(Bloomberg) -- Argentina’s biggest oil and gas producer, state-run YPF SA, is moving ahead with plans to build a $2.5 billion cross-country pipeline that’s key to unlocking exports of crude from the vast Vaca Muerta shale patch in Patagonia.

YPF recently received environmental authorization for the so-called Vaca Muerta Sur pipeline and is seeking bids from contractors to build it, said Max Westen, head of strategy and business development.

For years, YPF has spearheaded drilling in Vaca Muerta by teaming up with other oil companies. Now, it’s doing the same for building pipelines and a liquefied natural gas plant, both of which require partners to proceed. 

“The environmental permit is a key milestone, and we are in discussions with the rest of the oil industry — there’s a lot of interest in participating,” Westen said on an earnings call.

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Pipeline capacity is the chief bottleneck holding back Vaca Muerta, a heralded but underdeveloped formation often likened to the Permian in the US.

Last year, the government built a new trunk line for shale gas that’s helping to reduce the country’s LNG imports. It’s also reversing the flow of a pipeline originally designed to bring in fuel from Bolivia, so that Argentina’s northern provinces can instead be supplied by domestic shale. The two projects may one day enable Argentina to send its gas to neighboring Brazil.

But shipments of crude are a quicker way to generate the billions of dollars a year that Argentina is seeking to help turn around its struggling economy.

That’s why drillers, including YPF, are shifting their attention to Vaca Muerta’s oil window. Already, the companies have resumed crude sales to neighboring Chile after a years-long hiatus.

They are also investing — via Oldelval SA — in expanding existing facilities to ship crude overseas from Argentina’s Atlantic coast. That route will soon have an extra 45,000 barrels a day of capacity, plus another 200,000 barrels next year, Westen said.

Vaca Muerta Sur will run from the shale heartland of Neuquen province across northern Patagonia to Punta Colorada, where a port must be built to load tankers. The conduit is expected to transport 180,000 barrels a day in 2026 and may eventually have capacity for 700,000 barrels.

“Vaca Muerta Sur is the most competitive evacuation route to monetize the crude in Vaca Muerta,” Westen said. “That’s why YPF is pursuing it as a priority over any other project.”

YPF’s net shale oil production in the first quarter hit a record of 112,000 barrels a day, an increase of 3% from the previous quarter.

YPF’s new management — appointed by President Javier Milei — is divesting aging, conventional oil fields to focus on Vaca Muerta in a bid to boost its stock price and resume dividend payments to shareholders.

The company pitched the blocks at an investor roadshow in Houston and Calgary last month, generating interest from about 70 companies, Westen said. YPF is preparing to receive bids in June and hopes to complete sales by the end of the year.

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