Estimates now predict that the Vaca Muerta shale play will surpass 1 million barrels per day (bpd) in production by the early 2030s. This is a far cry from the production numbers seen in the US onshore regions, and activity in terms of drilling and completions is still an order of magnitude lower than the likes of the Permian or Eagle Ford. Even so, exploiting this unconventional resource outside the US proves viable with a correct mix of geology, topography and fiscal terms.

The Vaca Muerta play itself is enormous from a geographic and geologic perspective. It sits on the country's western edge, abutting the foothills of the Andes in the Neuquén province. If one were to be dropped blindfolded in the middle of the Vaca Muerta, it would be easy to confuse it for Midland or Ector County. Drilling rigs and roughnecks notwithstanding, comparisons are easy to draw, the population is sparse, and the terrain is relatively flat, brushy and arid. The total acreage of the formation spans 8.9 million acres, three times the size of the Permian Basin. The Energy Information Administration (EIA) pegs its resource potential at approximately 308 trillion cubic feet of gas and 16 billion barrels of oil and condensate. Based on those estimates, Argentina possesses the fourth-largest shale oil and second-largest shale gas reserves globally.

The country was already testing the potential of the shale formation as early as 2011 by using hydraulic fracturing of vertical wellbores. The game began in 2013 with a farm-in agreement between YPF and Chevron in the Loma Campana block. Today, 49 exploitation areas of the Vaca Muerta have been granted to operators in Neuquén, spanning 33% of the total play in the province. Twelve companies operate the acreage, with five operators accounting for over 70% of total production. The state-owned YPF leads the way, with Vista coming in second and Chevron, Shell and Pan American Energy completing the list. This mix is quite interesting as it comprises a national oil company, one of each of the US and European super majors, and two local independents. While the supermajors have had their fair share of hits and misses in US shale plays, they seem to have found a home in Argentina and plans for expansion for all these operators are presumably on the horizon.

Vaca Muerta wells demonstrate exceptional performance, surpassing even world-class US shale plays, given the outstanding quality of the shale and its remarkable capacity to yield hydrocarbons after effective stimulation. A modern well's typical one-year cumulative oil production in Vaca Muerta is approximately 30 barrels per foot. For comparison, wells in the Permian Delaware and Midland produce about 15 barrels per foot and 23 barrels per foot, respectively. In contrast, wells in the Bakken and Eagle Ford typically accumulate 17 barrels per foot and 18 barrels per foot during the first year of production. Although well costs are higher in Vaca Muerta, the higher output keeps the breakeven similar to wells in the US. However, transportation costs and realized prices are less favorable in Argentina.

This begs the question of how prolific the Vaca Muerta could become and what is needed to get it there. Hitting a 7-digit production number for any shale play is no small feat, and several non-negotiables must be met. Firstly, new wells starting production in 2023 and onwards should have the same performance per foot as the average horizontal well completed and put-on-production (POP) in the play in 2021-2022. Vaca Muerta will also need capital re-investment that continues unabated and uninterrupted until 2030. There will be a call for new rigs and frac fleets that must be added in the region to satisfy demand for drilling and completions. Takeaway capacity must increase, primarily in the form of pipelines, at the same pace or even quicker than the expansion in production. Finally, operators must be assured of a stable macroeconomic environment promoting the growth of the Vaca Muerta. If those conditions can be achieved, the Vaca Muerta and Argentina, in general, will be in high cotton in the hydrocarbon industry for some time.