Argentina Prepares China Shale Deal to Boost Gas Reserves

YPF SA, Argentina’s state-owned energy company, said its next shale oil and gas partnership will be with a group including China’s Cnooc Ltd.

China’s biggest offshore energy explorer probably will sign next month a definitive deal to explore and develop deposits in the Vaca Muerta formation, either as part of its Bridas Corp. joint venture with the billionaire Bulgheroni brothers or with the Bridas-run Pan American Energy LLC, YPF board member Hector Valle said in an interview.

An agreement with Cnooc and Bridas would be YPF’s second binding shale partnership in the 16 months since President Cristina Fernandez de Kirchner seized control of the company from Spain’s Repsol SA. Argentina is counting on companies including Chevron Corp., which signed the first YPF shale deal last month, to help develop Vaca Muerta and boost gas reserves that now stand at just six years of consumption, Valle said.

“As soon as Chevron is fully approved by Neuquen province, the door will be open to immediately seal new partnerships,” the 78-year-old economist said from Buenos Aires yesterday. “After the Americans, it will be the turn of China, either with the Bulgheronis directly or via Pan American. That’s been discussed.”

Once a definitive arrangement with Cnooc and Bridas is in place, YPF will work on Vaca Muerta partnerships with Dow Chemical Co. and Argentine billionaire Eduardo Eurnekian’s Corporacion America, with which the state company has signed preliminary accords, Valle said.

YPF shares fell 1.4 percent to 141 pesos at 4:43 p.m. in Buenos Aires after sliding as much as 2.1 percent. The stock has risen 42 percent this year after losing 41 percent in 2012.

Second Largest

Bridas, which owns a 40 percent stake in Delaware-based Pan American Energy and manages the company, reached a preliminary agreement with YPF in December to develop Vaca Muerta, home to the world’s second-largest deposits of recoverable shale gas. BP Plc holds the other 60 percent.

Guillermo Baistrocchi, a Pan American Energy spokesman, wasn’t available to take calls, an assistant said by telephone, and didn’t reply to an e-mail seeking comment. Alejandro Di Lazzaro, a YPF spokesman, declined to comment on whether a shale partnership would be signed with Bridas or Pan American Energy. Cnooc’s press department in Beijing didn’t reply to an after-hours call and e-mail seeking comment.

Fernandez, who last month offered oil and gas companies incentives if they invest at least $1 billion over five years, is seeking to stem fuel imports that doubled to $9.4 billion in 2011 and are forecast by former Economy Minister Roberto Lavagna to rise to as much as $15 billion this year.

16% Return

Chevron will invest an initial $1.24 billion as it partners with YPF in Vaca Muerta, which may hold at least 23 billion barrels of oil equivalent, a report by independent auditor Ryder Scott released in February 2012 by YPF showed.

Neuquen’s legislature will likely ratify a decree granting YPF and Chevron exploration and production rights through 2048, Luis Sapag, president of the legislature’s energy commission, said this month. The YPF-Chevron deal includes a 16 percent return on investment for the companies while granting the province $8.9 billion in royalties, he said.

Bridas yesterday lost a lawsuit filed in New York seeking to prevent Repsol from blocking any deal with YPF. Valle said Repsol is actively lobbying against prospective Vaca Muerta partnerships. Kristian Rix, a Repsol spokesman, had no immediate comment when contacted by phone.

Signing up partners to share the financial burden of developing the formation is essential given YPF has been shut out of international capital markets because of double-digit borrowing costs for Argentine issuers, Valle said.

“We have gas for six years, when the ideal is reserves for 10,” he said. “The shale projects will require at least four or five years to start adding reserves, so the clock is ticking.”

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