(Adds governor of oil-producing province)
By Eliana Raszewski and Sarah Marsh
BUENOS AIRES, Sept 17 (Reuters) - Argentina's federal government said on Wednesday it had reached a deal with provinces on reforms to overhaul energy regulations and improve incentives to lure the foreign investors needed to develop its vast shale oil and gas reserves.
The cash-strapped South American country, which defaulted on its debt in July and cannot tap global credit markets, requires investment in its Patagonian Vaca Muerta fields to reverse a costly energy deficit that is pressuring low foreign reserves.
Oil industry experts say it will cost hundreds of billions of dollars to exploit the world's second largest shale gas resources and fourth largest shale oil resources - financing that officials say is beyond the reach of state-controlled energy firm YPF and regional governments.
"We have one of the most important underground reserves in the world and we have to exploit it," said Francisco Perez, governor of oil-producing Mendoza province. "Neither Argentina nor YPF nor the provinces can raise that kind of debt capacity so we have to find strategic partners.
Under the country's 1967 energy law, local administrations issue licenses and determine concessions and taxes foreign companies pay. The central government seeks a national framework that creates the same terms for all regions, which it says would ease doing business.
One senior energy official said the negotiations, including haggling over royalties, had resulted in a "good draft."
The federal government wants the new law in place before 2015 when a number of concessions held by YPF expire, said the official who was involved in the talks but not authorized to talk to media.
Cabinet chief Jorge Capitanich said that bill, which was handed to Congress on Wednesday, will "become national law, no later than October or November."
The reform will lengthen the terms of exploitation concessions by a decade to 35 years for non-conventional energy and 25 years for conventional energy. Firms can win 10-year extensions if they fulfill investment promises.
With each extension, provinces would be allowed to increase royalties by 3 percent up to a limit of 18 percent.
The bill will also cut the minimum investment needed for companies to be exempt from certain import and capital controls to $250 million from $1 billion.
Argentina has sought this year to win back the confidence of investors spooked by its expropriation of Spanish energy firm Repsol's majority stake in YPF two years ago.
So far, the only energy company to invest heavily in Vaca Muerta, which means "Dead Cow", has been Chevron Corp, which agreed last year to spend $1.24 billion for YPF to drill 161 wells as the project's operator.
Other oil giants drilling in Vaca Muerta include Royal Dutch Shell and Exxon Mobil Corp, while Malaysia's state-owned Petronas pledged last month to contribute $475 million to exploration. (Additional reporting by Walter Bianchi; Writing by Richard Lough; Editing by Meredith Mazzilli and Marguerita Choy)