Chevron back in Argentina with $1.2bn deal Chevron of the US has reached a final agreement to invest $1.24bn in the Vaca Muerta shale formation of Argentina, making it the first international oil company to invest in the country since the government nationalised YPF, its largest energy group, last year. The deal, in which Chevron will share investment and proceeds 50/50 with YPF, gives the US group a position in one of the world's most promising shale regions outside North America. Argentina hopes it will both accelerate production from Vaca Muerta and encourage other international oil groups to invest. In Argentina for the formal closing of the deal, which was agreed in principle last December, John Watson, Chevron's chief executive, described Vaca Muerta as a "world class" asset. He added that the investment, which will be spent through to the end of next year, was "consistent with our strategic intent of entering attractive new plays early in cycle." Miguel Galuccio, YPF chief executive, described the deal as "a demonstration of trust by a great international company." He added: "We are putting in production a resource that may change the energy future of our country." However, the fields will require substantial additional expenditure, estimated by YPF at about $15bn, to reach the two companies" objectives for production growth, and Chevron has not yet committed to make that investment. The initial plan is for the two companies to drill 100 wells on about 5,000 acres of the Vaca Muerta, a fraction of the total joint venture area of 96,000 acres. YPF expects there will need to be about 1,500 wells drilled to reach target production of 50,000 barrels of oil and about 30,000 barrels equivalent of gas per day by 2017. Argentina's shale gas reserves are ranked by the US Energy Information Administration as the third biggest in the world and its shale oil reserves the fourth largest. However, currency restrictions and government requirements to plough profits back into production have until now made it hard for foreign companies to extract profits from the country, putting the brakes on dreams of a US-style shale revolution. Despite sitting on some of the world's best shale prospects, Argentina is racking up an increasingly unsustainable energy import bill. The administration of Cristina Fernández also unleashed a welter of lawsuits and unnerved investors last year by expropriating 51 per cent of YPF from Repsol of Spain without compensation. YPF is pursuing an ambitious $37.2bn investment plan but needs foreign partners to help pay for costly shale drilling. It has signed other preliminary deals to develop Vaca Muerta, including with Sino-Argentine company Bridas, but none is yet ready to be completed. It has also been pushing for a revamp of Argentina's rules to make it more attractive to invest. In a recognition of those concerns, the Chevron deal was announced a day after new government concessions to energy companies, waiving export tariffs on 20 per cent of their output for companies that invest $1bn or more in the country over a five-year period, and allowing them to keep their export earnings offshore. Analysts were not convinced, however, that the new rules would be enough to unleash a tide of investment. Analysts at Barclays described the moves as "a positive development" that offered carrots rather than sticks to oil companies. However, they added: "We think that it is critical that the authorities follow through in the negotiations with Repsol." Repsol is suing Argentina for $10.5bn compensation, and suing Chevron and others for seeking to partner YPF in the Vaca Muerta assets. Argentina has come round to the need to do a deal with Repsol, but efforts to date, including the prospect of partnership in a Vaca Muerta joint venture as part of a $5bn non-cash deal, have so far floundered. YPF this week trumpeted a rise in both oil and gas production in May and record oil output in June as evidence the turnround under the stewardship of former Schlumberger oil services executive Miguel Galuccio was bearing fruit. The administration blames Repsol for "hollowing out" YPF and points the finger at under-investment, rather than government policies, for declining production, falling reserves and an energy import bill expected to hit $13bn this year and some $16bn in 2014. The expectation that the long-discussed Chevron deal would be finalised on Tuesday was marked by a small protest outside YPF's headquarters in Buenos Aires, and the occupation of two drill rigs in Vaca Muerta by some 40 people identifying themselves as members of the indigenous Mapuche community.