Fuel reform reshapes investment prospects – BuenosAiresHerald.com

The draft, hammered out during last-minute discussions on Tuesday night, sets out amendments to the existing Hydrocarbons law which dates back to 1961, and establishes that in future exploration and drilling contracts will use a standard contract instead of the customized agreements used in the past.

Assuming that the bill is passed, the Energy Secretariat and provincial representatives have 180 days to establish the terms of that contract.

The horse-trading behind the scenes seems to have ensured that the provinces have not resigned too much of the revenues that they used to receive.

According to the terms of the reform, the provinces have signed away the right to participate in the carry, by which they could participate in exploration without having to initially put up their own investments. In compensation, royalties for the provinces have been set at 12 percent monthly, and can be increased up to 18 percent should there extensions to the drilling.

Additionally, the national government has committed itself to financing major infrastructure works whenever a new contract is signed and investing companies are obliged to transfer a sum of 2.5 percent of the initial investment to provincial authorities in the form of Corporate Social Responsibility.

Any and all concessions for conventional drilling will be handed out on 25-year contracts renewable for another 10-year period. Once the 35-year period is up, a further 10-year extension is subject to provincial authorities given their approval. The reform also seeks to shorten exploration times and reduce speculative investments by shortening the exploration periods and extending the concessions granted to successful bids. The all-important non-conventional fields will be given concession for a period of 35 years.

The terms of the new framework will apply to any hydrocarbon investment of at least US$250 million dollars and it specifies that companies will be able to freely sell 20 percent of the proceeds of their drilling, be it in either conventional or non-conventional wells.

Missing from the reform so far but likely to form the basis of further discussions is the creation of standard environmental and tax regulations across the provinces. Inconsistencies in this area between the provinces had been cited as one of the reasons for a reform.

Congressional debate

Following the relatively closed-doors nature of the negotiations that lead to the draft, all eyes will be on the Senate, which is set to begin debate on the matter on September 30.

Thus far, the signals sent by the two most powerful Neuquén senators suggest that on the face of it they would be in favour of passing the law.

“The idea was to generate an intense debate and that there is enough information for a vote to be decided upon,” said earlier this week Senator Marcelo Fuentes of the ruling Victory Front (FpV). He also made it clear that he would never be in favour or any bills that would disadvantage his province.

Senator Guillermo Pereyra (Neuquén Popular Movement, MPN), also of Neuquén, is also secretary-general of a Oil and Gas Workers’ union, has remained relatively silent thus far on the matter, a sign in itself that the most recent draft may be to his liking. Pereyra loudly criticized previous drafts, briefly taking a similar line to Neuquén Governor Jorge Sapag, who is also an electoral rival of his.

“What is important is that provincial autonomy has been maintained” Pereyra told the Radio Once Diez this week, while it also “respects the sovereignty that the country has over hydrocarbons.”

Fuentes and Pereyra are of particular importance as they will be chairing two of the committees tasked with studying the reforms. Thus far, the Broad Front – UNEN has announced its rejection and other blocs are studying the bill in order to determine their positions. It is very possible that the committee meetings next week will further help to define their positions.

The government is keen to have the reforms passed before the end of the year so as to begin the 2015 electoral year with the debate settled.

via Fuel reform reshapes investment prospects – BuenosAiresHerald.com.