Argentina's Vaca Muerta shale formation in the Neuquen Basin has strong similarities to early-stage US plays like Midland, Texas, in 2010, and the top-tier shale resource has the potential to launch a new era of oil and gas production lasting for decades, Wood Mackenzie analysts said in a note on Thursday.
The Vaca Muerta assets currently produce about 900,000 barrels of oil equivalent per day, the largest shale output outside North America, with potential for production to gradually increase to over 1.6 million BOE/D by 2035, according to Wood Mackenzie's projection.
YPF, Argentina's state-controlled energy company and the largest operator in Vaca Muerta, is aiming to double its oil output to 800,000 barrels per day by 2030 and more than double gas production to support LNG exports, which are scheduled to begin next year.
Combined upstream investment for oil and gas is expected to average $15 billion to US$16 billion annually post 2030, compared with $10 billion in 2025, with an additional $5 billion annual expenditure expected on LNG export infrastructure and related gas pipelines.
Three consortia are expected to drive the infrastructure buildout, with nine companies handling crude evacuation. The Southern Energy consortium, comprising Pan American Energy, YPF, Pampa Energia, Harbor Energy, and Golar, will invest in gas evacuation and LNG export operations, alongside a separate group comprising YPF, Eni, and XRG focused on Argentina LNG.
Following the exit of ExxonMobil (XOM), Equinor (EQNR), Petronas, and, to a lesser extent, TotalEnergies (TTE) from the country, Argentine firms like YPF, Pampa, Pluspetrol, and Vista have used local and international funding to expand, making the top five Vaca Muerta producers now locally focused.
"Chevron (CVX) is the sole major and has recently committed to developing its 100% equity shale oil block. Continental's acquisition of its first operated shale development outside North America highlights the growing attraction of Vaca Muerta to US shale specialists," analysts said.
Among the other factors in favor of the assets are high-quality resources, supportive regulations, an upswing in energy-focused mergers and acquisitions in the country, and Argentina's expected emergence as an LNG exporter.
According to Wood Mackenzie, the sweet spots of Vaca Muerta have high productivity for both oil and dry gas, with breakeven costs similar to those of leading US shale fields, at about $35 per barrel for oil and below $2 per million cubic feet for gas. However, the expenses to drill and complete the wells are 50% higher, compared to the US and a strengthening of the supply chain is required to optimize output and cut costs.
On the policy front, while investors are aware of a long-term political risk in the country, the Argentinian government is in the middle of forming policies to allay investor concerns, analysts said.
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