Will Argentina Capitalize on its Oil Prospects?
Argentina last month invited oil companies to present bids for drilling and exploration projects in offshore areas. Major firms such as Shell and Equinor are considering presenting bids in the auction, Reuters reported. What are the prospects for the areas that are up for exploration, which include blocks on the continental shelf? Can Argentina avoid the fate of Uruguay, whose oil auction on April 26 failed to attract any bids? If so, how? Have the country’s recent problems controlling the devaluation of its currency, as well as talks over a potential stand-by loan deal with the IMF, affected investor confidence in Argentina’s oil and gas sector?
Jose L. Valera, partner at Mayer Brown LLP:“Argentina’s continental self is larger than that of the United States in the Gulf of Mexico. The offshore blocks on offer, all for exploration, cover approximately 200,000 square kilometers and are located in the Austral and West Malvinas basins in the south of the country, and in the northern portion of the Argentine Basin closer to Uruguay. Argentina’s current offshore production comes almost all from the Austral Basin, with the main operators there being Total, YPF and Sipetrol. As a whole, Argentina’s offshore is underexplored. At least it can be said this time that the ‘above ground’ risks will be the lowest since the late 1990s. Coupled with foreign exchange reforms already in place, the government is preparing a very competitive legal and contract framework. There will be no mandatory association with a state-owned company, and aside from the general corporate income tax, the only government take will be a royalty of between 5 percent and 12 percent. There will be no local content obligations, although there will be obligations to hire and train nationals. Contracts will not…”
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