Developing a Vaca Muerta shale play : an economic assessment approach

Abstract

A total of 450 production wells are in operation in Argentina’s Vaca Muerta shale formation as of February 2016, of which 90% were drilled since 2013. In order to assess the economic value of the vertical, directional, and horizontal wells and understand the potential future shale play development, a data-driven approach is developed. First, historical production data are used to derive a 10-year production forecast, using decline curve analysis. Then, well profitability is assessed applying a discounted cash flow model for a sample of vertical, directional, and horizontal wells in the Loma Campana field. Initial oil and gas production rates reached 172.56 BBL/day and 309.42 Mcf/day for the median vertical well, 392.81 BBL/day and 587.76 Mcf/day for the median directional well, and 456.75 BBL/day and 571.46 Mcf/day for the median horizontal well. Based on the production histories, 10-year cumulative oil and gas production is expected to reach 76,389 BBL and 97,772 Mcf for the median vertical well, 174,701 BBL and 261,402 Mcf for the median directional well, and 203,134 BBL and 254,154 Mcf for the median horizontal well. The median vertical well is found to have a negative net present value (NPV) for any possible discount rate, while median directional and horizontal wells can be expected to give NPV (10%) values of $0.41 and $1.14 million, respectively, under the current fiscal and contractual conditions in the country. Internal rates of return for the median directional and horizontal wells were found to be 15.15% and 26%, respectively, while their break-even oil prices at a 10% discount rate were found to be $54.65 and $47.23 per BBL, respectively. Thus, the production profiles and well economics assessment allows to suggest that directional and horizontal wells could be economically viable under the country’s current economic environment, including oil and gas price subsidies.