Two years after the expropriation of Repsol's 51% share of Argentina's national oil company, Yacimientos Petroliferos Fiscales (YPF), the government created new and attractive conditions for Chevron to develop the shale gas deposits in Vaca Muerta. While this was seen as an about face by many domestic observers, both events are in line with the government's objective of reaffirming the state's role in energy policy and its own control over resources. The expropriation increased the state's share in the company, and the deal with Chevron, carried out via presidential decree, reasserted the national government's authority on energy deals over that of the provincial governments. A new Hydrocarbons Law currently in the works seeks to further tip the balance between the two levels of government in favour of the federal government and a more centralised modality of policy-making. Royalties, taxes and permitting authority are at stake.
The reform of the Constitution of 1994 recognised the property of subsoil hydrocarbon resources as belonging to the provinces where they are located (Art. 124). The constitutional reform was followed by a law ("Ley Corta", 26197/07) whereby provincial authority was extended to include the administration of the resources, including granting permits, renewing contracts, regulating activities and collecting royalties. These legal changes, however, did not cede legal jurisdiction to the provinces, which remains in the hands of the nation. Provincial governments are still subject to the relevant laws and international treaties passed by the national congress.
One of the consequences of the decentralisation of energy regulation has been the creation of state-owned enterprises at the provincial level. The province of Neuquen, where the Vaca Muerta deposit is located, created its own oil and gas company in 2008, Gas y Petroleo de Neuquen (G&P). G&P has entered into partnerships with YPF and almost all of the 24 firms that operate in the province, including Wintershall, Total, Shell, and ExxonMobil. Other provinces have followed suit: Chubut with Petrominera, La Pampa with Pampetrol, and Santa Cruz with Fomicruz. These provincial SOEs operate under a system called ‘acarreo’, whereby they become partners with private firms and share in the profits without necessarily contributing any capital.
Under the new hydrocarbons law proposed by President Cristina Fernandez, the provincial oil and gas SOEs would no longer enjoy this gate-keeping privilege. Instead, the provinces would receive royalties of up to 12% on any future investments. Overall, the new law seeks to replace the collage of provincial systems with a nation-wide arrangement that would prove attractive to investors and yield more control (and revenue) to the national government.
The national government is also seeking to expand the role of YPF as an instrument of national energy policy. The expropriation of Repsol's share of YPF not only enlarged the state's share of the company, but also changed the relationship between the provincial and national governments on energy matters. The new distribution of YPF shares includes a 25% package for the provincial governments in the ten provinces where hydrocarbon resources are located. No money has yet exchanged hands, either in payment for the shares to the national government or in dividends to the provinces, but the partnership has effectively sealed the fates of the provincial and national governments on future oil deals.
Key issues unresolved
While the new legislative framework seeks to create more predictable conditions to attract foreign investment, many key issues will remain unresolved, including domestic prices, export taxes, and repatriation of profits. Among the most important conditions of Decree 929/13, under which the Chevron deal was negotiated, is the right to export up to 20% of the hydrocarbons produced free of export duties or sell it to the local market at international prices. Oil companies already operating in Argentina have been receiving US$ 70/bbl since August 2013, as long as the international price is above USD$ 80/bbl. This is an improvement for the oil companies who were previously receiving US$ 42/bbl for exports that were fetching US$ 60.9/bbl or higher in international markets. These changes, and the exemption introduced by the decree for companies investing at least US$ 1 billion within the first five years of the project, reflect an effort on the part of the government to attract investment and encourage greater productivity. Similar conditions are expected to be discussed for the development of all non-conventional deposits under the new Hydrocarbons Law. The domestic price for the remaining 80% of Chevron’s production, as well as the conditions for the repatriation of these profits, remains, however, undefined.
Overall, the government of Argentina is signaling both to private firms and to provincial governments that it is taking the reins of the country’s energy policy. With the price of oil over US$ 100/bbl and an energy bill for imported fuel expected to reach US$ 10 billion for 2014, we can expect these signals to translate into real policy initiatives aimed at attracting new investments, increasing productivity, and improving domestic prices for producers.
- "El Decreto Chevron Deja Más Dudas Que Certezas Entre Los Especialistas", Infobae, 16 July 2013.
- "El Gobierno Bajó Las Retenciones a Las Exportaciones De Petróleo", El Cronista Comercial, 8 January 2013.
- "Petróleo: Diputados Advierten a Jorge Que No Quieren Cambios", La Arena, 14 June 2014.
- "Petróleo: Oficializaron El Esquema De Retenciones a Las Exportaciones", Tiempo Aregntino, 8 January 2013.
- De Simone, O., "El Dominio De Los Hidrocarburos Y La Ley 26.197", Revista del Colegio de Abogados de la Ciudad de Buenos Aires, December 2013, pp. 72 – 78.
- Marval, O'Farrell and Mairal, "New Regime for the Promotion of Investment on Hydrocarbons Production and Regulation of Unconventional Hydrocarbons Production", 2013.
- Sapag, J., "Federalismo Con Provincias Fuertes: La Fórmula Para Lograr El Autoabastecimiento Energético", La Nación, 19 June 2014.
Written by Sylvia Gaylord. Edited by Callum O'Reilly
Sylvia Gaylord holds a PhD in Political Science from Northwestern University and is Assistant Professor in the Division of Liberal Arts and International Studies at the Colorado School of Mines.
Read the article online at: https://www.energyglobal.com/upstream/special-reports/10072014/new_hydrocarbons_law_in_argentina_049/