By Eliana Raszewski
BUENOS AIRES, Feb 11 (Reuters) - Argentina's 'Dead Cow' is
roaring back to life.
Output from the Vaca Muerta region in Patagonia, which holds
the fourth-largest shale oil reserves in the world, stalled
during the coronavirus pandemic but hit a record high in
December as producers revved up wells with an eye on rebounding
prices and a new export market.
The revival of the formation that has been compared with the
U.S. Permian Basin signals how it is growing more competitive
globally, helped by government policies protecting oil
producers, an export tax holiday and reviving global prices.
That could bring a timely injection of much needed dollars
for the country's Peronist government, which has grappled with a
sharp decline in foreign reserves due to the coronavirus
pandemic and a currency crisis hammering the peso.
"In the last quarter (of 2020) prices began to rise," Emilio
Apud, Argentina former energy secretary, told Reuters, adding
that supportive policies for oil and a gas price freeze pushed
producers towards unconventional oil.
"Producers stopped producing gas and switched to oil."
That saw oil production in Vaca Muerta hit a record 124,000
barrels per day (bpd) in December, according to data from
consultancy Rystad Energy.
Vaca Muerta, given its unusual name literally meaning the
"dead cow" by a U.S. geologist in 1931, has taken nearly a
century since then to really get going, with its first export
cargoes of liquefied natural gas (LNG in 2019) and oil just last
year.
Previous, and ambitious, government plans http://www.energia.gob.ar/contenidos/archivos/Reorganizacion/planeamiento/argentina-energy-plan_.pdf
have though targeted over 1 million barrels of unconventional
oil per day from the Neuquen region by 2030.
The region's oil production slumped to around 90,000 bpd
after the pandemic struck in 2020, before rebounding, Rystad
data show. Gas production has continued to decline.
"The oil production decline that the COVID-19 pandemic
brought to Argentina's Vaca Muerta formation now seems like a
distant memory," Artem Abramov, Rystad's head of shale research
wrote in a February report, adding output could hit
145,000–150,000 bpd this year if activity held up.
Producers, including state energy giant YPF and
oil majors Chevron Corp and Royal Dutch Shell Plc
, Mexico-based Vista Oil & Gas and Malaysia'
state-owned Petronas, were in a decent place to step
up as global prices started to rebound.
The creation of a local "criollo barrel" oil price had
shielded producers earlier in 2020 and the removal of export
tariffs opened up overseas sales.
"In the midst of the crisis, (exports) was a huge
opportunity we had," said an executive from an international oil
firm in the country, adding Argentina had exported some 7.1
million barrels last year.
Buyers included Brazil, the United States, Chile and the
Bahamas, the executive said.
"Vaca Muerta crude oil was unknown to the world's
refineries... The pandemic allowed us to take advantage of this
sector and develop new markets," he added.
Argentine government data shows the country registered a
small energy trade surplus in 2020, the first time in a decade.
GASSING UP?
Vaca Muerta's shale gas, meanwhile, has remained subdued
with almost no wells operating, though industry insiders said
there were signs that this could start to bounce back helped by
a government five-year gas plan announced late last year.
"We can already see the impact on the activity of (local
firms) Tecpetrol and Pluspetrol, both dedicated to gas in Vaca
Muerta," said Luciano Fucello, manager at NCS Multistage, a
technology and services company.
He added that YPF, which spearheads much of the development
in the region, had also started to ramp up its installation of
equipment.
Local consultancy Ecolatina said that of the 51 wells
drilled in December, only three were for gas, but said that
should have started to shift from the start of 2021.
The revival of Vaca Muerta is a potential boon for the
government, which needs export dollars to revive depleted
foreign currency reserves, though experts cautioned a tough
economy and capital controls created barriers.
Daniel Dreizzen, former secretary of energy planning and now
an analyst, said the country needed to guarantee free movement
of foreign currency and good financing conditions for firms to
really attract investment into Vaca Muerta.
"Production in Vaca Muerta will continue to rise but the
macroeconomic conditions are not in place for a flood of
investments to come," he said.
(Reporting by Eliana Raszewski; Editing by Nicolas Misculin,
Adam Jourdan and Marguerita Choy)
