Argentina's state-controlled energy company YPF said on Thursday it had reached a deal worth $550 million with Malaysia's state oil firm Petronas to develop shale oil in the vast Vaca Muerta formation.

Argentina needs foreign investment to develop the shale formation, thought to be one of the world's largest.

YPF said Petronas would contribute $475 million to the initial investment in oil exploration in the southern Argentine province of Neuquen.

"During the pilot stage, we will drill more than 30 wells," YPF said, noting that depending on the results, the project could be continued with an investment of more than $1 billion in the first five years.

Some studies indicate Argentina is sitting atop a shale bounty that could transform the outlook for the Western Hemisphere's supply and secure the South American country's energy self-sufficiency for decades.

Reporting by Alejandro Lifschitz and Sarah Marsh