The Deal: Chevron, YPF Forge Shale Deal As Repsol Braces For Showdown

NEW YORK ( The Deal) -- Chevron Corp. ( CVX) has agreed to invest an initial $1.24 billion to develop a shale gas field owned by YPF SA ( YPF), setting up a clash with Spain's Repsol SA, which said it will seek damages against any company that partners with its former Argentine subsidiary.

The agreement to jointly develop 96,000 acres of the Vaca Muerta, or dead cow, field is the first agreement signed by YPF since the Argentine government seized Repsol's 51% stake in May 2012.

"This strategic investment will allow Chevron to take part in the Vaca Muerta, one of the most exciting shale oil and gas plays in the world today," Chevron vice chairman George Kirkland said in a statement.

Madrid-based Repsol has filed claims for about $10.5 billion of compensation from the Argentine government. Repsol also filed suits in Madrid against Chevron and Bridas Corp. earlier this year after the two companies announced preliminary deals with YPF.

"We have sued Chevron in N.Y. and also in Spain for tortious interference and unlawful competition," Repsol spokesman Kristian Rix said. "This agreement between Chevron and YPF really validates that path and we will defend our interests."

The Argentine government claims that Repsol forfeited its right to the controlling stake in YPF because it had systematically underinvested in the business, forcing Argentina to become a net energy importer in 2011.

Vaca Muerta is considered to be one of the largest shale gas fields in the world, with about 308 trillion cubic feet of technically recoverable shale gas and 16 billion barrels of shale oil.

Chevron's initial investment will help fund 100 wells that are expected to produce 50,000 barrels of oil and 3 million cubic feet of gas a day by 2017. A second phase development, in which YPF and Chevron will be 50/50 partners, will drill a further 1,500 wells, according to a YPF statement.

Argentina last week paved the way for the Chevron deal when it unveiled a series of incentives for companies that invest more than $1 billion in its oil sector. They include the right to tax-free exports accounting for up to 20% of the gas and oil produced from Argentine sites.

Chevron shares closed Tuesday at $124.12 and traded in line with that in the afterhours market on Wednesday morning. The San Ramon, Calif.-based company has a market capitalization of $240.7 billion.

Written by Paul Whitfield