Equinor's (EQNR) Argentina Offshore Drilling Hits Dry Well
Equinor ASA EQNR, the Norwegian energy giant, announced on Thursday that its highly anticipated exploration well in the North Argentine Basin came up dry. The well, Argerich-1, drilled in the North Argentine Basin, showed no evident sign of oil or natural gas.
According to an email response from an Equinor source to S&P Global Commodity Insights, while the geological model has been confirmed, no clear sign of hydrocarbons was detected, resulting in the well being classified as dry. In the coming months, all data and information gathered from the well and seismic surveys will be thoroughly analyzed to enhance the understanding of the hydrocarbon potential in these areas.
Expectations and Background
Equinor, leading the project with a 35% stake, partnered with Argentina's state-run YPF Sociedad Anónima YPF and London-based Shell plc SHEL which hold a 35% and 30% stake, respectively. The Argerich-1 exploration well, located in the CAN-100 block, was the first of its kind to be drilled in the North Argentine Basin, situated in deep waters 300 km off the coast of Mar del Plata, Buenos Aires province. This initiative marked the first offshore drilling outside the Austral Basin in southern Argentina, known for its significant natural gas production.
Drilling for Argerich-1 began in the first quarter of 2024, amid high expectations that the well could yield an initial production of 200,000 barrels per day (b/d), a substantial addition to Argentina's total oil production of 680,500 b/d as of April 2024.
Industry Reactions and Prospects
The results of the Argerich-1 well drilling have been a significant blow to the local oil industry, which had anticipated that the North Argentine Basin could rival the prolific Vaca Muerta shale play in Patagonia. Vaca Muerta has been a cornerstone of Argentina’s growing oil output and exports. It is expected to boost natural gas production with its expanded pipeline capacity.
Fernanda Raggio, YPF's vice president of exploration, emphasized that an offshore discovery could significantly enhance Argentina's oil production capabilities. The optimism in the industry has been driven by major discoveries in Namibia and other parts of western Africa (in 2020), which share similar geological characteristics with the South Atlantic offshore areas of Argentina.
YPF’s CEO Horacio Marin highlighted the geological similarities between the North Argentine Basin and Namibia. Seismic studies have suggested that the regions share comparable geology, with Namibian wells typically holding around 30 million barrels each. However, Marin noted that the Argerich-1 well was drilled to a shallower depth than the productive formations found in Namibia, indicating that there might be more potential at greater depths.
Despite the initial dry well, there remains significant untapped potential in deeper formations, according to Marin, underlining the importance of continuing exploration efforts in the area.
Therefore, despite the setback, the joint venture remains committed to exploring the North Argentine Basin further. The comprehensive analysis of data from the Argerich-1 well and upcoming seismic surveys should play a crucial role in understanding the basin's hydrocarbon potential. Additional wells are expected to be drilled in the area, maintaining hope that deeper exploration may unlock substantial oil and gas reserves.
Zacks Rank & a Key Pick
Equinor, YPF, and Shell currently carry a Zacks Rank #3 (Hold) each.
Investors interested in the energy sector may look at a better-ranked stock like Sunoco LP SUN, which sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Sunoco is a leading wholesale motor fuel distributor in the United States, boasting a vast distribution network spanning 40 states. With long-term contracts servicing more than 10,000 convenience stores, it distributes over 10 fuel brands, ensuring a stable revenue stream. SUN currently has a Value Score of A.
The Zacks Consensus Estimate for 2024 and 2025 earnings per unit is pegged at $7.29 and $7.17, respectively. The partnership has witnessed upward earnings estimate revisions for 2024 and 2025 in the past 30 days.
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