By Sarah Kent and Taos Turner
NEUQUÉN, Argentina -- Around 5,000 miles from the booming oil
towns of West Texas, some of the world's biggest oil companies are
trying to do what they failed to do with U.S. shale: Get in first
and early.
Royal Dutch Shell PLC, Exxon Mobil Corp. and others are making
another go at taking the shale industry global, starting with a
grand experiment here in a desolate swath of western Argentina.
This sprawling piece of Patagonia, known as Vaca Muerta, which
means "dead cow," potentially has as much oil and gas as the
biggest basins in Texas or North Dakota.
Replicating the U.S. fracking boom elsewhere has taken on fresh
urgency in an era of stubbornly low and volatile oil prices.
Outmaneuvered early on in the U.S. by smaller companies, Exxon,
Shell, Chevron Corp. and others see Argentina as one of their best
opportunities to expand shale, which generally features projects
that can be ramped up or down with prices.
The Vaca Muerta has long been a focus of this sometimes quixotic
quest, but a business-friendly government at all levels that is
actively working to encourage drilling is fueling optimism that
shale development in the region could finally begin to take
off.
Hurdles still remain and costs in Argentina are significantly
higher than the U.S. But this time around, the big-oil company
executives are determined not to miss out, hoping to leverage their
big balance sheets and experience with foreign governments to make
international shale work.
And they want to prove wrong critics who say they can't drill
shale as well as specialists in the U.S.
"Our position is: Hell no! We will show that we can drill and
complete wells better than the best," said Andrew Brown, Shell's
head of exploration and production. "We're showing it in
Argentina."
This year, Exxon is expected to move from experimental pilot to
proper development in the region, taking a step toward investments
that former Chief Executive Rex Tillerson last year said could
exceed $10 billion in the coming decades.
France's Total SA -- which has repeatedly said that expanding
its foothold in U.S. shale is too expensive -- is also planning to
ratchet up production in the Vaca Muerta. Chevron has made
investments of over $1 billion in Argentine shale projects and BP
PLC is in the country through its joint venture Pan American
Energy.
Last month, Shell started up a new treatment plant on the Vaca
Muerta's dusty plains with the capacity to process 10,000 barrels a
day of shale oil and six million cubic feet of gas daily. On a
recent windswept afternoon, a Shell oilman stood atop a 560-ton
rig, hauled over from the Permian plains where it had recently been
in use.
Sporting a red fire-safety suit and protective yellow gloves, he
pointed to a series of computer screens that spewed out data on the
rig's effort to push thousands of feet of steel casing deep into
the earth below.
Senior drilling engineer Wouter Miedema, who has worked in shale
projects in the U.S. and Canada, said he was struck by the
similarities between the geology of the Vaca Muerta and the most
productive shale fields of North America. "It's amazing to think
that on the other end of the planet you've got shale like this," he
said.
The expanse of iron-toned dirt into which he was drilling is
thought to hold 27 billion barrels of technically recoverable oil
and 802 trillion cubic feet of gas embedded in a layer of shale
that is up to 1,700 feet thick, according to the U.S. Energy
Information Administration. That ranks its geology up there with
some of the best fields in the U.S., executives and analysts
say.
For now, Shell is investing under $200 million a year to see if
it can make shale work in Argentina. It isn't enough to reach a
level comparable with U.S. shale, though Shell executives say the
region could be a big producer.
Major companies like Shell were late to get in to shale
production in the U.S. When they did venture in, they found the
process to be different than the engineering feats that
characterized other oil exploration and output.
Still, companies want to take it slow in Argentina, because they
have been burned in the past. Their previous wildcatting attempts
in shale from Europe to Russia and China have been stymied by a
variable cocktail of poor drilling results, political opposition,
regulatory hurdles and the dramatic drop in oil prices that began
in 2014.
Argentina's shale is no sure thing. Companies have to spend more
time and money figuring out the best places to drill in Argentina,
where the Vaca Muerta is still relatively unexplored territory
compared with the U.S. shale patch. On cost, infrastructure and
manpower, it can't yet compete with the U.S.
According to Shell, steel casing here costs 40% more than it
does in Texas, even though it is made in Argentina. Casing accounts
for up to 25% of well costs, so that price difference makes
drilling here much more expensive, Shell says. In March, Exxon told
analysts that it currently costs two to three times more to drill a
well in the Vaca Muerta than it does in the U.S.
Recent progress on costs has infused oil companies with hope
about the Vaca Muerta, including agreements with local unions and a
government pledge to keep natural-gas prices high.
Shell's local well costs, including drilling and completion,
have plummeted from about $35 million for their first well in 2012
to under $10 million now. In February, the company drilled a
five-kilometer horizontal well for roughly $5 million. The company
said it was the cheapest of its kind ever tapped in Argentina.
"This will take off," Shell CEO Ben van Beurden said. "It's just
a matter of lining everything up."
Write to Sarah Kent at sarah.kent@wsj.com and Taos Turner at
taos.turner@wsj.com
(END) Dow Jones Newswires
May 04, 2017 05:44 ET (09:44 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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