Norway’s Statoil is looking for more oil and gas opportunities in Argentina after it signed a new deal with state-run YPF in which the pair pledged to assess potential onshore and offshore ventures.
Statoil’s CEO, Eldar Saetre, signed a memorandum of understanding (MoU) with YPF’s chairman Miguel Gutierrez in Buenos Aires. They agreed "to strengthen the existing relationship between the two companies," YPF said in a statement.
Saetre was part of a business delegation led by King Harald and Queen Sonja of Norway, which illustrated growing foreign interest in doing business in Argentina under the two-year-old presidency of Mauricio Macri.
Macri described the visit as "a gesture of confidence" as he pushes ahead with reforms designed to improve investment conditions. Over the course of the next two years he aims to tackle inflation, which is running at 25%, and reduce the tax burden on companies.
Statoil is the latest entrant into Argentina, attracted by the country’s underdeveloped shale and offshore resources. The company teamed up with YPF in 2016 to work on offshore prospecting, and last year entered a US$300 million joint venture for a pilot project in the oil window of the Vaca Muerta shale. Statoil also aims to invest US$15 million in exploring another Vaca Muerta block on its own, which it secured in a tender last year.
YPF is looking for partners to develop its acreage in Vaca Muerta and to bid in offshore rounds that are due to start this year.
Statoil joins a raft of big names that have ventured into the Vaca Muerta, with Chevron, ExxonMobil, Royasl Dutch Shell and Total all active in the play.
Commenting on the influx of investment, Schreiner Parker of Rystad Energy, a consultancy, told delegates at a seminar in Buenos Aries last week that "we are seeing spending increasing." He anticipates that the pace of drilling in the shale play will increase to 200 wells this year from an average of 100 over the pervious few years, and then average 170 per year through 2020. Although this is moderate pace in comparison to activity in the US, it is still the fastest shale development in the world away from that market.
In order to expedite the pace of drilling, Argentina’s shale industry needs to bring down costs, in particular for construction, services and inputs like sand. For example, frack sand currently accounts for 15-20% of the total drilling and completion cost in Vaca Muerta, which is more than the 10% rate recorded in Texas.
For sand costs to fall, supplies must be sourced locally. But for that to happen, drilling work must accelerate.
"It is something of the chicken and the egg: which comes first?" Parker said. "No one is going to come and build the infrastructure if they don’t think that there is significant potential for production out of Vaca Muerta."