YPF YPF Sociedad Anonima

By Taos Turner 

BUENOS AIRES--Argentina's state-run oil company, YPF SA, and Dow Argentina, the local unit of Dow Chemical Co., said Tuesday they will invest $500 million in 2016 to explore for shale gas.

The companies, which have already invested $350 million in a joint shale gas venture, said in a statement that total investment could reach $2.5 billion in coming years.

The transaction will represent the first significant foreign investment announcement in Argentina since President Mauricio Macri took office last week. His administration is seeking to dismantle key policies of his predecessor and boost investor confidence to kick-start a moribund economy.

The joint venture is the leading shale gas project of its kind in Argentina, with daily production of about 750,000 cubic meters. The aim is to triple that next year to about 2 million.

YPF and Dow have already drilled 19 shale gas wells in Vaca Muerta, a massive shale oil and gas rich region in the province of Neuquén. They will drill 30 new wells next year and eventually increase that to more than 180 wells in the years ahead.

Argentina ranks second in the world, behind China, in potentially recoverable shale-gas reserves, with 802 trillion cubic feet, according to the U.S. Energy Information Administration. Argentina also ranks fourth in shale oil with an estimated 27 billion barrels.

YPF is also working with Chevron Corp. to produce shale oil in Vaca Muerta. The two companies have invested around $3.5 billion to drill unconventional oil wells, making Argentina the leading unconventional producer outside of Canada and the U.S. The companies could total $16 billion over the next 15 years.

YPF has also joined with with Malaysia's Petroliam Nasional Bhd, or Petronas, in a deal that could lead to up to $9 billion in investment over the next decade. And in September, YPF signed a deal with Russia's OAO Gazprom that could lead them to develop shale projects.

Dow, which began working with YPF in 2013, is eager to obtain gas for use as a key ingredient in its chemical business.

"We are seeing extraordinary results, and we're doubly enthused that a leading petrochemical company trusts us to develop its first upstream project," Miguel Galuccio, YPF's chief executive, said.

Argentina's government sets the price of newly produced gas at $7.50 per million British Thermal Unit, making it a profitable option for some companies in Argentina. In comparison, the spot price for a similar amount of natural gas in the U.S. is close to $2.

After years of divestment by oil and gas companies, Argentina's government expropriated YPF in 2012 and began a push to raise oil and gas production.

The lack of investment had turned Argentina into a net oil and gas importer and led the government to spend billions of dollars every year to import energy. That, in turn, led to a shortage of U.S. dollars available to import other goods and make debt payments.

Mr. Macri hopes that by reversing his predecessor's key economic policies, he can boost investor confidence and spur foreign investment.

Write to Taos Turner at taos.turner@wsj.com

(END) Dow Jones Newswires

December 15, 2015 11:28 ET (16:28 GMT)

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