Argentina's Energy Sector and Economic Reforms Under Milei: Navigating Risks and Opportunities in a Slowing Vaca Muerta

Argentina's energy sector, a cornerstone of President Javier Milei's economic reform agenda, is at a crossroads. The Vaca Muerta shale formation, once hailed as a game-changer for Latin America's energy landscape, has delivered record production levels but now faces mounting headwinds. As of August 2025, Argentina produced 816,144 barrels of crude oil per day, with 65% sourced from Vaca Muerta, securing its position as Latin America's fourth-largest crude producer, according to a U.S. News analysis. However, recent data reveals a sharp decline in drilling and fracking activity, raising questions about the sustainability of this growth and the viability of Milei's ambitious export targets.

The Dual Narrative: Growth and Stagnation

Vaca Muerta's potential remains undeniable. In 2024, the region saw a 20% surge in new horizontal wells, with nearly 400 brought online, according to Rystad Energy. Productivity metrics are equally impressive: a typical Vaca Muerta well generates 30 barrels per foot in its first year, double the output of U.S. shale plays like the Permian Basin, the U.S. News analysis found. Infrastructure projects, including the $2 billion Vaca Muerta Sur pipeline, are set to expand takeaway capacity to 700,000 barrels per day by 2026, according to a Zacks report, addressing a critical bottleneck for exports.

Yet, these gains are being undermined by a slowdown in activity. Drilling in the Neuquén Basin fell to 55 wells in July 2025 from 67 in June, marking three consecutive months of decline, Rystad Energy reported. Fracking stages dropped 9% in July compared to June, also reported by Rystad Energy, while production costs-35–40% higher than in the Permian-have eroded margins as global oil prices slid to $65 per barrel from $90 in April 2024, as noted in an OilPrice analysis. For companies like Chevron, which aims to produce 30,000 barrels per day in Vaca Muerta by 2025, the combination of high costs and volatile prices is forcing a reevaluation of long-term commitments, a Zacks report observed.

Policy Reforms and Investor Sentiment

Milei's administration has introduced the Incentive Regime for Large Investments (RIGI), offering tax breaks and foreign exchange benefits to attract capital, Rystad Energy noted. State oil company YPF, which accounts for 55% of Vaca Muerta production according to a Rystad Energy news release, has pledged to operate 19 drilling rigs by 2026 and expand its well count to 4,000, though the OilPrice analysis cautioned that operational and price pressures complicate such plans. However, private sector confidence remains fragile. ExxonMobil and Chevron have either sold or considered divesting assets in the region, citing the need for regulatory and economic stability, the U.S. News analysis noted.

The government's push for capital-market liberalization and infrastructure investment is critical. As one industry analyst notes, "Without access to financing and stable currency policies, Argentina's $30 billion export target by 2030 is aspirational at best," a point underscored by the OilPrice analysis. The OTASA pipeline's success in doubling Medanito crude exports to Chile was highlighted by Rystad Energy and demonstrates the potential of strategic infrastructure, but scaling such projects requires sustained investor trust.

Risks and Rewards for Investors

For investors, Vaca Muerta presents a paradox. On one hand, the formation's technical performance and strategic infrastructure projects offer long-term upside. On the other, the sector is plagued by operational costs, currency volatility, and political uncertainty. Labor reforms and foreign exchange controls remain contentious issues, with companies like Tecpetrol and TotalEnergies publicly calling for policy clarity, as detailed in the OilPrice analysis.

A data visualization of Vaca Muerta's production trends from 2023 to 2025 would reveal a sharp upward trajectory in 2024 followed by a plateau in 2025, underscoring the fragility of current gains. Similarly, a cost comparison chart between Vaca Muerta and U.S. shale basins would highlight the 35–40% premium Argentina must overcome to remain competitive, the U.S. News analysis shows.

Conclusion: A High-Stakes Bet

Argentina's energy sector under Milei is a high-stakes proposition. While Vaca Muerta's production capacity and infrastructure investments signal potential, the slowdown in drilling activity and economic headwinds cannot be ignored. For investors, the key will be balancing optimism about Argentina's energy ambitions with caution regarding its ability to stabilize costs, attract capital, and navigate political turbulence. As the government races to meet its 2030 export goals, the coming months will test whether Vaca Muerta can transition from a symbol of promise to a pillar of sustainable growth.