Milei's Argentinean counterparts could face challenges if Vaca Muerta oil production slows down.
The Vaca Muerta oil field in Argentina, which is the fourth largest unconventional oil reserve in the world, has plateaued due to low oil prices and increasing costs. This slowdown could complicate Javier Milei's political agenda. The Vaca-Muerta formation, located in western Argentina, accounts for 64% the country's total oil production despite only 8% being under development.
It's vital for Argentina's future economic and Milei's Government, who needs to increase Argentina's energy exports in order to boost Argentina's dollars reserves and build trust in the government's capability to maintain a currency stable.
Slowing drilling and fracking in Vaca Muerta may add to challenges facing Milei, whose approval levels have dipped amid political scandals and clashes with the opposition-controlled Congress, and his plan to export $30 billion in oil and gas by 2030 - doubling Argentina's global exports from current levels. Major investments in Vaca Muerta led to record Argentine production of 827,000 barges per day in august - a 15 percent increase over a year ago. Analysts expect a slower pace in the coming months. Benchmark global oil price is around $65 a barrel. This compares to $90 per barrel in April 2024.
According to the latest data of the Argentine consultancy group AGKC, the number of wells drilled at Neuquen Basin, where Vaca Muerta lies, dropped to 55 from 67 in the previous month, marking the third consecutive decline.
Luciano Fucello is the country manager of NCS Multistage. This oilfield services company.
Daniel Gonzalez, Argentina’s Secretary of Energy and Mining Coordination said that oil production costs were between 35% and 40% higher in Vaca muerta than the Permian Formation in the United States.
Gonzalez said that the market would adjust, and prices will return to a more reasonable level. In the interim, however, only the most efficient companies will survive.
Analysts attribute the rising costs to higher prices of labor, utilities, and services as well as more expensive financing.
Fewer wells are being drilled
NCS Multistage’s Fucello stated that the industry expected to see 24,000 fracking stages by 2025. However, this projection will fall short of several thousand.
Ariel Kogan is the director of AGKC Consultores. He said that at this level of dollar and interest rates, it would be better to keep the price of crude oil low than to extract it. Kogan stated that many market participants anticipate a change in the exchange rate policies which will make extraction of crude oil more profitable after Argentina's midterm elections. Delgado Industrias, a steel supplier to the oil industry in the province of Buenos Aires, has reported a 40% decline in sales since 2024, due to the slowdown and shale fracking as well as the increased competition from Chinese exporters.
According to business leaders, profitability is decreasing due to the rising costs of labor and production combined with an increasingly strong peso. This means that profits from oil sales in dollars are lower. They have called on labor reforms to reduce the costs of hiring and terminating workers.
Duralitte is an oil, mining and gas component manufacturer that has stopped exporting its products from three of its industrial plants in Argentina, because the company can produce cheaper products in Brazil or the U.S. He demanded lower taxes. Chevron and TotalEnergies, two of the largest oil companies in Argentina, have urged Milei to adopt policies which guarantee that exports won't be restricted. To attract more foreign investment and achieve the government's 1.5 million bpd production target, they also want the government remove foreign currency controls which limit access to the dollar. Milei has tried to encourage large investments, and to loosen dividend restrictions. Some major international companies have sold their assets in Vaca Muerta, including Exxon Mobil.
At a September conference, Sergio Mengoni told reporters that it was important to have predictability and stability for the future. We also need to continue lifting the exchange controls, so that companies such as ours can invest and distribute dividends.
? (Reporting and Writing by Eliana Rzewski; Editing by Marianna Parragas and Nia Williams
(source: Reuters)