Chevron Corp.'s said a deal with YPF SA to develop Argentina's shale natural gas deposits is threatened by a $19 billion embargo of the California oil company's assets in the country.
For the first time, Chevron said an Argentine court decision--involving the oil giant's decades-long environmental dispute with Ecuador--could imperil the near-$1 billion deal with Argentina's recently nationalized oil company.
The YPF agreement could be completed only "if we can get the right conditions in place around that embargo," Chevron Chief Executive John Watson said at an investor conference Tuesday. "We have to be able to access that cash."
In December, Chevron and YPF agreed to a preliminary plan to explore the Vaca Muerta shale formation in Neuquen province.
However in February, an Argentine appeals court upheld the freeze on the assets of Chevron's local subsidiary because of a treaty with Ecuador that allows claims in one country to be enforced in the other. Chevron has been fighting a $19 billion judgment in Ecuadorean courts over claims of environmental contamination.
Chevron now says before it can finalize the YPF joint venture--originally expected to happen in mid-April --the embargo must be lifted.
Enrique Bruchou, lead attorney for the Ecuadoreans in Argentina, has valued Chevron's assets in Argentina at $2 billion. The proceeds from Chevron Argentina's oil production, valued at $600 million in 2010, are also subject to the embargo until the legal claim is settled, according to Mr. Bruchou.
The February court order freezes up to 100% of Chevron's capital and dividends in Argentina, all of its stake in a local pipeline operator, 40% of oil sales and 40% of the cash Chevron has or may eventually have in local banks.
Argentina has 774 trillion cubic feet of gas and 23 billion barrels of oil equivalent in Neuquen province, according to the U.S. Energy Information Administration. But oil and gas production in the nation has plummeted due to a lack of investment, leaving the country dependent on expensive imports.
If the initial exploration joint venture is successful, Chevron and YPF could then invest $15 billion in coming years, according to the two companies.
A YPF spokesman wasn't available to comment.
Monday, YPF Chief Executive Miguel Galuccio said "the commitment exists and if we have to find an economic model different than what was originally planned, the commitment is there," referring to the Chevron deal.
An Ecuadorean court convicted Texaco Inc., which Chevron bought in 2001, of contaminating parts of Ecuador's Amazon region. Chevron denies the accusations, says it is the victim of fraud and continues to fight the charges.
Chevron doesn't have significant assets in Ecuador, so the plaintiffs are trying to freeze the company's assets in other countries to enforce settlement on the judgment. The plaintiffs are pursuing Chevron in Brazil, Canada and Colombia, and have plans to file suits in other countries as well.
Ken Parks contributed to this article.
Copyright (c) 2012 Dow Jones & Company, Inc.
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