Oil & gas firm Phoenix Global Resources (LSE:PGR) rose today after telling investors it has strengthened its position in Argentina’s globally significant Vaca Muerta shale formation. The business jumped 4.3pc, or 1.1p, to 26.6p after increasing its interest in the Mata Mora and Corralera blocks, both based on the formation, from 27pc to 90pc. It has also become operator of the blocks. It also announced that it purchased four new exploration blocks in Argentina’s Neuquen province, following a bid round earlier this month.
Vaca Muerta is one of few economically producing shale oil formations outside of North America. Its current production is more than 80,000boepd, accounting for an impressive 60pc of Argentina’s 27 billion barrels of technically recoverable shale oil reserves. Operators committed around $7bn of investment towards Vaca Muerta in 2017, $12-15bn in 2018 and more than $20bn is expected every year after that. Energy researcher Wood Mackenzie has estimated that by 2032 Vaca Muerta’s production will sit somewhere between 750,000 boepd and 1.3m boepd
Phoenix’s latest purchases give it an additional 11,000 net acres of Vaca Muerta exposure – bringing its total position to 100,000 acres alongside a further 70,000 acres of exposure to other unconventional resources. It has committed to drilling two horizontal wells in the Mata Mora block, which it expects to complete this year. The wells will be drilled consecutively to minimise mobilisation and de-mobilisation costs of drilling crews, equipment and other service costs. It has also committed to drilling two wells at Corralera, which it expects to complete either next year or the year after.
Chief executive Anuj Sharma, said: ‘We are delighted to have renegotiated and increased our working interest in now PGR-operated Mata Mora and Corralera blocks from 27% to 90% as well as adding four new operated blocks in the Neuquén Province to Phoenix’s portfolio in the recent Neuquén bid round. Together, these agreements will mean that Phoenix’s acreage position now covers approximately 7.5% of the entire Vaca Muerta formation. We have also signed an LOI with Nabors to secure a drilling rig in order to immediately start our horizontal drilling campaign in the Neuquén province. Phoenix has an active work programme across our portfolio for 2018 based on our accelerated business plan, which focuses on multiple unconventional targets in the Neuquina Basin.’
Today’s news is a step in Phoenix’s broader plan to become one of Argentina’s leading E&P firms, a goal which saw it launch a $190m accelerated business plan last month to appraise its unconventional acreage and increase production. Earlier this month, Phoenix’s chief financial officer Philip Wolfe told us Phoenix is currently trying to ‘crack the code’ of Vaca Muerta and lay the groundwork for operations and production going forward:
‘We are trying to appraise the Vaca Muerta and prove up our resource. It is about working out how to crack the code so we can drill and frack to get the most out of the resource. For example, if we drill eight wells at Puesto Rojas this year and we learn a great deal about it, then in a year or two we would be in a position to run a pilot development programme and start putting down many more wells every quarter. The more wells you do, the better you get at it, meaning you extract more production out of them at a lower cost.’
Author: Daniel Flynn
Disclosure: The author of this piece does not own shares in the company covered in this article.