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Petronas signed a $550m deal with Argentina’s YPF to develop the South American country’s vast shale resources on Wednesday, despite fears that falling oil prices could undermine the profitability of unconventional energy projects.
The joint venture with the Malaysian state oil company represents the second biggest investment secured by YPF since the state seized a majority stake from Spain’s Repsol in 2012. It follows earlier deals amounting to $2.8bn with Chevron of the US to develop the Vaca Muerta shale formation, one of the largest in the world.
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Although Argentina’s government is hoping to emulate the shale boom in the US, which has enticed Carlos Slim and George Soros to invest in stakes in YPF, so far most energy companies have shied away from big commitments in Argentina thanks to a poor investment climate, with high inflation and heavy-handed government intervention.
Investors also remain wary of Argentina after it defaulted on its debt for the second time in 13 years in July, with growing doubts that President Cristina Fernández’s government will resolve a dispute with so-called “holdout” creditors before the end of her term in a year’s time.
Nevertheless, the deal will help to consolidate Argentina’s position as the most developed unconventional energy market outside the US, which the government hopes will help to achieve energy self-sufficiency, putting an end to an energy deficit that has drained foreign currency reserves.
Royal Dutch Shell and France’s Total also signed smaller deals recently, for $250m and $300m respectively, to develop parts of Vaca Muerta, according to an announcement earlier this month by the provincial oil group, Gas y Petróleo del Neuquén.
Although not as large as the deal with Chevron it will be similar in structure, with Petronas providing the bulk of the financing — some $475m — for the initial three-year pilot project that aims to drill 35 wells in an area of around 187 sq km, which if successful could lead to investments of about $10bn.
The joint venture between YPF and Chevron at Loma Campana, which is close to the site of the Petronas project called La Amarga Chica, is the biggest shale project outside the US, producing more than 25,000 barrels a day from around 250 wells, which could increase to some 1,500 wells.
It is the second deal signed in recent months between the chief executive of Petronas, Shamsul Abbas, and YPF’s Miguel Galuccio, who has lived in southeast Asia and speaks some Malaysian, after they reached a technology sharing agreement with Mexico’s Pemex in September.
Since the government took control of YPF more than two years ago and appointed Mr Galuccio as its chief executive, the company has reversed a declining trend in oil and gas production, increasing profits while also ramping up investments, especially in Vaca Muerta.
But Mr Galuccio recognises that YPF cannot develop Vaca Muerta’s resources successfully alone. They will require some $200bn of investment over the next decade and the group has been actively seeking partnerships with foreign companies.