Argentina plans railway to help lower shale drilling costs

Buenos Aires (Platts)--24 Nov 2016 930 pm EST/230 GMT

Argentina's national government is in the preparatory stages for equipping an aging railway and laying new train tracks to service the Vaca Muerta shale play.

Jorge Ocampos, a legislator in the province of Rio Negro, made a presentation of the $1.2 billion project late Wednesday, according to a statement Thursday.

The railway is to run from the port city of Bahia Blanca in Buenos Aires province through Rio Negro to Anelo and Rincon de los Sauces, a town and city at the heart of Vaca Muerta activities in the southwestern province of Neuquen.

The project also includes building more roads and highways, Ocampos said in the statement.

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While there is no start date for the project, Ocampos said the cargo train is scheduled to be in operation in five years, citing a plan drafted by the national Ministry of Transport.

The ministry did not respond to a request for further information.

The Diario Rio Negro newspaper reported that the project involves revamping 1,300 km of lines from Bahia Blanca to Neuquen City, and laying 250 km of new tracks from Chichinales, Rio Negro to Anelo and Rincon de los Sauces.

The train would help lower the cost of moving proppant for fracking from national or foreign suppliers, the paper reported, citing unnamed sources in the Ministry of Transport.

With the project, the government wants to increase the transport speed to 90 km/hour, and run eight to 10 trains per day, the paper said.

Argentina's conservative government under President Mauricio Macri is betting on Vaca Muerta and other unconventional plays to turn around more than a decade of decline in oil and gas production.

Vaca Muerta has drawn comparisons to the prolific Bakken and Eagle Ford shale plays in the US for its potential, luring majors like Chevron, ExxonMobil and Shell to start drilling.

Argentina's state-run YPF is leading the development in a partnership with Chevron, producing about 58,200 b/d of oil equivalent.

YPF has slashed drilling and completion costs to $9.5 million per well in the third quarter from $11 million in the third quarter and $16 million when it started developing Vaca Muerta in 2012.

The proposed cargo train and more infrastructure capacity to move proppant in and oil and gas supplies out are considered keys for cutting costs to a government target of $7 million per well, making the play more economically viable for development.

Ocampos said that the national government is buoyant about Vaca Muerta's potential.

"A rise in the price of oil is expected," the legislator said in reference to global prices. "This will improve the expectations for Vaca Muerta."

--Charles Newbery,
--Edited by Alisdair Bowles,

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