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Key Findings

Once seen as a silver bullet to solve the country’s economic and energy problems, development of the vast Argentine oil and gas shale reserves known as Vaca Muerta (“Dead Cow”) in Patagonia has sputtered to a near-halt.

Government subsidies have evaporated due to Argentina’s deteriorating fiscal condition. Without substantial investment by domestic and foreign oil and gas companies, Vaca Muerta’s potential will fall short of ambitious plans set forth by Argentina’s previous administration.

With the failure of former President Mauricio Macri's 2018 Argentine Energy plan, Argentina’s new administration has an opening to consider alternative approaches to meet the country’s energy needs, promote economic recovery, and rewrite the country's energy future. 

Executive Summary

Vaca Muerta, Argentina’s vast oil and gas reserve in Patagonia, has been seen as the silver bullet to solve the country’s economic and energy problems for the past few years. Unconventional production (hydraulic fracturing, or fracking) would boost the country’s economy, ultimately creating a lucrative export market. But development of Vaca Muerta has been slow by comparison with other shale basins — even before this year’s global demand destruction and plunging oil prices. It has now sputtered to a near halt.1 It was dependent on foreign investment that has been slow to materialize over the past few years.

Development of Vaca Muerta has relied on joint ventures between the Argentine government and international corporations, which have until now been fueled by significant subsidies from the Argentine government. As those subsidies have evaporated due to Argentina’s deteriorating fiscal condition, foreign companies’ commitments to Argentina has eroded. Without substantial investment by domestic and foreign oil and gas companies, Vaca Muerta’s potential will fall short of ambitious plans set forth by Argentina’s previous administration.2

Among the most active oil and gas companies in Vaca Muerta tracked by IEEFA, three — state-controlled YPF, Chevron and Vista Oil and Gas — have demonstrably pulled back on specific investments. In 2017 and 2018 (the most recent year figures are available), these three companies accounted for 39 percent of investments in unconventional production in Neuquén Province, home to most of Vaca Muerta.3 Four other significant oil and gas companies invested in Vaca Muerta — Shell, Total, BP and Exxon — have pulled back on their enterprise-wide capital investments.4 As foreign oil and gas companies rein in their capital expenditures globally, expanding their nascent operations in Argentina will be postponed — or abandoned entirely.

Other smaller oil and gas companies appear to be taking a wait-and-see approach as they evaluate the country’s new president, Alberto Fernandez, and recovering economy.

These findings and recent production numbers show that the 2018 Argentine Energy Plan formulated under former President Mauricio Macri, has failed to materialize and the new president must rewrite Argentina’s energy future. Argentina’s new administration has an opening to consider alternative approaches to meet the country’s energy needs and promote economic recovery.

1 In April, new fracture activity in Vaca Muerta, in fact, did halt, according to an analysis NCS Multistage, a Houston-based company. S&P Global. Argentina’s fracking activity in Vaca Muerta slowed to zero in April. May 5, 2020.
2 IEEFA. Financial risks cloud development of Argentina’s Vaca Muerta oil and gas reserves. March 2019.
3 Secretaria de energia. Datos Energia: Inversiones en mercado de hidrocarburos upstream. Retrieved June 1, 2020.
4 S&P Global. Update: 12 oil majors to slash capex by $43.6B amid price collapse, coronavirus. April 7, 2020.

Kathy Hipple

Former IEEFA Financial Analyst Kathy Hipple is a founding partner of Noosphere Marketing and the finance professor at Bard’s MBA for Sustainability. She worked for 10 years with international institutional clients at Merrill Lynch and then served as CEO of Ambassador Media.

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Tom Sanzillo

Tom Sanzillo is Director of Financial Analysis for IEEFA. He has produced influential studies on the oil, gas, petrochemical and coal sectors in the U.S. and internationally, including company and credit analyses, facility development, oil and gas reserves, stock and commodity market analysis, and public and private financial structures. He also examines such areas as community and shareholder activism, institutional investment, public subsidies and Puerto Rico’s energy economics.

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