Argentina’s ‘dead cow’ finally produces oil

Along the western edge of Argentina’s Patagonia, on an arid steppe nestled against the Andes mountains, lies a shale formation known as the Vaca Muerta. And ever since engineers confirmed what an American geologist suspected a century ago — that the Vaca Muerta, or “dead cow,” contains massive amounts of oil and gas — the rush to replicate the U.S. fracking boom was on.

First came YPF, the local oil giant, and Chevron. Then the likes of Total and Royal Dutch Shell. Between them, they poured some $13 billion into exploration over the past eight years. None of them ever had much to show for it, though. Obstacles kept popping up, and production was marginal.

Until now. In the past few weeks, two companies have exported two small cargoes from the formation, one of light oil, the other of liquefied natural gas, foreshadowing what industry officials say will be a steady flow of shipments by the end of the year. It’s way too early to declare victory — any number of logistical and economic hurdles remain. But it’s the first sign that all the money and time invested might actually pay off, and turn Argentina back into the global energy provider it used to be well over a decade ago.

“The system is going to change from one of importing oil and products to one of exporting,” said Sean Rooney, Shell’s chief in Argentina. “And that’s going to grow over time. It’s going to be some hundreds of thousands of barrels a day.”

Shell announced in December a scale-up of operations and, in a seal of approval for the first intensive shale drilling outside North America, Exxon Mobil Corp. this month made a similar commitment. Argentina’s light oil shipments are now forecast to reach 70,000 barrels a day next year.

There’s a long way to go to match — or even come close to matching — the benchmark of shale production, the Permian Basin in Texas and New Mexico, where output is driving Gulf Coast shipments to about 2.5 million barrels a day.

Infrastructure developments, including roads and gathering pipelines, lag drilling progress. Producers also want the government, which has been shifting Argentina away from protectionism, to finally let exports off the leash. That means ending a right of first refusal for domestic refiners and coming good on a promise to ditch export taxes at the end of 2020.