Comments: The Vaca Muerta

Abstract

Editor's column Argentina’s Vaca Muerta shale play is considered one of the most promising unconventional resources in the world. Advertised for years as the next great shale resource outside of the US, foreign investment has now picked up and the play may finally begin living up to its potential. A comprehensive article beginning on page 26 outlines the current state of the Vaca Muerta, including geological and business challenges, as well as future development plans. Total output from Vaca Muerta in barrels of oil equivalent (BOE) has risen 60% since the start of 2016. Production is currently just over 75,000 BOE/D—split roughly evenly between oil and gas—but most of the money spent in the play so far has been in exploration; output is expected to rise sharply over the next decade. Most of the current output comes from the Loma Campana joint venture between YPF and Chevron, but other projects may ramp up soon. Production is expected to rise to 113,000 BOE/D by the end of this year, and as high as 1 million BOE/D within 15 years, according to consultancy Wood Mackenzie. The shale rock in Vaca Muerta is considered very high quality, on a par with several US shale plays such as Eagle Ford, Bakken, and Marcellus. Government-led reforms have been a major factor in its growth, in part because the country needs the economic benefits of Vaca Muerta. Once an energy exporter with a sound economy, Argentina last decade defaulted on $82 billion of foreign debt—the largest such default in history at the time. Elected president in 2015, Mauricio Macri vowed to put Argentina on sounder financial footing, and has his eye on replicating the shale boom in the US. After October’s elections consolidated his political power, he has embarked on a campaign to get international oil companies and domestic ones to up their investments in the shale play. More than 15 companies are currently exploring in the Vaca Muerta, including big names such as Chevron, ExxonMobil, Total, and Shell. YPF and the government are also working to lower labor costs. Trade unions made concessions on contracts in exchange for commitments on spending, which the government said could cut development costs by 20%. YPF has announced a $30-billion, 5-year investment plan for Vaca Muerta, and ExxonMobil has committed $200 million to a pilot project there. Before the country’s historic default, Argentina was a net exporter of oil and gas but lack of investment has turned it into an energy importer. Argentina’s oil production hit 489,000 B/D last year, down sharply from a peak of 847,000 B/D in the late 1990s. Gas output peaked at 4.5 Bcf/D in 2005 and is now roughly 3.7 Bcf/D. The US Energy Information Administration estimates that Argentina has the world’s second-largest shale gas and fourth-largest oil resources. If the current momentum continues, Vaca Muerta may become the only viable shale play outside of North America.