A Review of the Nigerian Energy Industry

Chevron, YPF sign Argentina shale deal

Shale gas standard17 July 2013, News Wires – Chevron and YPF have said the two companies had signed a $1.24 billion agreement for exploration in Argentina’s Vaca Muerta shale.

The initial agreement between the US supermajor and Argentina’s state-led producer will cover 100 wells for a pilot phase of development on a 5000-acre tract in the Loma La Lata Norte and Loma Campana formations in the province of Neuquen, according to a Chevron statement.

“We are putting into production a resource that can change the energy future of our country,” YPF chief executive Miguel Galuccio said in a statement. “This agreement is also a show of confidence from a major international company.”

Galuccio on Tuesday met with Chevron chief executive John Watson, as well as Ali Moshiri, Chevron’s president for Africa and Latin America exploration and production.

“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,” Moshiri said according to Chevron.

In a statement YPF quoted Watson as saying the Vaca Muerta is a “world-class asset” and “perfectly aligned with our solid portfolio of unconventional resources.”

Deal history
The agreement caps months of negotiations and is YPF’s highest-profile deal clinched since Argentina’s government expropriated a majority stake in the company from Spanish major Repsol last year on claims of inadequate investment.

Repsol has staunchly denied this and is amid international law proceedings to recoup the roughly $10 billion it says it is owed as a result of the seizure. The company, which has previously threatened to sue those who do business with the new YPF, did not immediately respond to a request for comment from Upstream.

The expropriation, and what critics call interventionist government policies, have led to caution among big investors about putting up large sums to help prove out the country’s potentially huge reserves in the Vaca Muerta.

Argentina was recently ranked by the US Energy Information Administration as having the world’s second-largest natural gas reserves, with 802 trillion cubic feet, and fourth-largest shale oil reserves with 27 billion barrels.

Programme structure
A new 35-year concession for the area, called General Enrique Mosconi, will be awarded by Neuquen province for the specific area, YPF said in a securities filing to Argentina’s market regulator.

Following that Chevron will make an initial payment of $300 million.

Chevron will not take direct ownership in the assets but will split investments and profits for the pilot phase, which will run through 2014, a Chevron spokesman confirmed.
There are currently 15 rigs running in the play, a count expected to expected to increase to 19 following the agreement.

YPF said that a second phase of development would aspire to drill 1500 wells with the goal of reaching production of 50,000 barrels of oil per day by 2017.

In that second phase both businesses would expect to continue splitting investments 50-50, according to YPF’s filing. Any additional development past the pilot phase would need to be authorised by separate agreements, Chevron said.

The decision comes after Argentina on Monday rolled out new shale investment reforms, including permitting companies developing resources in the Vaca Muerta to export up to 20% of their production tax-free, according to the country’s official gazette.

Local opposition
Some opposition was registered to the deal, however, as residents burned US flags and threw eggs outside YPF headquarters in Buenos Aires and indigenous groups blocked access to local wellsites as it was reported that deal negotiations were wrapping up, according to local reports.

A preliminary memorandum of understanding was signed in December but progress stalled on the deal after a ruling from a judge in Argentina threatened to freeze billions in Chevron assets in an enforcement attempt of a $19 billion pollution verdict in Ecuador.

That measure was ultimately dismissed by Argentine courts. Loma La Lata is already producing more than 10,000 barrels of oil equivalent per day, according to Chevron. The US supermajor holds concessions in the Neuquen basin with interests from 18.8% to 100%.

– Katherine Schmidt, Upstream

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