It’s no secret that the U.S. is in the middle of a natural gas boom. The widespread adoption of hydraulic fracturing and other advanced drilling techniques has unlocked the plethora of gas trapped beneath the country’s hard shale rock.

Likewise, “fracking” has benefited the natural gas stories in both Canada and Russia. Touting huge reserves, this trio has the ability to change the energy marketplace with their drilling activities. To that end, energy companies like Exxon Mobil (NYSE:XOM) have plowed head-first into these assets — and investors have followed suit by plowing into shares of various shale-focused E&P firms.

However, the U.S., Canada and Russia aren’t the only nations benefiting from these new drilling advances. A host of others stand ready to embark on their own natural gas renaissances. One brewing story in South America could even rival the U.S. in terms of production. For investors, betting on this relatively unknown growth story could be a great way to profit long term.

The Neuquén Basin

While Brazil leads South America for deepwater oil reserves, Argentina could be the continent’s shale superstar. In April of 2011, the U.S. Energy Information Administration and Advanced Resources International put out a report listing the technically recoverable shale gas resources across 33 countries at 6,622 trillion cubic feet (Tcf). Most of the leaders on the list weren’t that surprising. However, Argentina’s placement certainly was.

According to the EIA, Argentina has 774 Tcf of technically recoverable shale gas and unconventional reserves. That puts it comfortably into the third position, behind China and the U.S. Overall, the Latin American nation boasts more unconventional shale gas resources than all of Europe combined. This is in addition to Argentina’s proved traditional gas reserves of 13.4 Tcf.

The bulk of these reserves lie within the Neuquén Basin, an area in west-central Argentina that covers the provinces of La Pampa, Mendoza, and Rio Negro. In December 2010, Argentina’s major oil and gas company, YPF (NYSE:YPF) discovered more than 4.5 Tcf of gas and 150 million barrels of oil equivalent (BOE) worth of shale oil in the Neuquén’s Vaca Muerta formation. This has set the stage for Argentina’s shale revolution. Since that time, shale gas fever has begun, and activity on the rock formation has surged.

While domestic production has dwindled since Argentina’s fiscal “issues” during the early 2000s, the Neuquén Basin could be key to its economic revival. The region has traditionally been the nation’s major contributor of conventional oil and gas production. This gives Argentina a distinct advantage over other early-stage shale plays such as Africa: the presence of existing midstream infrastructure.

Overall, Argentina already boasts Latin America’s most extensive pipeline system. More than 18,000 miles of natural gas pipelines dot its countryside, and the nation is host to various liquefied natural gas (LNG) import facilities. These facilities could be a crown jewel, if they get upgraded to produce LNG exports. This is similar to what we’re now seeing in the U.S. with Cheniere Energy’s (NYSE:LNG) Sabine Pass liquefaction facility.

To spur production in these unconventional assets, Argentina’s Ministry of Federal Planning, Public Investment & Services has recently expanded programs for foreign producers. While heavy price controls enacted during 2001 to combat inflation remain in place, the passage of Gas Plus Program back in 2008, allows foreign E&P firms the ability to charge more for their production. This ultimately encourages exploration activities as controls keep Argentinean natural gas prices below cost for many wells. Under the guise of the Gas Plus Program, several companies have recently have gained approval and will be allowed to charge around $4 to $5 per million Btu (MMBtu) for their production. That’s roughly double the national average price.

This program, plus Argentina’s vast midstream infrastructure, makes it an ideal place of natural gas producers to do business and exploit the nation’s abundance of reserves.

Getting in Early

With the shale revolution just beginning in Argentina, investors have an unique opportunity to participate on the ground floor. While obvious play would be YPF or Spain’s Repsol (PINK:REPYY), which has a 57.4% stake in YPF, constant government interventions makes this a poor choice. The latest jab at YPF comes from government accusations that it’s paying too much of its profits out as dividends and isn’t spending enough on E&P efforts with the nation. YPF currently yields 11.5%.

Cabinet chief Juan Manuel Abal Medina recently remarked during in a radio interview, “if the only way forward is to nationalize YPF, it will be nationalized.” Needless to say, that’s not what private investors want to hear. Luckily, there are plenty of ways to gain access to Neuquén Basin.

Perhaps the best way to invest in Argentina’s natural gas boom is through Houston-based independent producer Apache (NYSE:APA). It’s the fifth-biggest gas producer in Argentina and is responsible for around 4% of the country’s total output. Overall, Apache was a relatively small player in the Latin American nation until it purchased acreage from Pioneer Natural Resources (NYSE:PXD), back in 2006.

Since, then it has expanded its holdings under the Gas Plus Program and now boasts interests in 34 fields, totaling 3.7 million gross acres across four of the main Argentine hydrocarbon basins, including the Neuquén. Apache plans on capital spending of more than $250 million in 2012 for several projects in the region.

Shares of Apache can be had for price-earnings ratio of just under 9, with a 0.7% dividend yield. However, Apache’s price doesn’t really take into account the shale story in Argentina. In addition, to its Latin American holdings, the E&P firm has interests across Egypt and in the deepwaters of the Gulf of Mexico. Needless to say, the drilling moratorium and Arab Spring have had their way on Apache’s shares, down nearly 20% over that past year.

However, the company’s attention to Argentina’s unconventional resources could see it finding gold once again. For investors, the firm represents a great undervalued play on Neuquén Basin and Argentina’s shale revolution.

— As of this writing, Aaron Levitt doesn’t own shares of any company mentioned here.