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Argentina’s YPF moves toward alliance with Chevron

Argentina expropriated 51 per cent of YPF in May, ejecting former Spanish owner, Repsol, which threatens legal action if plans for a YPF-Chevron alliance go ahead.

MARCOS BRINDICCI/REUTERS

Argentina's cash-strapped state oil company said it was "advancing swiftly" toward a strategic partnership with Chevron Corp., the U.S. oil major, designed to help boost flagging output and unlock the country's vast Vaca Muerta shale resources.

"We discussed, concretely, different co-operation alternatives. Chevron is very interested in joint projects, and we want partners with the weight and experience of a company of this global size," Miguel Galuccio, YPF's chief executive, said in a statement after a meeting with Ali Moshiri, Chevron's president for Latin America and Africa.

YPF said Mr. Moshiri had expressed interest "in associating with YPF on an unconventional cluster … in Vaca Muerta" and the talks with Chevron were "the first concrete step towards an alliance that will be strategic along the path that YPF's president and CEO is leading".

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Chevron said it would not comment "on any confidential discussions we hold with officials."

Mr. Galuccio in June unveiled a taster of his five-year strategic plan that called for investment of $7-billion (U.S.) a year to reverse falling production. Partnerships will be key to funding what he called the "ambitious but realistic" plan, which includes drilling 1,000 wells.

Argentina is believed to be home to the world's third-biggest reserves of unconventional oil and gas, largely in the Vaca Muerta formation in the western province of Neuquén. To develop them, the company has appealed for deep-pocketed partners – and they have proved hard to find amid a toughening regulatory environment.

Argentina expropriated 51 per cent of YPF in May, ejecting former Spanish owners, Repsol, whom it accused of bleeding the company dry and forcing Argentina to have to spend $9.4-billion last year – nearly as much as its entire trade surplus – on energy imports. As a result YPF is expected to seek to test investor appetite soon and has filed plans to sell $760-million under a previously announced bond sale program. No details have been released.

But regulatory and legal hurdles cloud the investment picture in Argentina's energy sector. Repsol has written to companies including Chevron to threaten legal action against any company that seeks to invest in YPF or its assets. In addition, the government last month toughened regulation of the sector with new requirements for companies to file annual production and investment targets, and face losing concessions if they fall short.

Chevron, with large investments in Latin America and plenty of experience in shale, would be an ideal partner for YPF. The U.S. major is already involved in shale in Argentina and plans to drill three wells in the Vaca Muerta formation this year and 120 conventional wells in the Neuquén basin over the next three years.

The two executives also discussed co-operation in projects to squeeze more production out of mature fields in Argentina. Mr. Galuccio presents his strategic plan for YPF on Aug. 30.

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