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Matthew Smith

Matthew Smith

Matthew Smith is Oilprice.com's Latin-America correspondent. Matthew is a veteran investor and investment management professional. He obtained a Master of Law degree and is currently located…

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Argentina’s Oil Production Surges As Political Instability Soars

  • Argentina's Vaca Muerta shale formation is central to the nation's record-breaking hydrocarbon production growth, second only in size to the U.S.'s Eagle Ford shale.
  • National oil company YPF plans substantial investments in Vaca Muerta, aiming to quadruple shale oil production by 2027, giving a boost to Argentina's economy.
  • While the economy faces significant challenges, with soaring inflation and political instability, investments in the oil sector provide a glimmer of hope.

The exploitation of South America’s largest shale formation the Vaca Muerta, which is the size of Belgium, continues delivering impressive results at a crucial time for Argentina. The geological formation spanning 7.5 million acres is believed to be the world’s second-largest shale gas deposit, surpassed only by the U.S. situated Eagle Ford shale, and the fourth largest shale oil deposit. The Vaca Muerta’s development is responsible for halting the decline of oil and natural gas production in Argentina. Even with hydrocarbon production in Latin America’s third-largest economy regularly hitting record highs there are signs of further big things to come from Argentina’s burgeoning shale oil boom and the Vaca Muerta.

Ministry of Economy data shows that August 2023 oil production (Spanish) surged to 621,757 barrels per day, the highest level since May this year, an increase of 6.5% compared to the same period a year earlier. Notably, in August 2023 natural gas output soared to a new all-time high of 5.1 billion cubic feet per day, which was 2% higher than for the same period in 2022. Government data shows that during August 2023 58 wells were completed compared to 55 for the same period a year earlier. The volume of fracking activity remains high, despite the number of fracking stages completed for August 2023 falling by 11% year over year to 1,224. This is a key number to monitor because it is the exploitation of the Vaca Muerta shale formation which is responsible for Argentina’s ongoing strong hydrocarbon production growth.

National oil company YPF is committed to investing considerable capital to develop the geological formation, which along with growing interest from big oil will spur on further growth. The company has earmarked annual capital expenditures of $5 billion for 2023 until 2027, with around $2.3 billion of that amount to be spent each year on developing YPF’s shale hydrocarbon operations in the Vaca Muerta. By 2027, YPF expects to have quadrupled its shale oil production to around 1 million barrels per day and doubles shale gas output to in the vicinity of 8 billion cubic feet per day. This will not only give YPF’s earnings a solid lift but also substantially boost Argentina’s hydrocarbon output, providing much-needed relief to the country’s crisis-prone economy.

Argentina’s second largest shale oil producer Vista Energy is also committed to boosting the tempo of operations and expanding production. The company, which holds 206,000 acres in the Vaca Muerta shale, plans to invest $2.5 billion in the formation by the end of 2026, which includes funding the completion of 138 shale production wells. This Vista anticipates will lift the company’s shale oil output to 100,000 barrels per day, which is more than double the second quarter 2023 average production of 39,200 barrels per day. Such an ambitious plan appears achievable with Vista’s production continuing to grow with it lifting an average of 42,995 per day for August 2023, an increase of nearly 10% compared to the second quarter 2023 average.

YPF expects Argentina’s oil production to peak in 2035 at 2.2 million barrels per day and decline to 1.35 million barrels per day by 20240. While industry analysts predict the crisis-prone country, which is being roiled by its worst economic catastrophe in two decades, will be pumping 1 million barrels per day by 2030, the latest events indicate that potential production growth could be far higher than anticipated. This becomes even more likely with global energy giants investing in the Vaca Muerta and many of the infrastructure constraints in the formation being addressed. The most important was the commissioning of the first phase of the Néstor Kirchner natural gas pipeline earlier this year, which has seen record levels of shale gas shipped from the Vaca Muerta.

These events are occurring at a critical time for Argentina’s crisis-prone economy where annual inflation hit an eye-watering 124.4% during August 2023 and economic growth has flatlined with the IMF predicting GDP will expand by 0.2% this year. The economy’s worsening crisis is causing resentment against mainstream political parties to soar. Economist Javier Milei’s stunning victory in the August 2023 presidential primary rocked Argentina’s two mainstream political parties the Justicialist, or Peronists, and Radical Civic Union which through varying coalitions have traded power for decades. Milei is campaigning on a radical alternate-right platform where he proposes dollarizing the economy, abolishing Argentina’s central bank, and boosting security by making handgun ownership easier. Those anti-establishment views, while appealing to many Argentineans weary of the country’s ceaseless economic woes, add further instability to an already volatile situation.

By Matthew Smith for Oilprice.com

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