Tertiary plans for preparation and optimisationJune 15, 2017
Alfredo Bonatto, general manager of Petróleos Sudamericanos Energy (PS Energy) in Argentina, talks to TOGY about the company’s 2017 exploration initiatives in the country and the commercial viability of its assets. PS Energy began E&P operations in Argentina and Colombia in 1990.
Argentina’s PS Energy is an E&P operator with 66 production wells and operations concentrated in the Neuquén Basin. The company also holds the operating licences for the Centro Este and Loma Montosa Oeste fields. With these assets PS Energy maintains production of around 1,600 bopd. The company has responded to the global fall in the price of oil by optimising production at mature assets and streamlining its decision-making processes.
• On commercial viability: “Our plan for 2017 is to drill two more exploratory wells. Since the oil price declined to USD 55 per barrel, we have had a serious debate about the development of fields. The structure needs to be re-analysed in order to make it viable, which is why we are focusing more of our efforts on natural gas.”
• On adapting to survive the international market: “Regarding oil, during 2017 we have a fixed price until December 31, which is USD 55 per barrel, and from then on we will converge with international Brent prices. When that happens, the industry will have to restructure itself properly in order to be competitive. We must keep in mind that in Argentina, 23% of natural gas and 9% of oil is unconventional, which is why the industry is going to have to rethink itself to maintain a proper level of production.”
Bonatto also discussed the company’s strategy for upcoming development operations and the pricing structure in the Argentine hydrocarbons market. Most TOGY interviews are published exclusively on our business intelligence platform TOGYiN, but you can find the full interview with Alfredo Bonatto below.
What is your production strategy?
We mostly focus on the production of hydrocarbons from mature fields, boasting a very high level of efficiency in how we manage our costs and decision-making. We specialise in the types of projects that best fit our company’s structure. We are very selective when making our investment decisions. We have been working in the Neuquén Basin as well as in the north, although recently the cost of settling in the north does not allow for development due to gas prices, so now we are focused on the Neuquén Basin.
What are the latest developments at your blocks?
The main fields which we are involved in are Centro Este and Loma Montosa Oeste. We renewed both contracts and have kept some of our possessions in Neuquén and Rio Negro. We remain in contact with both of these provinces as we plan to renew the administration of both fields.
We are also talking with other companies to acquire some new sites in the area, since they are trying to leave some of these fields. We have a production of around 1,600 bpd. In 2016, we drilled two new exploratory wells and completed four new developments.
We are a company with an interesting spread between development and exploration. We discovered oil in Loma Montosa – a field shared between the Rio Negro and Neuquén provinces – and natural gas in Central Este. If the situation is right, we might start sales near the end of 2017.
Our plan for 2017 is to drill two more exploratory wells. Since the oil price declined to USD 55 per barrel, we have had a serious debate about the development of fields. The structure needs to be re-analysed in order to make it viable, which is why we are focusing more of our efforts on natural gas.
Would this production of natural gas fit within the support scheme established by the government?
The USD 7.50 per million Btu regime is only applicable for projects that are unconventional. The natural gas we would produce fits the traditional regime which is around USD 4.00 per million Btu.
Regarding oil, during 2017 we have a fixed price until December 31, which is USD 55 per barrel, and from then on we will converge with international Brent prices. When that happens, the industry will have to restructure itself properly in order to be competitive. We must keep in mind that in Argentina, 23% of natural gas and 9% of oil is unconventional, which is why the industry is going to have to rethink itself to maintain a proper level of production.
Where have you been most successful at making operations more cost-efficient?
There are two central processes here. The first is decision making, which requires us to be closely involved with every aspect of the business since the applied business models sometimes makes you a bit distant from the operative reality. The second is contractor management.
What we have is a very profound policy of local purchases and the development of local services providers; 98% of our contractors are from within our area of operations. That generates various things, such as a certain affinity with the provincial and municipal governments because you generate profit and employment within the region. Another is the fact that having people from the area helps properly manage things within the region since more people get involved in the project and the chance of conflict is reduced.
Certainly, Argentinian costs are not competitive at an international level, but when you try to develop your providers within the area you operate, you are helping your own cost structure. What we try to do is develop a working force of contractors that are very involved with the product, then help local enterprises to develop. There are small and medium enterprises that are extremely efficient and bear a low chance of conflict. They know the project, the area and the players involved. This helps to make things work very smoothly.
How is the strategy to replicate the Canadian model in Argentina evolving?
The Canadian model has three legs: tax management, finances and operational effectiveness. In terms of finances, Argentina has access to interesting capital markets. Regarding tax management and operational effectiveness, in Canada there are many players that are small enterprises with an extremely elevated efficiency level. These companies can manage those three legs better than bigger companies since they are able to adapt their work methods to their projects. They customise operations according to the project’s needs. These companies are a key part of the core profit of the overall Canadian hydrocarbons industry.
In Argentina, except for a few companies such as Oilstone, this kind of model has not been extensively implemented.
What importance does efficiency and technology have on mature fields in Argentina?
Firstly, it is a matter of resource exploitation criteria. Shale and tight gas have medium to long-term projections. In the meantime, we need to have the resources and technical know-how to properly exploit mature fields in a sustainable fashion. There is technology such as tertiary recovery and optimisation of secondary recovery models, which have to be adjusted so that resources are available.
Whereas secondary oil recovery is well developed in Argentina, we only see a few tertiary projects. We have tried to develop a pilot project, but with the fluctuations in prices and the complications that have arisen, it has not yet received final approval. Tertiary recovery is underdeveloped in Argentina, because it requires much more study and a particular mental broadness which allows you to understand that certain products work and others do not.
Applying tertiary recovery methods will not make your business five times bigger, but it could substantially increase cash flow.
We must also keep in mind that technology has become much more advanced, the petroleum industry has brought some fabulous things. Nowadays we can tell what kind of corrosion took place in downhole equipment by conducting DNA analyses on microorganisms. This is something that used to be unthinkable.
What changes have you seen since the new Macri administration took office?
We are in a period of transition as we approach convergence with international prices. The authority in these things has always been the province. The only difference is that now there is a lot more dialogue between the government and the provinces, as well as something that I find interesting: there is a mutual effort of understanding between governmental bodies. They understand that the context has changed, as well as the world. There has been a push from the government, a noticeable one, towards making a medium to long term energetic projection, which is why they do things such as modifying the collective labour agreements. Although there is a predisposition to look ahead, the current tax burden may bring some challenges in the future, since it is much higher than in other countries.
What objectives have you set for the next five years?
In the next five years, we are thinking about diversifying our matrix since we are based 90% on oil and 10% on natural gas. We will also try to incorporate a couple more fields in Argentina.
For more information on PS Energy in Argentina, including operations at the Centro Este field see our business intelligence platform, TOGYiN.
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