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Shell Eyes Major Development in Vaca Muerta Basin in 2019

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Royal Dutch Shell plc RDS.A has plans to commence the development of Argentina's Vaca Muerta basin, in order to boost output from the country. It targets a production of 70,000 barrels of oil equivalent per day (BOED) by 2025, primarily from the Coiron Amargo Sur Oeste, Cruz de Lorena and Sierras Blancas blocks. The daily output from the blocks is recorded at 4,500 BOE during this year, per media report.

Shell’s Plan of Action

Shell sees long-term growth potential in the Vaca Muerta basin. By 2021, the company plans to reach an output level of 40,000 BOED from the region, where it wants to drill more than 300 wells in 38 locations. The blocks mentioned above cover around 98,800 acres.

The company intends to improve the infrastructure in the said basin through building a crude processing plant, water storage facilities, 75 kilometers of pipelines and 100 kilometers of roads. Shell is starting the development project 18 months ahead of its scheduled timeline of 2020.

Moreover, Shell expects that developing the oil assets in the region will enable the company to generate enough cash flow, which can later be used for enhancing natural gas operations. Shell has 90% stake in the Cruz de Lorena and Sierras Blancas blocks, whereas Gas y Petroleo del Neuquen holds the rest. Shell has 80% stake in the Coiron Amargo Sur Oeste block, with Gas y Petroleo and Vista Oil and Gas holding 10% stake, each.

Vaca Muerta: New Hot Destination?

The Vaca Muerta basin is one of the world’s biggest shale plays. Per Argentinian Energy Secretariat, oil and natural gas production from the basin is expected to reach 1 million barrels and 260 million cubic meters per day in 2023.

One of the biggest integrated energy companies in the world, Chevron Corp. CVX, and Argentinean state-run YPF Sociedad Anonima YPF have plans to jointly invest $800 million in the basin to drill 20 wells next year. While Chevron plans to spend $200 million to drill eight wells in the El Trapial oil field, YPF Sociedad intends to allocate $600 million in the three blocks located in the northern part of the province.

Price Performance

Headquartered in The Hague, Netherlands, the stock has lost 13.1% in the past year compared with 13.2% collective decline of the industry it belongs to.

Zacks Rank and A Stock to Consider

Shell currently carries a Zacks Rank #3 (Hold). Investors interested in the energy sector can opt for a better-ranked stock as given below:

Calgary, Canada-based Gran Tierra Energy Inc. GTE is an international oil and gas exploration and production company. Its bottom line for 2018 is expected to surge more than 300% year over year. The company delivered a positive average earnings surprise of 24% in the trailing four quarters. The stock currently has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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