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Argentina Agrees Draft Energy Law to Boost Foreign Investment

Posted by September 17, 2014

Argentina's federal government said on Wednesday it had reached a preliminary agreement with provinces to reform 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 needs investment in its southern Patagonian Vaca Muerta fields to reverse a costly energy deficit, meaning imports exceed exports, that is pressuring low foreign reserves.

Under the country's 1967 energy bill, provincial governments issue petroleum licenses and also determine concessions and the taxes foreign companies pay. The central government wants a national framework that creates the same rules for all regions, which it says would ease doing business.

"With clear, long-term rules creating transparent conditions, we obviously will get... investors enabling us to accelerate the process of becoming self-sufficient in terms of energy," Cabinet Chief Jorge Capitanich told a news briefing.

Some studies indicate Argentina is sitting atop a shale bounty that could secure the country's energy self-sufficiency for decades and see it become a major energy exporter.

Latin America's No. 3 economy defaulted on its debt again in July. Unable to tap global credit markets, the government depends largely on foreign firms and bilateral government deals for financing major infrastructure projects.

The reform will lengthen the terms of exploitation concessions by a decade to 35 years for non-conventional energy and 30 years for offshore permits. Firms can win 10-year extensions if they fulfill investment promises, the government said in a release late on Tuesday.

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 Repol'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 (CVX), which agreed last year to spend $1.24 billion for now state-controlled YPF to drill 161 wells as the project's operator.

Other companies have reached smaller deals, like Malaysia's state oil firm Petronas which pledged last month to contribute $475 million to oil exploration.

The energy bill must now go to parliament, Capitanich said.

"It will become national law, no later than October or November, and obviously it will have to be ratified by the Argentine provinces with the goal of guaranteeing its immediate implementation," he added.

(By Sarah Marsh, Additional reporting by Eliana Rasweski and Walter Bianchi; Editing by Richard Lough and Meredith Mazzilli)

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