Argentina’s YPF updates US$2.5bn Vaca Muerta Sur project, LNG plans

Argentine state-controlled hydrocarbons firm YPF expects the US$2.5bn second tranche of the Vaca Muerta Sur oil pipeline to enter the construction phase within the next few months.

YPF officials and equity partners – who have formed a consortium – are in discussions and once paperwork is signed, construction contracts will be awarded, investors heard during the company’s Q3 results call.

Construction should start by end-January, according to a company presentation.

One consortium member, Pampa Energía, said recently that officials were in daily contract talks. 

YPF, which expects to have a 30-40% equity interest, has created a special purpose vehicle (SPV) and is preparing to present the project to the government for inclusion in the Rigi investment incentives regime. The SPV would award an EPC contract for the pipeline and an EPCM contract for the terminal.  

Rigi establishes a series of tax and exchange rate benefits and stable rules of the game for 30 years. Officials recently published procedures for projects and providers that want to adhere.

In terms of financing, YPF has received letters of interest for around US$1.5bn from international banks, with consortium members due to inject the balance, the call heard.

Environmentally permitted, the second tranche involves building a 440km pipeline connecting Allen in Río Negro province to Punta Colorada on the coast, where storage tanks and monobuoys will be installed. The tranche is due to come online in 3Q26, according to the company’s Q3 results presentation.

Meanwhile the US$200mn first tranche of Vaca Muerta Sur is about 50% built. Running 130km, it connects Vaca Muerta locality Loma Campana, in Neuquén province, to Allen.

The first tranche is expected to come online in 1Q25, with 350,000b/d of capacity, and oil will initially be dispatched to Buenos Aires via midstream concessionaire Oldelval’s infrastructure. After the second tranche comes online and is connected, capacity is planned to grow to 450,000b/d by the end of September 2026.

The second tranche’s initial capacity is 180,000b/d, due to climb to around 500,000b/d in 1H27 and about 700,000b/d from 2028.

 CREDIT: YPF

On November 14, the YPF board is due to vote on the company’s planned investment in the project.

In terms of the awarding of construction contracts, “we will decide, with all the partners, next week [the week starting November 11] who will be the winners of that process,” CEO Horacio Marín told the call.

Argentina LNG

YPF wants to begin exporting LNG and has a project on the drawing board, Argentina LNG. Operations are expected to start via floating infrastructure offshore Río Negro province.

The state company has established an LNG subsidiary and is planning to tap Rigi.

A question mark hangs over whether YPF’s original partner, Malaysia’s Petronas, will remain in the project. “They have to decide at the end of December if they will continue or not,” Marín said. 

In parallel, YPF is in talks with a “supermajor to enter as equity,” Marín said. “We are going to declare that when we have this final document signed.” 

In terms of offtakers, YPF officials recently went on a whistlestop tour of Asia and Europe, signing around 14 MOUs with prospective buyers from the public and private sectors, Marín said, adding the objective was to start formal negotiations as soon as possible. 

Based on past YPF comments, production capacity of 1-2Mt/y is expected to start from 2027 using floating LNG infrastructure offshore Río Negro province, before ramping up to over 17Mt/y by 2032 following construction of a plant onshore.  

Along with YPF’s, three other LNG export projects are being mulled in Argentina, belong to TGS-Excelerate Energy, Southern Energy and Tecpetrol.

Based on the figures, potential initial total natural gas demand from the prospective LNG players could be up to 36Mm³/d.

Argentine gas production was around 153Mm³/d in August, with about half corresponding to shale gas from the Vaca Muerta unconventional hydrocarbons formation.

Proyecto Andes

Under YPF mature conventional asset divestment program Proyecto Andes, the company has so far signed nine sale agreements corresponding to 25 areas. Following the addition of seven areas in Tierra del Fuego province, Proyecto Andes has expanded to encompass 37 blocks.

YPF plans to offload around 50 blocks, with those not under the banner of Proyecto Andes subject to separate talks.

The company is sharpening its focus on shale assets, with freed up conventionals capex – last year YPF invested around US$800mn in mature conventional fields – to be funneled into shale-related work. 

Extraction costs for conventionals last year were around US$25/boe compared with about US$5/boe for shale, YPF said in its results report. 

Production, exports

YPF oil production was 255,800/d in the quarter, up 8.0% year-on-year. 

Shale oil was the growth driver, accounting for a record 125,700b/d, up 36.3%. 

Shale production is expected to reach 140,000b/d by the end of the year and 160,000b/d in 2025.

Company exports of Medanito crude were 39,000b/d, up 111% year-on-year. 

Refinery demand for Medanito is met in Argentina, with new output being channeled to the international market.

YPF conventional oil output was down 10.1% year-on-year to 127,700b/d.

In terms of gas, production was 40.3Mm3/d, up 7%.

Average realized prices obtained in the quarter for oil and gas were US$68.3/b and US$4.5/MMBTU (million British thermal units), up 12.5% and 4.0%, respectively. 

Investment  

Investment was US$1.35bn in Q3, with more than 70% pumped into upstream, “principally in shale activities for drilling and workovers, in line with the strategy of the company to grow in shale oil,” the company’s results state.

Top and bottom lines

Revenue climbed 18% year-on-year to US$5.30bn, driven by fuel prices and exports, partially offset by lower local demand for diesel, among other factors. 

Net income was US$1.49bn, compared with a loss of US$137mn a year earlier, when the bottom line was impacted by a natural gas assets impairment charge.