(Adds details on Argentina policy changes, Chevron's Latin America performance)
By Ernest Scheyder and Hugh Bronstein
NEW YORK/BUENOS AIRES, April 10 (Reuters) - Chevron Corp and state-controlled YPF SA plan to spend an additional $1.6 billion to develop Argentina's Vaca Muerta shale formation further, boosting plans for new wells this year and announcing fresh exploration projects.
The project, announced on Thursday, will help Chevron boost its oil and natural gas production, which has been stubbornly flat the past few years despite annual global capital spending of around $40 billion.
It should also help ease concerns about foreign investment in Argentina, which was widely castigated after President Cristina Fernandez expropriated Repsol SA's majority stake in YPF two years ago, and should give the country fresh capital to develop one of the largest energy reserves in the Western Hemisphere.
Since the start of the year, Argentina has made policy changes that have caught the eye of international investors while sparking a rally in local stocks and bonds. The shifts have included heating gas subsidy cuts of 20 percent, an 18 percent currency devaluation and a deal to pay Repsol $5 billion for the YPF nationalization.
Chevron and YPF began drilling in the region last year, with Chevron agreeing to spend $1.24 billion for YPF to drill 161 wells as the project's operator, a deal that was widely seen as a test phase by Wall Street.
Chevron and YPF said on Thursday they would jointly spend an additional $1.6 billion to drill 170 wells this year, up from previous estimates for 140 wells this year.
Additionally, Chevron will spend $140 million to explore the Narambuena region of the Vaca Muerta.
Chevron sought to characterize the announcement as a vote of confidence in the first phase of the project and its high expectations for future production.
"YPF is a reliable partner and operator that is advancing the project in the right direction," Ali Moshiri, Chevron's head of African and Latin American exploration and production, said in a statement.
Moshiri is under pressure to show results in Latin America because of slumping production in Venezuela and a protracted legal fight with Ecuador that shows little signs of abating.
Big oil companies, like Chevron, also have had a mixed record of developing shale deposits around the world, with their large bureaucracies often moving slower than small, more-nimble start-up companies to develop unconventional oil and natural gas deposits.
Chevron, which has called Vaca Muerta one of the world's most exciting shale plays, has previously forecast production there could jump from around 15,000 barrels of oil equivalent per day at present to 80,000 boed by 2017.
Chevron's decision "is a great demonstration of confidence in the work of YPF and the potential of unconventional hydrocarbons of Argentina," Miguel Galuccio, YPF's chief executive officer, said in a statement.
The company, which is 51 percent controlled by Buenos Aires, is seen as crucial in helping the South American nation achieve energy independence.
Argentina unveiled a new consumer price index this year that more accurately measures stubbornly high inflation, which has also hampered energy development.
From 2007 through the end of last year the government reported inflation at about half the rate estimated by private economists. The lack of credibility of official data took a toll on business confidence already battered by falling central bank reserves and heavy-handed currency controls meant to clamp down on access to U.S. dollars.
Argentina's stock market has rallied 20 percent so far this year on the back of Buenos Aires' shift toward more investment-friendly policies, while locally traded government debt prices have risen 11 percent.
The country, however, remains home to one of the world's highest inflation rates, estimated at over 30 percent. Central bank reserves have fallen 32 percent to $27.6 billion over the last 12 months, triggering criticism from the International Monetary Fund and a credit rating downgrade from Moody's.
Shares of Chevron were down 1.6 percent at $117.25, and YPF fell 1 percent to $30.25 on the New York Stock Exchange early Thursday afternoon. 225-819-7371 (Reporting by Ernest Scheyder in New York and Hugh Bronstein in Buenos Aires; Editing by Lisa Von Ahn, Matthew Lewis and Richard Chang)