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Vista Oil & Gas count on Vaca Muerta for 20% oil, gas production growth in 2020


El primer barril de Shale Oil de Vista Oil & Gas de vaca muerta, 20 febrero, 2019. Vista's wells are performing among best in the play

- Goal to reach 36,000-38,000 boe/d in December
- Flexibility is key for handling volatility in Argentina

By Charles Newbery/Platts

Petroleumworld 03 02 2020

Vista Oil & Gas said Thursday it will focus on Vaca Muerta, the biggest shale play in Argentina, to lead a more than 20% increase in its oil and natural gas production this year, as it bets that conditions will improve for doing business in the crisis-hit country.

Mexico City-based Vista said it is targeting output of 36,000-38,000 boe/d at the end of the year, up from 30,000 boe/d at the end of 2019. That would take the average production for the year to 32,000-33,000 boe/d from 29,100 boe/d in 2019, it said.

Vista, primarily focused on Vaca Muerta, boosted output 19% in 2019 from 24,500 boe/d in 2018. The growth was led by crude, which rose 24% over the period, faster than gas at 13%, CEO Miguel Galuccio said on a conference call with investors.

Like most companies in the Vaca Muerta, Vista has shifted to oil over the past year to take advantage of higher prices and greater export potential in the near term compared with gas.

Argentina's government froze gas tariffs last year and extended the controls this year in a bid to rein in inflation, which hit 54% in 2019 and is among the highest rates in the world. At the same time, a surge in gas production from Vaca Muerta has brought transport bottlenecks that require the construction of an around $2 billion pipeline, a project that stalled late last year as Argentina fell deeper into a financial crisis.

To make it harder for oil companies, tight capital controls and a freeze on diesel and gasoline prices imposed in the second half of 2019 are curbing profits and making it harder to invest. Most companies have scaled back or put on hold investment plans in Vaca Muerta.

Despite this, Galuccio said Vaca Muerta's geology is so promising that Vista can still plan for growth in spite of the short-term hurdles.

He said Vista's wells in the Bajada de Palo Oeste block, where it is now focused, "rank among the best" in the play and even, comparatively, in the Permian, the biggest shale play in the US.


Galuccio said the company is not immune to the frequent ups and downs in Argentina. While average production peaked at 33,000 boe/d in August, the freeze on oil product prices led it to suspend its drilling program as local crude prices dropped to $40-$42/b between August and November from an average of $65.50/b in fourth-quarter 2018.

The price recovered to $51/b after the price freeze was temporarily lifted in November, and then reached $53/b in December and $55/b in January, prompting the company to restart its drilling program with two rigs.

The prices today are "very good" for returns, Galuccio said.

Even so, Vista plans to be more flexible in its growth strategy, holding off on deploying more rigs until prices climb further and sidelining them if prices fall again, he said.

"One of the key things that we have to build into our plan is the possibility to accelerate and stop," Galuccio said.


Galuccio said he expects the government of President Alberto Fernández, which took office in December, to focus on promoting the development of Vaca Muerta once it renegotiates its debts to skirt default.

The government wants to extend payments on its more than $100 billion in debts to gain time to revive the economy from a third year of recession so it can return to paying creditors on time. The target is to wrap up a deal with creditors by March 31, after which it can tackle other issues, of which Galuccio expects the focus will shift to a new policy for Vaca Muerta.

"In order to dynamize the economy, there is probably one button in the control room that they have to push, and that is the development of Vaca Muerta," Galuccio said.

The key aspects of the policy should be market pricing, export incentives and the dismantling of capital controls so companies "can get access to the proceeds of exports," he said.

"I am cautiously positive that the government has this in mind," he said. The development of Vaca Muerta "is important for the economy and there is a clear understanding of the potential" of the play within the government.

By Charles Newbery from S&P Global Platts 02 28


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