Argentina To Expand Oil & Gas Investment Incentives

By Taos Turner 

BUENOS AIRES--Argentina aims to make it easier and more profitable for companies to invest in its oil and gas industry in hopes this will boost production and reduce energy imports.

President Cristina Kirchner will meet with governors from oil-producing provinces on June 16 to finalize the details of a new bill offering fresh incentives for oil and gas investment, according to people familiar with the plans.

The meeting comes after the president and provincial leaders agreed on Monday to the basic proposals to be included in the legislation, which will be sent to the Kirchner-controlled Congress. Among other things, the bill would unify the royalties and taxes that provincial and city governments levy on producers.

It would also lower the minimum investment levels required to send dividends abroad and qualify to export up to 20% of oil production tax-free. Additionally, it would ease equipment import restrictions. Cumbersome trade barriers and made-in-Argentina rules currently impede investment and exploration, companies say.

If passed by Congress and provincial legislatures, the bill would reduce the investment required to obtain such benefits to $250 million from $1 billion.

The bill could also require provinces to change the way they partner with companies to develop oil and gas deposits. In some case, provinces have required a stake in concessions without investing in them, says Carlos Pierro, an energy analyst and former president of YPF, Argentina's state-run energy company. Such partnerships unnecessarily raise costs, he said.

Mrs. Kirchner's cabinet chief, Jorge Capitanich, on Tuesday said output is declining at almost all oil and gas companies in Argentina, with the exception of YPF, which has increased oil and gas production.

"Argentina needs to create a sustainable legislative framework to promote investment," Mr. Capitanich said.

Declining production has led the government to spend billions of dollars it doesn't have to import energy every year. This year Argentina will post an energy deficit of more than $9 billion, according to Neuquén Governor Jorge Sapag. Neuquén produces about half of the oil and nearly a quarter of the gas in Argentina.

Argentina ranks second in the world behind China in potentially recoverable shale-gas reserves, with 802 trillion cubic feet, according to the U.S. Energy Information Administration. It ranks fourth in shale oil with an estimated 27 billion barrels.

"It's very important to attract the greatest amount of investment in oil and gas," Mr. Sapag said Tuesday in a local radio interview.

More investment-friendly rules could help YPF attract partners in Neuquén, where it is working with Chevron Corp. to develop shale oil and gas deposits in the sprawling Vaca Muerta shale formation.

Chevron partnered with YPF last year after Mrs. Kirchner signed a decree promoting investment in oil and gas. The decree's legality has since been challenged in court and a new law would put energy industry rules on firmer legal ground.

"They're hurrying to pass a law now because the decree has a lot of mistakes from a legal perspective," said Buenos Aires City Legislator Alejandro Bodart. Last July, Mr. Bodart filed a complaint alleging Mrs. Kirchner broke Argentine law by making changes to oil and gas rules in a decree instead of through legislation.

Last month, an appellate court ruled that an investigation should proceed into whether Mrs. Kirchner broke the law by signing the decree. In a 2-1 opinion, the court upheld a lower court's ruling that an investigation should go forward, denying an appeal by a prosecutor who found that no crime had been committed. A more senior prosecutor appealed the decision.

Mr. Pierro welcomed the plans to attract investment, saying Argentina needs many more companies like Chevron to invest here.

"We have to see the details but this seems headed in the right direction, " he said.

Write to Taos Turner at [e-mail]

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