BP plc and Bridas Corp. agreed Monday to create Argentina’s largest privately owned integrated oil and gas company, designed to not only explore emerging Vaca Muerta shale targets, but also to pursue developments in Mexico, Paraguay and Uruguay.

In the cash-free joint venture (JV), the operators are combining BP’s interests in oil and gas producer Pan American Energy (PAE) with Brida’s refiner and marketer Axion Energy.

The new company, Pan American Energy Group (PAEG), would be owned equally by BP and Bridas, itself a 50-50 JV of Bridas Energy Holdings and China’s CNOOC Ltd. PAE currently is owned 60% by BP and 40% by Bridas, while Axion is wholly owned by Bridas.

“Supported by the combined skills and expertise of BP and Bridas, this new integrated business will be able to pursue growth and development opportunities in Argentina, Uruguay, Paraguay and Mexico,” said BP Group CEO Bob Dudley.

“We see value-enhancing opportunities throughout PAEG’s businesses; from extending the life of mature production and developing new unconventional resources including Vaca Muerta, to growth in retail fuels and lubricants marketing. These fit well with BP’s strategy and will allow us to strengthen and deepen our long-term relationship with Bridas.”

The combination would align interests already in place by the two companies across the upstream and downstream in Argentina, Uruguay and Paraguay. The combination also may offer further integration synergies as the Axion refinery is the primary customer for PAE’s Argentine crude oil production.

“For the past 58 years, we have been investing in the energy sector in Argentina and the region,” said Bridas Chairman Alejandro Bulgheroni. “Efficient investment has been the main factor behind our growth as an oil and gas company. By signing this agreement, a new phase begins for our company, as we integrate our operations with those of our partners.”
The integration also “ratifies our commitment to investment, employment and the efficient development of resources our region needs,” said PAE Executive Director Marcos Bulgheroni.

PAE, Argentina’s second largest oil and gas producer after state-owned YPF SA, in 2016 produced on average 108,000 b/d oil and natural gas liquids, and 891 MMcf/d of natural gas. Total oil and gas reserves are 1.56 billion boe, including Bolivian reserves.

PAE has interests in Argentina’s largest oilfield, Cerro Dragon, and in the Vaca Muerta, which is in the Neuquen Basin. Overall PAE operates in Argentina’s four main basins — Golfo San Jorge, Marina Austral, Neuquen, Noroeste. It also has an 80% stake in the Hokchi block in the shallow water Mexican Gulf of Mexico, which it acquired two years ago in Mexico’s second auction of shallow-water blocks.

PAE was formed 20 years ago by Bridas and a BP predecessor. In 2010, CNOOC acquired a 50% stake in Bridas. And in 2012, Bridas acquired ExxonMobil Corp.’s assets in Argentina, Uruguay and Paraguay, leading to the formation of Axion Energy.

Axion owns and operates the 90,000 b/d refining capacity Campana refinery north of Buenos Aires. It has more than 750 retail sites in Argentina, Uruguay and Paraguay, and it has material lubricant and aviation fuels businesses.

PAEG, to be self-funded, would have four directors each from BP and Bridas. The transaction is subject to regulatory approval, with completion anticipated early next year.

Bridas in 2013 signed a two-year, $1.5 billion agreement with YPF to explore and drill in two Argentina onshore plays, the Bajada del Anelo and Bandurria fields in the Vaca Muerta.

Big Oil companies are being drawn to Argentina by its substantial reserves and intriguing Vaca Muerta. In 2013, the U.S. Energy Information Administration reported that Argentina may have the most prospective shale oil and gas outside of North America. The Neuquen Basin may hold “about as much shale resource as every other South American country combined,” with similar characteristics as the Eagle Ford Shale, according to Raymond James & Associates Inc.

Statoil ASA last month partnered with YPF to explore about 38,800 acres within the Bajo del Toro play of the Vaca Muerta. Among the operators poking around the shale play are Chevron Corp., which is working with partners, and Royal Dutch Shell plc. An ExxonMobil Corp. subsidiary in 2011 began a farm-out agreement with a subsidiary of Canada-based Americas Petrogas to explore an estimated 163,500 acres in the Los Toldos blocks in Neuquen.

Vaca Muerta also is on the radar for newly formed Vista Oil & Gas SA de CV, which last month became Mexico’s first independent oil and gas company since energy reforms were instituted four years ago. Vista CEO Miguel Galuccio formerly led YPF.