The magic realism of Latin shale ambitions – Natural Gas Daily – Interfax Global Energy

Latin America needs to break a bad habit. It has a weakness for comparing its fledgling shale plays to Yankee superstars.

Vaca Muerta is like a young Bakken, say Argentine apparatchiks. The Dead Cow looks more like a Marcellus, Barnett or Haynesville to others, depending on their fondness for hyperbole. Colombia’s poison of choice is Eagle Ford, for the country’s La Luna and Rosablanca formations. Mexican patriots remind you that gringos don’t own all of the Eagle Ford.

It’s a classic marketing technique: associate your product with success. Keep doing so, and it normalises the association. It works – nobody bats an eyelid at conferences on hearing Vaca Muerta and Eagle Ford mentioned in the same breath.

However, the North American yardstick isn’t useful either for government or business. The geology of Latin America’s shale plays may resemble Uncle Sam’s big-league formations, but that’s where the similarities end. A couple of hundred shale wells have been drilled in the entire continent to date. Contrast this with 2,418 producing gas wells in Eagle Ford alone in 2013.

You don’t need pop sociologist Malcolm Gladwell to explain how it works so easily up north, and why they’re missing the mark down south. Part of the United States shale success story is obviously cultural – related to the entrepreneurial, pioneering spirit of small companies – but it obscures the fact that North American unconventional exploration was, and still is, fundamentally economic. There are only a handful of takers for Latin shale, and the industry still feels like a loss-leader.

The comparisons reinforce the Latin perception that the potential of a shale industry is measured by resources, and its success will be counted in terms of wells, production and rigs. However, North America shows that large-scale shale industries don’t work in isolation from the overall economy or society.

This is easily illustrated by anecdote. Menial jobs in North Dakota now carry $10,000 signing bonuses, Alex Fleming, a senior manager at EY, told delegates at a conference in Buenos Aires in July. Truck drivers in the state can make up to $150,000 per year. A single well in the Barnett shale in Dallas can have up to 1,500 invoices attached to it, which requires teams of trained accountants. Several Texan counties have dispensed with paved roads in and around Eagle Ford, because trucks turn everything to dust within weeks. Argentina is not ready for this, Fleming seemed to suggest.

The comparisons also lose sight of the bigger picture. La Luna’s “equivalent” producing area is the Eagle Ford, claimed a geologist from Colombia’s ANH hydrocarbon agency last week in a presentation about Colombia’s Eastern Cordillera Basin. The geologist showed off petrography charts indicating aspects of La Luna’s source rock were actually superior to the North American play.

However, Laurens Gaarenstroom, an unconventional exploration manager for Shell’s Latin American business, warned delegates the previous day La Luna was an “ecologically sensitive” area, and said Shell’s journey to unconventional exploration in Colombia had been “difficult”. The proof is in the pudding: Bogota awarded only one unconventional concession out of the 18 available in Colombia’s Ronda 2014 in July. Colombia is promising, but Texas it is not.

It’s not just governments that are to blame. Ali Moshiri, Chevron’s regional president, said last year Argentina was only “one cycle behind that of the US”, and forecast unconventional production would allow the Latin American country to become energy independent by 2030. Gran Tierra also raised eyebrows in February 2013 with its confidence that La Luna could be a Latin Eagle Ford.

Alas, shale industries are going to need more than magic realism. CN

via The magic realism of Latin shale ambitions – Natural Gas Daily – Interfax Global Energy.