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Neuquén gives Shell rights over Vaca Muerta

An aerial view of industrial equipment in the Vaca Muerta region, Neuquén province.
An aerial view of industrial equipment in the Vaca Muerta region, Neuquén province.
An aerial view of industrial equipment in the Vaca Muerta region, Neuquén province.

Move comes following years of clashes between Dutch company, CFK administration

Dutch energy giant Shell made a stride forward in its push for part of Argentina’s nascent shale oil pie after the Neuquén province government gave it the rights to exploit two unconventional oil areas in the much-coveted Vaca Muerta region for the next 35 years.

While Shell is far from the first foreign company to land an investment deal in the area, the news is significant as it comes following years of repeated clashes between Shell and the national government over economic policy.

The company promptly announced the news on a press release, confirming what a provincial decree had ruled shortly before. Shell said it includes a pilot plan to study the area in order to fine-tune drilling and processing decisions.

The two areas leased to shell are the Sierras Blancas and Cruz de Lorena blocs, 325 square kilometres overall. The company said it will invest US$250 million in these areas.

While the deal had been discussed since late 2014, it came only a month after Shell Argentina’s former CEO Juan José Aranguren stepped down from his position.

Aranguren, who led Shell Argentina for 12 years, had a tense relationship with the government and was even rumoured to be supporting PRO party’s Mauricio Macri’s presidential bid. He had said that he saw Macri as the best candidate in the upcoming elections, stating in December that “between Macri, Massa and Scioli I choose Macri.” His favour for Elisa Carrió, also part of Macri’s coalition for the elections, was also well known.

Aranguren was not shy either about criticizing public policies with which he disagreed, remaining a critic of the government since its early clashes with Shell during Néstor Kirchner’s presidency over retail fuel prices up to the aftermath of YPF’s nationalization in 2012, which he said unfairly favoured the state-controlled company over the private sector.

Other deals

In the shadow of the Andes Mountains, the Vaca Muerta shale formation covers 30,000 square kilometres, an area roughly the size of Belgium.

The biggest share of Vaca Muerta’s rights of use are owned by state-controlled company YPF. According to YPF, Vaca Muerta multiplied Argentina’s oil reserves by a factor of 10 and its gas reserves by a factor of 40, which will enable Argentina not only to be self-sufficient in energy but also to become a net exporter of oil and gas.

The company’s policy to exploit the deposit has been to partner with transnational corporations capable of providing capital, as it shale oil investment requirements are significantly higher than those of conventional oil deposits. It has already done so with the US-based Chevron in the Loma Campana deposit, where it had projected a price of 80 dollars a barrel this year.

YPF has also signed agreements for the joint exploitation of shale deposits with Malaysia’s Petronas and Dow Chemical of the United States, while other transnational corporations have announced their intention to invest in Vaca Muerta.

Shares to be traded freely

Although the state owns a controlling stake on YPF, its shares are still traded in markets. This will continue to be the case despite the latest government bill in Congress to ring-fence state-owned shares from sales unless such a move gets at least two-thirds of all congressmen backing it, as YPF was not included among the state companies in the bill.

The company’s shares in Argentina were down 7.1 percent yesterday, amid a poor day for the benchmark Merval stock index. A similar trend was seen in the US, where YPF’s shares are also closed with 7 percent losses for the day. YPF’s shares, which had taken a dive following the nationalization of 51 percent of its stock and recovered afterwards, have been falling steadily in the last few months due to plunging oil prices.

—Herald staff with online media

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