By Taos Turner
BUENOS AIRES--Argentina's YPF SA and China's Sinopec signed a
memorandum of understanding on Wednesday aimed at eventually
partnering to develop oil-and-gas projects in the South American
country, people familiar with the matter said.
A YPF official confirmed that Miguel Galuccio, the company's
chief executive, had signed the MOU in Beijing with Sinopec
Chairman Fu Chengyu.
Sinopec, which is already Argentina's fourth-leading oil
producer, has no experience in unconventional oil in the country. A
potential partnership could entail YPF helping Sinopec develop its
conventional output while the Chinese company would invest
alongside YPF to raise shale oil production. In 2010, Sinopec
agreed to buy Occidental Petroleum Corp.'s unit in Argentina for
$2.45 billion, part of a broader push by Chinese companies to
expand and diversify their oil resources in South America.
Though lower oil prices have led some companies to cut back on
investment plans, oil prices in Argentina are decoupled from the
international market. A barrel of oil in Argentina now goes for $77
or more compared with just under $50 for Brent crude, the global
oil benchmark. Meanwhile, Chinese investors are taking a
longer-term look at Argentina's massive Vaca Muerta formation,
thinking about how valuable it could be for them a decade or more
from now, people familiar with the talks between Sinopec and YPF
said.
YPF has already partnered with Chevron Corp. and Malaysia's
Petroliam Nasional Bhd., or Petronas, to develop shale oil in Vaca
Muerta. YPF has been aggressively courting international investors
to boost unconventional energy output at Vaca Muerta, which is
considered one of the world's top shale oil-and-gas prospects.
In September, Petronas agreed to partner with YPF in a deal that
could lead the companies to invest up to $9 billion over the next
decade. Since 2013, YPF and Chevron together have invested more
than $3 billion in Vaca Muerta, located in windswept Patagonia.
In October, Mr. Galuccio met with Mark Albers, senior vice
president of Exxon Mobil Corp., to discuss jointly developing shale
oil and gas. Exxon is one of a number of companies, including Royal
Dutch Shell PLC, that are already investing in unconventional
energy in Vaca Muerta.
Argentina ranks second in the world, behind China, in
potentially recoverable shale-gas resources, with 802 trillion
cubic feet, according to a U.S. Energy Information Administration
report. Argentina ranks fourth world-wide in shale-oil resources,
with an estimated 27 billion barrels.
Argentine officials are hopeful that Vaca Muerta could do for
Argentina what fracking did for U.S. oil and gas production.
However, that could require up to $200 billion in investment,
analysts say.
Write to Taos Turner at taos.turner@wsj.com
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