Oil and Gas

Argentina's YPF reports rising output from shale deposits, margins challenging

BUENOS AIRES, March 6 (Reuters) - Argentina’s shale oil output from the vast but barely tapped Vaca Muerta formation has edged up to 50,000 barrels per day equivalent, the CEO of state-controlled energy company YPF told the La Nacion newspaper.

In an interview published on Sunday, Chief Executive Miguel Galuccio said that profit on YPF’s shale oil and gas production was “marginal” even with the price of locally produced crude set artificially high by the government.

However, in a clear acknowledgement that the global oil slump is affecting exploration of one of the world’s largest shale resources, YPF said on Friday that it will cut capital expenditure in 2016 and put rigs in standby mode.

Galuccio told La Nacion that profit margins could improve as the company, which produces most of its shale in a joint venture with U.S. oil company Chevron, reduces exploration costs.

The executive said that the company had cut the cost of drilling each horizontal well to $13 million from $16 million, and expects this to drop to $10 million by the end of the year.

“If we increase the productivity of these wells and drive costs down, the economic equation changes,” Galuccio told La Nacion.

A year ago, YPF was producing about 44,000 barrels per day equivalent from shale wells.

The South American country wants to ramp up its exploitation of Vaca Muerta, which covers an area the size of Belgium under the windswept plains of Patagonia, to reverse an energy deficit.

YPF has said that reversing the country’s energy deficit will require $200 billion in investment over the next decade, largely on Vaca Muerta. (Reporting by Richard Lough; Editing by David Goodman)