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Chevron, Argentina's YPF Ink Vaca Muerta Shale Deal

A unit of Chevron Corp. and affiliates of Argentina's state-controlled YPF SA have struck a long-sought agreement for the U.S. major to provide an initial $1.24 billion to further development of shale oil and gas resources from the Vaca Muerta formation in Argentina's Neuquen province.

The money would enable the first phase of development in the Loma La Lata Norte and Loma Campana areas. The initial program is to include the drilling of 100 wells in a 5,000-acre tract, part of a 96,000-acre concession, Chevron said Tuesday. The Loma La Lata field is currently producing more than 10,000 boe/d.

Tudor, Pickering, Holt & Co. in a note Wednesday valued the deal at $25,000/acre before adjusting for the current production of 10,000 boe/d. The "valuation looks rich" (although small considering Chevron's size), the analysts said, "unless recent favorable moves on export duties hold."

The Argentine government nationalized YPF in April, a decision that reduced Repsol SA's stake in the company from 57% to 6% and triggered a credit crunch for the Spanish company (see Shale Daily, April 25, 2012). President Cristina Fernandez this week issued decrees granting special privileges to oil companies investing more than $1 billion in new shale ventures in the country. After five years, qualifying companies would be able to export up to 20% of oil and gas production tax-free and would be exempt from currency controls.

"This strategic investment will allow Chevron to take part in the Vaca Muerta, one of the most exciting shale oil and gas plays in the world today," said George Kirkland, Chevron vice chairman, adding that it provides the company with an opportunity to grow production beyond its 2017 target of 3.3 million b/d.

"Argentina has world-class shale gas and shale oil potential -- possibly the most prospective outside North America -- primarily within the Neuquen Basin," the U.S. Energy Information Administration (EIA) said in a June report on recoverable shale oil and gas resources outside of the United States. "Already a major oil and gas production area from conventional and tight sandstones, the Neuquen Basin is emerging as the premier shale gas and shale oil development area of South America...

"The Vaca Muerta Formation has three distinct prospective areas of hydrocarbons in the Neuquen Basin...[It] has risked, technically recoverable shale gas and shale oil resources of 308 Tcf of gas and 16 billion bbl of oil and condensate, from 1,202 Tcf and 270 billion bbl of risked, in-place shale gas and shale oil resources."

According to the EIA report, YPF has said it holds about 3 million net acres in the basin and had drilled 37 Vaca Muerta wells through last December. The June report noted YPF talks with Chevron for a $1 billion (100 well) deal and said it awaited final approval. China's CNOOC has signed a joint venture deal with YPF to invest up to $1.5 billion to drill 130 wells in the basin.

Chevron Argentina currently produces an average of 21,000 b/d of crude oil and 4 MMcf/d of natural gas in the Neuquen Basin, where it holds operated interests ranging from 18.8% to 100%, the company said.

"Chevron has a long history in Argentina, and this project demonstrates our commitment to the country, its economic development and its goal of achieving energy self-sufficiency," said Ali Moshiri, president of Chevron's Africa-Latin America exploration and production unit.

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