(Adds details of geosteering pilot, details of planned rail project; updates prices)
By Juliana Castilla
LOMA CAMPANA, Argentina, June 23 (Reuters) - Longer horizontal wells and technology improvements will help Argentine state-run oil company YPF SA lower costs at its most productive shale field, but better infrastructure is still needed in the remote Vaca Muerta play, an executive said.
The breakeven price at the Loma Campana field is $43 per barrel and falling while development costs are $12.90 per barrel and expected to fall to $10 next year, said Pablo Bizzotto, executive manager at YPF’s unconventional resources unit.
“Ten dollars is world-class compared with the Permian” shale field in Texas, he told reporters this week during a tour of windswept Loma Campana, where YPF produces 40,000 barrels of oil equivalent per day and co-investor Chevron Corp produces another 20,000.
“If we can get there in Vaca Muerta, we’re competitive,” he said, referring to Argentina’s Belgium-sized shale formation of which Loma Campana was the first productive field.
The cost cuts are good news for Argentine President Mauricio Macri, who has sought to attract investment to Vaca Muerta to help close Argentina’s costly energy deficit since taking office in late 2015.
While the play is thought to have some of the world’s largest shale oil and gas reserves, just two of its 19 concessions have moved from the pilot to production stage amid investor concerns over high labor costs and logistical difficulties in the distant Patagonian province of Neuquen.
To address that, the government plans to invest $1.2 billion to renovate the 1,300 km (807.78 miles) of railroad tracks connecting Atlantic ports in Buenos Aires and Bahia Blanca to Anelo, the closest town to the oil fields, located in an isolated, flat desert region where materials needed for production arrive by truck.
“It’s much needed,” Bizzotto said of the train, adding that logistics account for 50 percent of the cost of sand needed for hydraulic fracturing. “It will lower logistical costs for things that should not be transported via truck, like sand and tubes.”
In January, Macri struck a deal to woo investments from major oil companies by ensuring attractive prices and getting unions to agree to a series of measures to lower notoriously high labor costs.
As part of the deal, the government has guaranteed producers $55 per barrel for Medanito crude from July onward and $7.50 per million British thermal units of natural gas, helping companies like YPF beat their break-even costs.
Both guarantees are above market prices. On Friday, front-month Brent crude was trading at $45.37 per barrel, while natural gas futures were at $2.92 per million British thermal units.
YPF’s cost cuts would come mainly from drilling longer horizontal wells and drilling technology improvements, Bizzotto said. The company’s horizontal wells are about 2,500 meters (8202.1 feet) long, and YPF is planning to pilot a 3,200-meter well in the second half of this year.
He also showed the company’s “geosteering” project, currently in its pilot phase, in which engineers sitting in a control room with dozens of screens can remotely modify a drill’s path through a well in real time.
The process has increased drilling speed by 27 percent on the 10 to 15 wells where it has been used since the pilot began one year ago, Bizzotto said.
“In the future, the new leap in productivity and well quality in Vaca Muerta is totally associated with geosteering,” he said. “What we are doing is profitable.”
Vaca Muerta contains 308 trillion cubic feet of shale gas and 16.2 billion barrels of shale oil, according to the U.S. Energy Information Administration. (Additional reporting by Luc Cohen; Writing by Luc Cohen; Editing by Lisa Von Ahn and Leslie Adler)