Incremental changes in technology continue to be the harbinger of new hydrocarbon resources as the industry forges ahead into new frontiers. A technique used safely and reliably by the industry for decades, hydraulic fracturing, has opened up the possibility of unconventional resource development in both new and proven reservoirs across the globe. Such resources remain crucial to restocking future caches, and countries have begun assessing domestic unconventional oil and gas potential with an appraising eye on North America's success in exploiting its prolific shale plays.

image of the Vaca Muerta shale play in Argentina

The Vaca Muerta shale play in Argentina shows evidence of light oil and wet and dry gas, with a thickness greater than 250 m (820 ft). (Image courtesy of Repsol)

Adding to the Western Hemisphere's emerging prominence in the production of unconventional hydrocarbon resources, two South American countries have joined the shale fracas and are focusing on exploiting their own largely untapped unconventional resource potential. Around the world, the main story has been one of nascent shale gas exploration, but shale oil in particular is being targeted by Argentina and Colombia with the goal of increasing their oil production, and both governments are actively engaged in their national oil companies' progress in prospects that exhibit characteristics on par with the Eagle Ford and Bakken liquids-rich plays in the US.

However, the political and economic turbulence present in many countries in the world could stand in the way of the large-scale development of and immediate access to such resources in these countries, while regulations continue to tighten and costs fluctuate along with inflation. Lack of technical know-how and human resources, flagging output, and relatively low prices also contribute to the uncertainty surrounding unconventional resource viability in many regions worldwide.

Nevertheless, companies seeking to bolster reserves are eying promising new source rocks in the quest to discover more resources.

Colombia looks to compete

With the goal of bringing additional fields online and improving recovery to 1.5 MMb/d by 2020, Colombia's national hydrocarbon agency has begun touting a new crop of unconventional oil and gas blocks in the country's 2012 licensing round roadshow, which was presented during CERAWeek 2012 in Houston in March. The round is unique in that blocks prospective for unconventional resources are being included for the first time.

Out of the 109 blocks on offer, approximately 30% are unconventional, Colombia Hydrocarbons Director Julio Cesar Vera Diaz said in a public statement in March.

Speaking at CERAWeek, Mauricio C?rdenas, Colombia's Minister of Mines and Energy, explained that the country is exploring new opportunities as its oil sector undergoes what he described as a "silent revolution" to avoid becoming a net oil importer due to waning production. In recent years, South America's third-largest oil producer has evolved from "a pariah of investment" to one of the most competitive in the world, according to the minister. The change is being marked by the transformation of national oil company Ecopetrol, which recently has gone through a series of financial and management reforms. Technical capabilities in E&P also have improved in Colombia, C?rdenas said, and ongoing upgrades to existing infrastructure and facilities are making headway in expanding regional production capacity.

image showing Apache operating in the arid Patagonian plateau

Apache operates in the arid Patagonian plateau in the Neuqu?n Basin of Argentina. (Photo courtesy of Apache Corp.)

Conventional and unconventional areas on the table in Round 2012 will be awarded to the successful bidders in November, and contracts will be signed the following month. Meanwhile, Ecopetrol said it plans to spend approximately US $8.5 billion in 2012, with $1.4 billion earmarked for new exploration.

A month following news of Colombia's bid round, Calgary-based Canacol Energy Ltd. reported that subsidiary Carrao Energy Sucursal Colombia had entered into a farm-out agreement with ExxonMobil Exploration Colombia Ltd. to explore 126,000 net acres with exposure to a potentially large unconventional shale oil play. ExxonMobil would earn 50% of Canacol's 40% interest in a non-operated asset in Colombia's Middle Magdalena basin, with ExxonMobil expected to carry the cost of drilling and testing up to three wells targeting conventional and unconventional prospects in the La Luna and Rosablanca formations. Both of these are proven oil source rocks in the area, Canacol said in a public statement. The first two wells will be drilled vertically and the third as a horizontal multistage fractured well. According to the companies, total potential investment on the block is approximately $50 million.

According to Canacol, the VMM 2 E&P contract in which ExxonMobil will participate is one of three adjacent contracts that expose the company to a promising shale oil fairway in the thick Cretaceous La Luna and Rosablanca formations, which the company says is analogous to the South Texas Eagle Ford formation. Vertical La Luna wells drilled in the Totumal and Butarama fields in the Middle Magdalena basin have tested rates up to 900 b/d of light oil, the press release notes.

The La Luna shale play also is considered the primary source rock found in Venezuela's Maracaibo basin, which reportedly contains more than 250 Bbbl of recoverable oil.

With Ecopetrol looking to produce more than 25,000 b/d from its unconventional shale fairway by 2015, the Middle Magdalena basin could prove to be a boon for global shale players.

Triple play in Neuqu?n basin

The substantial oil and gas potential of the Vaca Muerta shale play, said to be three times as thick as the Eagle Ford and relatively permeable, has created a buzz over Argentine shale development. According to the US Energy Information Administration, Argentina has more than 774 Tcfe of combined shale resources, the world's third-largest of such reserves. The Neuqu?n basin is one of four major Argentine shale basins that bears particularly favorable properties for oil and gas production and has historically produced the largest share of the country's conventional hydrocarbons, according to Hart Energy Research Group's "Argentine shale: Assessment and outlook to 2030." The basin contains three organic-rich shale formations: the deeper Mid-Jurassic-age Los

Molles formation, overlain by the Late

Jurassic/Early Cretaceous-age Vaca Muerta, and the Early Cretaceous-age Agrio formation.

Jurassic and Cretaceous sedimentary sequences occur at depths ranging from less than 2,134 m (7,000 ft) near the south basin to more than 4,572 m (15,000 ft) at the basin center and up to 1,000 m (3,000 ft) in thickness. According to the report, the organic shale of the Vaca Muerta formation is considered to be the Neuqu?n basin's primary hydrocarbon source rock. The shale is found at depths greater than 2,743 m (9,000 ft) in the basin center, where it is more than 213 m (700 ft) thick, and while thinner than the Los Molles shale, it has higher total organic content and a wider areal extent, the report notes. More significantly, the Vaca Muerta has a productive area of approximately 60,088 sq km (23,200 sq miles), over half of which is in the oil window around the shallower basin margins, according to Hart Energy Research.

In 2011, Spanish-Argentine operator Repsol YPF made a massive oil-prone shale discovery in the Neuqu?n basin that could potentially transform the country into becoming a major hydrocarbon exporter. The Vaca Muerta project, now being developed by Argentina's YPF following a government takeover of Repsol's share in April, is the first major development of an oil-prone shale reservoir outside of North America. The play had produced 700,000 boe of shale oil by year-end 2011.

In its joint venture, Repsol YPF first drilled and fractured five vertical wells in the Loma La Lata concession area, with initial recoverable oil estimated at 150 MMbbl. Preliminary results indicated 77% of YPF's acreage contained oil, while the remainder comprised both dry and wet gas. In early 2012, US consulting firm Ryder Scott had estimated gross contingent reserves in a 1,100-sq-km (425 sq-mile) area at 1.525 Bboe, consisting of approximately 1.115 Bbbl of oil contingent resources and 410 Mboe of gas. In February, Repsol had raised its hydrocarbons reserves and resources estimate in the Vaca Muerta shale play to approximately 22.807 Bboe.

Other active shale players in the Neuqu?n basin include Apache, Americas Petrogas, Total, and EOG Resources. Apache's Argentine division had drilled four exploratory wells by year-end 2011, including a horizontal well with multistage hydraulic fractures in the Los Molles formation that began producing at an initial rate of 4.5 MMcfe/d.

But while highly prospective for shale resources, it is unlikely Argentina will replicate the North American shale oil and gas story in the near term because of internal obstacles and risks associated with difficult logistics, erratic government policies, high costs, low prices, and inflation, according to Hart Energy Research. The research group's outlook for planned Argentine shale oil and condensate production based on a Vaca Muerta development scenario for oil and wet gas zones and Los Molles scenario for its wet gas zone is a conservative 90,500 b/d and 490 MMcf/d by 2020.