Malaysia's Petronas Signs $550 mn Argentina Shale Oil Deal

Malaysian state owned energy firm Petronas and Argentina’s government owned oil and gas company YPF have signed $550 million shale oil deal, YPF said in a statement Thursday.

The two companies will jointly develop a shale oil pilot project in three annual phases with a total investment of up to $550 million in the La Amarga Chica concession area, located in the province of Neuquén located in western Argentina.

Petronas will contribute $475 million and YPF will contribute $75 million to the project, according to the statement.

The pilot phase will start once the final project documents are executed and certain conditions precedent are fulfilled.

Upon completion of funding for each of the individual annual phases, Petronas will have the option to exit the joint development arrangement by surrendering its ownership interest in the concession. If Petronas exercises this exit right, it will be entitled to 50% of the net production value of the wells drilled up to its exercise of the exit rights. After the total commitments by the parties has been funded, the parties will each fund 50% of the work program and budget costs in accordance with the project documents.

YPF will be the operator of the concession area and will assign a 50% participation in the exploitation concession to Petronas.

The Agreement provides for an exclusive period for the negotiation and execution of a series of definitive project agreements which will enter into force subject to compliance with a number of conditions precedent to be fulfilled before December 31, 2014, mainly related to the ownership of the concession for the area, a 35 year term for the exploitation concession and the tax framework of the project, including promotional, tax, and royalty commitments, with the aim of initiating the pilot activity in La Amarga Chica in the first quarter of 2015, YFP said.

Both companies will further evaluate expanding the strategic partnership to other exploration areas with a potential for unconventional resources.