Argentina’s “Dead Cow” is roaring back to life.

Output from the Vaca Muerta region in Patagonia, which holds the fourth-largest shale oil reserves in the world, stalled during the coronavirus pandemic but hit a record high in December as producers revved up wells with an eye on rebounding prices and a new export market.

The revival of the formation that has been compared with the U.S. Permian Basin signals how it is growing more competitive globally, helped by government policies protecting oil producers, an export tax holiday and reviving global prices.

That could bring a timely injection of much needed dollars for the country’s Peronist government, which has grappled with a sharp decline in foreign reserves due to the coronavirus pandemic and a currency crisis hammering the peso.

“In the last quarter (of 2020) prices began to rise,” Emilio Apud, Argentina former energy secretary, told Reuters, adding that supportive policies for oil and a gas price freeze pushed producers towards unconventional oil.

“Producers stopped producing gas and switched to oil.”

That saw oil production in Vaca Muerta hit a record 124,000 barrels per day (bbl/d) in December, according to data from consultancy Rystad Energy.

Vaca Muerta, given its unusual name literally meaning the “dead cow” by a U.S. geologist in 1931, has taken nearly a century since then to really get going, with its first export cargoes of LNG in 2019 and oil just last year.

Previous, and ambitious, government plans have though targeted over 1 million barrels (MMbbl) of unconventional oil per day from the Neuquen region by 2030.

The region’s oil production slumped to around 90,000 bbl/d after the pandemic struck in 2020, before rebounding, Rystad data show. Gas production has continued to decline.

“The oil production decline that the COVID-19 pandemic brought to Argentina’s Vaca Muerta formation now seems like a distant memory,” Artem Abramov, Rystad’s head of shale research wrote in a February report, adding output could hit 145,000 to 150,000 bbl/d this year if activity held up.

Producers, including state energy giant YPF and oil majors Chevron Corp. and Royal Dutch Shell Plc, Mexico-based Vista Oil & Gas and Malaysia’s state-owned Petronas, were in a decent place to step up as global prices started to rebound.

The creation of a local “criollo barrel” oil price had shielded producers earlier in 2020 and the removal of export tariffs opened up overseas sales.

“In the midst of the crisis, (exports) was a huge opportunity we had,” said an executive from an international oil firm in the country, adding Argentina had exported some 7.1 million barrels last year.

Buyers included Brazil, the United States, Chile and the Bahamas, the executive said.

“Vaca Muerta crude oil was unknown to the world's refineries... The pandemic allowed us to take advantage of this sector and develop new markets,” he added.

Argentine government data shows the country registered a small energy trade surplus in 2020, the first time in a decade.

Gassing Up?

Vaca Muerta’s shale gas, meanwhile, has remained subdued with almost no wells operating, though industry insiders said there were signs that this could start to bounce back helped by a government five-year gas plan announced late last year.

“We can already see the impact on the activity of (local firms) Tecpetrol and Pluspetrol, both dedicated to gas in Vaca Muerta,” said Luciano Fucello, manager at NCS Multistage, a technology and services company.

He added that YPF, which spearheads much of the development in the region, had also started to ramp up its installation of equipment.

Local consultancy Ecolatina said that of the 51 wells drilled in December, only three were for gas, but said that should have started to shift from the start of 2021.

The revival of Vaca Muerta is a potential boon for the government, which needs export dollars to revive depleted foreign currency reserves, though experts cautioned a tough economy and capital controls created barriers.

Daniel Dreizzen, former secretary of energy planning and now an analyst, said the country needed to guarantee free movement of foreign currency and good financing conditions for firms to really attract investment into Vaca Muerta.

“Production in Vaca Muerta will continue to rise but the macroeconomic conditions are not in place for a flood of investments to come,” he said.

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