BUENOS AIRES—Argentina's YPF SA and Russia's OAO Gazprom signed an agreement on Friday that could lead them to jointly develop unconventional gas projects in the South American country.

YPF confirmed that Miguel Galuccio, the company's chief executive, signed the so-called framework agreement with Gazprom Chief Executive Alexei Miller in the southeastern Russian city of Vladivostok.

The deal comes as YPF energetically courts foreign investment in Argentina's energy sector, which is home to the biggest unconventional oil and gas development outside North America. It also comes as Gazprom, already the world's leading player in conventional gas, is looking to expand oil and gas projects around the world.

YPF has already attracted major partners to invest in unconventional shale oil and gas, signing multibillion-dollar deals with Chevron Corp. and Malaysia's Petroliam Nasional Bhd, or Petronas.

Argentina's Vaca Muerta—or "dead cow"—shale formation, located in the Patagonian Province of Neuqué n, is one of the world's most-promising shale oil and gas resources. In 2013, a U.S. Energy Information Administration report ranked Argentina second in the world, behind China, in potentially recoverable shale-gas resources, with 802 trillion cubic feet. Argentina ranked fourth world-wide in shale-oil resources, with an estimated 27 billion barrels.

Yet unlike unconventional oil and gas fields in North America, Vaca Muerta remains largely untapped. Analysts say it could require up to $200 billion to fully exploit, but that Vaca Muerta could in theory do for Argentina what fracking did for U.S. oil and gas production.

After a decade of declining oil and gas production at home, Argentina's government expropriated YPF in 2012 and named Mr. Galuccio CEO. Since then, Mr. Galuccio, who was previously a seasoned international oil executive with a vast network of global contacts, has moved to reverse production trends in Argentina.

"Today's signing is a milestone for YPF on its path to making our resources valuable to world class partners," Mr. Galuccio said in an email from Russia. "Gazprom can bring to YPF its know-how and its financial strength as the biggest player in gas on the planet."

While YPF has already gained key experience operating unconventional fields by using hydraulic fracturing, or fracking, Gazprom would bring unique experience in pipeline logistics and other production technologies.

Though the companies didn't discuss numbers, YPF is hopeful that a deal with Gazprom could eventually become similar in scale to joint ventures already in place with Chevron and Petronas. Together, YPF and Chevron have invested more than $3 billion, and total investment by the companies could reach $16 billion over the next 15 years. YPF's deal with Petronas could lead to up to $9 billion in investment over the next decade.

A deal with Gazprom could potentially be even more ambitious in terms of its operational scope, with the Argentine and Russian companies developing multiple fields at the same time. The agreement signed on Friday calls for the companies to work out the details of at least one joint project by March 1, 2016.

Write to Taos Turner at taos.turner@wsj.com

 

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(END) Dow Jones Newswires

September 04, 2015 07:55 ET (11:55 GMT)

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