Boston, MA -- (SBWIRE) -- 07/29/2013 -- Argentina's technically recoverable shale resources are the third largest in the world, behind only China and the US. Yet the Argentina's business environment has turned increasingly negative in recent years, and this has only been further exacerbated by the expropriation of YPF from Repsol in early 2012. There appears, however, to be a small but growing cadre of international and national oil companies seeking to gain first-mover advantage by tapping potentially game-changing shale resources in the Vaca Muerta formation - despite Argentina's risky business environment. If the country is able to make the necessary investments, its shale potential could provide the country with an opportunity to become a regional, and potentially global, gas powerhouse. Nevertheless, we continue to highlight the challenges to operating there, and expect a difficult progression to large-scale unconventional natural gas production. Indeed, we retain our view that rising gas production will fail to keep pace with rising consumption, leading to an increasingly costly import burden over our forecast period.

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The main trends and developments we highlight in the Argentine oil and gas sector are:

- There appears to be an uptick in momentum with regards to investment in Argentina's shale potential, with several companies calculating that the benefit of having first-mover advantage in Vaca Muerta will outweigh the risks associated with investment in the sector. Should YPF prove successful in unlocking some of its massive shale potential through participation with foreign partners, it could provide the country with an opportunity to stave off or possibly even reverse a decline in gas production - giving the country net importer status over the next decade.
- Although we are holding on to our forecasts, which highlight the growing gas import burden, recent developments are generating significant upside risk to them. Indeed, in addition to Uruguayan Ancap's negotiations in early 2013, we have also provided extensive analysis of the deal which was signed by Chevron and YPF in late 2012, as well as that of Argentina's Bridas Corporation (which is 50% owned by China's CNOOC). In April 2013 Dow Chemical signed an MoU with YPF to develop the El Orejano block. For its part, Chevron is in the midst of a pilot project with YPF, which will involve the drilling of 100 wells in 2013 at a shared cost of US$1bn, although an ongoing dispute with Ecuador is being played out in Argentine courts, resulting in a freezing of its assets. YPF and Chevron both acknowledged the negative effects this was having on their joint shale development plans.

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