* YPF estimates Mendoza shale resources at 1 bln boe
* Company under gov't pressure to hike production
* Launches legal action over Chubut province concessions
By Karina Grazina
MALARGUE, Argentina, March 29 Argentina's biggest energy company, YPF, has found unconventional shale oil and natural gas in Mendoza province, confirming the extension of the massive Vaca Muerta area, officials said on Thursday.
YPF, which is controlled by Spain's Repsol , said exploration at the Payun Oeste and Valle del Rio Grande blocks pointed to an estimated 1 billion barrels of oil equivalent (boe) in unconventional oil and gas in Mendoza.
Energy resources and reserves in the province, which borders the Andes mountain range in western Argentina, currently stand at 685 million boe.
"The results are very encouraging. They tell us these are horizontal wells similar to what is done in the United States, we can replicate the U.S. model in Mendoza province," Tomas Garcia Blanco, head of YPF's exploration and production, told reporters gathered in Malargue, Mendoza.
Horizontal wells permit access to rocky areas where oil and gas could not be extracted with conventional vertical drilling. U.S. energy production has surged thanks to this technology.
The company's shares closed up 3.9 percent in Buenos Aires after climbing by as much as 8 percent earlier in the session on news of the discovery, traders said.
YPF is under mounting pressure from President Cristina Fernandez and provincial governors to boost declining production to help ease the state's energy import burden.
Thursday's announcement follows the decision by six provinces including Mendoza to revoke operating licenses granted to YPF on the grounds of slack investment.
Officials have also accused YPF of overcharging for fuel and the country's CNV securities regulator said on Thursday it was investigating "unusual" prices and volumes in YPF share deals.
YPF says its investment in Argentina rose 50 percent in 2011, with most of the cash channeled into upstream including exploration projects like those that led to the huge Vaca Muerta shale find, which could double Argentina's energy output.
The shale find in Mendoza province "increases the potential of the Vaca Muerta formation," YPF said in a statement.
The company, which produced about 35 percent of all the oil extracted in Argentina last year, holds concessions on roughly 40 percent of Vaca Muerta and says huge investment will be needed to develop it.
Defending its investment record, a company source said the firm filed suit to keep Chubut province from taking away two of its major concessions. It asked for the measure to be suspended while the court decides if it is legal.
The two concessions in Chubut, Argentina's biggest oil-producing province, account for about 7 percent of the company's total output in the South American country.
YPF's communications director admitted the company may need to do more but he condemned government tactics.
"It's possible the company is not doing everything perfectly, it's possible it could do more, but you can't improve this by cancelling concessions or constantly criticizing," Sergio Resumil told reporters.