Dead cow, bet to get out of the well

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Dead cow attracts the eyes of the world. At the international level, the big oil companies eager to find new sources of this non-renewable resource analyze disembarkation with an Exploitation project, given the good performance obtained in the last time by the companies already installed in the Neuquén basin. At the national level, the government encourages them with subsidies for the establishment of investment to the hope that the shale oil and shale gas are transformed into petrodollars and a more important source of resources for the State, and that escalated to the level of representing the rights of export of the complex agricultural. In provinces such as Santa Fe, The punished industrial SMEs expect the oil sector in the unconventional area to consolidate so that its economic and productive growth somehow reaches these pampas through the search for suppliers to meet their needs in the face of expansion.

Argentina’s reality in the world of oil changed very few years ago, specifically in 2013 when the Energy Information Administration (EIA) announced the country’s position in the non-conventional area. At that time, the potential of the dead cow training took a leading role in the development strategies of both private and state enterprises.

Argentina ranked fourth in unconventional oil resources behind Russia, the United States and China. This happened thanks to the dead cow formation, which is the second largest unconventional gas resource in the world.

In this report, EIA highlights the enormous potential of dead cow in terms of obtaining gas (308 trillion cubic feet, TCF) and oil (16.2 billion barrels), a projection that multiplies Argentina’s current reserves by ten.

Given this scenario, YPF became a big player in Vaca Muerta. It controls 33% of the basin area, which covers an area of 35 thousand km2. The state-owned GyP company in the province of Neuquén has about 10%, and the rest is distributed among other companies such as ExxonMobil, Pan American Energy, Petronas, Pluspetrol, Shell, Tecpetrol and Wintershall, among others.

To develop the activity in the Neuquén basin, the National Oil Company maintains strategic alliances with several companies. In Loma Campana he was associated with Chevron (USA), in the Orejano with Dow (USA), in Rincón del Mangullo and Mulichino with Petrolera Pampa (Argentina) and in the bitter girl with Petronas (Malaysia). In addition, it maintains cooperation agreements with the Venezuelan PDVSA, the Bolivian YPFB, the Uruguayan Ancap, the Norwegian Statoil and the Russian Gazprom, among others.

During a visit to the area of Loma Campana, The Capital spoke with Pablo Bizzotto, vice president of YPF and in charge of non-conventional management. The head of the company’s development in Vaca Muerta underlined:”what is happening here is very big.” And that is just exploiting 3% of the total area of the basin.

To measure what it means to have started exploiting this area, Bizzotto mentioned that Vaca Muerta turned YPF into “the sixth company in the world in investment in unconventional oil.” By 2019 the company plans to invest the succulent figure of 2 billion dollars and close the year with 18 active extraction teams, today there are 16. “We were pioneers and we want to be leaders,” he said.

The way to place YPF among the big popes of the oil world occurred in a very short time and had to do with the migration of vertical to horizontal wells. In early 2016, the change took place and productivity, competitiveness, and Vaca Muerta was no longer a place “where silver was buried.” So, ” YPF unlocked the wheel and proved it’s profitable.” From vertical to horizontal production was increased 8 times and productivity is improved year by year.

When they started with the vertical pazos the cost of a barrel of dead cow oil was 32 dollars, when passing horizontal it dropped to 22.8 dollars and currently it is located at 9 dollars but the forecasts are to arrive by the end of the year to 8 dollars a barrel. The international price of oil, the WTI, is around $ 60 a barrel. “We are surprised by what we achieved, ” he said, while explaining that the value they expect to reach by the end of the year was only projected for 2023.

“When I arrived there were 23 teams drilling vertical wells and the project was not profitable at $ 100 a barrel. With vertical wells here, silver was sinking, we migrated to horizontal wells and not only did we stop losing silver but we made it the most profitable project of the company, and not only that, we also managed to get closer to the competitiveness of the Permiean (the Texas Basin and New Mexico of unconventional) that has Train, sand cheaper,” explained the oil engineer, for whom “there is no way to stop this, it is a project that goes beyond anything.”

What does Dead Cow represent for the company?

Vaca Muerta ceased to be an idea and a dream to be Argentina’s industrial project for the future. We need to increase investments, we need other actors to get involved in this kind of project. We somehow marked a path, transformed the project into something profitable through efficiency, working with the different governments, the unions, brought technology from the United States and now it’s a question of replicating the recipe. It’s imminent, and this is happening, in fact YPF with its partners is investing over $ 2 billion this year in Dead Cow. Each time we make more wells, longer, we move all the technical limits, we are already leaving our comfort area that is Loma Campana, the Armaga Chica and Bandurria, the area near Añelo, and we are going to the North Neuquén to the area of Rincón de los Sauces and to the south near Plaza Huincul. Our challenge is to replicate this mega-efficiency that we achieve in profitability and competitiveness in Loma Campana in conjunction with Chevron in other assets.

How does the current situation of the Argentine economy influence the arrival of investments?

Oil is an industry and a long-term investment. Oil is invested in countries far more complex than Argentina, which have war, geopolitical problems much larger than an electoral or political transition. I don’t think it will impact. What does have an impact, which could position us in a more competitive way, is the cost of capital. We are starting from a few positions further back, as are the logistics and scale of the United States. There the train arrives at the gate of your deposit, it is an Amazon of sand. We don’t have that and yet in Loma Campana we managed to be competitive with the Permian (the Permian Basin is located between Texas and New Mexico and is the largest oil field in the United States). The Rock is a little more productive and the wells are better here, you don’t have a scale and the capital costs are higher, but we have better profitability and that balances everything. Not to mention the day when the train is there, the routes and we have better access to the capital market. That would make us even more competitive.

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