Chubut, Argentina's biggest oil province, expects to rebuild oil production this year after a decline in 2012, thanks in part to negotiations to get producers to ramp up exploration in exchange for extensions on their field licenses, a government official said Wednesday.
"Today we are producing 23,500 cubic meters/day (147,814 b/d) and we have to reach 25,500 (160,393 b/d) to get to our historical average," Chubut Hydrocarbons Minister Ezequiel Cufre said on the sidelines of a shale gas conference in Buenos Aires.
"We then have to maintain and increase production," he added. "This is our objective for 2014."
Chubut's crude production fell last year after a 15-day strike reduced output from the province's -- and country's -- biggest oil field, Cerro Dragon, to around 88,000 b/d from 100,000 b/d.
The operator, Chinese CNOOC-backed Pan American Energy, has been working since then to rebuild production including by redesigning its drilling program to find new drilling sites. This is because the strike left wells without the continuous injection pressure needed to keep up production levels.
To encourage fresh investment, Chubut is negotiating 10-year field license extensions to 2027 with producers, giving them more time to recover spending and make a profit on new exploration efforts.
The first deal was reached last week for El Tordillo, Puesto Quiroga and La Tapera, which are operated by Tecpetrol in a consortium with Argentine state-run energy company YPF and its Brazilian counterpart Petrobras.
The next extensions should come later this year for ENAP-Sipetrol and Pan American Energy, followed by other companies, Cufre said.
He said that he expects these next agreements will be reached in less time than the five months of negotiations with Tecpetrol because the framework agreement has now been established.
ENAP, Pan American and the other companies likely will agree to similar conditions as Tecpetrol, which has vowed to invest at least $200 million and drill 10 exploratory wells.
Of these wells, two must be drilled to deeper depths, one in 2014 and the other in 2015.
The focus of the exploration will be on finding more conventional oil resources in the Gulf of San Jorge Basin, but the deeper wells will target unconventional resources, Cufre said.
Chubut has two shale plays: D-129 and Aguada Bandera. YPF has already drilled one well in D-129, where it is carrying out studies before proceeding with fracking. YPF also plans to drill in Aguada Bandera, a deeper shale play, Cufre said.
These are smaller shale plays than Vaca Muerta, located further north in the Neuquen Basin.
With resources estimated at 16.2 billion barrels of oil and 300 Tcf of gas, Vaca Muerta has become the focus for unconventional drilling in a country thought to have among the world's greatest shale production potential after the US. Argentina's total shale resources are estimated at 27 billion barrels for crude and 800 Tcf for gas, according to the US Energy Information Administration.
The development of these resources is thought essential to turn around the country's decade of decline in hydrocarbon production that has pushed up energy imports.
YPF recently signed an agreement to invest $1.5 billion with Chevron to develop the first mass production drilling site in Vaca Muerta.
This is boosting demand for drilling rigs, making it harder for companies to find them anywhere in the country.
"There are no drilling rigs available," Cufre said, adding that there are shortages in related equipment.
What is more, most of the drilling investment is going into conventional drilling in Chubut, given that it costs an average of $2 million per well. This is making it harder to get producers to drill for shale resources when each well costs $12 million in the Gulf of San Jorge, but less so in Vaca Muerta, he said.
"It is more profitable to drill for conventional resources," he said.
