• 3 hours Keystone Pipeline Restart Still Unknown
  • 7 hours UK Offers North Sea Oil Producers Tax Relief To Boost Investment
  • 9 hours Iraq Wants To Build Gas Pipeline To Kuwait In Blow To Shell
  • 11 hours Trader Trafigura Raises Share Of Oil Purchases From State Firms
  • 13 hours German Energy Group Uniper Rejects $9B Finnish Takeover Bid
  • 14 hours Total Could Lose Big If It Pulls Out Of South Pars Deal
  • 16 hours Dakota Watchdog Warns It Could Revoke Keystone XL Approval
  • 1 day Oil Prices Rise After API Reports Major Crude Draw
  • 1 day Citgo President And 5 VPs Arrested On Embezzlement Charges
  • 1 day Gazprom Speaks Out Against OPEC Production Cut Extension
  • 1 day Statoil Looks To Lighter Oil To Boost Profitability
  • 2 days Oil Billionaire Becomes Wind Energy’s Top Influencer
  • 2 days Transneft Warns Urals Oil Quality Reaching Critical Levels
  • 2 days Whitefish Energy Suspends Work In Puerto Rico
  • 2 days U.S. Authorities Arrest Two On Major Energy Corruption Scheme
  • 2 days Thanksgiving Gas Prices At 3-Year High
  • 2 days Iraq’s Giant Majnoon Oilfield Attracts Attention Of Supermajors
  • 2 days South Iraq Oil Exports Close To Record High To Offset Kirkuk Drop
  • 3 days Iraqi Forces Find Mass Graves In Oil Wells Near Kirkuk
  • 3 days Chevron Joint Venture Signs $1.7B Oil, Gas Deal In Nigeria
  • 3 days Iraq Steps In To Offset Falling Venezuela Oil Production
  • 3 days ConocoPhillips Sets Price Ceiling For New Projects
  • 5 days Shell Oil Trading Head Steps Down After 29 Years
  • 5 days Higher Oil Prices Reduce North American Oil Bankruptcies
  • 5 days Statoil To Boost Exploration Drilling Offshore Norway In 2018
  • 5 days $1.6 Billion Canadian-US Hydropower Project Approved
  • 6 days Venezuela Officially In Default
  • 6 days Iran Prepares To Export LNG To Boost Trade Relations
  • 6 days Keystone Pipeline Leaks 5,000 Barrels Into Farmland
  • 6 days Saudi Oil Minister: Markets Will Not Rebalance By March
  • 6 days Obscure Dutch Firm Wins Venezuelan Oil Block As Debt Tensions Mount
  • 6 days Rosneft Announces Completion Of World’s Longest Well
  • 6 days Ecuador Won’t Ask Exemption From OPEC Oil Production Cuts
  • 7 days Norway’s $1 Trillion Wealth Fund Proposes To Ditch Oil Stocks
  • 7 days Ecuador Seeks To Clear Schlumberger Debt By End-November
  • 7 days Santos Admits It Rejected $7.2B Takeover Bid
  • 7 days U.S. Senate Panel Votes To Open Alaskan Refuge To Drilling
  • 7 days Africa’s Richest Woman Fired From Sonangol
  • 7 days Oil And Gas M&A Deal Appetite Highest Since 2013
  • 7 days Russian Hackers Target British Energy Industry

Breaking News:

Keystone Pipeline Restart Still Unknown

Alt Text

The Undisputed Leader Of Tomorrow’s Oil & Gas Markets

According to the Executive Director…

Alt Text

New Battery Design Could Crush Tesla

Elon Musk’s old rival, Henrik…

Alt Text

Tesla To Spike, Then Crash

Electric car giant Tesla is…

Qarnain Foda

Qarnain Foda

Qarnain Foda is the co-founder of the energy analytics blog enernomics.org. With a background in oil field services, he specializes in economic analysis of the…

More Info

Argentina’s Shale Industry Makes Progress, But No Boom Yet

Argentina Rig

Argentina is advancing in its mission to become the largest shale oil and gas producer outside of North America. But well economics still challenge the industry, despite heavy price supports from the government.

While production from conventional wells in the Neuquén basin has steadily declined, tight gas production has almost tripled over the past two years with an average of 18 new wells drilled per month in the basin, reaching 565 mmcfd (16Mm3/d) during the first quarter of 2016.

As drilling and completion costs vary across the basin, estimated ultimate recovery (EUR) may play a greater role in well economics than reducing costs, where only outstanding wells break even at the incentivised US$7.50 /MMBTU according to the latest Wood Mackenzie analysis.

After years of decline in natural gas production, Argentina has been rejuvenating the local industry by offering higher prices on output from new developments. The program was designed to encourage exploration and increase production by setting a fixed price on natural gas output from new projects at $7.50 /MMBTU, up from the current average of $5.20 /MMBTU.

(Click to enlarge)

Source: Woodmac

Operators are targeting five tight gas formations in the Neuquén basin: Mulichinco horizontal (Hz) and vertical (Vt), Punta Rosada, Lajas, Precuyo, and Los Molles. The median 90-day initial production rate (IP90) of a tight gas well in the Neuquén basin is about 2 mmcdf (56 km3/d); however, recent analysis indicates a great degree of variability in IP90 and EUR across all tight gas formations. Related: Oil Prices In Freefall As Fundamentals Worsen

The below whisker diagram indicates the distribution of the IP90 rates by formation where the extremes of the box are the lower (Q1) and upper (Q3) quartiles. The median is marked by the vertical line inside the box, the mean by the white dot inside the box, the two lines outside the box extend to the highest and lowest observations, and the outliers are the dots above or below the lines.

Source: Woodmac

(Click to enlarge)

Although Multichinco horizontal wells have the highest range of IP90 rates, Punta Rosada wells demonstrate lower variability around a higher median, while the remaining formations achieve significantly lower median IP90 rates around 1.4 – 1.8 mmcfd (40-50 km3/d). This high degree of variability indicates the requirement for a statistical development approach to spread productivity risk amongst a large number of wells as discussed by Horacio Cuenca, Director of Latin America Upstream Research for Wood Mackenzie.

The estimated cost of horizontal wells is about US$8.5 million where longer laterals and more fracture stages significantly enhance production but come at an increased well cost. Vertical wells with fewer fracturing stages are estimated to cost between US$4.5 million and US$6 million. Total well costs of each tight gas formation have been estimated, accounting for drilling, completions and tie in to existing infrastructure.

(Click to enlarge)

Source: Woodmac

The higher median and lower variability in production from Punta Rosada formation come with a higher average well cost of US$12.8 million due to the depth of the formation and higher number of fracturing stages required. Related: Oil Slammed After EIA Reports Significant Crude Build

Although the drilling and completion costs play a major role in the economics of a well, the relationship between the cost of these wells and the productivity achieved is equally critical. The Wood Mackenzie study shows that the highest cost wells also demonstrate the highest EUR and rates of initial production. Using type-well EUR and current well cost estimates, Mulichinco wells and Punta Rosada wells, the two most expensive formations in the basin on average, are the only wells profitable at or below the government incentivised natural gas price of US$7.50/mmbtu.

The takeaway here is this: While regulated gas price incentives may be temporary, well costs would need to drop by as much as 70 percent to be profitable at the non-incentivised price of US$5.20/mmbtu. It is more viable that operators aim to achieve higher EURs to reduce breakeven prices rather than reducing costs.

By Qarnain Foda for Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News