Chubut Preparing For Cerro Negro Oil Auction

(S&P Global Platts, 12.Nov.2019) — Chubut is preparing to hold an auction of assets in Cerro Negro, a maturing conventional block in the southern Argentinian province, part of a wider effort to boost its oil production, the province’s minister of hydrocarbons, Martin Cerda, said.

“We are working to hold the auction early next year,” he said.

The province awarded a temporary license for Cerro Negro in June to Argentina’s Roch, which took over from a unit of Grupo Indalo, an Argentinian conglomerate that fell into bankruptcy in 2018 after its oil refinery division was caught evading billions of dollars in taxes.

Cerda said his team has been approaching oil companies to develop their marginal blocks or cede them so others can do so, a strategy that has already led state-backed YPF to allow another company to develop two of its blocks “where it hasn’t done anything for a long time.”

The new developer is poised to start drilling five wells to boost output, he added, without providing names.

To encourage companies to develop the marginal blocks in the province, Cerda said his department is drafting a bill to provide tax incentives — a discount on the 12% production royalties.

“The state has to make its contribution so that these mature blocks are profitable,” Cerda said.

By squeezing more out of mature blocks, he said that will help boost the province’s production. Chubut has seen a steady decline in oil production over the past two decades, largely because of maturing reserves. The province’s production has declined by 11% to 150,000 b/d this year from 170,000 b/d a decade earlier, according to data from the Argentina Oil and Gas Institute, an industry group.

Despite the decline, more companies, including YPF, the country’s biggest oil and gas producer, are taking a fresh look at maturing reserves, where they plan to use enhanced recovery techniques including by pumping polymers into the wells. The plan for YPF and others is to sustain production at conventional fields as a base and find growth by developing the huge shale resources in Vaca Muerta, one of the world’s largest.

“There are always opportunities in mature fields,” Danny Massacese, upstream managing director at BP-backed Pan American Energy, the country’s second biggest oil producer, said last week at the Production and Reserves Development Congress in Mar del Plata, Argentina. “If we can increase the recovery factor by 1% in these fields, we are talking about millions of barrels of oil reserves that can be recovered over the years.”

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