Argentina vows to include upstream projects in investment incentive scheme

Argentina plans to include oil and natural gas production projects in an incentives scheme now limited to big infrastructure developments across different sectors, including the construction of oil and gas pipelines and export facilities, Deputy Energy Minister Daniel González said Dec. 12.

González said he has received instructions from Economy Minister Luis Caputo, his boss who oversees national energy affairs, "to find the way to incorporate all upstream" in the incentives program. "This is something that we are going to start working on right away," he said at the annual oil industry lunch hosted by the Argentina Oil and Gas Institute in Buenos Aires. "This will encourage investment in increasing production, which is the big challenge."

The decision to include upstream projects in the incentives program, known as RIGI, is "a very important paradigm shift," González added. "RIGI is a powerful tool

RIGI, the Spanish acronym for the Incentive Framework for Large Investments, provides 30 years of legal and regulatory stability for projects of more than US$200 million in the country, of which 40% must be invested in the first two years. For projects of more than $1 billion, tax breaks are included as well, plus an exemption on paying export taxes after two to three years, depending on the size of the project. Imports of parts and other goods related to the project will also be exempt from taxes, and access to foreign currencies will be liberated once the projects are underway, at 20% after two years, 40% after three and 100% after four years.

González made the announcement a day after Economy Minister Caputo met with Rolando Figueroa, the governor of the southwestern province of Neuquén, the country's biggest source of oil and gas. At the meeting, Figueroa asked for upstream projects to be included in RIGI, saying this will help increase production.

"Neuquén and Argentina can rapidly scale up production if upstream investments are incentivized within a framework such as the RIGI, which offers a long-term horizon and uniform rules," Figueroa said in a statement late Dec. 11.

By including upstream projects in RIGI, this will help "accelerate capital inflows into drilling and well completion," the governor said.

This investment will boost oil and gas production, helping to reduce imports of LNG and liquids like diesel and fuel oil, he added.

"We can multiply the exportable crude oil and gas balances over the next three to five years," Figueroa said.

Latest support measure

This is the latest measure by the federal government to support upstream projects.

On Nov. 18, it lifted the 8% tax on conventional oil exports in a bid to spur production and exports of heavy crude after years of decline. At the same time, the government's efforts to balance the budget after years of fiscal deficits, tame runaway inflation and rekindle economic growth have encouraged new investments and opened the door to more financing, including large long-term loans from international banks.

González said the improving conditions are translating into more investment, including the entrance of new players into Vaca Muerta like Continental Resources. The US-based company agreed in November to acquire a 90% stake in Los Toldos II Oeste, a block not yet in production in Vaca Muerta.

"If we do things right, this will be the first of many," González said.

Vaca Muerta, a huge shale play located largely in Neuquén, is driving Argentina's growth in oil and gas production. The country's overall oil production hit a record 859,500 b/d in October, besting a previous record of 846,950 b/d in 1998. The rise in gas production has been slower, at 124 million cu m/d in October, or less than the previous high of 150 million cu m/d, largely due to seasonal factors and the lack of capacity to increase exports, some of which are now under construction with planned LNG export facilities.

The Argentinian Chamber of Hydrocarbons Exploration and Production, an industry group, said in April that it expects oil production to rise to 1.456 million b/d in 2030, led by Vaca Muerta. The play is expected to produce 1 million b/d of oil and 250 million cu m/d of gas in 2030, according to a forecast from PwC, a professional services firm.