Expert advantageFebruary 9, 2017
TOGY talks to Chevron Argentina country manager Chris Stevens about the super-major’s operations in Vaca Muerta, the progress that has been made in areas where the company participates and what still needs to be done to enable full-fledged development of the shale play.
Based in Buenos Aires, Chevron Argentina is a local subsidiary of super-major energy company Chevron. The company initially entered the domestic market to sell selling automotive fuels and, in the 1980s the company expanded into exploration and production. The company is now the sixth-largest oil producer in Argentina. Chevron has partnered with YPF in two Vaca Muerta blocks, including Loma Campana concession, which is the first project to reach commercial development in the shale play.
• On unconventional competition: “Shale development in Argentina is still at an early stage. For it to be successful, all participants in the industry – authorities, unions, companies, suppliers – must work together to leverage the necessary knowledge and achieve the desired efficiencies. Vaca Muerta must be cost competitive with other unconventional basins around the world to be able to attract and maintain the investment needed for its development.”
• On what to improve: “Despite the great improvements already made in Loma Campana, the cost of development is still 80% higher than in the Permian Basin. There are opportunities to improve efficiency in labour, [there are] logistics and tax issues, and in Argentina, rig and fracking unit operations require 30-40% more personnel. If we can improve these things, Argentina will attract more investment in shale development, which will add many jobs and increased tax and royalty revenue to Argentina.”
TOGY spoke at length with Chris Stevens about about his company’s activities in Argentina’s unconventional plays, the expertise it can apply to local shale challenges, and where Chevron’s participation in the country is headed. Most TOGY interviews are published exclusively on our business intelligence platform TOGYiN, but you can find the full interview with Chris Stevens below.
What have been Chevron’s latest developments in Argentina in the past 12 months?
We continue developing our assets in Argentina responsively and efficiently. Chevron Argentina is focused on extending the economic life of its mature conventional business in the El Trapial field through efficient operations, while also assessing the potential of the Vaca Muerta shale resource – a significant growth opportunity for the concession.
Also, Chevron affiliates, through our partnership with YPF, the operator, continue to develop the Vaca Muerta unconventional resource in the Loma Campana concession. Loma Campana has made significant improvements in cost, efficiency and expected ultimate recovery per well over the past 12 months.
What progress has been at Chevron in Vaca Muerta?
As the operator, YPF has a proven track record of reducing costs and improving efficiency in Loma Campana. Over the past 12 months, drilling times have dropped 20% and drilling costs by 25%. Moreover, the cost of development in terms of dollars per barrel has dropped 44%. There is still a lot of work to do, but improvements to date are certainly extraordinary. The next phase of optimisation will include moving to longer laterals, from the current 1,500-metre design to new designs in excess of 2,500 metres.
In El Trapial, we continue assessing the potential of the Vaca Muerta shale formation. We are estimating an important shale resource, primarily in the gas condensate maturity window located on the western side of the concession. With a thickness of 350 metres and three defined intervals, El Trapial’s Vaca Muerta has the potential for a three-bench development over a period of 30 years. We certainly look forward to making that possible.
In Narambuena, with YPF as operator, the first phase of appraisal drilling has recently completed a four-well programme. The first horizontal well in Narambuena was put into production in May 2016 and is performing very well. We will continue evaluating the block, which is primarily in the peak oil and late oil maturity windows.
What led to Chevron’s investment commitments in Argentina?
Argentina is one of the countries outside of the USA in which the development of unconventional resources has the most potential. Vaca Muerta is a world-class shale play and the country has more than 100 years of experience in the oil and gas oil industry with outstanding human resources. We believe Chevron has the expertise and the resources to help Argentina succeed with the development of Vaca Muerta and we would like to be part of it.
What expertise and capabilities has Chevron brought to Argentina to develop unconventional resources?
We have the technical expertise, proven efficient “factory execution” in North American shales and the human technical resources to support Argentina and YPF in successfully developing Vaca Muerta.
We have significant shale operations in the Permian Basin in the USA – 2 million net acres [nearly 8,095 square kilometres] and an estimated resource of 9 billion boe – where we have in place a factory mode development with multi-well pads. We have achieved extraordinary efficiencies in the Permian. From 2014 to 2015, production increased 33% and we plan to double production by 2020.
We have the capacity to bring in technology, lessons learned and best practices from North America and quickly apply [those] to our operations in Argentina.
Chevron has an established technology organisation focused exclusively on solving the challenges of shale and other tight rock formations. The unit’s research and development efforts seek innovative solutions to improve performance and support responsible shale development. There is also a joint Chevron-YPF development team working on Loma Campana development and optimisation studies.
How can companies in the area improve productivity and efficiency in unconventional developments?
Shale development in Argentina is still at an early stage. For it to be successful, all participants in the industry – authorities, unions, companies, suppliers – must work together to leverage the necessary knowledge and achieve the desired efficiencies. Vaca Muerta must be cost competitive with other unconventional basins around the world to be able to attract and maintain the investment needed for its development.
Despite the great improvements already made in Loma Campana, the cost of development is still 80% higher than in the Permian Basin. There are opportunities to improve efficiency in labour, [there are] logistics and tax issues, and in Argentina, rig and fracking unit operations require 30-40% more personnel. If we can improve these things, Argentina will attract more investment in shale development, which will add many jobs and increased tax and royalty revenue to Argentina.
What has been Chevron’s experience as a partner of YPF?
We are pleased to have YPF as a partner and operator in Loma Campana. YPF is doing a terrific job in reducing costs and incorporating technology. We are working together, sharing expertise and best practices, to achieve the successful development of Loma Campana.
What conditions are necessary for international companies to develop the full potential of Vaca Muerta?
Chevron’s investment decisions are long-term driven. The projects in our global portfolio are ranked together to determine which are the most economically viable, so it is important to be able to demonstrate stability, legal certainty and long-term commitment to attract investment, in both technical and human resources, that will enable the successful development of Argentina’s shale potential.
What is Chevron’s strategic development plan for Argentina for the next five years?
We are committed to investing in Argentina to responsibly provide the energy that the country needs. The development of unconventional oil and gas resources in Argentina will continue to be our focus, and we would like to have a leadership role in this area. We are currently the number one investor in shale in Argentina.
Like with YPF, we also work with local leaders, non-governmental organisations and other entities to support communities in the areas where we operate. Through programmes focused on health, education, economic development and the environment, we seek to create growth and prosperity wherever we work.
For more information on Chevron in Argentina, such as its work in the Loma Campana, El Trapial and Narambuena unconventional developments, see our business intelligence platform, TOGYiN.
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