Last checked at 
By Juliana Castilla
BUENOS AIRES, June 19 (Reuters) - Small shale producers,which powered development of the sector in the United States,are struggling to break into Argentina due to financingdifficulties and lack of infrastructure, analysts and industrysources say.
The Vaca Muerta deposit, located in western Argentina, is aBelgium-sized play regarded as the world's second-largest shalegas development. Successive governments in Argentina havetargeted Vaca Muerta as the means of reversing its energydeficit but its development has been hindered by lack ofinfrastructure.
Juan Jose Aranguren, who was replaced on Saturday asArgentina's energy minister, said last week the investment bysmall- and medium-sized companies was essential to reduce costsat Vaca Muerta to unlock Argentina's shale potential.
Argentina has the world's No. 2 shale gas and No. 4 shaleoil reserves.
Last year, Exxon Mobil Corp, BP Plc unit PanAmerican Energy, Wintershall Holding, Total SAand Equinor, formerly known as Statoil,announced investments in Vaca Muerta.
Despite efforts by the national government and the regionalgovernment of Neuquen, one of the states spanned by Vaca Muerta,few small shale firms have been willing to invest.
Retama Argentina, a subsidiary of U.S. firm RetamcoOperating Inc, and Vista Oil, a company founded by the formerchief executive of Argentine national oil company YPF SA, Miguel Galuccio, are the only two small firms withtheir own independent operations in Vaca Muerta.
"Even if the returns are enormous, at the end of the day,the startup costs in Vaca Muerta are very high and there is aconsiderable risk involved," said David Tawil, president ofMaglan Capital, the largest shareholder in Madalena Energy, asmall cap oil company that chose to partner with Pan AmericanEnergy LLC to enter Vaca Muerta.
Madalena Energy hopes to start trading on the Buenos Airesstock exchange in the coming months.
Vista Oil has said it expects to start producing from itsfirst non-conventional oil in Vaca Muerta in the first quarterof next year. Retama is planning to drill between four and fivehorizontal wells and start selling gas in the second half of2020.
Industry sources and analysts told Reuters that lack offinancing, high costs and lack of infrastructure makes VacaMuerta unappetising for companies with scant resources.
"The shale revolution in the United States was done by smallcompanies, which requires more players and more diversification.You need investment which is not only carried out by themajors," said an industry source who asked not to be identified.
At the giant Eagle Ford shale field in Texas, there arecurrently more than 200 companies operating.
In the United States, financing costs are much lower andshale producing areas have been better explored, considerablyreducing the risk for companies investing there, Tawil said.That is not the case, however, for Vaca Muerta.
Argentina's central bank hiked its benchmark interest rateto 40 percent last month - the highest in the world - andsupplies of credit from local banks are drying up. The centralbank announced plans on Monday to raise reserve requirements forlocal banks.
"The big challenge (in Argentina) is going to be capital.The financial system is small," said Diego Garcia, an analystwith Bain & Company covering the oil and gas sector.
(Reporting by Juliana Castilla; Writing by Daniel Flynn;Editing by Lisa Shumaker)
