Argentina’s controversial president Javier Milei, a self-described anarcho-capitalist, on taking office enacted strict austerity measures to rein in rampant triple-digit inflation, kick-start the economy and slash a massive fiscal deficit. While it is too early to tell if Milei has reversed decades of economic mismanagement there are promising signs of a miracle emerging. Inflation has plummeted while Argentina’s strife-torn economy is returning to growth boosting the country’s appeal to foreign investors. This, in turn, is fueling investment in the vast Vaca Muerta shale, causing oil and gas production to soar. Indeed, by the end of 2024, Argentina overtook Colombia to become South America’s third-largest oil producer, with signs of massive production growth ahead.
The 7.7-million-acre Vaca Muerta, Spanish for Dead Cow, shale situated in Argentina’s Neuquén province is touted to be the third largest hydrocarbon-rich geological body of its type globally. The geological formation has long been seen as an economic silver bullet by Argentina’s federal government in the capital Buenos Aires. While the unconventional hydrocarbon basin has often been compared to the Eagle Ford shale, lately, analysts are asserting that its quality is on par with the prolific Permian Basin, the largest U.S. oil-producing basin. Indeed, the Vaca Muerta is ranked as the world’s fourth largest shale oil resource, with the U.S. EIA estimating it contains 16 billion barrels of recoverable shale oil and second for natural gas with 308 trillion cubic feet of shale gas.
While the formation was discovered by Spanish global energy major Repsol in 2010, it wasn’t until President Cristina Fernández de Kirchner nationalized Argentina’s YPF, seizing 51% from Repsol in April 2012, that exploitation began in earnest. Since then, Argentina’s hydrocarbon reserves and production have grown prodigiously. Between 2014 and 2024, the Vaca Muerta’s oil production expanded tenfold, soaring from an estimated 45,000 barrels of oil per day to 453,000 barrels daily for December 2024. The shale formation is now the primary driver of Argentina’s growing hydrocarbon output, responsible for half of all petroleum and natural gas lifted during 2024 compared to a negligible share a decade earlier.
As a result of this impressive growth, Argentina’s total 2024 oil production hit an average of 702,000 barrels per day, a 10.5% year-over-year increase and a record high. Surprisingly, December 2024 petroleum output of 757,122 barrels daily, with 60% from the Vaca Muerta, exceeded Colombia’s 755,469 barrels per day for the month making Argentina South America’s third-largest oil producer.
Source: Argentina Secretary of Energy and National Hydrocarbons Agency of Colombia (ANH – Spanish initials).
There is strong growth ahead for Argentina’s hydrocarbon sector and petroleum production with the Vaca Muerta in the early stages of a mega-unconventional oil and gas boom.
Hydrocarbon production in the shale basin will keep rising at a solid clip as additional significant amounts of capital are invested in the Vaca Muerta’s development. This includes constructing urgently needed crucial petroleum infrastructure, notably pipelines to boost takeaway capacity and storage facilities. It is estimated that during 2024 operators in the Vaca Muerta shale, which forms part of the Neuquén Basin, invested over $9 billion in developing the unconventional oil and gas acreage. That number will keep growing as Argentina becomes a more attractive destination for foreign investment.
Argentina’s national oil company, YPF, is leading the charge. The state-controlled integrated energy major is the largest producer and investor in the Vaca Muerta. During 2024, YPF spent $3 billion on its unconventional acreage and lifted an average of 219,328 barrels of shale oil and 835 million cubic feet of shale gas per day. This, government data shows, made the state-controlled oil company responsible for 55% of Argentina’s shale oil output and 27% of shale gas. YPF intends to expand investment in the Vaca Muerta with the shale formation the primary driver of Argentina’s energy production and a growing contributor to the crisis-prone economy.
Importantly, the Vaca Muerta is gaining considerable interest from foreign oil companies, notably Big Oil, which, with deep pockets, is a crucial investor needed to develop the acreage and infrastructure. Data from Argentina’s Secretariat of Energy shows that three of Vaca Muerta’s top five oil producers are foreign energy companies. Vista Energy, a Mexico-based independent oil company, ranked second in 2024, lifting 60,374 barrels per day, which represented 15% of all shale oil produced that year. Supermajor Shell was third, pumping 33,130 barrels per day or 8% of Argentina’s shale oil output for 2024. The fourth largest producer is Pan American Energy, 50% owned by British supermajor BP with the remainder controlled by Bridas, which lifted 22,565 barrels per day or nearly 6% of all shale oil lifted.
YPF, which is the top oil producer in Argentina and the Vaca Muerta, will continue growing its hydrocarbon production at a solid clip. Analysts anticipate the national oil company will invest $5.5 billion in its operations during 2025, with around 75% destined for upstream operations, notably YPF’s acreage in the Vaca Muerta. This, according to CEO Horacio Marin, will boost 2025 shale oil production by 30% to 40%. Spending on the Vaca Muerta is forecast by Buenos Aires to reach $15 billion this year and $16.5 billion for 2026. A significant part of that investment will be in critical infrastructure aimed at boosting takeaway and storage capacity.
A key piece of infrastructure under development is the $3 billion Vaca Muerta Sur pipeline. YPF budgeted $2 billion for the project with global supermajors Shell and Chevron committing to investing in the facility at the end of last year. The pipeline, which will be the largest built in Argentina to date, will connect the Vaca Muerta to a new export terminal under construction in the Gulf of San Matías. It is anticipated the pipeline come online during mid-2027 with a capacity of 550,000 barrels daily which will significantly lift takeaway capacity from the booming shale formation. By removing a key bottleneck, a lack of transport capacity, the pipeline will support further production growth in the Vaca Muerta.
The geological formation will be pumping one million barrels per day by the end of this decade, making it one of the top-producing shale basins in the Americas. As such, Argentina will overtake Colombia and Venezuela to become South America’s second-largest oil producer, behind Brazil, and the third-largest in Latin America. Analysts predict this could add $10 billion, or potentially more, to Argentina’s gross domestic product by 2030. Oil and gas shipments are forecast to rise by $21.1 billion, from $8.5 billion in 2024, to become Argentina’s single largest export. These developments will give the crisis-riven economy a healthy boost which will further strengthen President Milei’s economic reforms.
By Matthew Smith for Oilprice.com
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