Production from Argentina's Vaca Muerta to reach 113,000 boed by 2018, Wood Mackenzie says

HOUSTON -- Production from the seven most advanced developments in the Vaca Muerta play (covering only 8% of play acreage), is expected to increase by 43% in 2017 to 77,000 boed, and to double 2016 levels by 2018 to 113,000 boed, according to the new Vaca Muerta Development Study by Wood Mackenzie.

"Our scenarios from the study demonstrate that production could peak between 0.7 and 1.25 MMboed by 2031," explains Elena Nikolova, Latin America Upstream Oil and Gas Research Analyst for Wood Mackenzie.

Since January 2017, new pilot and development agreements in the Vaca Muerta have been announced with increased frequency, demonstrating a significant uptick in interest in the play, especially in the gas window. Companies with gas acreage are exposed to the greatest upside by capitalizing on gas price incentives and attractive well performance. While still in the early days of development, Vaca Muerta well performance is already on par with some U.S. shale plays that have thousands of producing wells.

Commitments since January 2017 total over $3.5 billion, marking an inflection point in the play's ramp up. The largest announcement this year has been from Tecpetrol at Fortin de Piedra where $2.3 billion has been committed to drill gas wells and build infrastructure. To fund play-wide development, Wood Mackenzie estimates that at least 15 times current annual capital levels are needed. Nikolova asserts that the government is taking steps to address several above ground concerns. The labour union and price agreements finalized earlier in the year have provided enough flexibility and pricing predictability to encourage operators to commit to new pilots.

In terms of drilling activity, the Vaca Muerta has transitioned to horizontal mode, according to the study. Nearly 100 wells were completed through October 2016 and 80% were horizontal. Wood Mackenzie expects future development to be through horizontal wells with laterals up to 2,500 m. "Cost reductions are a key focus for operators and our type curves heavily reflect YPF’s cost achievements," explains Nikolova. "YPF has significantly brought down costs to $8.2 million in Q4 2016. New entrants may be challenged to match YPF’s cost structure, but logistics and proppant improvements can help bring costs down across the basin."

The study also examines how the Vaca Muerta can compete with the best U.S. shale plays. Findings show that as Argentinian operators continue to move up the learning curve, strong well performance and lower costs can unlock scale comparable to that of U.S. shale plays. "Vaca Muerta operators are still in the early stages of the learning curve. Production gains driven by drilling speed and completion intensity in the U.S. will materialize in Argentina, as more and more operators enter the play," concludes Nikolova.