BMI View: Chevron 's recent agreement with YPF for a pilot development project in the Vaca Muerta is a critical breakthrough for YPF , which is in desperate need of foreign financing and assistance to develop its shale reserves. If successful, the move could de-risk Argentine for others and pave the way for additional investment. For YPF's part, it is betting on this reversal of Argentine fortunes to stave off a forecasted production decline over the next decade.
Argentina ' s recently-nationalized YPF and Chevron have signed an agreement for a pilot project to develop the country ' s vast shale reserves in the Vaca Muerta formation. The plan will involve the drilling of 100 wells in 2013 at a shared cost of US$1bn. The deal signing represents the first agreement signed between YPF and an international oil company (IOC) since the Argentine government expropriated YPF from the Spanish company Repsol in early 2012.
We have long been highlighting the risks posed to IOCs interested in working Argentina. These risks stem from both a challenging and rapidly deteriorating business environment for companies in strategic sectors in Argentina, especially after YPF ' s nationalisation. Indeed, the primary challenges include oil and gas prices (now to be managed by the recently established national hydrocarbon planning commission), currency controls and import restrictions ( see our online service, September 3 2012, 'YPF's Investment Plan Depends On Risk-Tolerant Foreign Investors' ). Chevron also faces specific legal challenges pertaining to its entrance into Argentina, as Repsol has already filed lawsuits in Spanish and American courts against the supermajor for " disloyal competition " ( see our online service, November 21 2012, ' Repsol Lawsuit Another Blow To Chevron ' s Argentine Shale Dreams ' ).
For Chevron, however, the net benefit of having the first-mover advantage in Vaca Muerta, which hold the world ' s third largest proven oil reserves, appear to be outweighin g these risks. Indeed, Argentina ' s Bridas Holdings , which is part Chinese owned, has also been in talks with YPF, and may be signing a separate agreement before the year ' s end ( see our online service, December 10, ' YPF To Receive Argentine Financing But Additional Foreign Partners Remain Elusive ' ). There have also been rumours that Norway ' s Statoil may be interested in a slice of Vaca Muerta as well.
Should Chevron, and potentially others, be successful in Argentina, it could pave the way for the additional foreign investment which the country ' s energy sector desperately needs. Although we are holding on to our forecasts for now, these developments are creating a significant upside risks to them. Dependin g on the relative success of Vac a Muerta ' s development, it has the potential to either stave off , or possibly even reverse, Argentina ' s forecasted decline in production over the next decade. For its part, YPF better hope that Chevron and others don't get cold feet.
|Betting on Vaca Muerta|
|Argentine Proven Oil Reserves and Production|