Chevron, YPF Sign Venture to Develop Argentine Shale Oil

Chevron Corp. (CVX) signed a deal with YPF SA, (YPFD) Argentina’s largest energy company, which paves the way for it to become the first major oil company to partner with the Buenos Aires-based producer since its nationalization in April.

According to the agreement signed today by Miguel Galuccio, chief executive officer of YPF, and Ali Moshiri, Chevron’s head of Latin America, Middle East and Africa, the San Ramon, California-based company gets an exclusive right for four months to negotiate final terms for YPF to transfer a 50 percent interest in Loma de la Lata Norte and Loma Campana, YPF said in an SEC filing. The fields comprise an area of 290 square kilometers (180 miles) in southwestern Argentina, YPF said.

“Chevron is committed to make the expenditures in accordance with a development program, for an estimated 100 wells, in these areas during a 12-month period,” YPF said in the filing.

The pilot program in Neuquen Province would cost $1 billion and may eventually expand to an estimated 2,000 wells at a pricetag of about $15 billion,Galuccio said in a videoconference from Houston withMoshiri.

The companies plan to identify additional exploration blocks in an estimated 600-square kilometer area, where Chevron will pay for the investments, YPF said in the filing. In exchange, YPF said it will give Chevron 50 percent interest in the blocks.

‘Irrelevant’ Lawsuit

The final agreement, if signed, will be the first YPF reaches with a foreign oil company to invest in Argentina since the government nationalized 51 percent of the company by seizing shares from Repsol SA (REP) in April.

In August, Chevron and YPF signed a memorandum of understanding, the first step toward a development partnership.

Repsol, based in Madrid, filed a complaint Dec. 4 in a federal court in Manhattan accusing Chevron of improperly obtaining rights to develop Argentine shale and natural gas resources.

Repsol’s lawsuit against Chevron for partnering with YPF is “irrelevant,” Moshiri said.

“Our goal is to start as soon as possible and the only thing we need is to push our teams to put a definitive agreement together as soon as possible,” he said.

Dead Cow

Vaca Muerta, which means “dead cow” in Spanish, holds at least 23 billion barrels of oil equivalent, according to a report by independent auditor Ryder Scott released in February by YPF. Argentina holds the world’s third-largest shale gas reserves, according to US Energy Administration data.

Galuccio said the signing of the preliminary deal marks “a very important day for YPF.” In August, he said that to boost output YPF needs to invest $37.2 billion in the next five years, $2.5 billion of which is to come from strategic partners, $5 billion from bond sales and bank loans, while the remainder should come from its own cashflow.

To contact the reporters on this story: Pablo Gonzalez in Buenos Aires at pgonzalez49@bloomberg.net; Rodrigo Orihuela in Rio de Janeiro at rorihuela@bloomberg.net

To contact the editor responsible for this story: James Attwood at jattwood3@bloomberg.net

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