YPF’s shale oil, midstream, LNG plans: What you need to know

Argentine state-controlled oil and gas firm YPF is betting heavily on increasing shale crude output and getting LNG exports started in the next half of the decade.

Against that backdrop, the company is preparing to shrink its mature conventional hydrocarbon asset portfolio – releasing capex of around US$800mn, chiefly for shale – and establish two new core shale hubs in the Vaca Muerta formation this year, taking the tally to three.

About US$3bn out of the US$5bn total company capex earmarked for 2024 is planned for shale assets, with 75% of upstream outlay geared to oil, YPF chairman and CEO Horacio Marín told the company’s 4Q23 results call.

SHALE OIL

The company’s shale oil production climbed 28.5% year-on-year in 4Q23 to 109,400b/d.

For 2024 and 2025, YPF expects to be pumping around 120,000b/d and 160,000b/d shale oil out of the ground, respectively. 

The firm is aiming to hit a shale oil production rate of 250,000b/d in 2027, with shale accounting for 80% of total crude production from 2025. Last year shale accounted for less than half of YPF’s oil output.  

An associated goal is ramping up oil exports, which accounted for 7% of production last year, compared with roughly 50% reported recently by fellow Vaca Muerta player Vista Energy.

Crude production in 2023, exports, M&A

Average YPF crude production was 255,100b/d last quarter, up 10.0%, as output from conventional fields dipped 0.3% to 143,100b/d.

The 55 mature fields being put on the block account for around 60% of the company’s conventional output. 

YPF will retain its more profitable conventional assets along with those deemed to hold the right development potential, investors were told.

Exports were supported by completion of the company’s 160,000b/d Vaca Muerta Norte pipeline, which connects the Neuquén basin – home to the Vaca Muerta shale play – to the 110,00b/d Otasa duct linking the country with Chile. 

Exports to Chile, of Medanito crude, averaged around 19,000b/d last quarter and are expected to start climbing this year.

Overall transport capacity between the basin and the Atlantic is forecast to hit the 540,000b/d mark in 2025.   

Asked whether YPF was considering acquiring shale assets being offloaded by ExxonMobil, Marín said board decisions hinged on generating profitability, without confirming or denying interest.   

MIDSTREAM PROJECTS 

As YPF and other firms work to increase oil production in the Neuquén basin, much hinges on expansion of dispatch capacity to the Atlantic.

Dispatch capacity growth in the basin is being led by YPF and its subsidiary Oldelval.

YPF recently cut the ribbon on the 150km Vaca Muerte Norte link, which as well as connecting to the Chilean duct also feeds the YPF Luján de Cuyo refinery in Mendoza province with Medanito crude. 

But as things stand, the chief opportunity rests with exporting directly from Argentina’s Atlantic coast.

Midstream concessionaire Oldelval, meanwhile, is currently expanding capacity between the basin and Buenos Aires province under the banner of its Duplicar project and recently announced plans for a link initiative, dubbed Duplicar Norte. 

Due for completion in 2025, Duplicar involves gradually increasing capacity between the basin’s Allen pumping station and export facilities in Puerto Rosales, Buenos Aires, to 86,000m3/d (540,923b/d) from 36,000m3/d.

Duplicar Norte involves adding up to 91,000m3/d (572,372b/d) capacity between oilfields in the north of Neuquén province and the Allen pumping station further south, in Río Negro province, connecting to the main link to Buenos Aires.

Vaca Muerta Sur

In parallel, YPF is planning the 360,000b/d Vaca Muerta Sur project, an estimated US$2.2bn initiative that calls for a new pipeline connecting the basin to a planned new export terminal in Río Negro province.

Eventually adding pumping stations would almost double capacity to 700,000b/d.

First-phase work, due for completion this year, involves connecting, via a 127km link, YPF’s flagship Loma Campana acreage in Neuquén province to the entrance of Oldelval’s network in Allen.

By around the third quarter of 2026, some 180,000b/d of capacity should be online, Marín said. In a third stage, expected for completion in late 2027, another 180,000b/d would be added.

“So far, YPF has begun the design competition process for the new pipeline and export terminal and obtained the environmental permit for the first stage,” Marín said.

LNG

Along with boosting shale oil production, “monetization” of Vaca Muerta gas is a pillar of the company’s strategy.

YPF and Malaysian counterpart Petronas have previously announced they were working together on an LNG export project. Third parties – local gas producers – are being courted to help power the project ahead.

Planned to be carried out in phases, the project’s LNG production capacity is expected to reach 25-30Mt/y.

A final investment decision, Marín said, was expected by mid-2025.

The project is moving into the front-end engineering design phase, with the work being carried out this year and in 1H25. Other pending tasks concern financing and permitting.

Marín outlined the strategy and business development VP Maximiliano Westen, answering an investor question, indicated what would be the enabling conditions.

Argentina’s biggest oil and gas producer, YPF expects to own around 25-30% of LNG capacity.

Phase 1

By 2027, bringing to Argentina a floating LNG facility with production capacity of 1-2Mt/y.

Phase 2

By 2030, building two new floating LNG facilities, with combined capacity of around 9Mt/y.

Phase 3

By 2032, installing offshore modules with capacity of over 17Mt/y.

YPF natural gas production was 34.4Mm3/d last quarter, down 3.9% year-on-year. Argentina currently has a supply glut in the summer months when domestic demand tends to fall.

Domestic gas prices are forecast to weaken as local production, supported by midstream expansion work, climbs. 

Enabling conditions

The LNG project needs “long-term visibility and a tax package so that it’s competitive at a global level,” Westen told the call.

Likely alluding to the government’s economic reform bill – which contains a special incentives regime for large projects – Westen said: “We’ll need to have it in place to have a FID [final investment decision], otherwise it’s going to be very challenging to have a profitable project.

“Project financing would be off the table, I think, if we cannot provide this long-term visibility.”

The concept of boosting inward investment and building an LNG industry tends to enjoy bipartisan support. 

“We’re positive that we’ll end up with a good result,” Marín said.

Some proposed measures in the government bill, including some that adjust the federal-provincial power balance, have drawn stiff opposition from the provinces. 

The draft legislation hit a stumbling block in congress this year. Publication of the bill followed the issuing of a deregulation-focused decree that lifts government control over oil exports but has also encountered hurdles in congress. 

BOTTOM LINE

YPF posted a net loss of US$1.86bn for 4Q23, compared to a profit of US$464mn a year earlier, reflecting a non-recurring impairment charge of US$2.29bn recorded following a revision of the recoverable value of mature conventional fields. 

Net revenue for the quarter was US$4.19bn, down 9.7% year-on-year, impacted by an 11.6% drop in revenue in the domestic market, with lower local seasonal gas sales and the effects of a currency devaluation cited.