Chevron says Argentina has world's No. 2 shale oil resources

BUENOS AIRES Thu May 16, 2013 11:49am EDT

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BUENOS AIRES May 16 (Reuters) - Argentina has the world's second largest reservoir of unconventional oil after the United States, concentrated in the Vaca Muerta megafield, said Ali Moshiri, president of Latin American and African operations for U.S. oil giant Chevron.

The company has signed an agreement with Argentine state-controlled oil firm YPF, setting the stage for Chevron to invest up to $1.5 billion in Vaca Muerta, located in Argentina's southern region of Patagonia.

"You look at Argentina from the geological point of view, and it is No. 2 Some people say China is number two, but really if you look at the geological and volumetric from the shale oil, Argentina is number two," Moshiri told reporters late on Wednesday.

The development of Vaca Muerta, which means "dead cow" in Spanish, is still in the preliminary stages. The final YPF/Chevron agreement should be signed in July, once outstanding trade and tax issues are hammered out, Moshiri said.

A U.S. Department of Energy report has shown Argentina holds more natural gas trapped in shale rock than all of Europe - a bounty estimated at 774 trillion cubic feet.

YPF, which was renationalized last year as Argentina battles to reverse a long decline in natural gas and oil output, aims to drill 132 oil wells at the Vaca Muerta shale formation in Patagonia this year.

YPF's former parent company, Spain's Repsol, filed a lawsuit late last year to block the YPF/Chevron deal, and vows to take action against any company that partners with YPF after Argentina seized control of the company from Repsol in 2012.

The lawsuit added to a handful of high-profile legal battles for Chevron in South America, including its year-long tussle in Brazil following an offshore spill there and a two-decade international fight over rainforest pollution in Ecuador.

Moshiri said the highly-publicized Ecuador suit should not interfere with the California-based company's investment plans.

"We are hoping that we will able to resolve the legal issue but that doesn't stop our progress in terms of commercial decisions," Moshiri said.

Argentina last month created a fund of up to $2 billion to help develop the 7.4-million acre Vaca Muerta shale field. That funding will come from central bank reserves, which the government also taps periodically to make debt payments.

Unconventional energy fields need greater investment than conventional resources due to the complexities of extracting the natural gas and crude from rock formations.

In contrast to the United States, where shale production has boosted natural gas production, most of the Argentine drilling to date has targeted oil.

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