Pitts: Is Vaca Muerta Argentina’s Permian?

Can Argentina’s Vaca Muerta Shale truly garner the title of “Permian 2.0?”

In terms of geology and game-changing potential: yes. In terms of eventual production volumes: no. That being said, it would be hard to believe that any government of the South American country wouldn’t be happy with the game-changing aspect.

The Vaca Muerta (“dead cow”) play is again attracting attention domestically and internationally for the expected economic and financial upside through rising oil and gas production, the potential for Argentine energy self-sufficiency and rising oil and gas exports that will boost revenues for government coffers and companies alike.

For Neuquén Province Energy Minister Alejandro Monteiro, development of the Vaca Muerta in its most basic analysis needs to be seen through two lenses.

“Vaca Muerta’s development can be seen through all the energy that Argentina stops importing [and those associated costs] and also through the energy production [and] exports and the dollars this generates for the country,” Monteiro told me in December.

Since the Vaca Muerta might not achieve the Permian’s production volumes, the title of Permian 2.0 might not apply in theory in the eyes of Westerners or other onlookers. But at this point, even achieving a Permian 1.2 or Permian 1.5 label would be reason enough to celebrate.

The Vaca Muerta shares many geological similarities to U.S. shale plays, especially the Permian. Thus, opening the door for operators in the Vaca Muerta to leverage insights from those plays to expedite the development curve and reduce costs.

Operators in the Permian and the Vaca Muerta are similarly focused on oil. In the Permian, the price of oil is important to incentivize higher oil production, which includes a lot of associated gas. In Argentina, the focus on oil is similarly driven by the commodity’s price but also other factors.

Government subsidies in Argentina have driven operators to pivot away from gas assets in the Vaca Muerta to oil developments. This issue is coupled with a lack of piped-gas and LNG export capacity, consultancies from Rystad Energy and Enverus to PricewaterhouseCoopers have said.

Piped gas from the Vaca Muerta, unlike piped gas from the Permian that only truly reaches one international destination directly, Mexico, is already reaching Chile and could potentially reach Bolivia and Brazil in the future.

But further development of the Vaca Muerta will be tied to politics. Argentina, which seems to always be confronting some sort of crisis or default scenario, is not for the faint of heart investor.

For investors already worried about all things Argentina from economics to finance, the recent presidential election of Javier Milei—an economist and libertarian who wants to abolish the Central Bank and dollarize the economy—certainty has potential to increase anxieties, if that hasn’t happened already.

For what it’s worth for those wondering where Milei stands, in recent months The New York Times dubbed him a “mini-Trump.” In a video posted by Sky News, former President Donald Trump congratulated Milei on his election win in November and told him “the whole world was watching.” Trump said he was very proud of Milei and his potential to “turn [the] country around and truly make Argentina great again.”

Only time will tell if Milei will “make Argentina great again” and whether the comparison to a billionaire former U.S. president is the case or not.

For energy investors pondering Milei’s talk about privatizing Argentina’s state-owned YPF SA, the idea is interesting, especially as the country looks to attract much-needed foreign direct investment (FDI), technology and know-how that YPF lacks owing to financial constraints as a national producer.

At the end of the day, the Vaca Muerta is Argentina’s anchor supply source in its quest for LNG exporting glory. For now Argentina’s quest remains just that. Yeah, the Vaca Muerta can go head-to-head with the Permian in particular and other U.S. shale plays in general, but its continued commercialization will be hampered by above-ground issues that will dictate whether in the future we’re able to talk about the Vaca Muerta on the scale of a Permian 1.2, a Permian 1.5 or a Permian whatever.