Argentina Oil, Gas Scheme 'Insufficient' to Attract Investment

Argentina Oil, Gas Scheme 'Insufficient' to Attract Investment

Argentina President Cristina Fernandez de Kirchner’s decision to create new incentives to boost shale exploration activity in the country marks a positive step, but appears insufficient alone to attract needed investment due to the nation’s “highly uncertain” regulatory environment.

Kirchner signed Decree No. 929/2013, which creates incentives for oil and gas producers that bring to Argentina hard currency equivalent to $1 billion in the first five years of a project. Beginning in the fifth year, the participating companies will be able to export 20 percent of their oil and gas production on a tax-free basis with no obligation to reimburse export proceeds to Argentina.

Companies will be reimbursed the pesos equivalent to the international price of oil and gas for 20 percent of production volume if all of a company’s production must be sold to meet local market demand. These companies will also be granted preferred access to the official exchange market to obtain foreign currency for such amount.

Through the new decree, released July 15, companies included in the new regime will be able to request an unconventional exploitation concession, which will be granted within the existing concessions for a 25-year period and is extendable for 10 years.

“Fitch recognizes Argentina’s unconventional resources’ attractiveness and does not rule out the potential to have new international players in the country,” Fitch said in a July 17 press release, pointing to the recent agreement between YPF S.A. and Chevron Corporation to develop Argentina’s shale assets as evidence of foreign investor interest.

“However, Fitch does not anticipate the new regime to trigger enough foreign investment to truly and quickly develop Argentina’s unconventional resources,” Fitch noted, adding that a robust regulatory environment, long-term predictability, and ability to transfer dividends abroad are key factors to "attracting the great deal of investment needed".

Fitch noted that the new regime’s benefits will not be realized until after a five-year period, during which time presidential elections will take place in Argentina.


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