Argentina is the largest producer of natural gas in South America.1 According to the U.S. Energy Information Agency (“EIA”), Argentina has an estimated 802 trillion cubic feet (tcf) of technically recoverable shale gas and 3,244 tcf of risked gas in-place.2 Its estimated technically recoverable resources are second only to China.3 The majority of the recoverable shale gas reserves are in the Neuquén Basin.4 The Golfo San Jorge and Austral-Magallanes basins could also become significant areas of production.5
EIA Report at V-1.
Argentina’s shale reservoirs have been said to have similar characteristics to formations in North America, and have attracted significant foreign interest and investment since at least 2011.6 These investments have generally targeted the Vaca Muerta formation in the Neuquén Basin, which some experts have opined could be the “best oil and gas shale opportunity outside of the U.S. and Canada,” not only in terms of the quantity of resources, but also their geologic quality.7
Foreign investment is crucial because YPF, Argentina’s recently renationalized energy company, estimates it will need more than $200 billion to fully exploit the Vaca Muerta.8 Although the 2012 renationalization of YPF created uncertainty for private investors,9 a significant joint venture between YPF and Chevron announced in 2013 demonstrates that private investors remain willing to invest in the country, and in the Vaca Muerta in particular.10 Via 2013 changes to the country’s export tax regime, Argentina has guaranteed an average oil price of $70 per barrel, which has helped maintain foreign investment and production activity in the face of faltering prices on the global market.11
In late 2015, Argentina underwent a political transition from the presidency of Christina Kirchner to that of Mauricio Macri.12 President Macri has pursued a center-right platform of deregulatory policies, including easing certain import restrictions, deregulating the peso, and reducing subsidies to the utility sector.13 These policies may benefit oil and gas producers, who have faced equipment shortages and price controls.14 The Argentine government’s current policy “is aimed at regaining self-sufficiency in hydrocarbons supply.”15 President Macri has also declared a state of energy emergency and successfully won some foreign investment in Argentina’s energy sector.16 In December 2015, for example, YPF and Dow Argentina announced that they would invest $500 million to explore for and produce shale gas in Argentina.17 In January 2016, Marci also said that Total, Shell, and BP have given him investment pledges of hundreds of millions of dollars each.18 Indeed, according to some experts, investment conditions in the country have “improved.”19
Several characteristics make Argentina a good candidate for shale development. Many of the country’s shale resources are located far from urban areas.20 There are “no serious security risks,” “a reasonably well-educated workforce,” and infrastructure to support shale development in place.21 While operational risks have decreased in recent years,22 the key remains bringing down the per-well costs.23 YPF has said that its horizontal wells cost approximately $14 million per well.24 Nonetheless, commercial production is already underway in Argentina.25 By August 2015, there were approximately 360 shale wells producing in the Vaca Muerta,26 and the country currently produces approximately 520,000 b/d of oil equivalent in shale oil, gas and liquids.27
Nonetheless, the shale industry has also faced setbacks in Argentina. While some have characterized opposition from environmental groups as “unlikely to pose a serious obstacle” to shale development in Argentina,28 instances of protests have been reported. In one such incident, police used tear gas and rubber bullets to dispel “thousands of demonstrators.”29 Additionally, at least one Argentinian court has ordered the cessation of shale operations at a particular site due to concerns of groundwater contamination. That April 2015 ruling related to a YPF site in Chubut,30 one of Argentina’s southernmost provinces encompassing some of the San Jorge basin.
Statutory and Regulatory Framework
Argentine provinces own the natural resources, including hydrocarbons, within their territories.31 However, federal law governs matters regarding hydrocarbons, including permitting and concessions.32 Ley No 17,319 is the main legislation governing hydrocarbon exploration and production.33 It vested complete control in the federal government to manage concessions and regulate oil and gas exploration and production, and continues to govern those concessions granted by the federal government.34 In 1992, Ley No 24,145 split control over oil and gas between the federal government and the provinces.35 Since 1992, provinces have administered the granting, administration, and control of exploration permits and concessions within their territories.36 Projects generally require the preparation of an environmental impact statement, which requires a public hearing.37
The Ministerio de Planificación
Federal, Inversión Pública y Servicios (Ministry of Federal Planning, Public Investment, and Services) oversees the oil and gas sector at the federal level.38 The Ministry oversees the Secretaria de Energía, which is the primary federal regulator of the oil and gas sector and is charged with enforcing federal laws related to hydrocarbons. The Ente
Nacional Regulador del Gas (ENARGAS) regulates natural gas distribution and transportation, which are under exclusive federal jurisdiction in Argentina, under Ley No 24,076.39 Each oil-producing province also has its own agency charged with regulating upstream oil and gas activities.40
On October 31, 2014, President Kirchner signed into law Ley No 27,007, a sweeping amendment of the country’s hydrocarbon laws aimed principally at unconventional resources.41 The amendment established centralized, nationwide rules for royalties and concessions, which the provinces previously controlled; removed a cap of five exploration permits per company; and extended concession periods depending on the type of oil and gas resources being developed.42 Concessionaires may now develop onshore conventional resources for 25 years, offshore resources for 30, and unconventional resources such as shale for 35 years.43 The government may extend those periods for up to 10 years upon application of the concessionaire. In addition, the new law lowered the investments required to qualify for export tax breaks to $250 million, and capped the royalties due to provincial governments at a unified national rate of 12%.44 Finally, the law allows concessionaries to sell, free from export taxes, 20% of their conventional exploitation, 20% of their unconventional exploitation, and 60% of their offshore drilling exploitation.45