Can the shale boom that has transformed the North American hydrocarbon landscape be replicated in other markets? Countries that hope to meet rising consumer demand and reduce imports by increasing oil and gas production may look to the shale boom for solutions.
Unconventional shale development has generated significant interest globally, with a number of markets taking the plunge to explore the possibilities. Argentina has made the most headway in achieving commercial success. Nearly 300 unconventional wells are producing an estimated 25,000 to 30,000 barrels (boe) per day from the prolific Neuquén Basin in the country. For the foreseeable future, the play will be the busiest outside North America.
Daunting challenges face countries that are attempting to implement viable unconventional industries in their markets. Just as operators in North America had to overcome early obstacles and a steep learning curve, Argentina is experiencing its own growing pains. The nation is transitioning from conventional to unconventional production, currently focused on shale oil for internal consumption from the VacaMuerta, a Jurassic to Cretaceous aged formation in the Neuquen Basin. Rather than simply extracting technology and expertise from the U.S., the challenges are best met by adapting what has been done in North America to work in a new market.
Field personnel execute an integrated project in the VacaMuerta.
Argentina’s oil sector is mature, and because of several years of declining production investment in equipment by the service sector, the infrastructure and personnel have been limited. In North America, the shift occurred in a gradual sequence from conventional oil and gas, to tight gas, then coalbed methane, shale gas production and finally shale oil production. In Argentina, however, the industry is jumping directly from relatively easy conventional production to shale oil development. During the last three years, an industry that has a 100-year-old history of producing oil and gas has been upended.
In these early days of data-gathering and understanding in Argentina, operating companies are also learning that the geology of Argentina’s shale basins features characteristics and structural issues that may require further technological innovation. Methods not typically seen in unconventional development, such as underbalanced drilling (UBD), are already being applied.
The U.S. Energy Information Agency ranks Argentina fourth globally in technically recoverable unconventional oil reserves and second in shale gas reserves. The country’s push to develop the resources is motivated by the high cost of importing energy. Unconventional activity is centered in the Neuquén Basin, adjacent to the Andes mountain range, where volcanic and tectonic activity has created a complex subsurface environment.
The basin, which is 30,000 square kilometers (18,641 square miles), encompasses a prolific reservoir that is up to 500 meters thick and over-pressured. However, the rock is not homogenous and poses geomechanical challenges. The formation is highly laminated with layers of volcanic ash beds and mineralized calcite veins.
Understanding the Subsurface
Currently, 27 rigs are in the development area, the majority of them operated by Argentine exploration and production company YacimientosPetroliferosFiscales (YPF). As the most active operator in the basin, YPF is drilling mostly vertical wells and quickly ramping up production. This practice is commonly used in early shale development to gain an understanding of the subsurface and the production mechanism. Major operating companies and a number of smaller operators are betting on increased production rates by drilling horizontal wells.
Pad drilling, usually two rigs drilling four to six wells, is common. However, a lot of work is necessary to determine optimum well spacing. Wells are typically drilled down to 3,000 to 3,400 meters (9,843 to 11,155 feet), but only a handful of rigs are capable of drilling a 1,000-meter lateral on top of that. The very narrow mud weight window in the Quintuco formation requires UBD, a method of drilling with the hydrostatic head of the drilling fluid intentionally lower than the pore pressure of the formation, which adds operational complexity. If the mud weight is too high, it will fracture the formation, and the resulting mud loss can cause a kick. Operators address this challenge by using a lighter mud and producing the wells while drilling.
The practice of drilling on a live well that is producing hydrocarbons is risky and relatively new to the local industry. It also adds to the already significant equipment mobilization and needs.
Only a small number of the drilling units in the country have the capacity to drill horizontal wells at 10,000 feet. If the play will be developed using a horizontal factory drilling approach, a significant number of new rigs will need to be mobilized. YPF is reportedly bringing in 15 rigs that have the necessary drilling capacity and can be moved between locations in hours rather than days.
Mud loggers examine cuttings to determine the composition, physical attributes, hydrocarbon content and matrix porosity.
Market Constraints
The town of Neuquén, which has long been the center of Argentina’s gas production, has little unemployment, meaning much of the workforce must be brought in from other areas of the country. Operators also compete with other industries to recruit workers.
The field operations are too far from Neuquén for daily commuting. Operators and service companies are building camps in the field to accommodate employees. Critical services infrastructure will also need to expand as the population grows.
Equipment is still being brought in from North America, a process that can be expensive and time consuming. Service companies have entered into commercial agreements with local large machinery manufacturers to start producing some equipment, such as hydraulic fracturing pumps and cementing units.
Expansion of local infrastructure will be required to accommodate the vast logistical demands of a shale development project. Water sources can be as far as 100 miles from well sites, meaning holding ponds and piping networks should be constructed. Roads also need to be expanded and reinforced to stand up to the rigors of intensive trucking activity.
While these market constraints suggest unconventional development in Argentina will ramp up more slowly than in North America, the industry has made significant strides. Operations have grown five-fold in the last three years. A significant amount of equipment has been mobilized, which serves as a testament to the high expectations that the industry has for the VacaMuerta Shale. As progress continues during the next decade, Argentina is expected to emerge as a key player in the important unconventional resource arena.
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