Argentine energy companies are gradually returning to international debt markets after years of isolation, given investors' rising appetite. This is because several sector players are increasingly active in Argentina's large oil and gas patch, called Vaca Muerta. The list of investment announcements related to Vaca Muerta keeps growing and encompasses upstream (oil and gas) and midstream projects that could remove the output growth bottlenecks, which have dogged the formation for many years. Here, S&P Global Ratings presents frequently asked questions from market participants regarding Vaca Muerta's shale formation and its impact on the rated companies operating there.

Frequently Asked Questions

What is Vaca Muerta and how relevant is it for hydrocarbon production in Argentina?

With estimated resources of 308 trillion cubic feet of gas and 16.2 billion barrels of oil, Vaca Muerta is the world's second-largest unconventional gas reserve and fourth-largest unconventional crude oil reserve.

In 2024, shale gas production at Vaca Muerta averaged 64.1 million cubic meters (m3) per day, representing 49% of total gas output in the country, while shale oil production reached 353,000 barrels per day (bbl/d), representing 55% of total production. Argentina's total shale production has jumped 150% since 2020, reaching 740,000 barrels of oil equivalent per day (boepd). And we expect output to rise further by the end of the decade and beyond, as only about 20% of the formation has been developed.

In the past decade, Vaca Muerta has experienced rapid development, leading to significant lifting-cost reductions and increased productivity. Vista Energy Argentina S.A.U. (Vista; not rated) and Argentina's state-owned oil and gas company YPF S.A. report lifting costs of $4.5-$4.6 per barrel of equivalent oil (boe) in their main production areas in Vaca Muerta. Additionally, according to the shale operators, wells are about 30% more productive than those in the Permian basin in the U.S.

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What are the short- and medium-term growth prospects?

Thanks to the accelerated expansion, output at Vaca Muerta could reach 1 million bbl/d in shale oil by the end of this decade. Midstream investments are necessary, as constraints in transport capacity have been curtailing organic growth for years. Two key midstream projects are currently underway.

The Oldelval Duplicar Olus project.  It's a $1 billion investment that will increase the national oil pipeline network's (Oldelval's) capacity to 540,000 boepd from 226,000 boepd. It consists of constructing 455 kilometers (km) of pipelines from the pumping station in Allen in the Neuquén Province to Puerto Rosales in the Buenos Aires Province. As of December 2024, Oldelval announced that it had already filled the pipelines with oil, and it should be fully operational by the end of the first quarter of 2025. The Duplicar project will increase the evacuation capacity from Vaca Muerta to 750,000 boepd in 2025 from 510,000 boepd in early 2024.

The Vaca Muerta Sur oil pipeline.  The first phase of this project consists of a $200 million investment to build 130 km of pipelines from the Loma Campana field to Allen. YPF has financed this phase entirely. Construction started in May 2024 and should be completed by early 2025. The second phase will require a $3 billion investment to build a 437-km pipeline, connecting Allen to the Punta Colorada port in the Río Negro Province, along with storage facilities and two loading buoys at the port.

The export-dedicated pipeline will transport up to 550,000 boepd, which could be expanded to 700,000 boepd. YPF, Pampa Energia S.A., Vista, and Pan American Energy (PAE; not rated) are equity sponsors of this project. Sponsors expect capacity to grow gradually, to 180,000 bbl/day in second-half 2026, 500,000 bbl/day in 2027, and total capacity of 700,000 boepd likely after 2028.

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What are the plans for the longer term?

Spearheaded by YPF's plans to liquify and export Vaca Muerta's vast shale gas reserves, Argentina could become a player in the global liquified natural gas (LNG) market. LNG is likely to play a key role as a transition fuel, as it is significantly less polluting than other fossil fuels such as coal and crude oil. Argentina's large geographic distance from the world's main energy consumers such as Europe and India is favorable from a geopolitical risk standpoint, but presents logistics challenges.

There are two potential projects to export LNG from Vaca Muerta.

Southern Energy S.A.  The $2.9 billion project aims to deploy a liquifying vessel owned by Golar LNG Ltd. (not rated) in the San Matías Gulf in the Río Negro Province. Its initial liquifying capacity (2.45 million tons per year [mtpa] or 11.5 million m3 per day) will be equivalent to 9% of Argentina's current natural gas production or 18% of shale gas output at Vaca Muerta. The initial phase will use the existing infrastructure to load and liquify gas during the local low demand season. We expect the project to start operating in the second half of 2027 and could incorporate additional vessels and infrastructure in the future. The main sponsors will be PAE and Golar, while YPF and Pampa Energía will have 15% and 20% stakes, respectively.

Argentina LNG project.  The country's largest and most ambitious LNG project would build a 580-km gas pipeline from Vaca Muerta to a liquefaction terminal in Sierra Grande in the Río Negro Province. The first phase is to reach 10 mtpa of LNG and deploy two liquefaction vessels and a 40 million m3/day dedicated gas pipeline. The project's additional two phases would add 10 mtpa of liquefaction capacity each to increase total capacity to 30 mtpa.

The first phase would have Shell PLC (A+/Stable/A-1) as one of the main offtakers and is likely to start operating in 2029 or 2030. YPF and Shell signed a project development agreement for the development of the first phase in December 2024. The final investment decision for the first phase is expected in 2025.

How important is Vaca Muerta for Argentina's economy?

Vaca Muerta's development is essential for Argentina to achieve energy self-sufficiency, and we expect it to attract substantial investments in hydrocarbon production, midstream, and processing facilities. In addition, revenue stemming from Vaca Muerta will bolster the country's external balances. The need to import energy during the months of peak demand is a major drag on Argentina's economy and trade balance.

Until 2018, Argentina was importing crude oil for its domestic needs. But since 2019, the country became self-sufficient and its crude oil exports have been growing steadily. On the other hand, Argentina is still dependent on gas (natural gas and LNG) imports, because domestic production has yet to meet domestic demand during winter months. But its gas imports have tumbled about 60% between 2020 and 2024. Furthermore, as infrastructure to transport excess natural gas from Vaca Muerta during the summer months to international markets expands, Argentina could become self-sufficient in gas as well.

The Finance Ministry reported that, as of November 2024, Argentina registered a $4.8 billion surplus in the energy trade balance, after 14 years of deficits. In the coming years, as production in Vaca Muerta grows and midstream projects come online, Argentina's hydrocarbon export potential could rise considerably. In this sense, YPF estimates that Argentina could have a $12.5 billion energy trade balance surplus by 2026.

In the shorter to medium term, we expect crude oil exports to account for most exports, while gas exports would grow sharply after 2029. The abovementioned projects could accelerate export growth in the coming years. As of November 2024, crude oil exports totaled about $3.6 billion and those of gas $330 million. Assuming a gradual ramp-up of the announced midstream projects, we forecast crude oil exports could jump above $17 billion and gas exports approach $1 billion by 2027 (assuming the Southern Energy facility starts operating in the second half of the same year).

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On the other hand, gas exports in the short to medium term are largely limited to existing pipelines connecting neighboring countries like Chile or Brazil (through Bolivia). But eventually, the construction of a large-scale LNG plant could turn Argentina into a global gas supplier. If the Argentina LNG project reaches capacity of 30 mtpa in the next decade, we estimate it could generate $14 billion - $15 billion in exports.

Which rated companies operate in Vaca Muerta and what are their prospects?

The following domestic companies are strategically positioned to benefit from the growth and development of Vaca Muerta, with varying degrees of exposure and operational focus.

YPF S.A. (CCC/Stable/--).  It's the largest player in Vaca Muerta and one of the largest shale operators outside the U.S. In the past few years, its shale oil and gas production has almost doubled to 45% of its total output in 2024 from 26% in 2021. Furthermore, the company is focusing on accelerating its shale oil production while divesting its conventional mature fields. In the short term, we believe the latter could cause a drop in volumes to 475,000 boe/d in 2025 from about 525,000 boe/d estimated in 2024, but shale production growth should more than offset it by 2026.

We believe the increasing shift to shale oil production will bolster efficiency and profitability, as lifting costs from the core hub in Vaca Muerta are considerably lower than in conventional fields. In this sense, we expect YPF's lifting costs to drop to about $11/boe in 2025 and about $9 in 2026 from about $15.4 in 2024. On the other hand, we expect the company's capital expenditure (capex) in its Vaca Muerta operations to remain high, resulting in free operating cash flow (FOCF) deficits until 2026. We expect capex of about $5.2 billion for the next two years.

Pampa Energia S.A. (CCC/Stable/--)  It has operations in 8% of Vaca Muerta's acreage, and it is the third-largest unconventional gas producer in the country. Since early 2023, the company has shifted its focus toward shale, which represented 56% of production as of September 2024. Currently, the company primarily extracts gas (more than 90% of its production). But with the acquisition of the Rincón de Aranda block in Vaca Muerta in 2023, we expect Pampa's oil production to jump to 10,100 bbl/d in 2025 and to 24,500 in 2026, from 5,100 estimated in 2024. The output from Rincon de Aranda should plateau at 40,000 bbl/d by 2027. The acquired block should boost Pampa's EBITDA to about $1.2 billion by 2026 from the estimated $780 million in 2024. To develop Rincon de Aranda, the company will increase its capex for the next three years. We forecast capex of $425 million in 2024 and $900 million - $1 billion for 2025 and 2026.

GeoPark Ltd. (B+/Stable/--).  The company announced in April 2024 the acquisition of the working interest in unconventional blocks in Vaca Muerta for $200 million. We believe this acquisition will compensate for declining volumes in GeoPark's other operations. The acquired Mata Mora Norte (MMN) block in Vaca Muerta produced 12,600 boe/d (barrels of oil equivalent per day) in the third quarter of 2024, of which 5,700 boe/d represent GeoPark's working interest. In the short term, this will compensate for the increased frequency and duration of blockades of GeoPark's operations in Colombia and the unscheduled suspension of the Manatí operations in Brazil. In the longer term, the MMN block would compensate for lower production in Colombia due to a more mature nature of the block in that country. The MMN block will widen the company's geographic and hydrocarbon diversification to unconventional sources. GeoPark expects to increase oil production and reach 20,000 boe/d (at its stake) of production in MMN by 2028.

We expect the MMN block to generate about $50 million in EBITDA in 2024 and $125 million in 2025. We forecast positive FOCF in coming years, even factoring higher capex for exploration and development, including $100 million in 2024 and $150 million in 2025 for the development of MMN.

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