Continental Resources and Mercuria Energy Group are forming a 50-50 joint venture in Argentina's Vaca Muerta shale formation, with plans to invest more than US$4 billion and more than triple output from their combined operations. The deal was announced alongside the biggest auction of exploration acreage in Neuquén province in over a decade, at which Continental and Colombia's Geopark Ltd were among the bidders.

The agreement will see Continental acquire half of Phoenix Global Resources, currently owned by Mercuria, with the two firms becoming equal partners in the venture. The companies said they aim to increase Phoenix's output to over 100,000 barrels of oil equivalent per day within five years, up from current production of just over 28,000 barrels daily. The joint platform will combine Phoenix's assets in Mata Mora Norte, Mata Mora Sur, Confluencia Norte and Confluencia Sur with Continental's existing stake in Los Toldos II Oeste, as well as an additional portion of the Bajo del Toro Este block held by Integra, the investment vehicle of Argentine businessman José Luis Manzano.

The deal comes as Continental, led by billionaire Harold Hamm, deepens its footprint in Argentina after becoming the first independent US shale producer to enter the country late last year with the purchase of assets from Pluspetrol SA. In January, it acquired stakes in blocks operated by Pan American Energy Group, and earlier this year it launched a joint bid with Phoenix for six exploration blocks in Neuquén's licensing round.

Record Auction Draws Interest, Selective Bidding

The Neuquén auction, run by the provincial oil company Gas y Petroleo del Neuquén SA, or GyP, represents the largest offering of drilling areas in the province since 2010. Fifteen blocks were on offer, with Continental and Phoenix bidding together for six and Geopark bidding for two, according to a statement from GyP. Only eight blocks received bids, a sign that companies are being selective about which acreage they pursue.

Among the most sought-after areas were the Corralera Northwest and Northeast blocks, for which both Continental-Phoenix and Geopark competed. GyP will retain an equity stake of 10 to 20 percent in the awarded blocks. Officials opened the bids on Wednesday and expect to announce winners before the end of the year. The auction follows an announcement by Neuquén Governor Rolando Figueroa in Houston last May, as the province seeks to capitalise on growing global interest in Vaca Muerta, whose production is expanding rapidly.

"This initiative is fully aligned with Neuquén Province's strategy to unlock the value of our oil and gas resources," said GyP President Guillermo Savasta.

Foreign Capital and Political Reforms

The flurry of activity comes as Argentina's President Javier Milei pursues free-market reforms that have been welcomed by international investors. Continental CEO Doug Lawler credited those measures, saying they were "ultimately helping pave the way for this significant partnership." Under Milei, the government has removed controls on oil prices and exports and regained access to global financial markets.

The reforms have helped drive a shale boom in Vaca Muerta, one of the world's largest unconventional oil and gas formations. Combined crude and gas production in the basin has surpassed 1 million barrels of oil equivalent per day, with crude output hitting an all-time high of 887,227 barrels per day in May, up 19 percent from a year earlier. Natural gas output has also climbed, reaching 5.5 billion cubic feet per day.

Argentina has revised its estimate of technically recoverable oil resources in Vaca Muerta to 30.17 billion barrels, an 89 percent increase over the 2013 estimate, and the country has overtaken Colombia to become Latin America's fourth-largest oil producer.

Broader Investment Wave

The Continental-Mercuria deal and the Neuquén auction follow a wave of investment from American investors in Argentina's energy sector. Peter Thiel's hedge fund, Thiel Macro, recently disclosed a roughly 1 percent stake in Vista Energy, a leading producer in Vaca Muerta, worth about $76 million. The purchase came four months after Thiel met with Milei and was made in the form of American depositary shares. Vista, which is the only non-US company in Thiel Macro's portfolio, saw its shares rise 5.6 percent in New York trading following the news.

Vista produces about 160,000 barrels of oil equivalent daily in Vaca Muerta, with cumulative investment of over $6.5 billion, and holds a stake in the VMOS pipeline and port project expected to begin operations next year. Chevron Corp, which recently decided to develop more acreage in Vaca Muerta thanks to tax cuts and other benefits, has also increased its presence in the region, though it did not bid in the Neuquén auction.

For Continental, the deal marks its third in Argentina since November, and the company is also partnering with Mercuria Americas on a natural gas-fired power plant in the Permian Basin of West Texas. The two companies already jointly own the 452-megawatt Pecos Power Plant under development in Texas.