Argentina's Shale Trove Risks Staying Buried, Oil Chiefs Say

Drillers in Argentina are scared that interventionist economic policies will foil the world’s next big shale hope.

Investments had been picking up in Vaca Muerta, a Maryland-sized shale formation in Patagonia that could turn the troubled nation into a global energy provider. But that was before leftist Alberto Fernandez won the presidential election last month. He takes office in four weeks.

Now oil explorers are in the lurch, wondering whether Fernandez will embrace some of the free-market policies that outgoing President Mauricio Macri has championed. After all, Fernandez and Vice President-elect Cristina Fernandez campaigned on regulating energy markets.

“This is a crunch moment,” German Macchi, Argentina manager for Pluspetrol SA, said at a conference last week in the port city of Mar del Plata. “We’re waiting for clarity to continue.”

In the past, strictly regulated prices thwarted oil exploration and weighed on the economy in the long term, said Jose Gabriel Lopez, deputy minister for energy, mining and hydrocarbons in Neuquen province, the epicenter of Vaca Muerta drilling.

Fenced In

Oil executives at the conference said they were particularly concerned about how Fernandez will manage the broader economy. That’s because if he reels in Macri’s business-oriented reforms -- by limiting exports, tightening currency controls, or antagonizing creditors -- that would cripple their ability to tap capital markets.

“If we’re fenced in by country risk, this type of development won’t be possible,” said Danny Massacese, chief operating officer for Pan American Energy, Argentina’s largest privately run driller.

High country risk may be especially troublesome for pipeline companies like Transportadora Gas del Norte SA that will require outside financing to build the 650-mile (1,050-kilometer) conduit needed to haul Vaca Muerta output to markets. It’s unclear whether Fernandez will pursue the tender.

“The opportunity is now,” said Daniel Ridelener, TGN’s chief executive officer. “If we sleep on this for 10 years, it’ll be too late.”

Change History

Political uncertainty comes at a time when oil companies in Argentina seeking to replicate the success of the U.S shale boom are already suffering from crude price caps. The caps were put in place by Macri in August to tame inflation in a failed, last-ditch bid to win re-election. Drilling has consequently slowed in Vaca Muerta, emphasizing the need for consistent policies under the next government.

“Vaca Muerta can change the course of history for Argentina,” said Ricardo Markous, a top executive at Tecpetrol SA, a unit of the Techint Group that’s spent $2 billion on producing shale gas over the past two years. “The rock is there. We need clear, steady rules of play.”