to the higher commodity prices of Argentina. The country’s regulated domestic prices have been set at $67.50/bbl and $7.50/MMBtu for 2016, compared with current U.S. prices at press time of about $28/bbl WTI and $2.16/MMcf on Nymex. The partnership signals an effort by AEP to secure higher returns on capital by diversifying to more favorably priced markets.
Interest in the Argentine shale is heating up as regulations ease and operators gain confidence that the new political regime will provide a more stable economic environment. Given current global commodity prices, the state’s loftier hydrocarbon prices are beacons for more investment. And, for AEP, Appalachian regional gas prices for Marcellus and Utica resources have sunk further as of late, making entry into Argentina’s shale even more appealing.
By combining its vast resource potential with AEP’s expertise in exploration and development, Argentina could replicate the U.S. shale boom and become a net hydrocarbon exporter. AEP is a welcome addition to Argentina’s fledgling unconventional industry, bringing much-needed experience and refined horizontal drilling techniques to the resource play.
Stephanie Forde, financial analyst, contributed to this article.
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