The Vaca Muerta deposit, 30,000 square kilometers full of gas and oil that are Argentina's hope to break its recurring crisis cycles, is paralyzed. The economic crisis, the Alberto Fernández government negotiations with the IMF and the promise of a new regulatory framework for the sector froze new investments. Companies work only on minimums, waiting for a scenario that guarantees long-term profitability.
Thanks to Vaca Muerta, Argentina is the second country with more shale gas resources and the fourth in unconventional oil. When the site began to explode in 2012, the Argentines felt at the gates of a Latin American Saudi Arabia. YPF, at that time newly expropriated from Repsol, was at the head of the perforations. Today large oil companies like Shell, ExxonMobil, Vista Oil & Gas, Chevron and Total work in Vaca Muerta. The future is promising. Oil production has already exceeded 100,000 barrels per day and only 4% of the deposit is exploited.
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Production grew steadily since that auspicious start, eight years ago. The eleven blocks considered more powerful, where the activity has already passed from exploration to full exploitation, ended 2019 with positive numbers. YPF and its partners, which control half of the production, raised their production to 67,600 barrels per day, 20% more than in 2018. The production of Anglo-Dutch Shell, which operates in three areas, grew last year 72.5 % and ExxonMobil rose 147%. Vista Oil & Gas, meanwhile, incorporated eight wells last year. The figures impact, but were far from the initial forecasts, which were waiting for the final launch of the site.
By the end of the year, the crisis in Vaca Muerta was already evident. According to the specialized Econojournal site , during the month that followed the freezing of prices in August, the amount of equipment in operation fell from 59 to 44. The year also closed with a decrease in the number of wells drilled: 905, against 1,030 in 2018. The paralysis situation resulted in 3,000 layoffs and a growing union conflict.
What happened? First was the accelerated depreciation of the peso, which as of mid-2018 weighed the costs of an industry that pays all its inputs in dollars. Then the situation broke down definitively in August 2019, with the emergency measures adopted by the government of Mauricio Macri to avoid macroeconomic collapse. The Executive froze oil and fuel prices in the domestic market and forced the oil companies to exchange their dollars for pesos. “That was the turning point. The measures generated uncertainty in international operators regarding the predictability of the regulatory framework. Today Vaca Muerta is in stand by ”, summarized a source from the oil sector.
The international market does not help either. Since the beginning of the year, the crisis due to the expansion of the coronavirus outside of China collapsed the price of a barrel of Brent crude from 66 to 50 dollars, a figure that puts it at the limit of the viability of extraction through fracking, the system that It is used in Vaca Muerta and it is more expensive than the traditional one.
The situation is so delicate that even the International Monetary Fund (IMF) was interested in the plans of the Government of Alberto Fernández for Vaca Muerta. The promise of a new regulatory framework that gives predictability to investments is in YPF's folders, under the control of the Ministry of Productive Development, by Matías Kulfas. The changes must come out by a law of the Congress, but the political times of Argentina are today attentive to the negotiations of debt with the IMF and the private creditors. “There is an understanding about the role of the oil industry and what happens if the problems are not resolved. But everything is subject to the macro negotiation of debt, ”says the same source.
The importance of Vaca Muerta is enormous for Argentina. That is why the IMF's concern, interested in knowing where the dollars with which the South American country promises to honor its debts will come from. Thanks to Vaca Muerta, Argentina went from having an energy deficit of $ 6.9 billion in 2013 to almost reaching equilibrium in 2019, thanks to a 33% year-on-year fall in fuel and energy imports and a 2.1% rise % of exports, according to data from the official statistics office (Indec). In January this year, however, the export result fell 11.1%.
The sector still has a long way to go if it intends to be an important source of foreign exchange for Argentina. Today, energy sales abroad represent only 6.5% of the export cake, compared to 70% of the sales of raw materials and agricultural manufactures. The official project to boost the oil industry is locked in YPF offices. Since the Government, meanwhile, do not give details.
Not all companies, however, agree that the priority is a new framework law. In this emergency context, "we need at least to ensure that the price of the Creole barrel [in the domestic market] will not be worth less than $ 50. And also access to currencies, that give us certainty when we should turn dividends or get dollars to investments The law deals with tax and labor issues that are not an urgency today, "they warn from another company.
Companies expect at least conditions that guarantee competitiveness against watersheds that are governed by market rules, such as a regime of currency protection, fiscal stability and a clear framework for dispute resolution. And, above all, regulatory stability for investments that are very long term. "It is intended that episodes such as those of the previous management, which called into question all the rules of the game," says another source in the sector. Meanwhile, Dead Cow is in standby mode.
