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Argentina's Neuquen province launches tax incentive to revive conventional oil wells

Highlights

Province wants to sustain conventional output

Policy expected to underpin growth in Vaca Muerta

Shale oil output driving growth to year-end target of 235,000 b/d

Neuquen, the biggest oil and natural gas province in Argentina, has launched a fiscal program for reviving conventional wells, a move aimed at sustaining conventional output -- or lessening its decline -- to underpin growth from the Vaca Muerta shale play.

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The incentive allows companies to use 50% of their investment in conventional wells as a credit against the gross income tax in the southwestern province, Neuquen Governor Omar Gutierrez said in a statement late June 16.

"This plan seeks to spur an increase in conventional production and encourage the development of our basins to accompany the development of Vaca Muerta," he said.

Neuquen is home to most of Vaca Muerta, a huge shale play driving Argentina's oil and gas production growth. The gains in the play -- one of the world's biggest -- have been offsetting declines at conventional fields in basins nationwide over the past few years, most of which are maturing after decades of development.

Argentina's shale oil output shot up 53.8% year on year at 152,800 b/d in April, while conventional fell 3.4% at 359,000 b/d over the same period to take overall crude output up 8.6% at 510,700 b/d, according to the Argentine Institute of Energy. Of the total, shale accounted for 24% of the production, according to the think tank.

Companies have 30 days to present their plans to the Neuquen Energy Ministry, which will have another 30 days to decide on each project, according to the statement.

Neuquen is the latest province to offer tax incentives to try and boost oil and gas production, following the lead of Mendoza -- the fourth-biggest source of oil in the country. That province, which is just north of Neuquen, has attracted commitments to revive output at 161 wells since last year, helping to increase output by 1,800 b/d so far. Mendoza has launched a second stage of the program for another 200 wells, while Chubut and Rio Negro in the south have launched similar programs.

Targeting growth

At a June 16 energy seminar, Gutierrez said the tax incentives will help Neuquen achieve a 235,000 b/d oil output target by the end of 2021, up 25% from 187,410 b/d in April.

If achieved, that would be a 16-year high, he said, adding that the expansion will be led by the development of Vaca Muerta.

Gutierrez said investments in the play must be "accelerated," given that the global energy transition to net-zero carbon emissions will eventually reduce demand for oil and then gas.

"The total development of Vaca Muerta must be done in a period of no more than 30 years," he said.

To date, only 6% of the play's acreage is in full-scale development, he added.

Gutierrez said he expects investment to gradually rise to $5 billion/year in the play from a projected $3.8 billion this year.