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September 18, 2014
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Governors divided over oil and gas bill

A new meeting will be held tomorrow with Cristina Fernández de Kirchner

Governors who make up the Federal Organization of Hydrocarbon Producing Provinces (Ofephi) are getting ready to meet tomorrow with President Cristina Fernández de Kirchner to move forward with a new law to regulate oil and gas production but different stands about it promise long-term discussions.

Governor of Neuquén Jorge Sapag warned yesterday the bill created by the federal government has “several points that cannot be legislated” and said that even though he doesn’t want to “confront” with the federal government he will “defend the “interests of the “people who live in Neuquén.”

“There are sectors that want to make our gas and oil company (Gas y Petróleo del Neuquén) fight with YPF but both companies should work together,” Sapag said. “All areas of our company cannot be reviewed because no law is retroactive but I’m willing to discuss if they see there’s a contract that isn’t good for them. But always obtaining what we deserve.”

President Cristina Fernández de Kirchner’s administration is eager to debate a reform to the 1967 Oil and Gas Law, in order to re-work production regulation, as well as revenue sharing for shale, which isn’t included under the current legislation. The bill would give oil and gas companies more benefits to encourage their investment in the country, according to Noticias Argentinas, which had access to the draft.

Companies that invest US$250 million — a decrease from the current floor of US$1 billion — would be able to export as much as 20 percent of their output at international prices, and would be able to send profits abroad. The bill seeks to freeze royalties at 12 percent, but would allow an additional three percent, according to the draft leaked.

Natural gas production plunged 4.4 percent to 115.3 million cubic metres per day in 2013, compared to the previous year, while oil output declined 1.7 percent over the same period to 85,829 cubic metres per day. At the same time, Energy imports rose 23 percent in 2013 compared to 2012, closing at US$11.415 billion.

Following’ Sapag train of thought, La Pampa Governor Oscar Jorge and Río Negro Governor Alberto Weretilneck agreed yesterday that the bill proposed by the federal government “doesn’t impact all provinces in the same way” and because of that reaching a joint position about it “is really hard.”

Both Jorge and Weretilneck highlighted the law cannot affect current contracts neither be retroactive. La Pampa and Río Negro extended their oil contracts last year with state-controlled energy company YPF and with private firms like Petrobras and they will expire in 2015 and 2016.

“Our oil programme will continue because nothing changes. Call for tenders for new areas is mentioned when we are renewing our areas here. The law cannot affect current contracts and it’s not retroactive,” Weretilneck said. “If the bill moves forward, it won’t affect provinces in the same way. It has to be analyzed according to each province’s situation and that’s why it’s hard to reach a consensus.”

On the other hand, Governor of Tierra del Fuego Fabiana Ríos expressed her support for the federal government’s initiative but anticipated an agreement with the provinces needs to be achieved in order for the bill to be presented. Nevertheless, she said “nothing” made her think a deal couldn’t be reached.

“The current law is obsolete since it doesn’t contemplate unconventional hydrocarbons, which require different periods of investment than conventional ones. It was said that the federal government wanted to affect the provinces but it was proven that that’s not true,” Ríos said. “The law will be first presented at the Senate and forces major investors to invest in infrastructure.”

Ríos said the bill will have to be passed “by all provincial legislatures” and anticipated an agreement will be reached. “All the points in the bill will be discussed and all the constitutional guarantees are there,” she said.”

A harsh debate

Governors of Chubut, Jujuy, Salta, Formosa, La Pampa, Mendoza, Río Negro, Neuquén, Santa Cruz and Tierra del Fuego, which integrate the Ofephi, will meet with President Cristina Fernández de Kirchner to move forward with the law. But before the meeting, they will held a debate between them to try to reach a consensus.

The federal government hopes to start discussion of the bill in July or August first in the Senate and then in the Lower House. The bill will then have to be passed by all the provincial legislatures, a process that will delay it from being fully operational until June or July of 2015, according to estimations of the governors.

The debate at the Senate promises to be harsh, with the opposition led by senator and president of the Energy, Mining and Hydrocarbons Committee Guillermo Pereyra who promised to “defend Neuquén resources from the federal government’s intentions” together with Governor Sapag.

“The Constitution is being violated and we cannot allow that. The federal government wants to have all the wealth Neuquén has, specially in the shale formation Vaca Muerta. They want to have Neuquén’s resources for themselves,” Pereyra said. “I won’t allow the rights and interests of my province not being respected.”

Pereyra said he supported giving foreign companies better conditions to come to invest in Argentina but he said the royalties charged by the provinces to exploit their resources have to be respected. At the same time, he criticized the draft proposed by the federal government and said that if the bill is passed “there will be other alternatives to follow.”

Herald with DyN

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