YPF, Argentina's state-controlled oil and gas company, has confirmed a $75–$80 million investment to drill a second horizontal well at Palermo Aike in the second half of 2026, the 4th exploratory well in a sequence that will have accumulated close to $280 million without producing a single commercial barrel.
The announcement came on the same day that 14 operators active in Santa Cruz province signed a new fiscal package with Governor Claudio Vidal: a 5% royalty rate for unconventional production for up to 10 years, conditioned on binding investment plans, and a reduction of up to 3 percentage points from the base 12% royalty for mature conventional production through April 2027.
The second well in a sequence that did not stop
The exploration sequence at Palermo Aike, the source rock of Argentina's Austral Basin — the country's southernmost hydrocarbon-producing region, located roughly 3,000 kilometers south of Vaca Muerta — began before the first horizontal well.
In 2021 and 2022, CGC (Compañía General de Combustibles S.A.), an Argentine E&P company and co-developer of the Palermo Aike program, hydraulically fractured two vertical wells at Cañadón Deus and Estancia Campos that confirmed hydrocarbon flow. On that basis, YPF and CGC jointly drilled the MAYPA.x-1 in the last quarter of 2023, the formation's first horizontal well in the Cañadón Deus area, at a cost of $28 million split equally.
The well combined a 3,574-meter vertical pilot section for geological data collection and a 1,036-meter horizontal leg to maximize reservoir exposure. Twelve hydraulic fracturing stages were completed using plug-and-perf methodology.
The 102-day production test yielded 769 m³ of oil, with flow rates declining from approximately 16 to 7 m³/day (100 to 44 bbl/d). YPF acknowledged in its annual SEC filing that productivity fell below expectations, but the test confirmed a key data point: the well sits in the natural gas and condensate maturity window.
Palermo Aike operates at higher temperature and pressure than Vaca Muerta, requiring adapted equipment and driving per-well costs significantly higher. Governor Vidal put the cost differential in context: each Palermo Aike well runs above $80 million, five to six times the $12–$16 million range for a horizontal well in Vaca Muerta.
"Every step forward will give us much more information and knowledge. It is almost a scientific exploration process — understanding the rock, the geology, and how to develop it economically," said Hugo Eurnekian, CEO of CGC.
In June 2025, YPF transferred exploitation rights over 10 mature conventional blocks to Fomento Minero de Santa Cruz Sociedad del Estado (FOMICRUZ), Santa Cruz province's state hydrocarbons and mining company, in exchange for a commitment to drill three horizontal wells across the La Azucena (2 wells) and Campamento Este (1 well) permits.
Prior to drilling, YPF completed 3D seismic surveys across more than 1,000 square kilometers in both areas. The first year of the exploratory period closed with 100% of committed milestones met.
The 4th well faces a logistical constraint: hydraulic fracturing and perforating equipment must be mobilized from other basins, as the Austral Basin lacks the service ecosystem that has grown across Vaca Muerta. "Since there is no conventional activity in the area, exploratory costs are much higher and must be concentrated," said Horacio Marín, YPF's CEO.
The first exploratory phase spans five years and covers up to five wells at different formation levels. Industry estimates a full-scale development program will require $1 billion.
Three Layers of Fiscal Incentives
The Santa Cruz package completes an incentive stack that now operates across three tiers. Provincially, the newly signed program covers two tracks: unconventional producers that submit binding investment plans and verified production commitments pay 5% royalties for up to a decade; conventional mature operators receive a royalty reduction of up to 3 percentage points from the 12% base rate through April 2027.
At the federal level, the national government has reduced export duties on conventional crude, improving margins across the Santa Cruz production chain. Argentina's Large Investment Incentive Regime (RIGI) adds 30-year fiscal stability for large-scale projects, designed for the long-cycle investment that a formation still in the exploratory phase requires.
Marín endorsed the measures: "The incentives support production and are a way to offset the decline of conventional fields." CGC's Eurnekian added a geopolitical note: the Middle East conflict, which has been reshaping global energy supply routes since February 2026, redirecting attention to Atlantic export alternatives bypassing the Strait of Hormuz and the Suez Canal, "is making the world start to see Argentina, with its resources, as an investment destination."
CGC presented Palermo Aike at CERAWeek, the annual global energy conference organized by S&P Global, in March, where Eurnekian also outlined a project to export LNG via Chilean infrastructure; according to Shale24, a South Korean delegation visited Puerto Punta Loyola, a deepwater port in southern Santa Cruz province, to review the project.
The Formation and its Strategic Position
Palermo Aike covers 12,600 square kilometers, holds estimated resources of 10 billion barrels of oil equivalent, and is drilled at depths of 2,500–3,500 meters, comparable to Vaca Muerta. Its structural advantage is direct Atlantic access via Puerto Punta Loyola and connection to the San Martín pipeline, one of Argentina's two main gas trunk lines running from the south to Buenos Aires province, for gas evacuation. At industrial scale, that proximity compresses transport lifting costs and positions the formation as a natural export platform.
Marín projected Argentina will surpass 1 million bbl/d before year-end and that YPF will take export revenues above $30 billion per year from 2031. Palermo Aike is not yet in those projections, but with nearly $280 million committed in exploration, a 5% royalty framework in place, and 14 operators signing in the same room, the formation has moved from geological curiosity to declared bet.
Fourteen Operators at the Table
Among the signatories: YPF's Marín and Lisandro Deleonardis; CGC's Eurnekian and Rodrigo Fernández; Pan American Energy (PAE), Argentina's largest private oil producer, represented by Juan Martín Bulgheroni and Horacio García; Clear Petroleum, an oilfield services company active in Santa Cruz province, represented by Ignacio Pedrozo and Cristóbal López; and Patagonia Resources' Jorge Neuss, Juan Neuss, and Gustavo Salerno.
Also present: Quintana Energy, Roch, Crown Point, Brest, Venoil, Petrolera Santa María, Alpa Ingeniería, Azruge, and Alianza Petrolera. On the government side: Governor Vidal, Lieutenant Governor Fabián Leguizamón, Chief of Staff Pedro Luxen, and Energy and Mining Minister Jaime Álvarez.
The UBA Faculty of Engineering, National University of Buenos Aires (UBA), was designated independent auditor of environmental liabilities in the province's northern zone.
Eurnekian closed with the logic of committed capital: "If a company like YPF is investing a lot of capital to take that risk, it's because it sees some possibility that it will bear fruit." He offered a caution: "It's a path that requires consistency. No one will do it alone."