What You Need to Know
On July 25, 2019, Neuquen province governor, Omar Gutierrez, confirmed the arrival of ConocoPhillips into Vaca Muerta development in the Bandurria Norte and Aguada Federal blocks, both operated by the German company Wintershall Dea. Wintershall announced it has signed a sales and purchase agreement with ConocoPhillips where Wintershall will continue as operator. The transaction is expected to be concluded before the end of 2019 subject to the Neuquen authority’s approval. On completion of the deal ConocoPhillips will hold 45% WI in the 97.44 sq km Aguada Federal license with Wintershall retaining operatorship with 45% and provincial company Gas y Petroleo del Neuquen the remaining 10% WI. ConocoPhillips will acquire a 50% share in the 107 sq km Bandurria Norte block with Wintershall retaining operatorship and 50% equity.
In March 2019, Wintershall announced plans to invest about US$ 600 million over three years in its Vaca Muerta Shale projects and others in the Neuquen Basin. About US$ 200 million will be invested each year through 2021 in Vaca Muerta pilot programs with an eye to moving into a massive development stage, including these two areas.
The deal brings ConocoPhillips unconventional expertise into the Vaca Muerta play for the first time.
Asset Overview
Aguada Federal and Bandurria Norte are in the central Neuquen Basin and hold unconventional oil and gas resources in the Vaca Muerta Shale.
Aguada Federal was created by the subdivision of the original Aguada del Chanar license previously operated by state-owned IEASA (former Enarsa). In early January 2016, German BASF subsidiary Wintershall signed an agreement to increase its stake in the block from 50% to 90% having farmed- in from Gas y Petroleo del Neuquen in 2014.
The first conventional well on the acreage was the Aguada del Chanar Occidental x-1 spudded at the end of 2012. It flowed 300-350 bo/d of 41° API from the Quintuco Formation at a depth of 2,600m before it was shut-in in July 2014.
In September 2015, Wintershall tested 220 bo/d and 409 bw/d on the Aguada Federal x-1 new-field wildcat after hydraulic fracturing in the Vaca Muerta Formation between 2,675-2,820m. The Aguada Federal x-2 exploration well was shut-in in December 2016 after flowing 113 bo/d from the Vaca Muerta Formation after a five stage frack in the gross interval from 2,620-2,848m.
Aguada Federal x-3(h) was the first horizontal well to be put into production on July 31, 2017 and produced a total of 5,592 b/o during August 2017.
A further five wells have been drilled on the block as part of the pilot program with the latest, Aguada Federal 5(h), spudded in January 2019.
In total, Aguada Federal has produced 282,000 bo from seven wells completed to date. Last reported monthly production in December 2018 totalled 1,755 bo from four wells.
Wintershall was awarded the Bandurria Norte Block in 2015 with a 100% working interest.
The La Caverna x-8 vertical shale exploration well had been drilled in early 2015 by YPF and produced a total of 5,175 bo over three months before being suspended. Production recommenced in August 2015. La Caverna x-11(h) was also drilled in 2015 and commenced production in 2017.
In May 2017, Wintershall announced an investment of US$ 120 million in the block and resulted in four new horizontal wells with Bandurria Norte x-1(h), x-2(h), and x-3(h) drilled in 2017and 2018.
In total 320,000 bo has been produced from Bandurria Norte. Last reported monthly production in May 2019 from these five wells totalled 13,000 b/o.
Neuquen Basin Unconventional Production
In 2018, Argentina produced 181.27 MMbo and 1.66 Tcfg, an increase of 2% and 5% respectively on the previous year. The government is seeking to double Argentina’s national production to a rate of 1MMbo/d and 9.2 Bcfg/d. The Vaca Muerta Formation accounted for 11.44% of oil production and 14.27% of gas in 2018 with 884 wells producing. To reach the government goals this will need to increase to 35,000 Vaca Muerta wells and possibly 85,000 Vaca Muerta wells. These numbers are based on the shale well density in the Loma Campana license, currently projected throughout the prospective part of the basin or 2.5 Vaca Muerta well bores per sq km projected throughout the entire Neuquen Basin.
The Late Jurassic Vaca Muerta Shale covers a huge part of the Neuquen province, but also includes areas of the western Rio Negro and northern Mendoza province. According to the Federal Energy Secretary, the oil window includes 22,000 sq km (5.4+MM Acres) with a calculated 631 Mbo/well EUR, an unconventional production plateau of 1,143 Mbo/d for 2030, 10,434 MMbbl reservoir to exploit in 25 years and 6,614 sq km (1.6 MM acres [30%]. The gas window covers 13,000 sq km (3.2+ MM acres) with a 12.9 Bcf/well EUR, an unconventional production plateau of 14.1 Bcf/d for 2030, 128.6 Tcf reservoir to exploit in 25 years, and 3,990 sq km/ 987,643 acres (31%).
Key Vaca Muerta Projects
YPF’s Oil Nr 1 development Cluster includes the Loma Campana, Bandurria Sur, and La Amarga Chica fields. The first project developed was the Loma Campana pilot along with Chevron, with an initial US$ 1.24 billion contract to develop the plan. By 2016 Chevron had invested more than US$ 2.5 billion and started to deliver better results through horizontal drilling after the initial vertical exploration wells in 2011. The license produced about 40,000 bo/d in February 2019 from about 500 wells. In the same period in 2018, production was about 31,000 bo/d. YPF in early January 2019 added five drilling rigs in the shale oil window for Loma Campana, La Amarga Chica, and Bandurria Sur. Partners plan to reach 51,000 barrels per day in Loma Campana by the end of 2019 with a gross CAPEX of about US$ 670 million for this year. The Loma Campana and La Amarga Chica block are currently undergoing a massive development phase and Bandurria Sur is now in the advanced exploration stage. The development cost for horizontal wells was originally US$ 34 per boe and dropped to US$ 9 per boe in Loma Campana and US$ 12 per boe in La Amarga Chica. YPF delineated two other oil clusters. The second one includes the Bajo del Toro (in association with Equinor) and the Narambuena field in Chihuido de la Sierra Negra, and an exploration third cluster with Sierra Barrosa, Al Norte de la Dorsal, and Cerro Bandera.
Tecpetrol´s Fortin de Piedra Field is situated in the Vaca Muerta dry gas window. This highly productive field has reached a production rate of 534 MMcfg/d in June 2019 from 66 horizontal wells. Average well TD is 3,200m with 2,500m lateral legs. They are conducting 34 stage fracks with an average cost of US$ 12.5 million per well. They expect to reduce per well costs to US$ 10 million in 2020. The total development would include 370 wells. The company has already invested US$ 1.4 billion of the US$ 2.3 billion planned investment and has created 4,500 jobs in only 15 months. More than 1,000 service companies are participating in the project. Fortin de Piedra is now the largest gas field in the country representing 11% of country production and could contribute to making Argentina a significant gas exporter in the near future.
The new player Vista Oil & Gas and its Bajada del Palo Field completed the first four well pad in February 2019 and reached a peak production of 6,500 boe/d in mid-April, with an average daily production of 4,823 boe during the three months ending on June 30. The first four well pad was connected to production in February and the second ended drilling and completion in July and was also hooked to production. In each of these pads two wells were connected to the “Kitchen” and two to the “Organic” level in the Vaca Muerta, with average 2,550m lateral legs in the first pad and 2,117m in the second. Each pad was completed with 10 clusters per frack stage, including an average of 34 and 36 stages per well respectively. Drilling speed was improved to an average of 221m/d compared to an average of 145m/d in the first pad. The completion performance was also better by increasing average daily fractures 52% to 7.6 from 5 in the first pad. This led to a cost reduction from US$ 13.8 million to US$ 12.6 million per well (8.7% savings). Costs per fracture stage were reduced from US$ 220,000 in the first pad to US$ 200,000 in the second one.
Vaca Muerta and the Future
Cost reductions are expected to continue in the future as the federal and provincial governments are investing to improve infrastructure and boost the industry in the Neuquen Basin. One example is the planned construction of a US$ 780 million freight railroad to connect the city of Anelo to Bahia Blanca near Buenos Aires, as well as a recent tender to build the third main gas pipeline to transport Neuquen production. Other works including better roads and other facilities for personnel needs associated with the Vaca Muerta are ongoing. The Argentine government is betting on continued Vaca Muerta development to pull the economy out of its slide and carry it into a brighter future. It seems clear that the Vaca Muerta has the geology and the hydrocarbons to make this possibility a reality. ConocoPhillips is just the latest in a series of majors such as ExxonMobil, Shell, and Chevron to join the Vaca Muerta bandwagon.
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