Argentina’s upstream unknowns

Winds of change are building in Argentina’s oil and gas sector, raising questions over the ripple effects and consequences this may have for the overall energy landscape over the coming years.

The country’s biggest hydrocarbon producer, state-controlled behemoth YPF, has announced plans to offload a portfolio of 55 mature conventional assets and redirect associated capex into Vaca Muerta shale, a strategy poised to affect multiple oil and gas provinces.

The move aligns with a growing trend of rising unconventionals output and falling production of conventionals. 

The acreage encompassed in the divestment strategy accounts for around 60% of conventional oil production of YPF and 40% of its conventional gas output.

Potential divestment options being mulled include asset sales or transfer of licenses to provincial entities, YPF chairman and CEO Horacio Marín said during a recent results call. “Our goal is a clean exit,” Marín said. YPF aims to close transactions this year.

Oil-focused fellow heavyweight Vista Energy has already bid adieu to the conventionals segment and doubled down on Vaca Muerta. Vista is Argentina’s No. 3 oil producer but second-biggest shale oil firm.

Pan American Energy (PAE) is the No. 2 oil producer but, based on operator data, No. 4 in shale, according to a report from consultancy Economía & Energía. PAE, heavily focused on the Cerro Dragón conventional oil area in Chubut and Santa Cruz provinces, recently sold assets in the latter jurisdiction to independent Crown Point Energía.

Together, YPF, Vista and PAE account for around 72% of Argentine oil production. In terms of natural gas, YPF and PAE account for 39% of output. Vista is a relative natural gas minnow.  

Given the millions of dollars being pumped into midstream infrastructure to support dispatch from the unconventionals formation, the prospect for significant outlay elsewhere on the onshore hydrocarbons map appears limited, at least for the next several years.  

Plus, ExxonMobil is offloading shale assets, acreage that the big three – along with Tecpetrol, Total Austral, Pluspetrol, Pampa Energía and Shell – may acquire, notwithstanding a potential incursion by a newcomer tempted by the formation’s oil and gas or a local player looking to get more barrels flowing.   

Nevertheless, the ExxonMobil asset disposal may imply diminished capital available, or appetite, for what YPF is putting on the block.  

The YPF mature fields project is underway, with assets in Chubut, Santa Cruz, Mendoza, Río Negro, Neuquén and Tierra del Fuego provinces among those targeted, according to different local press reports. 

Neuquén, home to the bulk of Vaca Muerta and poised to see the lion’s share of upstream outlay this decade, could feel the least impact, while a bigger question mark hangs over other jurisdictions.

Much will likely hinge on whether prospective buyers see enough dollar signs hanging over the nodding donkeys. YPF has already said it would only retain its more profitable conventional assets and those deemed to hold the right development potential. That would appear to dampen appetites, in addition to headwinds whipped up by the macroeconomic turbulence.

Along with Crown Point Energy, independent Petrolera Aconcagua Energia, heavily focused on mature conventional fields and the buyer of Vista’s conventional assets, could potentially be among those interested in snapping up some of YPF’s portfolio, particularly those near existing operations or at the higher end of the profitability spectrum.

In the context of export opportunities, another issue to consider is the likelihood of growing demand from some jurisdictions for smaller production carbon footprints.

Chubut

In January, Chubut produced 227Mm3 (million cubic meters) gas, all conventional, according to operator data from the federal energy department. PAE was the biggest producer, followed by YPF.

That month Chubut oil production was 664,000m3, all conventional. PAE was the biggest producer, followed by YPF.

Santa Cruz

In January, Santa Cruz produced 285Mm3 gas, with 201Mm3 conventional and the balance tight. CGC was the biggest conventionals producer, followed by YPF.

That month Santa Cruz oil production was around 343,000m3, with conventional output accounting for 98.6%. YPF was the biggest conventionals producer, followed by CGC. 

Santa Cruz has offshore operations. 

Mendoza

Mendoza’s production is virtually all conventional, although a 12-block auction process is underway via a new continuous auction model with one goal: tapping unconventionals in the jurisdiction’s sliver of the Vaca Muerta formation. 

In January, Mendoza gas production was 46.5Mm3, led by YPF and Pluspetrol. All output was conventional except around 3% tight and shale. 

The province’s oil production was around 273,000m3, led by YPF and Pluspetrol. Conventionals accounted for 99.4%, shale and tight the balance. 

Río Negro

The province produced around 103Mm3 gas in January, roughly half conventional and half tight. Tecpetrol was the biggest conventionals producer, followed by Aconcagua Energia. 

Río Negro oil production was around 99,000m3, around 92% conventional and the rest tight. Aconcagua Energía was the biggest conventionals producer, followed by YPF.

Tierra del Fuego

The southern jurisdiction, which also has offshore operations, reported production of 143,000Mm3 gas for January, all conventional. Total Austral was the biggest player, followed by YPF.

In terms of oil, Tierra del Fuego reported 17,200m3, all conventional, with production led by Total Austral and YPF.

GREEN FUELS?

An important question, should the assets draw tepid interest and with hydrocarbons investment continuing to largely flow into Neuquén, is what happens next and whether the need to provide jobs and funds for provincial coffers may feed the appetite to diversify into alternative industries such as green hydrogen.

A government green hydrogen strategy said potential initial locations in Argentina include provinces Buenos Aires (a petrochemicals hub) and Río Negro and Tierra del Fuego, both with strong wind resources and abundant land. Gas-producing jurisdictions Neuquén, Chubut and Tierra del Fuego are seen as holding blue hydrogen potential.

Río Negro announced a major project, Fortescue's Pampas, several years ago. Tierra del Fuego has one too, proposed by MMEX Resources Corporation, and has conducted associated studies.   

Argentina has plenty of land and good energy resources and, notwithstanding the hurdles, could potentially become an important producer and exporter of green hydrogen and its derivatives if the economic, financing and political stars align. 

Among other pins on Argentina's hydrogen wall map, a pilot plant in Chubut has been producing green hydrogen for over a decade. Santa Cruz province, meanwhile, has a research facility, Pico Truncado. Also, state energy firm Energía Argentina has signed an agreement with public authorities in Santa Cruz to build an experimental production plant.

Legislation work has gotten underway. The last federal administration presented a hydrogen promotion bill, while Neuquén has a bill in its congress. A Chubut councilman, Ezequiel Cufré, from oil production hub Comodoro Rivadavia, presented a bill that encompasses green hydrogen and its derivatives, calling for an associated roadmap. 

President Javier Milei’s stalled economic reform bill contains an incentives regime for large projects.