A little more than a year after Argentine President Cristina Fernández de Kirchner seized control of Argentine oil company YPF from Spain’s Grupo Repsol, Argentina has enlisted Chevron to develop its massive Vaca Muerta shale oil and gas field. The deal, inked Tuesday evening in Buenos Aires, confirms the California-based Chevron Corporation will invest an initial $1.5 billion over the next 12 months, drilling more than 100 wells to develop the country’s shale oil deposits.
Oil companies and investors who have been waiting to tap into Argentina’s huge reserves are cheering the deal. But many who remember Fernández de Kirchner’s 2012 promise to return Argentina “to energy sovereignty” are left scratching their heads, and environmental activists say extraction of these unconventional hydrocarbons is a dangerous move.
The deal is the first major foreign oil investment in the country since the seizure of Repsol’s majority stake in YPF after the country’s energy deficit hit a record low in 2011. Last year, the Argentine government was forced to import energy for the first time in 17 years. Already this year, Argentina has imported $4.6 billion of fuel.
Now, officials say developing Vaca Muerta is the solution the country needs to fix its energy deficit. Vaca Muerta (“Dead Cow”), discovered in 2011, is said to be the world’s second-largest shale gas reserve and fourth-largest shale oil deposit.
Shale gas is found between rocks composed of mud and other minerals, far below the Earth’s surface (up to 10,000 feet underground). Hydraulic fracturing, or “fracking,” uses millions of gallons of water mixed with sand and chemicals at high pressure to break through the shale to free natural gas and oil.
On Monday, Fernández de Kirchner also initiated an incentives plan for foreign investment, answering the cries of analysts and industry executives who have said the production of the fields will require billions of dollars of investment. According to a presidential decree, companies will receive incentives—such as the ability to export 20 percent of production tax-free—if they invest $1 billion or more over a five-year period.
“Vaca Muerta is a world-class share and fits perfectly within our solid portfolio of non-conventional resources,” said Chevron CEO John Watson, who signed the decree on Tuesday with YPF CEO Miguel Galuccio.
Yet there has been fierce opposition to the deal among environmentalists, local leaders and Indigenous groups. On Tuesday, hundreds of leftist activists protested outside YPF’s headquarters in Buenos Aires.
The Vaca Muerta region is widely uninhabited, but is home to the largest concentration of Indigenous Mapuche people in Argentina.
Nobel Peace Prize winner Adolfo Pérez Esquivel spoke out in opposition, and criticized the Argentine Supreme Court for overturning a November decision to embargo Chevron’s assets in Argentina. A judge had declared the embargo because of a $19 billion judgment against the company in Ecuador for environmental damage and injuries to the health of Indigenous residents in the Amazon rainforest.
“Through this agreement with Chevron, Argentines are handing over our resources to the U.S.,” Pérez Esquivel said, “and turning YPF into a contamination-producing fracking company.”
On Tuesday, Mapuche groups protested in Neuquén issuing an online statement that declared: “We are tired of you failing to consult us about what is happening inside our own communities, when we will be the most affected.”
But the reality is that the world is in search of new energy sources in the never-ending quest to satisfy our insatiable energy demand. As Shefa Siegel points out in a recent AQ article, “extraction is inevitable.” But he also raises another important question around the Canadian oil sands that also pertains to the Vaca Muerta region. While extraction is going to happen, what can be done to control how we extract?