Vaca Muerta’s Exploitation Plan – Important Announcements

Important Announcements in Non-conventional Hydrocarbons

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The national government has made a  strong commitment to this sector for  2017. Agreements with workers and investors  have made it a promising prospect.  The details and forward-looking  projections are given in the following  paragraphs .

In an attempt to boost economy and attract  foreign investments , President Mauricio Macri has  announced the Exploitation Plan of Vaca Muerta‘s  Reservoir, one of the most prosperous energy projects for  the country .  Vaca Muerta is a formation of shale (non-conventional  hydrocarbons) that covers a 30,000 -kilometres area in the  provinces of Neuquen, Rio Negro, Mendoza and La Pampa.  It holds the world’s second largest shale gas deposit and the  fourth largest shale oil reservoir.  Since Macri took office in december 2015, the  government has be studying strategies to attract foreign  investments that could make it possible to develop the  vast potential of the non-conventional hydrocarbons  production.

Investments still to come

  In november 2011, it had already been tested that  the reserves in the deposit could be estimated at around  927 millions of barrels of oil equivalent, out of which 741  millions correspond to oil and the rest to gas. However,  the country has neither been able to make exploitation  profitable nor attract investments due to a variety of  factors.  The first of them was production costs . Conventional  oil exploitation is made through drillings in vertical wells  whereas the techniques of fracking and horizontal wells,  appropiate to the exploitation of non-conventional  hydrocarbons, demand high levels of investment.  Specialists have stated that the cost of a horizontal well is  four times higher than that of a conventional vertical one.  In addition, the general market regulations in  these years must be taken into account. Nowadays, the  international crude price is lower than the one necessary  to make oil exploitation in Vaca Muerta profitable. This  shows a fall in the inversion and the activity not only in the  local market but also worldwide. Province of Neuquen has  granted 19 concessions but up till now only two of them  are in their development phase while the remaining 17  are still waiting .

On the other hand, Argentina’s internal  context did not encourage investments in  this area either.  There was an energy shortage that led to a loss  of energy self-sufficiency and energy import at a high  cost resulting in job losses. Labour costs, fiscal pressures,  deductions and a legal framework to guarantee legal  security to companies in this field contributed to the lack  of interest in investing in this sector  00 The New Strategy  As the exploitation of non-conventional hydrocarbons  is bound to attract foreign investors, the government has  agreed to negotiate with the different actors to launch the  Exploitation Plan of Vaca Muerta’s Formation to jumpstart  investment. Thus, the commitment to invest US$ 5000  millions for the first year was achieved. Moreover, there  was an agreement with the senator Guillermo Pereyraleader  of the oil and private gas union- to reduce labour  costs in order to boost investmens and thus the creation of  employment in this sector.  This agreement involves the elimination of “taxi  hours“ – commute time from house to work and viceversa – ,  establishment of a workday of 8 hours for operation tasks,  reduction of staff in shifts and the incorporation of night  work involving artificial light assembly . It is quite possible that this agrrement will raise some  complaints from other related sectors as it might mean  to surrender acquired rights. Actually, Pereyra’s union is  the largest one in this sector, therefore, the rest is put at a  disadvantage and is left completely vulnerable to future  negotiations. The government will have to run this risk  but as Guillermo Pereyra has stated “Everyone has to do  something to attract investments “The Future  According to comparative studies, only 1% of the wells  drilled in 2016 has levels of productivitiy similar to the ones  in USA . That represents a significant improvement of 100%  compared to 2015. Experts estimate that next year, more  than 5 % of the wells will have productivity rates similar  to the ones in USA. Although there was a fall in the number  of wells drilled to non-conventional reservoirs ( in 2015, 28  wells were drilled per month whereas in november 2016,  23 wells were drilled per month ) there was a substantial  improvement in the productivity of horizontal wells In 2015,  they represented a little more of one out of ten wells and in  november 2016 they stood for nearly 4 out of 10 wells.  The announcement of this agreement is an important  bet because of its commitment to attract investments and  the negotiation with the workers regarding the reduction  of labour costs .There is a tax reform still to come so that all  this will be feasible to achieve in a short time and hope will  not be diluted.

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