TotalEnergies' Argentina Shale Divestment: A Strategic Retreat in a Low-Oil Price World?

The energy sector is in flux, and TotalEnergies (TTE) is signaling a bold pivot. Recent reports suggest the French giant is considering selling its shale oil assets in Argentina's Vaca Muerta basin—a move that underscores a broader industry reckoning with low oil prices, geopolitical risks, and shifting capital priorities. For investors, this decision raises critical questions: Is TotalEnergies' potential divestment a defensive retreat or a shrewd reallocation of capital? And what does it mean for the company's long-term value?

The Drivers of Divestment: A Perfect Storm of Challenges

TotalEnergies' apparent willingness to exit Vaca Muerta's shale oil operations stems from three interlinked factors:

1. Low Oil Prices and Marginal Returns:
   Shale oil extraction in Vaca Muerta requires sustained oil prices above $45–50/barrel to break even. With Brent crude hovering near $70/barrel in early 2025, the math still works—but only just. TotalEnergies, however, is eyeing higher margins elsewhere. Unlike Exxon Mobil, which exited Vaca Muerta in 2023 after securing favorable valuations, TotalEnergies appears less eager to sell at distressed prices. The company's CEO, Patrick Pouyanné, has emphasized focusing capital on projects with “strategic clarity,” such as natural gas and renewables.

2. Argentina's Regulatory and Financial Risks:
   While President Milei's reforms have stabilized some aspects of Argentina's economy, longstanding issues persist. Dividend repatriation hurdles and foreign exchange controls remain a deterrent for international firms. TotalEnergies' reluctance to commit to LNG infrastructure in Argentina—despite exporting gas to Brazil via Bolivia—reflects this caution.

3. Strategic Shift to Gas and Renewables:
   TotalEnergies' reallocation of capital aligns with its broader “energy transition” strategy. Natural gas, a bridge fuel, and renewables (where it plans to invest $5 billion annually until 2030) are now front and center. For instance, its 2024 gas exports to Brazil via Bolivian pipelines represent a low-risk, high-liquidity play compared to shale oil's capital-intensive model.

Note: A falling correlation might signal reduced reliance on oil prices as TotalEnergies diversifies.

A Broader Industry Trend: The Exodus from Vaca Muerta

TotalEnergies is far from alone in reassessing its Latin American bets. Exxon Mobil exited in 2023, while Petronas is mulling a sale of its stake in YPF's La Amarga Chica project. The exodus reflects a sector-wide recalibration: international oil companies (IOCs) are prioritizing assets with clearer returns and fewer geopolitical entanglements.

For investors, this raises a critical point: Is Vaca Muerta's future now in the hands of local players? YPF's cost-cutting and production efficiency (breakeven at $40/barrel) suggest it can thrive in a low-for-long oil environment. Yet its reliance on state subsidies and bureaucratic support poses its own risks. TotalEnergies' exit, by contrast, frees capital for higher-growth opportunities.

Implications for Investors: Prudent Divestment or Overexposure?

The strategic merits of TotalEnergies' potential divestment depend on execution. Here's how to evaluate it:

• Pros:
• Focus on High-Margin Assets: Redirecting capital toward gas, renewables, and projects like Brazil's LNG exports aligns with TotalEnergies' stated goal of 3% annual production growth through 2030.
• Reduced Emerging-Market Exposure: Exiting volatile jurisdictions like Argentina mitigates political and currency risks, a key concern post-2023's global banking crisis.

• Valuation Boost: Shedding non-core assets can improve return on capital employed (ROCE), a metric TotalEnergies has prioritized.

• Cons:

• Short-Term Revenue Impact: Selling shale oil stakes may trim near-term cash flow, though the proceeds could be reinvested in higher-potential projects.
• Competitor Gains: YPF's dominance in Vaca Muerta could lock out rivals, potentially limiting TotalEnergies' re-entry options if oil prices rebound.

Investment Thesis: A Buy on Strategic Discipline

TotalEnergies' potential shale divestment appears less a sign of weakness and more a deliberate step toward portfolio optimization. With renewables investments growing and gas projects gaining traction, the company is positioning itself for a world where oil's role gradually diminishes.

Action Items for Investors:
1. Monitor TTE's shareholder returns: The company's dividend yield (around 4.5% as of mid-2025) and buyback plans should remain robust if divestment proceeds fund these initiatives.
2. Track oil price trends: A sustained drop below $70/barrel could accelerate the divestment, but a rebound might pressure TotalEnergies to reconsider.
3. Watch YPF's performance: If Vaca Muerta's shale oil output surges despite low prices, it could signal long-term viability—but also reduce TotalEnergies' incentive to sell.

Conclusion: A Calculated Move, Not a Retreat

TotalEnergies' potential exit from Argentina's shale oil assets is a microcosm of the energy sector's evolution. In a low-oil-price world, companies must choose between clinging to marginal plays or reallocating capital to higher-value opportunities. For TotalEnergies, the calculus favors the latter. Investors should view this as a disciplined move—not a retreat—and consider TTE a buy for its focus on sustainable growth in gas, renewables, and geopolitically stable markets.

The energy transition isn't just about wind and solar—it's about making every barrel (and every euro) count.