Chevron and YPF Agree Drilling Deal

On December 19, the Financial Times reported that the US energy giant Chevron Corp (NYSE:CVX) had signed an agreement with the Argentine oil company YPF (NYSE:YPF) to drill 100 pilot wells in the Vaca Muerta shale oil formation in 2013. This is the first partnership which the Buenos Aires-based producer has signed since its nationalisation earlier in 2012.

**YPF Signs $1 Billion Deal with Chevron**
As reported by the FT, YPF’s CEO Miguel Galuccio and Ali Moshiri, Chevron’s president for Africa and Latin America, signed an agreement at Chevron’s headquarters in Houston, Texas. The agreement concerns a pilot programme for drilling 100 non-conventional oil wells at a cost of about $1 billion (£615 million). “I can’t give details, but this is a farm-in – one side puts the resource and the other puts the part of the cash for a time,” Mr Galuccio told the FT, adding that Chevron would end up with equity in the concession.

Reuters reports that details of the deal, which would see YPF transferring a 50 percent interest in the Loma de la Lata Norte and Loma Campana fields, covering an area of nearly 300 square kilometres, will be negotiated over the next four months. “The question is going to be how big the investment will be beyond the pilot,” noted Mr Moshiri, as quoted by Reuters. “Our goal is to start as soon as possible. What we need is to push our teams to put a definitive agreement together as soon as possible.”

**Vaca Muerta Resources**
The pilot project is based in the Vaca Muerta (“dead cow” in Spanish) formation in southern Argentina, which contains an estimated 23 billion barrels of oil equivalent. The FT quotes Mr Galuccio as saying that the production from the 100 wells “could be in the region of 15,000 barrels”.
As noted by Reuters, the deal is likely to pave the way for shale investments in Argentina, which sits on vast resources of shale gas and oil but lacks sufficient capital to bring them into production. Mr Galuccio noted that fully developing the two Vaca Muerta areas where the pilot project is based would require an investment of up to $15 billion and the drilling of as many as 2,000 wells. The FT in turn notes that Argentina, which expropriated 51 percent of YPF from Repsol (MCE:REP, PINK:REPYY) of Spain in May, sees Vaca Muerta as a way to decrease its dependence on expensive imported fuel.

**Chevron Not Concerned about Lawsuits**
Repsol, however, filed a US lawsuit to block Chevron’s partnership with YPF. The FT quotes a Repsol spokesman as saying that the company considered any such deal “unlawful because they are signed with illegitimate managers of YPF”.Chevron’s Mr Moshiri however dismissed the impact of the lawsuit, noting that it was “irrelevant,”and adding that the company was “not concerned at all,” as quoted by the FT.

!m[The Accord Likely To Pave The Way For Shale Investments In Argentina](/uploads/story/1079/thumbs/pic1_inline.png)
It would seem that Chevron is not concerned about the freeze of its Argentinean assets either, with the order issuedby a judge in November in relation to an environmental lawsuit by Ecuadorean villagers. “We believe this illegal action by the Ecuadorean court against Chevron Argentina will be thrown out,” noted Mr Moshiri, as quoted by the FT, adding that Chevron Argentina was a separate company with no operations in Ecuador.
**Chevron’s share price was down fractionally by 0.06% so far today at $109.86 with the YPF share price fractionally up by 0.6% at £15.35**