Dow Argentina, YPF sign pact to develop shale gas field

24 September 2013 23:24  [Source: ICIS news]

MEDELLIN, Colombia (ICIS)--Argentina’s Yacimientos Petroliferos Fiscales (YPF) and the local subsidiary of petrochemical major Dow Chemical have signed a final investment contract to jointly develop shale gas in the extensive Vaca Muerta shale formation in western Argentina, the state-run oil company said on Tuesday.

The $188m (€139m) deal to develop the 45 sq km (17 sq mile) El Orejano block in Argentina’s Neuquen basin is the culmination of six months of negotiations following a memorandum of understanding (MOU) signed by both parties in March.

Under the terms of the agreement, which will see both parties also working to identify new petrochemical projects, Dow Argentina will invest $120m, while YPF will pitch in an additional $68m, the Argentine company said in a statement.

The two companies will drill up to 16 wells in an initial 12-month pilot programme, YPF said, adding that the field has the potential to yield more than 3 million cubic metres/day (mcm/day) of unconventional gas.

“This agreement confirms the path set out in our strategic plan,” said YPF chief executive Miguel Galuccio. “We have talked of the necessity of developing a shale gas pilot, and today we have done that.”

The project is expected to give Dow Chemical, the sole domestic producer of polyethylene (PE) in Argentina, access to a secure and long-term supply of raw materials for its Latin American customers.

“This partnership strengthens Dow’s competitive position in the country,” said Dow Argentina president Jorge La Roza. “The successful development of unconventional gas here, with an impact similar to that in the US, will create growth opportunities for our clients and for Dow.”

According to the US Energy Information Administration (EIA), Argentina has the world’s second largest shale gas reserves, with an estimated 802 trillion cubic feet (tcf) of recoverable gas, much of which lies in the Vaca Muerta formation.

YPF is keen to partner with companies to develop this potential and by doing so reduce its dependence on expensive imported fuels to meet domestic demand.

Dow is YPF’s second shale partner following a $1.24bn agreement signed in July with US energy major Chevron.

The Chevron deal marked the first major foreign energy investment in Argentina since its government nationalised YPF in May 2012 following a dispute with Spanish parent company Repsol.

($1 = €0.74)

By: Simon West

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