In order to expand, Chevron Corporation (NYSE:CVX) has been working on a joint venture agreement with YPF SA (ADR) (NYSE:YPF), which is the national drilling company in the country and a key holder in the Vaca Muerta field. The $1.5 billion venture would help jump-start the development of that field and could be worth up to $15 billion in total future investments. Foreign investments like Chevron Corporation (NYSE:CVX)’s will be important in developing the play; its estimated that about $3 billion would be required just to get the shale gas extraction started, with upwards of $25 billion needed to develop Vaca Muerta’s shale oil and gas potential.
Another company to watch here is EOG Resources Inc (NYSE:EOG). The company is also focused on the Vaca Muerta formation after signing two exploration contracts and one farm-in agreement with YPF SA (ADR) (NYSE:YPF). Last year, the company participated in the drilling of a vertical well which is producing, and also drilled a monitor well and a horizontal well. EOG Resources Inc (NYSE:EOG) is currently evaluating the results of these wells so its still in the very early stages of the process.
A final name to watch here is Halliburton Company (NYSE:HAL), which recently participated in the completion of the largest shale well in the country. Argentina represents an important growth opportunity for a company that has been expanding its business internationally. Overall, Latin America has been a fast-growing market for the company, with sales in the region growing 21% year over year. If the Argentinian shale resources turn out to be as good as early reports indicate, then it could really help fuel Halliburton Company (NYSE:HAL)’s international growth.
The big concern when it comes to foreign investment is with the Argentinian government, which had already stepped in to take control of this resource last year when the government took back control of YPF SA (ADR) (NYSE:YPF) from Spain’s Repsol. That move indicates that there is a risk that operators such as EOG Resources Inc (NYSE:EOG) or Chevron Corporation (NYSE:CVX) could also one day have assets in the country seized. Further, just the overhang of that risk could mean that those two companies might not invest as heavily in the country. If the resource is as great as the numbers indicate, then that could mean that the opportunity for earning high rates of return will simply be left on the table.
The bottom line here is that Argentina has the potential to become a dominant force in the world’s oil markets. There are several interesting companies investing to develop its emerging shale resources, giving investors a range of opportunities. However, there are real risks, both geopolitically and regarding the economic viability of the resources, which could end up crimping returns.
The article South America’s Best Bet in Energy Might Not Be Brazil originally appeared on Fool.com and is written by Matt DiLallo.
Fool contributor Matt DiLallo has no position in any stocks mentioned. The Motley Fool recommends Chevron, Halliburton, and Petroleo Brasileiro (NYSE:PBR) S.A. (ADR).
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
