Argentina hydrocarbons bill may improve financing options for exporters

A partial easing of capital controls proposed in Argentina’s hydrocarbons promotion bill may help support access to financing for upstream oil projects, BNamericas was told.

Under the draft legislation, E&P firms can export a proportion of incremental production and half of associated revenue can be retained in dollars instead of exchanged into pesos.

For the government, a key aim of the bill is ramping up exports to generate dollars to bolster central bank reserves. 

While Argentina sits on a wealth of oil and gas resources, restricted access to financing – along with associated factors including policy uncertainty and macroeconomic risk – has been dampening E&P investment appetite. 

Referring to the fact some revenue would remain in dollars, Pablo Artusso, head of corporate finance and infrastructure at capital markets-focused ratings platform Moody’s Local Argentina, said the financing outlook may brighten.

“Our opinion is that this could incentivize production, incentive stronger exports and, at the same time, also give companies the possibility to access better credit lines since, by law, companies would have an amount, that it is to say secured, of foreign currency.”

The chief financing avenue for companies today is Argentina’s capital markets, which have limited depth compared with international capital markets. 

Recent debt issuances by E&P companies YPF, Pan American Energy, Vista Oil & Gas and CGC, for a total of around US$845mn, was principally purchased by Argentine social security institute Anses, which administers the country's pay-as-you-go pension program. In a report on the sector, Moody’s Local Argentina said it believed “this source of financing will not be sustainable nor sufficient to replace international credit.”

A steady flow of dollars could ease access to overseas financing. 

On the general outlook for production next year, Artusso said oil output should grow, citing a push to tap export markets. In terms of natural gas, limited spare transport capacity at Vaca Muerta is expected to constrain production growth.

On the impact of the bill, Saverio Minervini, a senior director at rating agency Fitch, told BNamericas recently that, as it stands, the draft legislation would unlikely result in a significant increase in production.

“The hydrocarbon bill, as proposed, is not expected to materially impact the cash flow profile of our rated energy companies,” Minervini said. “I don’t expect them to increase production, materially, because of the law. For the broader energy sector, I don’t think it moves the needle much.”

Along with limited access to credit, other factors at play are the scope of the incentives, new production coming online elsewhere and the energy transition.

The bill was submitted last month. 

“It is subject to many possible changes between now and when it eventually approved,” Artusso said.

Argentina exported 2.69Mm3 of crude oil last year, up from 2.52Mm3 in 2019, according to data from local hydrocarbons association IAPG.

Among companies offering oil for export last month were Pan American Energy, Pluspetrol, Enap Sipetrol, and Pampa Energía, according to federal energy department data. 

State energy company YPF – a net importer of oil – was Argentina’s biggest producer in July, accounting for 37,000m3/d, followed by Pan American Energy with 15,884m3/d and Vista Oil & Gas with 5,045m3/d. 

The majority of E&P firms produced less than 1,000m3/d.

The market is dominated by a handful of low-cost producers – companies that could stand to benefit most from the bill. The bulk of any uptick in E&P investment may flow into Vaca Muerta rather than conventional hydrocarbons deposits.