The promise of huge shale reserves in western Argentina’s Neuquén Basin is attracting significant attention and interest from global energy businesses. Pablo Pereira, Energy Industry Managing Director‒Hispanic South America, shares his views on what it could take to transform that potential into reality.
Major plans for shale oil and gas development in Argentina’s Neuquén Basin are already getting underway. Home to some of the largest potential reserves in the world, including the Vaca Muerta Shale, the reason for such excitement is obvious.
While potential is of great import, realizing that potential is quite another. Yet while the challenges of production are considerable, the Argentinean government has signaled its encouragement to investors and is offering some incentives. A new oil and gas promotion regime (Decree 929/2013), for example, includes five-year exemptions from export taxes for up to 20 percent of production. Declining conventional production and growing dependence on imports make the economic boost from unconventional resources at the potential scale on offer here an extremely attractive prospect.
With 20 to 30 active sites drilling for unconventionals today in Argentina and confirmed plans for additional rigs, progress toward successful development is heading in the right direction. But to achieve the scale of production required, much more investment and development is needed quickly.
What are some of the major challenges businesses will need to address to successfully realize the potential Neuquén offers? The shift from conventional to unconventional production is an almost complete transformation. Not only are the techniques very different, but the skills base, logistics acumen and infrastructure, too, will all require radical change.
The economic model for unconventional energy resources is also very different. It requires production closer to a “factory model,” with the scale and speed of operations quite unlike conventional exploration and drilling. That means the existing workforce will need to be reskilled to work on unconventional production. Even with reskilling the available workforce, there will likely be a shortfall in the required labor. Effective negotiations with unions will also be key, as the economics of unconventional production favor as close to 24/7 operations as possible to ensure maximum rig utilization.
Creating the new infrastructure and managing the logistics to achieve the required scale and efficiency of unconventional production is a huge undertaking. Hundreds of truck trips are involved in the drilling, fracturing and completion of a single well. In 2013 alone, total truck trips required for all current production would equal more than 300 round trips from London to New York.
But while these challenges are significant, there are also a number of major factors in Argentina’s favor. The geological formations lend themselves to vertical drilling rather than the more complex horizontal techniques largely deployed in the United States. Argentina has one of the most extensive oil and gas distribution networks in Latin America. The water supply that is essential for unconventional production is adequate and transport connections are generally well established.
Overall, with a government looking to facilitate investment and the prospect of huge reserves, the signs are promising. Early investors will be positioning to secure the best opportunities. There’s no question that the learning curve will be steep, and developments far from straightforward. But those companies prepared to invest today in Argentina’s shale potential will almost certainly enjoy the greatest benefits.
For an assessment of the viability of Argentina’s shale resources, and eight other basins around the world, explore Accenture’s report, International development of unconventional resources: If, where and how fast?