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General Legal Features• A permit holder that discovers a commercially exploitable reservoir is
entitled to a production concession to develop it.
• The term of a conventional production concession is 25 years;
• while, concessions for the development of unconventional resourcesare granted for a term of 35 years.
• Unconventional production concessions allow conventionalexploration and production as ancillary activities subject to thepayment of a production bonus and an additional royalty of 3%.
• Offshore production concessions are granted for a term of 30 years.In all cases, the concessions may be extended for successive 10-yearperiods.
• For production concessions, unconventional hydrocarbon production isdefined as the extraction of oil and gas through unconventionalstimulation techniques applied to deposits in geological formationscharacterized by the presence of rocks with low permeability.
• Holders of permits and concessions are required to pay royalties to thegrantor (i.e., the federal or the provincial government) at a 15% rate forexploration permits and at a 12% rate for production concessions.
• Royalties are increased by 3% each time a concession is extended, up to amaximum of 18%. Royalties may be lowered to 5% under exceptionalcircumstances.
• Permit holders and concessionaires must also pay the grantor a surfacecanon based on the acreage of the permit or concession.
• Authorizations, permits and concessions can be totally or partiallyassigned with the prior approval of the corresponding federal or provincialagency.
Environmental Regulations
• General (federal) regulations containing minimum environmentalprotection standards, such as Law No. 25,675 (the General EnvironmentalLaw) and Law No. 24,501 (the Hazardous Waste Law); and generalregulations and minimum standards specifically applicable to hydrocarbonactivities.
• The provinces can also issue regulations in addition to national legislation.For example, the Neuquén Province passed Decree No. 1483/2012, whichestablishes the rules and procedures for the exploration and exploitation ofunconventional reservoirs in its province. The Decree incorporates theregulations under Provincial Law No. 1,875, which sets out the guidingprinciples for the preservation, conservation, protection and improvementof the environment.
• At present, some provinces with the potential for unconventional energygeneration have yet to pass specific regulations or decrees.
Argentina & Vaca Muerta
Main features
Source: IAPG
Players
June 2019
Vaca Muerta in Figures
•8,222 km2 (34 concessions)
•1,269 km2 (7 development blocks, 4% of the formation)
•1,319Shale Wells (August 2019)
•1,078 Tight Wells (February 2019)
https://www.accenture.com/_acnmedia/accenture/conversion-assets/dotcom/documents/global/pdf/digital_3/accenture-reimagining-argentina-an-unconventional-look-towards-2035.pdf
https://www.accenture.com/_acnmedia/accenture/conversion-assets/dotcom/documents/global/pdf/digital_3/accenture-reimagining-argentina-an-unconventional-look-towards-2035.pdf
Reserves, production & Investments
Gas production reached roughly the same levels at the end of 2018 as in 2009.
https://www.bnamericas.com/en/features/5-things-to-watch-in-argentinas-hydrocarbons-sector-in-2020
Investments & Costs
•USD 21.1 Billion Announced and ongoing (pre pandemic) (https://www.argentina.gob.ar/sites/default/files/anuncios-de-inversion-vm.pdf)
Current challenges and future trends
Opportunities
• Room to grow
• Domestic demand & Exports
• Low costs
Benefits
Human Resources
Challenge: turn rersources into reserves
New frontiers
• Factory model, hubs
• Ensure evacuation of futureproduction
• Transportation constraints
• Refining capacity
Threats
• Political uncertainty
• Regulations (Law SB-4 of California, a model?)
• Socio-environmental issues
(around 70 municipalities –of six provinces- banned fracking activities within their jurisdictions, unconstitutional)
• 25,000 workers at home• Local Content• Sustainability of depletable
resources (stabilization fund?)
Challenges ahead
Challenges ahead
• Transparency and information dissemination• Water use and contamination of shallow aquifers
• Effects of fracking
• Use of chemical products
• Activity´s regulation and surveilance
• Control agencies´ capabilities
• ADRs (e.g. facilitation)
• FDI, government take, taxes, ancillary investments, development, infraestructure
• Voluntary initiatives? (EITI, Revenue Watch, OECD, publish_what_you_pay, etc.)
• HR capabilities creation
• Local technology development and innovation
• Value chain and wealth creation
Challenges ahead (Vaca Muerta)
• Specific Bill. legislation aimed at “shielding” the formation from the country’s macroeconomic conditions. Or YPF only?
• Dedicated Pipeline, connecting with the port city of Bahía Blanca and the urban centers of Buenos Aires and Rosario. It will span about 1,000km and require investments of about US$1.8bn in total.
• Liquefaction Plant to boost export potential (US$5bn).
Challenges ahead
• Fernández´s government to restructure Argentina’s foreign debt;
• Foreign currencies multiple rates and restrictions;
• Unconventional wells decline much faster than conventional ones. Theinvestment and constant fracking and spudding needed to maintain - letalone increase - production is significant. This happens in a context wherethe decline in conventional production has been dramatic and isaccelerating, because companies have not been investing enough toexplore new conventional reserves for years.
• Argentine hydrocarbon production could thus quickly plummet, ifinvestments slow down, which already started.
