April 24, 2012 5:49 pm

Argentine rules hinder oil exploration

By Jude Webber in Buenos Aires

Argentina has the geological conditions to be the world’s next big frontier for exploration of shale oil and gas. But even before last week’s nationalisation ofYPF, the Spanish-owned oil company, which sent shockwaves through the industry and has put shale development in the Neuquén basin in western Argentina on hold, Argentina’s new import restrictions were threatening to strangle exploration.

The government of Cristina Fernández has been tightening restrictions on imports in recent months to shore up a shrinking trade surplus by favouring local production. Since February, importers in all sectors have been required to obtain prior permission from the authorities, which can lead to delays or shortages.

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“The rig market in the Neuquén basin is fairly tight at the moment . . . There are currently a number of import hurdles that make it difficult for the industry to bring in tools and equipment,” said Michael Bose, country manager for Apache Corp in Argentina.

Argentina spent $9.4bn importing fuel last year – a key reason cited by Ms Fernández forexpropriating the bulk of Repsol’s shares in YPF and putting the group under state control – and has high hopes of the hydrocarbon prospects in the Vaca Muerta (Dead Cow) bedrock formation in Neuquén. YPF has announced a 1bn barrel discovery there and the US has signalled that the country could contain the world’s third-largest shale resources, behind the US and China.

But rigs and other specialist equipment are in short supply in Neuquén, and companies also need to prepare for the shale revolution with training, according to Rubén Etcheverry, head of Neuquén’s provincial energy company, Oil & Gas of Neuquén, which partners with oil companies in some exploration areas.

“When this production boom starts, we won’t have enough people or rigs and pumping equipment,” he said. “We are trying to develop [the conditions] so that equipment can come.”

Mr Bose of Apache said: “It will be very difficult to develop Vaca Muerta or any other large project because of the lack of infrastructure – equipment and resources – required to support that kind of activity”.

Big US oil services companies, including Halliburton and Schlumberger, have been active in Argentina for decades. Schlumberger, which has a contract with YPF for a range of services, operates the first fully dedicated shale completions crew in Latin America and has performed more than 100 treatments in Vaca Muerta.

To try to overcome equipment and training bottlenecks, the province is organising a workshop next month to bring service companies with shale experience together to help foster alliances between local and multinational companies. It hopes thiswill help spur local production of equipment for the industry.

The YPF nationalisation, expected to be approved in the Senate on Wednesday before passing to Argentina’s lower house of Congress, was the culmination of months of speculation and government pressure on YPF that, even before last week’s announcement, was spooking investors.

Mr Etcheverry remains optimistic that shale will take off in earnest in Argentina within the next three to five years. “There is an urgent need for local reserve development and production growth in Argentina and the country has few alternatives but to ensure they are developed,” echoed Mr Bose.

Though Argentina’s shale promise has attracted big oil companies includingExxonMobil, EOG Resources and Total, as well as junior players, it is YPF that has advanced the furthest in exploration.

Overall, 83 unconventional wells were drilled in the province in 2011, and 120 are planned, said Mr Etcheverry. “From 2012, shale will represent more than 50 per cent of all exploration in Neuquén,” he said. The province has half of Argentina’s gas and a quarter of its oil reserves. It is the top gas-producing province and ranks second for oil.

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