YPF foresees further production decline in 2019

Argentina's state-controlled YPF foresees a 2pc-3pc decline in 2019 production, extending a downward trend that the company has been unable to shake off with rising shale flows.

The anticipated production decline to 483,000-488,000 b/d of oil equivalent (boe/d) this year partly reflects insufficient domestic gas demand and excess supply, YPF chief executive Daniel Gonzalez said in an earnings call with analysts today.

YPF's natural gas output fell by 4.6pc year on year to 42mn m3/d (1.5bn cf/d) in 2018.

Without periodic shut-ins related to weak demand, the company would have registered an additional 2.5mn m3/d of production, meaning that total output would have been flat compared to 2017, according to Sergio Giorgi, YPF's strategy and business development vice president.

In order to deal with this dynamic, YPF is exploring options to boost gas exports to neighboring Chile and is working on getting a liquefaction barge with 2.5mn m3/d of export capacity into operation.

The barge, which has arrived in Bahia Blanca, Buenos Aires province after YPF and Belgian shipowner Exmar signed a 10-year charter agreement, should be operational by the third quarter of this year.

Long term, YPF is analyzing the feasibility of setting up a large-scale LNG export terminal "as part of a consortium that has yet to be put in place," Gonzalez said.

YPF has carried out a feasibility study that it will be sharing with other market participants.

"We do not intend to have a controlling or majority position in an LNG facility, all we want is to make sure the project happens because it's the only way we can develop our Vaca Muerta shale acreage," Gonzalez said.

Argentina's gas production rose by 5pc to 128.8mn m3/d last year, compared to 2017, in large part due to increased shale and tight gas production in the Vaca Muerta shale formation.

The increased gas production pressured down prices. Although YPF was expecting an average gas price of $5/mn Btu in 2018, the average was $4.5/mn Btu. For 2019, the state-controlled firm expects around $4/mn Btu.

YPF said it is becoming more selective about gas projects as it shifts further attention to crude.

"We are rethinking our investment in natural gas development in the near future," Gonzalez said.

In order to boost its crude production, YPF will focus on shale as costs continue to decline.

In Loma Campana, for example, which YPF operates in a 50:50 joint venture with Chevron, the development cost has declined to $11.4/bl of oil equivalent (boe) from $13.4/boe in 2017 while the operating cost declined to $6/boe from $9.1/boe in 2017.

YPF and Chevron will be investing some $670mn in Loma Campana this year to drill around 40 production wells with four dedicated rigs.

In La Amarga Chica, which YPF operates in a 50:50 joint venture with Malaysia's state-owned Petronas, the companies will invest $560mn this year to drill some 39 producing wells with four rigs.

In Bandurria Sur, which YPF operates in a joint venture with oil services giant Schlumberger, the companies will invest $290mn to drill eight producing wells with three rigs.

YPF does not foresee sealing any additional joint venture agreements this year.