Dead cow The giant waiting for the miracle wakes up

Progress, often chaotic, is evident in every corner of this city in the process of tripling its population (2,500 inhabitants in 2012, more than 8,000 today). "Although I usually come, every time I arrive, I am surprised by a new hotel, a building I did not know, huge deposits," said a YPF officer residing in Neuquén. , the capital (100 kilometers). One could say that Añelo does not have an industrial park, but the industrial park has multiplied several times and ended up encompbading the small town of Añelo, where only a few streets are paved.

Seat of a fort intended to contain native malones during the conquest of the desert, at the end of the nineteenth century, Añelo is facing a crisis of vocation: the old farm is becoming, at the speed of the light, an oil city. His challenge is to equate the progress of an industry that has transformed it forever.

The vault of Vaca Muerta has taken place in recent years. YPF and its partners in petroleum (and gasoline), and especially Tecpetrol (Techint), thanks to the increase in the price of gasoline at the well and a controversial but effective subsidy system – resolution 46, sanctioned by the Government in 2017 and recently amended -, production reached levels unthinkable until recently. Vaca Muerta was once again at the center of all expectations. Some spoke of rebirth.

In the area of ​​Fortín de Piedra, Tecpetrol has invested $ 1,800 million to date, which has allowed it to achieve record gas production in just over a year. 17 million cubic meters. "He risked it and it went very well: he broke the market," she praised her in the industry.

After a long time, Argentina has managed to stand on its own, except for the winter, and even to generate an export balance. The government changed the subsidy scheme to reduce it, which led to a claim by Tecpetrol that just landed at Justice. "We needed a high price niche to encourage us to produce, and we made sure that for four years," said Tecpetrol's president, Carlos Ormachea, "in the US, this has happened between 2008 and 2014. the rules of the game, we had to stop exploring.

"They are doing very well"

In the United States, the main player in the unconventional market, the Vaca Muerta revolution has been observed. "You're doing very well, it's amazing what you get," said a senior US energy official to an Argentinian delegation visiting Washington a few weeks ago.

The panorama of these days has little relation to the doubts of the first years, even if the estimate that the US Energy Information Agency (EIA) had made in 2013 on the scale of Vaca Muerta was confirmed by the explorations drivers. At about 2000 meters above the ground, under the large gas field of Loma La Lata, a rock appeared, shale, in extraordinary conditions. Its thickness is 300 to 600 meters, against 30 to 100 meters Permian (Texas) and North Dakota, two of the largest shale formations in the United States. And its organic component, that is to say the fuels that it houses, first-level global.

"But a problem occurred: the crude oil had fallen below 50 dollars a barrel." The operation was therefore economically unsustainable: the selling price was not enough to cover the costs of the crude oil. extraction, "says economist Ricardo Arriazu, of Four years ago, he studied the phenomenon of Vaca Muerta. Encouraged by a group of companies not belonging to the energy sector, the Arriazu Macrobadysts Study has just closed, after a year, the most important research work on the economic impact. for Argentina, with its advantages and disadvantages, the significant deposit that threatens to change the global fuel system.

Although the economic equation did not close, YPF began operating in the Loma Campana area, very close to Añelo. The treasure hidden in the depths had given him the opportunity to show himself. What was seen was so valuable that he justified the effort. YPF has decided to bet strongly, first with the North American multinational Chevron, then with other big companies: for seven years, it invests 9,000 million dollars with Vaca Muerta. Chevron's initial contribution was $ 1,200 million, but later it announced that it was $ 2,700 million.

Among the first wells, which were vertical (a very costly mistake, let us admit today in YPF), found themselves in the shape of L: a vertical with the rock, about 2500 meters, and the horizontal, which can reach 3500 meters, by which we go in search of fuel. The schist consists of tens of fractures by hydraulic stimulation: water and sand drawn at 9,000 PSI (pressure measurement). Enough to destroy a building in seconds. The cover of a streetcar has a pressure of 30 psi.

In conventional extraction, the rock is not obliged to release its organic content: it did it alone, under the natural pressure of the geological formation. Oil and gas are already released and you just have to extract them: that is why it is easier and cheaper. But with the unconventional method – three times more expensive – the amount of fuel that can be extracted increases dramatically.

A country that remains

Faced with the bubbling optimism that has affected the field's farming companies, Arriazu is planting figures that seem indisputable: "Only 3% of the surface of Vaca Muerta is harvested, there are currently about 1,000 wells in operation, when they should be between 20,000 and 35,000 ". Of these 1000 wells, 200 were opened last year. With the current rate of drilling, it would take 150 years to develop the basin. The conclusion seems dramatic: full development would occur when fossil fuels (oil, gas, and coal) are no longer used as a source of energy.

He also argues that the number of wells is not the best measurement model. The important thing is the number of fractures. "In February, there were 712, which was a record, but for the operation to be satisfactory, there should be 3,000 fractures per month."

For Arriazu, there is no doubt: "Vaca Muerta is totally underused, none of the biggest oil companies in the world place large pieces, for a very simple reason: Argentina does not find them a a safe and profitable market, we have an infrastructure for much faster growth. "

At the seminar organized by LA NACION a few days ago on Vaca Muerta, which brought together officials and representatives from the entire energy sector, the "Argentina Factor" appeared again and again. Here, the "discount rate" of an investment is, by country risk, very high. As they repeat a chorus, many speakers pointed out that the potential of the deposit was limited by the combination of macroeconomic imbalances, legal insecurity, changing rules of the game, infrastructure deficit. and logistical difficulties. And now, the political tension for the decisive elections of October.

Another recurring statement reflects the panorama of these days: "From the floor to the bottom, everything is fine, problems start upstairs." Even in a sector accustomed to volatility, Argentina is perceived as a tembladeral.

"In another country, Vaca Muerta would already fly," he said during a break from the seminar, one of the main Argentine officials of a multinational. Lowering his voice, he added: "With the latent factor Cristina, before you put money, you think very well".

The former president knows it. A few weeks ago, one of its consultants conducted consultations with market – friendly energy specialists. "He does not want to scare investors," said the consultant.

Scale company

An officer responsible for the operations of a company badociated with YPF believes that Vaca Muerta is progressing reasonably under the circumstances. "Today, more than 20 teams are working – if we wanted 100, it would be impossible, the current structure would not resist it." He says roads, ducts and skilled labor are needed, among other things.

The oil industry requires investments of several million dollars. To reach an additional 1,000 wells per year, it takes $ 15,000 million, solely in drilling costs. An additional fifteen billion would cost the construction of gas liquefaction plants, without which it could not be stored for the winter, when its consumption would increase the most, nor be exported to major foreign markets. First, China, India and Japan.

These 30,000 million, for only two positions, contrast with the investments made so far. The most important were, in seven years, the 9,000,000,000 JPY and its badociates. Energy Secretary Gustavo Lopetegui, however, pointed out that last year the total investment in the Neuquén Basin had reached $ 4200 million. "We must take advantage of our opportunity – there are more than 20 countries with unconventional resources, which are only exploited in the United States, Argentina and Canada."

Because of the high production costs of shale, profit margins are low. This is an intensive, large-scale activity that requires permanent well drilling (its performance is very high at the beginning and then it falls), an activity that can only be sustained with a flow of money. constant.

"The current level of activity at Vaca Muerta is important," says Daniel Gerold, one of the most renowned energy consultants, "but that will not explode, among other things reasons because it requires a lot of capital. " capital, and those abroad show greater interest in other markets, which gives them better returns. "

Let's add another factor: the good start was given by the gas side and not by the oil side. "An error, because for eight months of the year in the country, there is no demand for gas.We must give priority to oil, as it is starting to do now. an export value 2.5 times higher than that of gas "

Legal certainty also featured prominently in the agenda of the NATION Seminar: clear and permanent rules, predictability, adequate legal framework. "It is not easy to attract capital when, in addition to all the difficulties, in Río Negro, there is talk of forbidding fracking and, in Chubut, imposing a tax on the wind, "says Arriazu.

"The future of Vaca Muerta is tied to the future of Argentina," said Miguel Gutiérrez, president of YPF, at the seminar. In the stands, someone commented that the ideal would be that the equation be reversed.

Pivotal year

The tank operators deny the existence of an under-exploitation. They argue that it is impossible to jump or hasten the initial stage of learning, evaluation and maturation. And knowledge of the region, because productivity is not the same in all areas. You have to try a lot, and it takes time and money.

"We started in Loma Campana with a pilot of 100 vertical wells and up to 20 teams [de extracción] to work, which was an excess, a big strategic mistake – says Daniel González, CEO of YPF-. We may have underestimated the complexity of the operation and it was also necessary to show quick results. "

Last year, he says, it was a hinge. For the first time, YPF's oil-focused operations in Vaca Muerta have begun to generate a positive net flow (revenues above expenses). "In the United States, there are unconventional businesses that have started much earlier than us and have not yet reached it." He attributes this to the quality of Neuquén rock, to the learning curve and to the fact that costs have been reduced.

The steep drop in production costs is the trophy everyone has in Vaca Muerta. In 2013, the operation of crude oil cost $ 110 per barrel. Today, something less than 40 dollars. The decline is explained by this learning curve, the agreement with the oil industry to ease working conditions and improve productivity.

Skeptics about the level of exploitation of the Neuquén Basin provide two other data: Vaca Muerta operates more than 30 drilling rigs, against 1600 unconventional fields in the United States. And there are hardly three or four "mbadive developments", an expression that, in the oil industry, intends to fill all phases, from exploration to extraction, through a large number of wells. "You see a lot of chiquitaje," they say.

González is not in agreement. "Regardless of the size of the card played, but the consistency, the current pace is reasonable, it is obvious that with this discount rate, things get complicated, but we did not stop any project for lack of partners or capital ".

In YPF, however, they recognize that the growth margin is large. Last year, Loma Campana extracted 58,000 barrels of crude oil per day (57% more than in 2017), and it is proposed to reach 120,000 barrels in 2023.

"The big players are, like Exxon, Chevron, Shell, Total and others," says Alejandro Monteiro, Minister of Energy Neuquen, "but that's right, for the moment with a limited participation. " For these multinationals, Argentina is one more country, and complex, macro instability and legal instability are playing against, our challenge as a country is to create the right conditions. "

There are also small players, such as Vista Oil & Gas, the company run by former president of YPF Miguel Galuccio. When it was sold to the Mexico City Stock Exchange in 2017, it established a fund of 850 million dollars, all destined for the same destination: Vaca Muerta.

"In the United States," said Gastón Remy, CEO of Vista, ex-Dow, "the natural shale revolution has not been operated by the majors, but by the insurgents, who have a direction closer to the operation, return to horizontal drilling and fracturing ".

Vista extracts 24,000 barrels of crude oil a day in the Bajada de Palo region and aims to reach 65,000 barrels by 2022. "Unlike the big ones, all of our chips are at Vaca Muerta," says Remy.

Like many others in the sector, the Galuccio company is calling for the release of crude oil exports. In the logic of a country that has always been a net importer of oil and therefore favors local sourcing, sales abroad remain limited. "We have achieved self-sufficiency, we must allow the surplus to be exported, which would generate a very significant dollar income for the country, and these dollars would increase production, thus forming a virtuous circle," Remy said. .

In the United States, where exports were also limited, the shale boom forced to revise this regime. In 2015, Obama eliminated the restrictions and, in four years, fuel sales abroad have quadrupled.

"She will always be dead"

The fate of Vaca Muerta seems to oscillate constantly between impulses and brakes. On the one hand, rock excellence, the progress made by management to optimize the operation and reduce costs, and the government's decision, with its marches and counter-marches, to put focus on the exploitation of these resources. On the other side, endless obstacles that prevent it from singing victory.

Sometimes the contrasts are brutal. A visit to the YPF facilities in Loma Campana is a source of wonder: highly skilled and very young professionals, many of whom are under 30; advanced technology and innovative resources developed by the company's staff; the expansion of factories, the monitoring of wells in real time by geostation, and a fundamental and winning mystique that goes through the air. But the provincial road that runs through the front of these facilities, the busiest in Vaca Muerta, has not yet been paved.

Of the two provincial routes that connect Neuquén to Añelo (100 km), the 7 has only two hands and at 51 it never ends to expand. Every day, thousands of cars, vans, trucks and trucks form endless lines. Accidents and deaths there are already a clbadic.

The government of Neuquén, which receives between $ 50 and $ 70 million per month in oil royalties, says the national government has never sent the funds promised in 2013 for the works. "They say that, and they did not think to pay toll?" With the traffic they have, work is paid for alone, "protests a Shell executive who travels to Añelo every week.

One of the most important oil entrepreneurs in the country, skeptical about the future of the Neuquén schists, would have had the reputation of saying years ago: "The cow is dead and always will be." In fact, it's very much alive. But no kicks.

Dead cow, in a complete cover

"If we take the proven reserves, that's equivalent to 10 times the GDP or 150 years of harvest." These are the reasons why, according to the economist Ricardo Arriazu, transforming Vaca Muerta into a real opportunity. In view of this great expectation, LA NACION decided to make a complete and thorough coverage of Vaca Muerta, which includes this first note, but which started at the end of last month with a day in the newspaper, the content of which is published today. In the Economía supplement. . From this meeting, "Vaca Muerta: a new opportunity" participated alongside Arriazu, officials, oil sector officials and energy specialists. Next Sunday and in the following months, the series will continue with notes on various topics related to Vaca Muerta. The macro and structural challenges it faces; how to gain competitiveness with clear rules of the game and investments in infrastructure; the required worker profile and comparison with countries that had similar opportunities and benefited (or missed) are among the aspects that will be addressed in all LA NACION platforms.