In the fourth of a five-story special, Upstream explores the unique factor that makes Argentina's unconventional play competitive.

High Costs Offset by Exceptional Productivity

Despite exploration and production costs in the Vaca Muerta shale play being 35% to 40% higher than in the US Permian basin due to factors like labour and services, the region remains extremely competitive globally. This competitiveness stems from the exceptional geological quality of its source rock, which enables more productive wells. The high well productivity more than offsets the structurally higher capital costs, making investment sensible and the play profitable and efficient on a breakeven economic basis.

Superior Well Performance Metrics

A key industry metric, the estimated ultimate recovery (EUR) per foot of lateral, demonstrates Vaca Muerta's advantage. While the best US shale basin produces approximately 70 barrels per foot over a well's life, Vaca Muerta exceeds 100 barrels per foot. Although this number has declined in recent years, it still far outranks North American plays. This high productivity means Vaca Muerta remains competitive at current oil prices, with a breakeven cost estimated around $43 per barrel compared to $46 per barrel in the Permian.

Cost Structure and Efficiency Gains

The cost disparity is significant: drilling and completing a well in Vaca Muerta costs between $14 million and $20 million, compared to $6 million to $8 million in US shale basins. A limited supply chain and the high cost of sand are critical factors, potentially doubling well costs relative to the Permian. However, operators in Argentina are becoming more efficient, adopting trends seen in the US such as longer lateral wells and denser completions, which allow them to do more with less equipment, sand, and water, thereby slowly lowering costs.

Developmental Stage and Remaining Challenges

A key difference from mature US shale assets is that exploration in Vaca Muerta is still quite incipient, meaning companies are not yet targeting less productive secondary or tertiary zones. Despite this positive outlook, challenges remain. Input costs have increased recently, threatening government energy export goals. Furthermore, the play faces midstream constraints, as processing capacity expansion depends on upstream operators building their own pipelines, which could lead to production delays due to a lack of an independent, flexible midstream sector.