Chevron Corporation (CVX), YPF SA (ADR) (YPF): Cashing In on South America’s Unconventional Oil Boom

What could be the world’s largest unconventional shale oil discovery — Argentina’s Vaca Muerta, or “Dead Cow” — has captured the interest of big oil and spurred a rash of unconventional oil exploration across South America. It is believed that this discovery alone holds up to 23 billion barrels of oil, and there could be further sizable discoveries to be made on the continent. This makes South America the next big opportunity for local oil companies looking to grow their reserves, and big oil players seeking new unconventional opportunities.

These types of resources are technically difficult to recover, and typically local players need the expertise and technological assistance of Big Oil to recover those resources. Chevron Corporation (NYSE:CVX) has already inked a 50-50 joint venture with Argentina’s government-controlled oil company YPF SA (ADR) (NYSE:YPF), to exploit the Vaca Muerta.

This is an important step for YPF SA (ADR) (NYSE:YPF), because it will give the company access to the expertise and technology needed to access these reserves. It will allow YPF SA (ADR) (NYSE:YPF) to continue its ambitious investment and business development program, aimed at boosting its poor proved reserves of 2.7 billion barrels of oil to credible levels. It will also boost production for company that, prior to nationalization, had been in run-off mode under the control of its former owner, Spain’s Repsol SA (ADR) (OTCMKTS:REPYY). It is also a crucial development for Argentina, with the country dependent on the development of the Vaca Muerta to retain its place as a net energy exporter.

First-stage development will involve drilling 100 wells that will provide 50,000 barrels of oil and 3 million cubic meters of gas in daily production by 2017. It is anticipated that the second stage will see a further 1,500 wells drilled with an overall investment or more than $15 billion before 2020.

This not only boosts Chevron Corporation (NYSE:CVX)’s production and reserves, but also gives it a distinct advantage over its big oil peers when it comes to accessing unconventional oil in South America. These are important developments for Chevron Corporation (NYSE:CVX), given the disappointing growth in its proved reserves and production over the last two years.

Unconventional oil exploration has also taken off in Colombia. Already, Colombian Energy Minister Federico Renjifo has stated that at the current rate of production, Colombia’s proven reserves will only last another seven years. This has spurred the Colombian government to attract fresh investment to uncap a spectacular “world class” unconventional oil discovery.

As a result, the Colombian petroleum industry regulator — the National Hydrocarbons Agency, or ANH — has offered a number of unconventional exploration blocks at its recent exploration auctions. Furthermore, between estimates that only 30% of Colombia has been explored for petroleum, and the country’s now-improved security situation, it should only be a matter of time before a significant discovery is made.