Argentina is the home of the second-largest shale formation in the world, containing an estimated 16 billion barrels of oil and 308 trillion cubic feet of natural gas. It is also one of the most troubled economies in the world, with crises more or less now chronic. Yet there is one bright spot amid Argentina’s troubles. The state oil and gas company, YPF, has major ambitions in both commodities. YPF plans to double its crude oil output over the next five years and boost natural gas production by 30 percent. And it might succeed.
The production boost plan was announced earlier this month by YPF’s chief financial officer, who also said that this year the company would increase its crude oil production by 8 percent, with gas production rising by 3 percent.
The focus of these plans is Vaca Muerta-the Dead Cow shale formation, which has drawn the supermajors to Argentina despite numerous challenges.
Exxon has a 35-year concession for a block in the formation that could, in five years, be pumping 55,000 barrels daily. Chevron is also present in the Vaca Muerta play, as is Shell, which, by the way, has partnered with YPF on a production project in the play that should by next year be producing 15,000 barrels of oil equivalent daily.
But the Argentine state energy major is not stopping with Shell. In fact, it has multiple partnerships in the Vaca Muerta play, the latest that made the news is with Petronas, YPF’s Malaysian peer.
The two recently shook hands on what could become a $60-billion project that will see Argentina become, among other things, an exporter of liquefied natural gas. The five-phase project will encompass the whole process from production to transportation to liquefaction.
The first phase will see the production of some 5 million metric tons of LNG annually. YPF and Petronas are expected to make the final investment decision on the project in 2024.
The Petronas LNG plans were announced at last week’s CERAWeeek conference, where YPF’s chief executive, Pablo Iuliano, also said that the company is about to make a final investment decision on an oil pipeline project that would end in an export terminal for crude oil capable of servicing supertankers.
The Argentine state oil and gas firm is certainly not sitting idle. Despite the challenges of working in the Vaca Muerta play, such as the lack of infrastructure and long distances to supply locations for materials such as frac sand, the company has been expanding its output there.
Earlier this month, YPF reported that in the final quarter of last year, it had achieved average crude oil production of 232,000 barrels daily. Thanks to higher prices, YPF booked revenues of $4.65 billion for the quarter, up by 24 on the year, and earnings of $464 million, which was a 69-percent increase on the year.
YPF is “in a good position to continue the acceleration of the monetization of Vaca Muerta resources,” the chief financial officer of the company, Alejandro Lew, told media earlier this month at an event celebrating YPF’s 30-year history of trading on the New York Stock Exchange.
With oil demand where it is and prices where they are, although lower than they were in the fourth quarter, YPF is indeed in a good position, with its main reservoir still largely untapped. Like Guyana, Argentina appears to be determined to make the best of its fossil fuel resources while demand lasts.
Although, according to some, this demand will last for decades to come, monetizing new resources sooner rather than later could have beneficial effects not just on the supplier but on consuming countries as well, giving them a new source of non-OPEC crude.
This year, YPF plans to spend $5 billion in the form of capital expenditure. Around half, or $2.3 billion, of that will be poured into the Vaca Muerta. Some $700 million of the total will be earmarked specifically for boosting oil and gas production, both from YPF’s shale assets and from conventional operations.
The state company also has its sights on a major export increase: by 2027, according to CFO Alejandro Lew, YPF could be exporting 35 to 40 percent of the oil it produces, equal to around 150,000 barrels daily.
For last year, the company reported oil production of 226,000 bpd and gas production of 37.5 million cu m daily. The most pronounced output increase in both commodities came from the shale operations of YPF: shale oil output rose by 45 percent, and shale gas production was 47 percent higher than in 2021.
Many industry observers and analysts have questioned Argentina’s ability to replicate the U.S. shale boom at the Vaca Muerta play, and for the most part, this has looked unlikely so far. But with an ambitious state operator, a cooperative government and strong international demand for both oil and gas, YPF just might get all the motivation it needs to re-create the U.S. shale boom at home.