On October 31, 2014 Argentina amended its hydrocarbons law to create incentives for foreign investment and to boost the country's conventional and unconventional hydrocarbons exploration and production (the "Hydrocarbons Reform Law"). The President introduced the bill in Congress on September 16th, after reaching an agreement with the hydrocarbon-producing provinces (the "Federal Agreement"). The Senate passed the bill on October 8th, and the House of Representatives did the same on October 29th. The President promulgated the bill, and it was officially published by the Federal Register on October 31st. The Hydrocarbons Reform Law seeks to implement substantial changes to the current regime.

The Hydrocarbons Reform Law:

  1. modifies the current permit and concession regime to address unconventional and offshore exploration and production. Specifically, it: (i) defines "unconventional production" and "unconventional production concession" (see Articles 4 and 5); (ii) establishes different permit and concession terms for unconventional or offshore exploration and production (see Articles 1, 4 and 9); (iii) entitles concessionaires to request multiple 10-year extensions of their concessions (see Article 9); and (iv) allows for subdivision or merger of areas when required for unconventional exploration or production (see Article 5).  
  2. unifies certain aspects of hydrocarbons regulation across the provinces, preventing the establishment of different surface fees, royalties, or procedures. Specifically, it: (i) establishes the exploration permits and exploitation concessions surface fee (see Article 14); (ii) determines that production concessionaires must pay a 12% royalty for the first term of the concession, and up to an 18% royalty in the following extensions (see Article 16); (iii) allows the federal and provincial executives to reduce royalties down to 25% of the applicable royalty to promote unconventional production (see Article 28); and (iv) establishes a unified competitive bidding procedure that the federal government and the provinces must follow when awarding exploration permits and exploitation concessions (see Articles 7, 11, 12 and 13).   
  3. prohibits the federal government and the provinces from assigning new areas to national or provincial oil companies, and mandates those companies to associate with third parties for the effective exploration or exploitation of the areas currently under their control (see Article 18).  
  4. incorporates offshore exploration and production to the permit and concession regimes under the Hydrocarbons Law. Specifically, it: (i) reverts to the federal government all offshore permits and concessions assigned by Law 25,943 to national oil company Energía Argentina S.A. ("ENARSA") that are not subject to association agreements with third parties; and (ii) allows the conversion of existing offshore association contracts with ENARSA to offshore exploration permits or exploitation concessions under the Hydrocarbons Law (see Article 30).  
  5. establishes additional contributions to be paid to hydrocarbon-producing provinces by private companies for corporate social responsibility reasons (amounting to 2.5% of the initial investment), and by the federal government to finance local infrastructure projects (the amount is to be determined later) (see Article 21).  
  6. includes foreign investments of US$ 250 million or more into the Investment Promotion Regime established by Decree 929/13 (see Articles 19 and 20).

Additionally, the Federal Agreement complements the provisions of the Hydrocarbons Reform Law by regulating how hydrocarbon-producing provinces (namely, the provinces of Chubut, Formosa, Jujuy, La Pampa, Mendoza, Neuquén, Río Negro, Salta, Santa Cruz, and Tierra del Fuego) and its municipalities can tax hydrocarbon activities. Specifically, it preempts them from: (i) setting the gross turnover tax rate at more than 3%; (ii) increasing existing taxes, or establishing new ones, that apply to existing exploration permits and exploitation concessions (unless it is a generalized tax increase, an adjustment of public utilities rates, or a mandatory contribution for improvements); (iii) increasing existing stamp tax rates; and (iv) applying the stamp tax to agreements for the financing of hydrocarbon exploration and production (see Annex I to the Federal Agreement). 

Argentina is taking steps in the right direction, especially by limiting the power of the provinces, and centralizing regulatory powers in the federal government under clearer rules. On October 22, 2014, in yet another measure to implement a hydrocarbons-friendly policy, the Ministry of Economy of Argentina reduced the tariffs applicable to oil exports. Seeking to encourage production in the current oil prices downtrend context, the Ministry established that applicable rates will automatically and progressively reduce as prices move below $80/bbl WTI.

Ever since the financial crisis of the 1990s-2000, Argentina has suffered from lack of foreign investment due to measures imposed to increase the government take, which changed the conditions under which contracts had been executed and scared foreign investment away. Now, the government seems to have realized that it is necessary to modify the fiscal regime to ensure foreign investment in the development of its oil and gas industry. This realization is reflected in the Hydrocarbons Reform Law, which reduces government take and intends to foster investment in the oil & gas upstream sector in Argentina, especially the unconventional hydrocarbons projects to be developed in the Vaca Muerta shale play. However, until Argentina lifts its strangling currency and remittance controls, investors will continue to struggle with complicated financing structures and uncertainty, all of which make large investments difficult.