Local newspaper, El Mercurio, has reported that ENAP [Empresa Nacional del Petroleo] has teamed up in a joint venture with the big American, which could spend up to $70-100 million over the next four years to earn a 49% interest.

ENAP, Chile's main oil refiner and a key provider of fuel to the domestic market, produces little crude oil but has invested heavily in gas exploration in the southern part of the energy hungry nation.

ENAP CEO Marcelo Tokman told Chile's La Tercera newspaper earlier in June that it was planning to solicit outside funding in 2016 to fund an ambitious $800 million investment plan, which included gas exploration in the Magallanes Basin.

Details on the arrangement are sparse, but have been confirmed by Reuters.

The latest deal builds on a 2014 agreement that has seen ENAP and ConocoPhillips conducting geological, geophysical, and engineering studies to determine the potential for unconventional hydrocarbon resources in the Magallanes region.

Bloomberg reported that ENAP spent $100 million in oil and gas exploration efforts in 2013 alone in an effort to assess the potential for conventional tight gas, and it has reportedly had reasonable success.

Galilee has been assessing the Magallanes Basin in Chile's south-east for several years, after the company's new management renewed acquaintances formed when the management team, under managing director Peter Lansom and geologist Ashley Edgar, back when they worked for Origin Energy.

In 2014 Galilee completed an evaluation study of the CSG potential of a 6000sq.km area and decided to work with ENAP to progress into the exploration phase, applying for a permit last June.

Galilee is hoping to explore in the north-west portion of the Magallanes Basin, where the Eocene-Oligocene Loreto Formation contains 10-20m of coals at depths ranging from surface to over 1200m.

While the terms of a study conducted for ENAP are confidential, Galilee sees a significant gas resource in the Loreto Formation.

Lansom told Energy News this morning that Galilee is hoping to get its licence awarded in the third quarter, and it would then move quickly on the project.

"We're happy with the progress so far, and once we get the nod we'll probably move fairly quickly to drill some coreholes, just to confirm the coals are as we expect, and then we'd look at a pilot plant.

"Gas is a national imperative in Chile, and there is a pipeline in the area, so we should be able to establish production quickly, because this is a pretty mature basin, and water disposal isn't an issue, it can just go into the ocean."

Drilling will use mineral rigs, and will target coals at around 400-500m.

"The coals in this area are relatively soft, like the Walloon Coal Measures in Queensland," he said.

"When Origin was looking at it there were some US consultants telling ENAP to drill below 1200m to around 1500m, but we know from Queensland the coals lose their permeability from about 800m. We think the gas should flow pretty easily where we are."

Energy exploration and development in Chile, particularly southern Chile, enjoys strong political support as the nation imports some 80% of its natural gas and has been forced to substitute with more expensive fuels where it can.

In 2013, Chile produced 33Bcf of gas but consumed 166Bcf, so it was forced to import gas from Trinidad and Tobago, Qatar, and Yemen.

Chile also imported natural gas from Argentina by various pipelines that were constructed in the late 1990s, but in the mid-2000s, after its own supply faltered, the Argentine government triggered a diplomatic crisis when it cut off exports to its neighbour.

The gas shortages have forced Canada's Methanex Corporation, idled at least part of its large methanol production in southern Chile, reportedly because of inadequate supplies of natural gas from Argentina in 2014.

Recently, Chile has begun sending LNG to Argentina for the first time, sourced for the South American nation through its two LNG import terminals on the Pacific Coast.

In May France's Engie said it would sell around 85 million cubic meters of natural gas to Argentina in a contract to meet demand during the southern hemisphere's upcoming winter.

On May 14, Bachelet inaugurated an onshore storage tank at the Mejillones regasification terminal, the biggest in Latin America and one of the biggest in the world.

Engie is reportedly sending around 1.5 million cubic meters of gas per day pumped at a price of $US6.90 per million British thermal units.

The gas will travel from the port of Mejillones in northern Chile, via Engie-controlled E-CL's pipeline, and across the Atacama Desert to Argentina.

From June 1 some 3MMcm was being pumped daily from the central port of Quintero, by Endesa, ENAP and distributor Metrogas, at a cost of $US7.20/MMBtu.

The Quintero terminal is owned by Shell and ENAP.

Argentina gets most of its gas from Bolivia, but Bolivia cannot keep up with winter demand.

Chile is keen to ramp up domestic gas production, while Argentina is seeking to develop the expansive Vaca Muerta shale, and could someday resume exports to Chile.

ExxonMobil is planning to spend more than $10 billion developing the Vaca Muerta, described as the world's second-largest shale gas deposit, over the next 30 years.

It will start a $250 million pilot production development before the end of the year, and with success will start full field development with Argentina's state-run oil giant YPF.

Argentina is home to 27 billion barrels of recoverable oil and 802 trillion cubic feet of natural gas, primarily in and around multiple prolific shale basins in the central Neuquen province, including the prized Vaca Muerta.

The US Energy Information Administration estimates that the Chile portion of the Magallanes basin, which is shared with Argentina, holds 49Tcf of shale gas and 2.4 billion barrels of recoverable shale oil reserves.

At the beginning of 2015, Chile reportedly held 150MMbbl and 3.4Tcf of gas, relatively low levels in Central and South America.

Chile is the only member of the Organisation of Economic Cooperation and Development in South America. It is the fifth-largest consumer of energy on the continent, but unlike most other large economies in the region, it is only a minor producer of fossil fuels.