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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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A $14 Billion Mega-Deal For This Leading International Shale Nation

Critical development on the international shale scene this week. With one of the world’s largest E&P companies signing a massive investment deal in a play that’s emerging as the leader for unconventional development globally.

The play is Argentina’s Vaca Muerta shale — and the company is ExxonMobil. Which had a mega-deal approved Monday by the local government, that could see billions poured into drilling over the coming years.

As reported by Platts, the government of Argentina’s southwestern province of Neuquen said that it has finalized an investment plan with ExxonMobil across the Vaca Muerta — which will see the major contribute an initial $229 million to development work. Related: Gazprom Rapidly Losing Grip On European Markets

That will include the drilling of five horizontal wells — with lateral sections up to 2,500 meters, and a reported 25 frac stages.

The deal will also include associated infrastructure like an oil separation and storage facility, and natural gas pipeline.

If that work is successful, stage two of the program gets absolutely enormous. With the Neuquen government saying this phase will feature an investment of $13.8 billion — for the drilling of 556 horizontal wells across the license blocks. Related: Fed Rate Hike Bad Timing for Crude Oil

In return for the investment Exxon will get a 90% interest in the project — with state energy firm Gas y Petroleo del Neuquen being a 10% partner.

There are a few important points to note here. The biggest being the sheer scale of the deal.

The initial $229 million investment likely works out to $30 to $40 million per well (even after infrastructure costs are subtracted from the total). Which is expensive by North American standards — and suggests that Exxon sees a substantial prize here, justifying the pricey outlay. Related: Forget Oil Majors, Stripper Wells Offer Better Returns

Presumably, per-well costs would be reduced in phase two, when the petroleum system is better understood and drilling achieves economies of scale. But the simple fact is, $13.8 billion is a massive commitment — even for a major like Exxon.

Such a deal is unprecedented in international shale. And firmly puts Argentina in the lead for the next global unconventional leader (aided by the country’s recent election of a new, apparently pro-business government). Watch for knock-on deals from major and junior E&Ps in this space.

Here’s to a billion-dollar coming out party

By Dave Forest

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