(Adds governor of oil-producing province)
By Eliana Raszewski and Sarah Marsh
BUENOS AIRES, Sept 17 (Reuters) - Argentina's federalgovernment said on Wednesday it had reached a deal withprovinces on reforms to overhaul energy regulations and improveincentives to lure the foreign investors needed to develop itsvast shale oil and gas reserves.
The cash-strapped South American country, which defaulted onits debt in July and cannot tap global credit markets, requiresinvestment in its Patagonian Vaca Muerta fields to reverse acostly energy deficit that is pressuring low foreign reserves.
Oil industry experts say it will cost hundreds of billionsof dollars to exploit the world's second largest shale gasresources and fourth largest shale oil resources - financingthat officials say is beyond the reach of state-controlledenergy firm YPF and regional governments.
"We have one of the most important underground reserves inthe world and we have to exploit it," said Francisco Perez,governor of oil-producing Mendoza province. "Neither Argentinanor YPF nor the provinces can raise that kind of debt capacityso we have to find strategic partners.
Under the country's 1967 energy law, local administrationsissue licenses and determine concessions and taxes foreigncompanies pay. The central government seeks a national frameworkthat creates the same terms for all regions, which it says wouldease doing business.
One senior energy official said the negotiations, includinghaggling over royalties, had resulted in a "good draft."
The federal government wants the new law in place before2015 when a number of concessions held by YPF expire, said theofficial who was involved in the talks but not authorized totalk to media.
Cabinet chief Jorge Capitanich said that bill, which washanded to Congress on Wednesday, will "become national law, nolater than October or November."
The reform will lengthen the terms of exploitationconcessions by a decade to 35 years for non-conventional energyand 25 years for conventional energy. Firms can win 10-yearextensions if they fulfill investment promises.
With each extension, provinces would be allowed to increaseroyalties by 3 percent up to a limit of 18 percent.
The bill will also cut the minimum investment needed forcompanies to be exempt from certain import and capital controlsto $250 million from $1 billion.
Argentina has sought this year to win back the confidence ofinvestors spooked by its expropriation of Spanish energy firmRepsol's majority stake in YPF two years ago.
So far, the only energy company to invest heavily in VacaMuerta, which means "Dead Cow", has been Chevron Corp,which agreed last year to spend $1.24 billion for YPF to drill161 wells as the project's operator.
Other oil giants drilling in Vaca Muerta include Royal DutchShell and Exxon Mobil Corp, while Malaysia'sstate-owned Petronas pledged last month to contribute$475 million to exploration. (Additional reporting by Walter Bianchi; Writing by RichardLough; Editing by Meredith Mazzilli and Marguerita Choy)
