ExxonMobil: Eye on unconventionalsMarch 19, 2018
Daniel De Nigris, country manager of ExxonMobil Exploration Argentina (EMEA), talks to TOGY about the company’s recent developments at its projects and what industry stakeholders are doing to ensure that unconventional resource development remains viable.
Since 2011, EMEA has focused its efforts and investments in upstream operations in the Vaca Muerta formation, where it has a presence in seven blocks together with partners. The company’s Vaca Muerta projects are supervised by its subsidiary XTO Energy. Most recently, in October 2017, EMEA entered the
Los Toldos Sur I block.
On government support: “It is positive to observe that both the national government and Neuquén provincial government have shown interest and commitment to the development of unconventionals and to the generation of better conditions for their development and exploitation. This has been translated into public policies that favour sustainable exploitation and production in time.”
On momentum in unconventionals: “It is an interesting period in Argentina, not only due to the level of activity and investments, but also because of the reforms in the sector. We positively evaluate the actions that have been taken to strengthen the conditions for unconventional resource exploitation. We are in favour of the reforms implemented so far, and we are working jointly with the authorities and unions to keep improving efficiency and productivity in our operations.”
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What have been the latest developments at your Vaca Muerta operations?
Operations in the Vaca Muerta play are under the supervision of XTO Energy, a subsidiary of ExxonMobil and a leading natural gas and oil producer in North America.
We currently possess an exploitation licence for the Bajo del Choique-La Invernada and Pampa de las Yeguas blocks, and we have recently been granted one for the Los Toldos Sur I block. Besides that, we operate Loma del Molle and Los Toldos Oeste II. We are carrying out different operational phases in each of these blocks and the next few years will be key in determining the possibility of full developments in the future.
At the pilot project in Pampa de las Yeguas, where we are partnered with YPF, we are currently setting up a treatment plant, a connection to the Pacific gas pipeline and the equipment to drill three wells of 3,000 metres in horizontal length.
The focus is set on continuing to drill this way, which is why we recently drilled and completed a 3,000-metre horizontal well in Los Toldos Sur I, which is the most extensive one in the Vaca Muerta basin. This achievement is definitely important for the UTE [temporary joint venture] that we are part of with APASA [Americas Petrogas Argentina]-Tecpetrol and GyP [Gas y Petróleo del Neuquén].
What is EMEA’s development plan for Los Toldos Sur I?
Los Toldos Sur I is located 85 kilometres northwest of Añelo and 175 kilometres from the city of Neuquén. EMEA is the operator with an 80% share in the UTE, with GyP and APASA-Tecpetrol each holding 10%.
At the end of October 2017, the provincial government of Neuquén approved the investment plan for the development of a 35-year unconventional exploitation concession in the Los Toldos Sur I block. The project implies an initial investment of around USD 200 million to bring a group of up to seven wells into production and construct production facilities and evacuation infrastructure.
The project will include a scaled development of around 300 horizontal wells of up to 3,000 metres in length, if the pilot is successful. The block could see an estimated output of 11 mcm [388 mcf] of natural gas per day when it reaches full production. Together with our partners GyP and APASA, we continue to seek opportunities to develop this block more and bring wells into production.
Is Neuquén’s infrastructure adequate for the level of activity in the basin?
In the short term, there will be some challenges related to the evacuation of natural gas from Vaca Muerta within the province, regarding the connection of the fields to midstream infrastructure. In the long term, the adequation of the infrastructure should focus on the main evacuation structure.
We are working jointly with all the industry stakeholders to find ways to solve this situation in the most efficient manner in the short term. We have had interesting progress that allows us to be optimistic and think that this situation will begin to revert in the short term. We also understand that all necessary efforts are being taken to find solutions that will allow fast development regarding evacuation from the basin.
What should be the role of companies and the provincial and federal governments in ensuring the development of unconventionals?
It is positive to observe that both the national government and Neuquén provincial government have shown interest and commitment to the development of unconventionals and to the generation of better conditions for their development and exploitation. This has been translated into public policies that favour sustainable exploitation and production in time.
The joint efforts of all the stakeholders that integrate the sector’s value chain will clearly allow the emergence of necessary synergies to guarantee its virtuous development. We believe we must continue this path of joint work between the government, private sector and all the industry players to generate better conditions of efficiency and productivity, so as to reach an international level of competitiveness.
What do you think about recent policies aimed at shoring up unconventional development, such as the Vaca Muerta framework agreement signed in January 2017?
It is an interesting period in Argentina, not only due to the level of activity and investments, but also because of the reforms in the sector. We positively evaluate the actions that have been taken to strengthen the conditions for unconventional resource exploitation. We are in favour of the reforms implemented so far, and we are working jointly with the authorities and unions to keep improving efficiency and productivity in our operations.
The company also supports the transition towards international market prices. We see the recent measures taken by the federal government to guarantee natural gas prices for a period of four years as a transition that will improve investor trust. Activity levels will depend on the sustained continuity of this scenario, which makes long-term investments viable.
ExxonMobil hopes to continue working with the Argentine government to develop the energy resources of the country.
What technologies and techniques has EMEA applied to improve the efficiency of unconventional operations?
The approach since the beginning of operations has been to make horizontal drillings of a considerable length. As a matter of fact, at the first wells drilled in the Bajo del Choique-La Invernada block, together with our partner GyP, we reached a 2,500-metre length in the horizontal legs. These have been the longest horizontal wells drilled in Vaca Muerta up until now.
The wells we are planning at the moment each have horizontal leg targets of up to 3,000 metres and around 40 frack stages.
XTO Energy uses state-of-the-art technology in North America and that is what we are incorporating in Vaca Muerta. The combination of technology, knowledge and experience is what allowed us to bet on horizontal drilling that has so far been the record, and has been recognised as a great technical influence in the basin.
The drilling of extended horizontal wells demands large drilling rigs with a lot of carrying capacity on the workfloor, great drilling capability and great pumping potential. Being in the development phase, each well is planned to produce and sell.
In the initial stages of development, each well is a learning experience. With the great experience of XTO Energy, we continue to evaluate the results with our partners and look to accelerate production. Each success case serves to prove the feasibility of new projects and to continue evaluating the productivity of the basin.
How will the convergence of local and international oil prices impact EMEA and the domestic E&P sector?
ExxonMobil expects that long-term prices will continue to be determined by market demand and supply. Crude oil and natural gas prices have historically had considerable volatility. The energy future of the world will be based on solid associations between governments and industry, technological innovations and free markets.
Each year, the company evaluates investments and plans, contemplating all the price scenarios. At the same time, it considers the success of its operations by taking into account a variety of market conditions as a result of the disciplined investment plan, expenditures control and improvements programme.
What is the role of Argentinian SMEs in the development of the domestic industry?
The entire value chain benefits directly or indirectly with the activity of the companies that operate in the sector, since this allows suppliers to have a horizon of foreseeability and sustainability in time. It gives them a chance to project and steer their efforts towards becoming more efficient, productive and competitive.
In the concrete case of EMEA, we understand that we bring with us several benefits for the supply chain. For instance, ExxonMobil on an international level works with the highest standards of quality, safety and environment, which are also applied to our operations in Argentina. We also bring high-end technology used in our North American operations, plus we hire local providers and transfer to our employees and contractors our experience and knowledge from thousands of wells drilled in the United States and Canada in unconventional natural gas and oil reservoirs.
These examples imply the possibility to count on qualified, efficient and productive providers, which feeds a virtuous circle for the development of the industry.
Where should you continue to focus cost reduction efforts and how has the government assisted in this process?
As I mentioned before, ExxonMobil subsidiary XTO Energy is currently supervising EMEA’s activities in Vaca Muerta. XTO is a leading producer of natural gas and oil. It specialises in the development of unconventional resources and has a presence in 11 million acres [44,515 square kilometres]. It operates more 55,000 wells in the United States and Canada. This is the first operation supported by XTO Energy outside North America.
Thanks to the successful trajectory that XTO has achieved in its North American activities, the investment in Argentina includes a combination of state-of-the-art technology, resources, knowledge and experience that have been proven in the company’s operations so far. XTO’s experience allowed us to drill the longest horizontal wells up until now in the Vaca Muerta formation. XTO has a proven track record of productivity and efficiency that are fundamental throughout the lifecycles of projects.
Regarding cost reductions in Vaca Muerta, we feel encouraged by the reforms introduced by the national government. At the same time, we positively view the joint work between the provincial government and the unions to improve productivity and reduce costs. Actions such as the addendum to the labour agreement signed in early 2017 and the ease of imports of equipment and materials are positive decisions vis-à-vis the energy industry that will allow the increase of production in the short term and reinforce the possibilities for more investments. An increase in activity would also favour cost reductions.
How will the ease in regulations for equipment imports impact your activities?
ExxonMobil thanks the continuous support of the national government for increasing competition and allowing the development of a local services industry by continuing to reduce material import costs and barriers to business entry and technology.
Productivity and competitiveness are key, since investments will flow towards better investment return opportunities. Therefore, in the long term, all the players of the chain – operating companies, services companies, resource owners, governments and workers – benefit by reaching an international competitiveness level.
What objectives have you set for 2019?
According to the US Energy Information Agency, Vaca Muerta has the second-largest shale gas resources and the fourth-largest shale oil resources in the world. The challenges are in the conditions for extraction and commercial production. I think that the expectation of everyone who works in this business, and even of everyone in the country, is that we can take advantage of this resource. Hydrocarbons investments and projects are always long term, due to the nature of the development process.
Currently, the most important step is that in upcoming years we will continue with the initiatives to generate a proper scenario for the projects and make them more efficient and productive. ExxonMobil’s investment in exploration and the early development of its operations in Vaca Muerta has been more than USD 500 million since it started operations in the area. In light of recent reforms, ExxonMobil is increasing and accelerating investments for the development of natural gas in our operated blocks.
We continue to evaluate the productivity and recovery of the horizontal wells and we hope to take advantage of good initial exploratory results in Bajo del Choique-La invernada, as it has one of the most successful wells in the formation. It is our intention to continue investing in the different projects in which we are involved.
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