Argentine lawyer talks hydrocarbons bill, financing outlook, projects

Earlier this year Argentina’s government presented its much-anticipated hydrocarbons promotion bill. Comprising more than 100 articles, the draft legislation is chiefly designed to help spur oil and gas output and exports.

A big question mark hangs over the impact of the bill as it currently stands, given the scope of the incentives, geopolitical factors, local risk levels and limited access to credit in the country. So far it has received a lukewarm reception, amid calls for a wider, comprehensive energy sector strategy. 

Against this backdrop, oil and gas production is nevertheless increasing as the government seeks to achieve energy independence. Gas production growth, however, will be limited by transport restrictions, an issue the government wants to resolve by expanding infrastructure.  

To discuss the bill and associated subjects, BNamericas spoke with Ezequiel Artola, a partner at the Buenos Aires office of global law firm Baker McKenzie. Artola works in areas including mining, oil and gas, natural resources, M&A and real estate.

BNamericas: From your perspective, has the hydrocarbons investment promotion bill generated much interest from prospective investors?

Artola: The bill generated interest among investors because it provided some protection for the incremental production of conventional and non-conventional oil and gas and even for midstream infrastructure works. 

It included eight different incentive programs subject to a complex regime heavily dependent on the application authorities’ discretion. The incentives included tax stability, free disposal of a portion of export proceeds, etc. In that sense, the incremental export production was going to be entitled to up to 20% of the proceeds in US dollars. Currently, all the export proceeds must be converted into pesos at the official exchange rate and all those proceeds must be sent back to Argentina. These measures may have good intention but, at the same time, their actual impact might result insufficient. 

Many oil and gas provinces did not support it because they believed that it implied an advance of the federal government on provincial resources.

After the internal election of September 2021 where the opposition got favorable results, the project lacked political support – even from the official political party that presented the draft bill – and it was put on hold. It is expected that it may be postponed and modified. 

BNamericas: In general, how are E&P companies (local and foreign) financing their projects in Argentina and do you expect any changes on this front in 2022?

Artola: Access to credit is currently limited and expensive due to the general macroeconomic situation – high inflation, foreign exchange restrictions, high taxes, import restrictions, etc.  

Companies with local sales and exports tend to reinvest their proceeds considering the limitations to access the foreign exchange market to pay dividends. 

Until the country shows signs of changing its macroeconomic policies – especially, those related to the exchange control restrictions – we do not expect changes in 2022. 

BNamericas: Do you know of any major E&P or midstream projects due to move forward in 2022?

Artola: The main project included in the 2022 national budget is the stage 1 of Vaca Muerta pipeline to transport natural gas and provide relief to the existing transportation system that is operating at maximum capacity. The pipeline will connect the provinces of Neuquén (Tratayen) and Buenos Aires (Salliquelo) and the plan is to eventually connect to Brazil to open the natural gas supply to that country and others of the region.

Other minor pipelines are also contemplated in 2022 – Mercedes-Cardales in the province of Buenos Aires and La Mora and Tío Pujio in Mendoza and Córdoba, respectively. 

BNamericas: In general, do hydrocarbons projects in Argentina, such as those in Vaca Muerta, tend to attract social opposition? If so, how does this tend to get resolved?

Artola: In general, social opposition to Vaca Muerta has been low. We have seen some protests related to fracking but in general the communities see the overall activity as a great opportunity for a region where the hydrocarbons industry has always been a synonym of progress and development. 

Having said this, there is also a sense that when the global trend on energy is directed towards energy transition, Argentina – heavily dependent on fossil fuels – does not have a comprehensive energy policy providing for the development of hydrocarbon resources – such as Vaca Muerta – and, at the same time, improving its policy in developing clean resources such as solar, wind, and hydrogen.