Written by: Allan Brown
New players from outside Latin America may enter Argentina's Vaca Muerta nonconventional formation, Francisco Romano, energy partner at law firm Pérez Alati, Grondona, Benites & Arntsen (PAGBAM), tells BNamericas.
The bulk of investment is being pumped into the formation, to boost production and expand midstream infrastructure, as efforts are underway in mature areas to keep conventional assets operational.
Romano, also director of Universidad Austral's energy institute, represented state-controlled YPF, Pluspetrol and others in major upstream farmout and asset sale operations seen recently in the country.
(The original version of this content was written in English)
BNamericas: Roughly how much of Vaca Muerta's surface area has been developed?
Romano: I'd say less than 10 percent. Let’s remember that the formation has been under development for just over ten years. Its surface area is similar in size to that of Belgium, and although most of it lies in Neuquén province, it also extends into Mendoza, Río Negro and La Pampa. According to recent studies by the Secretary of Energy (Declaración de Disponibilidad de Recursos Gasíferos) given the current development, 243TCF [trillion cubic feet] is available, sufficient to satisfy local demand and exports of natural gas for 63 years. On the other hand, surplus crude oil production has turned the country into a net export since mid-2024. Crude oil exports are expected to rise to US$30-50bn in the next few years.
BNamericas: How does that tend to compare with other unconventional formations, such as those in the US?
Romano: I'm not a geology expert but my understanding is that Vaca Muerta is a world-class formation, at least as good as the unconventional prospects in the US. The main difference is that US shale has been under development for many years, and although we’ve achieved significant efficiencies in Vaca Muerta, costs in the US remain more competitive than ours.
BNamericas: As things stand, are there any ballpark estimates or some kind of local consensus on how long Vaca Muerta could potentially be developed for?
Romano: At this point, I’d say 25 to 35 years or more. The energy transition has lost momentum for various reasons, which has widened the window of opportunity for fossil fuels in general, and Vaca Muerta is attracting significant interest from both majors and independent companies.
BNamericas: What would be the enabling conditions? The global demand outlook, local financing conditions and local midstream infrastructure capacity seem key factors, for example.
Romano:
- A decisive export policy. Export barriers must be removed, especially export tariffs, which currently stand at 8%.
- A steady flow of foreign investment in the order of US$10-15bn a year based on suitable macroeconomic conditions such as a complete lifting of exchange controls ensuring free flow of US dollars in and out of the country – including dividends and payments to foreign suppliers.
- A reduction in costs so that Vaca Muerta can compete with its less expensive “cousins” (i.e., unconventional production) in the US. These costs include services and labor. Achieving this would require consensus among the various government and industry stakeholders.
- No local interference in pricing, to ensure that the price received by local producers remains aligned with the international benchmark price (Brent).
- An international price of at least US$50 per barrel. The dynamics of unconventional production require a factory-style drilling approach, as production and decline cycles of wells are much shorter than in conventional operations, and therefore demand constant investment and drilling to offset decline and ensure growth.
- Long-term offtake agreements ensuring a steady flow of income (take or pay) for 20 to 30 years. These will ensure the project financing of major projects.
- Completion of undergoing infrastructure projects (transportation and processing/liquefaction) for oil and gas and construction of new pipelines including dedicated pipelines and liquefaction facilities or modules to produce LNG.
- Accompanying the energy transition with carbon capture, usage and storage and developing a carbon credit market.
- Significant investment in LNG projects to compete with the world’s major exporters.
- Collaboration between the federal and provincial governments to ensure alignment on issues such as environmental regulation and a level playing field with legal and tax stability.
- Provinces need to provide legal certainty and avoid establishing new taxes or barriers for development.
BNamericas: Many of the players in Vaca Muerta are local or regional firms. Do you think we could eventually see more non-Latin American players enter the formation?
Romano: Yes. I’m currently working on a transaction with a US company making its first acquisition in the country, and given the right conditions, others will follow. I also see opportunities for companies from Europe, such as Eni, and from the Middle East, such as Saudi Aramco.
BNamericas: Against this backdrop, investment and production at mature conventional assets is being impacted. Do you envisage any kind of incentives or special regimes coming to help stimulate this segment, given its importance in several provinces?
Romano: Conventional production still accounts for over 50% of the crude needed for the local refining system, especially the heavy crude essential for diesel production.
It also remains a source of activity and employment in Chubut and Santa Cruz, where it represents between 8% and 13% of formal private employment, supporting regional economies that are, for now, very difficult to transition.
We at PAGBAM recently advised the awardees in the tender process to acquire the conventional blocks originally held by YPF in the province of Santa Cruz.
The project is one of the most significant milestones in conventional hydrocarbon production in recent years, involving over US$1.2bn in committed investment to reactivate oil and gas production in the Golfo San Jorge basin and strengthening the participation of national SMEs.
The tender covers the areas of Los Perales–Las Mesetas, Las Heras–Cañadón de la Escondida, Cañadón León–Meseta Espinosa, El Guadal–Lomas del Cuy, Cañadón Yatel, Pico Truncado–El Cordón, Cañadón Vasco, Barranca Yankowsky, Cerro Piedra–Cerro Guadal Norte, and Los Monos.
The six national companies that had originally submitted a private initiative to develop the areas — Patagonia Resources, Clear Petroleum, Quintana E&P Argentina, Roch Proyectos, Azruge, and Brest— submitted a joint bid seeking to enhance operational efficiency and the sustainability of conventional production through a long-term technical and financial cooperation scheme.
The continued involvement of the outgoing concessionaire YPF, along with collaboration among the new concessionaires, the province, workers, and other key stakeholders such as service providers, will be crucial for a smooth transition and ultimate success.
There needs to be a concerted effort to reduce cost and promote investment. The national government may help by eliminating the export tariff (currently 8%) and the province may help, for example, by reducing royalty and canon (the surface fee) and provide incentives such as benefits for the reactivation of wells and, more generally, legal and tax stability.
(The original version of this content was written in English)
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