Total to invest $500 million to produce shale gas in Argentina

PARIS (Bloomberg) -- Total SA will spend $500 million over three to four years to develop a shale gas field in Argentina as the country’s government lures investors by pledging a minimum price.

“We have giant resources of non-conventional gas under our feet in Argentina,” Chief Executive Officer Patrick Pouyanne told reporters at a conference in Paris on Thursday. “It’s the beginning of a nice story.”

The French energy giant has given the go-ahead to develop the first phase of the Aguada Pichana Este license in the Vaca Muerta formation. Total also plans to increase its interest in the license, co-owned by YPF SA, Wintershall Energia SA and Panamerica Energy LLC, to 41% from about 27%, pending approval from local authorities.

To spur drilling at Vaca Muerta, one of the largest shale formations outside North America, the Argentine government has extended a program that ensures a minimum price for the gas companies produce until 2021. Total, already enjoying lower drilling costs following crude’s slump, has highlighted the need to get new projects off the ground to avoid a future shortfall in energy supply.

The announcement on Vaca Muerta marks the first of 10 large final investment decisions on new oil and gas ventures that Total plans for this year and next. The company is budgeting as much as $17 billion a year in capital expenditure, including resource renewal, through 2020.

Gas from the Vaca Muerta project will be treated at the existing Aguada Pichana plant, which will ramp up to its full daily capacity of 16 MMcmg, or 100,000 boe, according to Total. The company produced 78,000 boed in Argentina last year, it said.