1. Amendments to Law No. 17,319 on Hydrocarbons
1.1. Scope and goals of national policies
The Foundations Law introduces several amendments to Law No. 17,319 including, activities of storage and processing to the already included activities of exploitation, transportation, industrialization, and commercialization of hydrocarbons, empowering the National or provincial Executive Powers to grant permits, concessions, or authorizations for the transportation, storage, or processing of hydrocarbons. It also adds as the main objective of the national hydrocarbon’s regulation the maximization of the income obtained from the exploitation of the resources.
With regards to processing, it extends the obligation concerning the transportation of hydrocarbons to those authorized to process hydrocarbons of third parties, up to five percent (5%) of the capacity of their facilities. It shall not compromise the safety of the process and the applicant will be responsible for the costs related to the connection to the plant. In the case of liquid fuel processing plants, the service must include the storage service. Refining services and its related storage facilities and natural gas liquefaction plants are excluded.
Regarding storage, the addition of section 44 bis determines that the authorizations for underground storage of natural gas enables the storage in natural reservoirs of depleted hydrocarbons.
Authorizations may be granted in areas subject to exploration permits and/or exploitation concessions of its own or from third parties and in areas that are no longer subject to exploration permits and/or exploitation concessions.
Any other underground storage of natural gas will not require authorization. Storage authorizations shall not have a term.
Likewise, the Foundations Law abrogates certain sections of Law No. 17,319 which originally provided for a notorious participation of the National Government as well as the preference for companies of Argentine capital in hydrocarbon activities. Thus, the Law eliminated, among others, Sections 11, 13, 91, 91, 96 and 101.
1.2. Free market
The Foundations Law ratifies the possession of permit holders and concessionaires over the hydrocarbons they extract. They may freely commercialize it according to the regulations, and the National Executive Power shall not fix the prices in the domestic market.
Concerning the export of hydrocarbons, it enables the free international trade of hydrocarbons -in line with the strategic projects export regime of the RIGI- and they may freely export hydrocarbons and/or their derivatives.
1.3. Exploration activities
The Foundations Law abrogates section 15 of Law No. 17,319 which established prior approval from the application authority to recognition works and its scope. .
On the other hand, it modifies section 21 of Law No. 17,319 regarding the payment of royalties for hydrocarbons extracted during exploration, applying the royalty “committed in the award process”.
1.4. Amendments to the award system
Bidding terms and conditions shall contain the conditions and guarantees that offers must comply and the minimum investments amounts to be made by the successful bidder. Likewise, it shall establish mechanisms to adjust royalties according to the total investments made, the income and the operating expenses incurred, among others. The evaluation of offers shall consider these items, as well as the total project value.
On the other hand, the Foundations Law introduces that existing exploitation concessions, at the end of its term, shall not be awarded without a new bidding procedure. This procedure shall be carried out at least one (1) year prior to the expiration of such concessions.
1.5. Investment regime
Investment regime has been limited to the obligation of the concession holder to carry out, within reasonable terms, the necessary investments for the execution of the works required for the development of the area.
1.6. Canons and royalties
The Foundations Law updates the amounts that the holder of an exploration permit must pay annually and a fee for each square kilometer or fraction, establishing a mechanism to facilitate future updates, according to the following scale:
- Basic Term:
- 1st Period: the equivalent amount of zero point fifty (0.50) barrels of oil per square kilometer in pesos.
- 2nd Period: the amount equivalent of two (2) barrels of oil per square kilometer in pesos.
- Extension: the amount equivalent to fifteen (15) barrels of oil per square kilometer in pesos.
Exploitation concessionaires must pay annually the amount equivalent in pesos to ten (10) barrels of oil per square kilometer or fraction thereof covered by the area.
These royalties will be adjusted according to the average price of an oil barrel of the ‘ICE Brent First Line’.
Exploitation concessionaires shall pay monthly a royalty to the grantor for the produced and effectively exploited hydrocarbons, based on a percentage equivalent to the one determined in the awarding process.
In addition, the National or the provincial Executive Power may reduce the royalty up to five percent (5%) considering the productivity, conditions, and location of the wells.
Authorizations to storage gas underground mentioned above shall only pay royalties at the time of its first commercialization.
1.7. Exploitation by foreign entities
The Foundations Law overturns Section 51 of Law No. 17,319, which did not allow foreign public legal entities to submit bids.
1.8. Non-Conventional Exploitation and terms of concessions
It also eliminates the obligation of the exploitation concessionaire to request a new concession for non-conventional exploitation, simplifying the process. They must require the subdivision of the area and the conversion from conventional to non-conventional. The request must be based on a pilot plan that, in accordance with technical and financial criteria, is aimed at the commercial exploitation of the discovered reservoir. This request may only be submitted until December 31, 2028. The enforcement authority will decide within sixty (60) days, and once the reconversion request is approved, the term of the reconverted concession will be thirty-five (35) years computed from the date of the request.
1.9. Modifications to transport concessions regulation
The regime of transportation concessions is modified to a regime of authorizations, if the transporter (i) has technical and financial capacity, and (ii) has an address in Argentina. The enforcement authority will keep a registry of those authorized to transport hydrocarbons.
The owners of projects and/or facilities for industrialization processes may request an authorization to transport hydrocarbons and/or their derivatives to their industrialization or commercialization facilities. These authorizations shall not have a term.
In the case of transportation authorizations awarded to explotation concessionaires, the authorized parties may request extensions for a term of ten (10) additional years.
The idle capacity of a gas pipeline must be available to third parties for its use, according to the needs of the authorized party. However, they may not act in unfair competition or abuse of their dominant position in the market.
On the other hand, holders of an underground gas storage authorization may request an authorization to transport hydrocarbons to their storage facilities and from these to the transportation system, which shall also not have a term.
2. Amendments to Law No. 24,076 on Gas Regulations
2.1. Exports and imports
While natural gas imports will continue authorized with no need for prior approval, exports must be regulated by the National Executive Power, considering the new wording of Section 6 of Law No. 17,319.
2.2. License renovation
The additional period of extension of the licenses of public services of transport and distribution of natural gas is extended from ten (10) to twenty (20) years. Considering that the original term of thirty-five (35) years expires in 2027, if the renewal is granted, such licenses would expire in 2047.
2.3. Transporters, distributors, and storage
The Foundations Law keeps the obligation to take the necessary measures to ensure the supply of non-interruptible services, and it is added that these, by themselves or by third parties, may acquire, build, operate, maintain, and manage natural gas storage facilities, according to the limitations established.
2.4. Liquefied Natural Gas (“LNG”)
Together with the provisions set forth for the RIGI (see comment to the RIGI, here), other terms applicable to LNG are included.
According to the Foundations Law, LNG exports must be authorized by the Secretary of Energy, within one hundred and twenty (120) days following the request from the relevant party.
LNG export authorizations will be granted for a term of thirty (30) years as of commissioning of the facility.
It is further clarified that it will not be necessary for the applicant to have LNG purchase and sale contracts in place or the total volume for the purposes of granting the LNG export permit. The granting of an authorization will imply the right to export all the volumes authorized in such capacity continuously and without interruptions, restrictions, or reductions, as well as the right to access without restrictions or interruptions to the supply of natural gas or to the transportation, processing, or storage capacity of any kind.
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For additional information, please contact Nicolás Eliaschev and/or Javier Constanzó.