With an estimated shale-gas resource of 774 trillion cubic feet (Tcf), Argentina ranks third in the world in terms of technically recoverable shale-gas resources. The country also has an estimated 11 Tcf of tight-sand gas resources.

That potential is attracting major oil companies such as ExxonMobil, Total, Chevron and large independents such as Apache. Foreign investment in exploration and production in the South American country is starting to pick up again after a hiatus brought on by a government-regulated gas price that is now $2.00 to $2.50 per thousand cubic feet (Mcf) of gas, which is significantly below the breakeven price required to make these shale gas plays work.

"One of the key impediments is the gas and oil pricing regime," said Anish Kapadia, senior research analyst, Tudor Pickering Holt & Co., during a Hart Energy webinar titled "Argentina’s Neuquen Basin: A World Hotspot for Unconventional Resources." He added, "The regime that is in place in Argentina will change."

The government began that change in 2008 with the Gas Plus Program that was designed to attract investment in unconventional resources. The program allows producers to supply gas to customers willing to pay more than the government-regulated price.

"The gas price is determined by the government based on a 'reasonable' rate of return," explained Laura Atkins, director of petroleum research, Hart Energy. "Recent prices for tight gas have been $4 to $7 per million Btu (MMBtu). Oil prices are controlled by an export tax and are currently around $60 per barrel."

The price for natural gas is still well below cost of imported gas. The blended mix of pipeline gas from Bolivia and liquefied natural gas is around $9.50/Mcf, Kapadia noted.

"With significant shale gas and tight gas potential, there's a clear rationale for the government to allow a higher price, say $6 to $7/Mcf to domestic producers. It will save the government $2 to $3/Mcf plus encourage investment and get tax revenues," he explained.

And, the industry is responding. On Aug. 19, Halliburton announced it had completed the first horizontal, multistage-hydraulic-fracture, shale-gas completion in Argentina's Neuquen Basin for Apache.

Halliburton has an Unconventional Reservoir Solutions Team in Buenos Aires that designed the 10-stage frac job in a horizontal section of the Los Molles formation at a depth of about 4,400 m (14,520 ft).

Apache Energia Argentina is in a joint venture with Madalena Ventures Inc. on the Cortadera Block in the Neuquen Basin. The joint venture drilled the CorS X-1 well to a total depth of 14,760 ft. A full suite of electric logs was run on both conventional and unconventional formations. The Vaca Muerta shale was found to be 708 m (2,024 ft) in gross thickness. Cores were also taken in the conventional Quintuco and Mulichinco formations.

At the end of August, ExxonMobil Exploration Argentina and Americas Petrogas agreed to explore and possibly exploit Americas' four Los Toldos blocks totaling 163,500 acres in the Neuquen Basin. The four blocks are along the Chihuidos high in a favorable location relative to other recent discoveries of shale oil and gas in the Vaca Muerta shale. The company expects to spud the first well on the blocks in the fourth quarter.

ExxonMobil will earn a 45% interest in the farm-in while Americas will retain 45%. The remaining 10% is held by Gas y Petroleo del Neuquen. ExxonMobil will provide technical assistance.

The U.S. Energy Information Administration has cited a risked, recoverable resource of 240 Tcf of gas in the Vaca Muerta shale in the basin.

Vaca Muerta or "dead cow" is the odd name for a shale that could be very similar to the Eagle Ford in the U.S., said Kapadia. It has dry-gas, wet-gas corridors and oil corridors.

The Neuquen Basin has been producing for more than 100 years and there are thousands of wells that have been drilled through the shales.

"The data from the wells shows the key characteristics of the rock are in line with or better than shale plays in the U.S.," he noted. "The 30-day, initial production rates for the first five wells ranged from 200 to 560 barrels per day (b/d)."

Generally, the shale runs from a depth of 8,000 ft in the east to 16,000 ft in the west. The thickness of the formation varies from 150 ft in the east to 1,000 ft in the west, he explained.

YPF has the largest acreage position in the Neuquen Basin with about 3.0 million net acres. Apache, Total and Chevron have all increased acreage positions recently. New entrants include ExxonMobil, GTE and EOG. Pure-plays on Argentina include Petrobras Argentina, Madalena, Crown Point, Americas, APCO, ArPetrol and Azabache, he said.

"Most of the acreage has been bought up," Kapadia pointed out. "To get more acreage, you will see merger and acquisition deals and farm-ins as other companies see the potential of this play."

YPF plans to drill about 30 appraisal and development wells this year plus 13 exploratory wells.

Apache (51%), Americas (19.5%), Energicon (19.5%) and Gas y Petroleo de Neuquen (10%) are testing the Vaca Muerta shale on the Huacalera Block. The well will also test the Mulichinco tight-sand formation up hole.

The infrastructure for moving gas out of the Neuquen Basin should be adequate. Production from the basin has been declining for several years so there is spare capacity in the pipelines. There is a long-standing service industry in place in Argentina, he said.

"Putting all the equipment for fracing together could be difficult, but not impossible," Atkins added. "There might be some difficulty getting equipment into Argentina, but it's not impossible."

And, she emphasized, "Continuing to learn is extremely important. They have a lot to learn about shale gas in Argentina. They have to go through the same process they did in the U.S."

Contact the author, Scott L. Weeden, at sweeden@hartenergy.com.