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Argentina's Chubut province implements tax incentives to increase crude output

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Argentina's Chubut province implements tax incentives to increase crude output

Highlights

Royalties to be reduced on increased output

Incentives are for new drilling and enhanced recovery

Moves comes after output fell 21% at start of the pandemic

Buenos Aires — Chubut, the second-most productive oil province in Argentina, said it has launched an incentives program to rebuild crude production after a decline last year during the COVID-19 pandemic, the second province to do so this year.

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Companies that start new production projects will pay a lower royalty on the increased output, Chubut's minister of hydrocarbons, Martin Cerda, said in a statement late April 21.

The reduction in the rate — it averages 12% in Argentina — will be available for new drilling campaigns as well as for enhanced recovery projects to squeeze more oil out of maturing reserves, he added.

Cerda did not provide specifics on the lower tax rate, but he said that companies must present projects by Sept. 30 for them to be eligible.

Chubut, located in southern Patagonia, saw its oil output plunge 21% to 128,406 b/d in April 2020 from 163,164 b/d in March 2020, as a lockdown for the pandemic slashed demand, according to data from the Argentina Oil and Gas Institute, an industry group. While demand has been recovering since a loosening of the lockdown last year, and its lifting last November, Chubut's output is still below the pre-pandemic level at 142,218 b/d as of February, the latest industry data show.

Chubut has been producing oil for more than 100 years, but with most of the reserves maturing companies are starting to use enhanced recovery techniques to squeeze out more barrels.

In March, the country's state-backed oil company, YPF, said it plans to invest $184 million this year in Chubut, and will drill 45 new wells and install polymer-injection plants for tertiary recovery at two blocks. One of the plants is already in operation at Manantiales Behr, where it has helped boost output to a record at that field even though it has been in production for more than 90 years. The technique increased output from the field 7.9% to 23,600 b/d in 2020 from 2019, according to the company.

Incentives in Mendoza

Chubut, which produces 29% of the country's oil, is the second province to provide incentives for boosting output.

In February, Mendoza, the country's fourth-biggest oil province, started providing tax credits equivalent to 40% of the investment to put wells back into production after they were shut-in last year during the lockdown and to launch new drilling efforts.

The western province has said it wants to increase output by 3% to 4% this year.

In the first two months of the program, Mendoza received commitments from companies to invest Pesos 2.2 billion ($23.6 million) for putting 160 wells back into production, the western province said April 18 in a statement.

This has increased output by 1,900 b/d, it said.

Mendoza's oil output has recovered 8.1% to 55,490 b/d in February from a pandemic low of 51,350 b/d in May 2020, industry data show.

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