Argentina Plans Extension of Energy Investment Incentives

Argentina will extend tax and currency incentives put in place last year to attract energy investment as the government begins to discuss a new oil law with provinces, Cabinet Chief Jorge Capitanich said.

The proposal offers energy companies that invest $250 million over a five-year period the ability to sell 20 percent of production in international markets without paying export taxes and the ability to keep some export revenue outside the country, Capitanich said in an interview in Buenos Aires today.

“It was discussed with provincial governors yesterday,” Capitanich said. “Argentina needs to increase its oil output.”

The incentives will be included in the rewriting of a 1967 oil bill that will also offer oil companies 35-year licenses to exploit the world’s second-biggest shale gas reserves and fourth-biggest shale oil reserves, said two provincial officials, who aren’t authorized to speak publicly as talks are private.

Shares in state-owned YPF SA (YPF), which is seeking partnerships with foreign oil companies to develop shale deposits, rose 2 percent to $32.40 at 2:56 p.m. in New York, heading for the highest closing price since Jan. 10.

Taxes, Royalties

Governors of 10 energy-rich provinces met with President Cristina Fernandez de Kirchner yesterday and agreed to study the draft presented by Economy Minister Axel Kicillof and Legal Secretary Carlos Zannini and deliver recommendations for a final bill on June 16.

“Argentina needs to boost investments in the oil sector and must have an updated law with unified taxes, royalties and environmental standards,” Capitanich, 49, said earlier today at his daily press conference. “The bill will surely be sent to the Senate soon for discussion.”

The bill will seek to end political tensions stemming from unclear rules governing the country’s nascent shale boom and lure more investors to Vaca Muerta, a Belgium-sized formation in the country’s southwest where companies from Chevron Corp. (CVX) to Exxon Mobil Corp. (XOM) are drilling wells.

The decree to create incentives for investments of $1 billion over five years was published the day before Chevron signed a final joint-venture agreement with YPF.

Fuel Imports

Argentina needs energy investment to curb imported natural gas shipments that will reach $9 billion this year, said Neuquen Governor Jorge Sapag today in a Radio del Plata interview. His province, home to Vaca Muerta, has seen shale output increase to a record after Argentina expropriated YPF from Repsol SA (REP) by paying the Madrid-based company less than $5 billion in bonds this year.

The draft of the bill given to the governors suggests the government may seek to federalize the licensing processes, the officials said. Provincial authorities will fight attempts by YPF to cap their royalties and local taxes below a combined 15 percent, as well as to reduce participation in joint ventures by provincially owned energy companies, the provincial officials said.

The local government’s share in some provinces deters investments, YPF Chief Executive Officer Miguel Galuccio said on May 21. Mariano Gibaut, a YPF spokesman in Buenos Aires, declined to comment.

Chubut province won’t cut its royalties to YPF, Pan American Energy LLC or Tecpetrol SA, Oil Minister Ezequiel Cufre said last week. Chubut is home to the D-129 shale formation where YPF started production last month.

To contact the reporter on this story: Pablo Gonzalez in Buenos Aires at pgonzalez49@bloomberg.net

To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net Robin Saponar, Steven Frank

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