Beyond the Vaca Muerta: Argentina's tight oil potential


While the world is experiencing a slowdown in shale development, Argentina is bucking the trend with unconventional oil and gas activity continuing apace.

This anomaly is primarily due to the government's policy to subsidise domestic oil prices, resulting in higher rates than the current Brent price. So far, the main beneficiary of this policy has been the country's flagship shale play, the Vaca Muerta, as the government seeks to sustain development at the Loma Campana block in Neuquén Province.

However, this is not the only unconventional play in Argentina and the Agrio and the Pozo D-129 formations should not be overlooked. The Agrio is particularly prospective given its location right above the Vaca Muerta and we estimate that it holds 1,683 mmboe of resource potential.

We have conducted an economic comparison of type wells in the Agrio and the Vaca Muerta, applying a range of base oil prices in 2015 terms. For the Vaca Muerta, we assume vertical wells as they have been the primary method of producing from the play thus far. The Agrio, on the other hand, will likely be developed only using horizontal wells as it does not exhibit the same pressures and thickness.

Vaca Muerta economics

Agrio well economics

We find that vertical Vaca Muerta wells approach positive economics at US$75/bbl (close to the current government-subsidised price) if well costs decrease further from the current US$ 7 million. Agrio horizontal wells will need a significantly higher oil price to reach the same returns.

Nevertheless, the Agrio should not be discounted as an additional source of liquids potential in the country. In the US Lower 48, drilling in fringe play areas has disappointed and sometimes newer plays have become more prominent. Key examples are non-core Marcellus drilling versus the Utica, as well as non-core Bakken drilling versus the Three Forks.

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Tight oil plays in Argentina: It's not only the Vaca Muerta [Subscription required]

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