Vaca Muerta: Investment and Stability Key to Satisfying Argentina’s Domestic Energy Demand, Enabling Energy Exports, IHS Markit Says

Analysis indicates annual investment of $8 billion per year required at peak activity

Wednesday, August 10, 2016 6:00 am EDT


"The administration of President Mauricio Macri has taken important steps to improve investment conditions in Argentina, but these reforms are relatively new, and they must remain in place beyond the president’s first term for Vaca Muerta to achieve its potential"

HOUSTON (August 10, 2016) – Argentina’s promising Vaca Muerta unconventional energy play could deliver approximately 560,000 barrels–per-day of liquids and 6 billion cubic feet of gas per day by 2040, increasingly meeting the country’s growing demands for energy with domestic production and helping reduce its dependence on imports, according to recent analysis from IHS Markit (Nasdaq: INFO), a world leader in critical information, analytics and solutions.

However, this energy potential, which translates to a cumulative production of 2.8 billion barrels of oil (liquids), and 33 trillion cubic feet (TCF) of gas by 2040, comes with some important caveats, IHS Markit said in its newly released IHS Energy Vaca Muerta Insight Series: Supply Scenarios for Argentina’s Energy Future. These include the need for significant annual investment of $8 billion in drilling and completion alone at peak activity, combined with continued government assurance of a stable business climate.

“The Vaca Muerta has the potential not only to reverse Argentina’s conventional production declines and satisfy its growing domestic energy demand, but also to enable Argentina to regain its position as an oil and gas exporter,” said Ricardo Bedregal, director for upstream research and consulting at IHS Energy and an author of the analysis. “However, for the required investment to materialize, the government must continue to provide both assurance and a regulatory environment that gives long-term stability to investors. These issues go hand-in-hand, because without that stability, the money will not flow in as quickly and the play will be slow to develop.”

According to the IHS Markit report, the pace and scale of development and foreign investment will be dictated by above ground conditions. “The administration of President Mauricio Macri has taken important steps to improve investment conditions in Argentina, but these reforms are relatively new, and they must remain in place beyond the president’s first term for Vaca Muerta to achieve its potential,” Bedregal said.

Bedregal said the Vaca Muerta would need about 140 drilling rigs operating when it reaches peak activity levels. The upstream service sector’s ability to meet this demand growth has important implications for the pace of learning and the cost competitiveness of the play, he said.

“There is a huge supply-chain opportunity in the Vaca Muerta for service companies to come in and build the necessary supply infrastructure to develop the play, and to help their operator customers by leveraging their unconventional play development and cost-reduction expertise that has been honed so successfully in the U.S. plays.”

The Vaca Muerta formation, located in the Neuquén Basin in Argentina, has the potential to be one of the most successful unconventional domains outside North America according to IHS Energy. IHS Energy said the Neuquén Basin is similar to other “super basins” around the world, such as the Permian Basin in the United States, in that it possesses numerous desirable geologic traits. Those traits include very thick, high quality, organic-rich shales, multiple unconventional targets, and the potential to deliver billions of barrels of oil equivalent.

However, while the Vaca Muerta offers considerable geologic potential, Bedregal cautioned that, in terms of development trajectory, researchers do not expect the Vaca Muerta play to mirror the rapid development of North American unconventional plays, such as the Eagle Ford shale play in Texas. “Production in the Vaca Muerta will not grow exponentially overnight,” Bedregal said. “The global oil market conditions are very different now than they were a few years ago. Global prices are considerably lower now, CAPEX budgets are much more constrained, and the operating conditions in Argentina are quite different. In the Vaca Muerta, we currently have a concentration of acreage in the hands of few operators, whereas in the very competitive Eagle Ford, there were as many as 70 or 80 different operators contributing to the rapid ramp-up in development.”

According to the IHS Markit analysis, under current conditions gas-prone areas of the Vaca Muerta are more attractive than oil-prone areas. Well-type analysis from dry gas areas suggests break-even prices below the government-regulated price of $7.50/MMBtu. Preliminary results from Aguada Pichana and El Orejano horizontal wells indicate that economics could be even more attractive.

In the first installment of its IHS Energy Vaca Muerta Insight Series, which was published earlier this year, Graham Bliss, Ph.D., senior director of research at IHS Energy, and one of the authors of the analysis, said the play has potential to provide “prolific production,” since the geologic characteristics of the play are promising, but they vary significantly depending on depth and location. In addition, the ‘sweet spots’ of the play have not yet been determined, and there has been relatively little drilling to clarify the play’s potential.”

Exploitation of the Vaca Muerta is comparatively new, IHS Markit said, and so far has taken place over a relatively small area of the more than 115,000 square kilometers of the Neuquén Basin. The IHS Markit analysis said around 600 wells have been drilled in the play, as compared to the Eagle Ford shale play, which has recorded more than 14,000 wells drilled since 2008. .And like the U.S.’s Permian Basin, which has numerous E&P targets, the Vaca Muerta is not the only reservoir in the Neuquén Basin that offers potential for oil and gas.

To speak with Ricardo Bedregal or Graham Bliss, please contact Melissa Manning at For more information on the IHS Energy Vaca Muerta Insight Series: Supply Scenarios for Argentina’s Energy Future, please contact


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