Tight Gas Reverses Output Declines at Argentina’s Neuquen Basin

Tight gas production has almost tripled in the past two years, helping Argentina’s Neuquen basin overcome declines from conventional wells, according to Wood Mackenzie Ltd.

Output of tight gas, which is found in extremely dense rock formations, reached 16 million cubic meters a day in the first quarter, making up a quarter of total production in the basin that’s home to Vaca Muerta, the world’s second-largest shale gas deposit. The increase was driven by pricing incentives and lower well costs relative to shale gas operations, the Edinburgh-based consultant said in a report on Tuesday.

“Tight gas continues to provide big opportunities for drillers in Argentina,” Horacio Cuenca, Latin America upstream research director at Wood Mackenzie, said in a phone interview from Rio de Janeiro. “However, our recent analysis shows that there is a lot of variability in well performance and economics across all tight gas formations.”

In the six tight gas formations studied, only the Mulichinco horizontal and Punta Rosada vertical wells were profitable at or below the government’s $7.50 per million British thermal unit price for its incentive program. Larger cost reductions were necessary for wells in all areas to be economic at the $5.20 average price in the basin without incentives, the report showed.

Drillers are more likely to improve well economics in the short term by achieving higher recovery rates than by further reducing costs, Cuenca said.

“Capital efficiency of tight gas wells in Argentina is on par with the best plays in the U.S.," he said. "However, improvements are still needed as well performance has been extremely variable across all formations."

The median tight gas well in the basin has an initial production rate after 90 days of 56,000 cubic meters a day, with the top quartile being about five times higher than the lower one.

“The next three years, tight will continue outpacing shale gas," Cuenca said.

    Before it's here, it's on the Bloomberg Terminal.