BUENOS AIRES (Reuters) - The compensation deal being negotiated between Argentina’s YPF (YPFD.BA) and Spain’s Repsol (REP.MC) will open opportunities for foreign companies to invest in the South American country’s vast untapped oil and natural gas resources, the head of YPF, Miguel Galuccio, told Reuters on Wednesday.
The board of Repsol unanimously agreed on Wednesday to start formal talks with Argentina over a compensation offer for YPF assets that Buenos Aires seized last year.
“Signing a deal between Repsol and the Argentine state will provide the confidence necessary to form new alliances with potential investors and drive non-conventional exploration,” Galuccio told Reuters in an interview conducted by email.
Already the world’s No. 3 corn and soybean exporter, Argentina stands to become a major oil and gas producer as well if the government can attract the tens of billions of dollars it needs to exploit the Vaca Muerta (Dead Cow) shale formation.
Galuccio also said he hopes to enter into an agreement with Mexico’s Pemex PEMX.UL to help develop Vaca Muerta shale, which is located in Argentina’s southern Patagonia region.
“We would like to develop a multifaceted association with Pemex, which could include participation in Vaca Muerta and the exchange of know-how and technology that could help with non-conventional energy development in Mexico,” he said.
YPF is the biggest stake-holder in Vaca Muerta. The company estimates the field contains 661 billion barrels of oil and 1,181 trillion cubic feet of natural gas, making it one of the biggest shale reserves in the western hemisphere.
Despite Vaca Muerta’s vast potential, investment in the formation has come slowly so far.
Dow Chemical Co DOW.N has signed on to invest up to $120 million in 16 Vaca Muerta gas wells, and U.S. oil company Chevron Corp (CVX.N) has agreed to invest $1.24 billion in the area.
To clinch the deals, Argentina has allowed the companies to export tax-free up to 20 percent of what they produce. Export revenue of companies that invest at least $1 billion over five years is exempt from government foreign exchange controls.
Reporting by Karina Grazina; Editing by Leslie Adler and Lisa Shumaker