Shale intervention fears grow as Argentina awaits new government

As former Argentine president Cristina Fernandez de Kirchner mounts a political comeback, fears are rising that her interventionist policies will hobble the nation’s Vaca Muerta shale trove.
Kirchner is the running mate of Alberto Fernandez, who is expected to triumph in October’s presidential elections after he beat market-friendly incumbent Mauricio Macri in last month’s primary. While speculation persists over how much power the former leftist leader will hold in any new administration, she’s already calling for regulated domestic energy prices.
“Putting restrictions on Vaca Muerta or domestic prices will push out foreign investments,” said Fernando Valle, an Americas oil analyst for Bloomberg Intelligence in New York. With so much global competition, companies can easily decide to drill somewhere else, he said.
In 2013, when Kirchner was in power, she paved the way for Chevron Corp to team up with state-run YPF SA – which she nationalised a year earlier – in what is now Vaca Muerta’s flagship oil block. In a speech on Saturday, she said Argentines should pay cheaper rates than global buyers for energy produced in the shale play, the Latin American nation’s answer to the booming Permian Basin in the US.
“Whatever is consumed of the resource within our borders, whatever is used by our industries, our work, should be charged national prices,” said Kirchner, who would be vice president if Fernandez takes power. “What we Argentines don’t want is being made to pay international prices for something we produce here that can help development of our industries and give them a competitive advantage.”
Analysts say that whoever wins power will keep supporting Vaca Muerta because shale exports are key to securing energy trade surpluses that Argentina needs to shore up the peso, its fragile currency. That, in turn, could help bring long-term economic stability.
Guillermo Nielsen, an adviser to Fernandez who’s vying for a role in his cabinet, is even working on a Vaca Muerta bill that includes provisions to lower taxes for oil companies and build a pipeline into southern Brazil for gas exports.
Fernandez, who’d be expected to reverse incumbent President Macri’s market reforms, said in a radio interview Saturday that while he wants international investment in Vaca Muerta, Argentine technology where possible must be the foundation for shale development. Drillers from Chevron to Malaysia’s Petroliam Nasional Bhd and Norway’s Equinor ASA are exploring the region.
“What I’d like is that we Argentines would have been able to drill oil in Vaca Muerta with Argentine technology, which we don’t have,” Fernandez said, warning of the risks of “depending on multinationals.”
Schlumberger Ltd announced last week it will sell its stake in a shale oil production venture with YPF in Vaca Muerta. New chief executive officer Olivier Le Peuch said investors and clients had taken poorly to the service company’s forays into production.
The announcement came shortly after Macri froze fuel prices at the pump in the wake of his defeat to Fernandez in the primary vote. Drillers are paying for the freeze through lower oil revenues. They are receiving about 17% less than market rates.