Levy
Law No. 27,007 sets the levy values per km2 or fraction to be paid annually and in advance by the permit holder. The exploitation permit will amount to AR$4,500, and the following values will apply to exploration permits: AR$250 in the first period and AR$1,000 in the second period of the basic term; and AR$17,500 during the first year of the extension, with a 25% annual cumulative increase. The amount may be readjusted by offsetting up to 10% of the levy with actual investments, according to the period and per km2.
In September 2019, the Province of Neuquén established new levy values per km2. The exploitation levy was set at AR$22,410, and the exploration levy at AR$1,245 for the first period, AR$4,980 for the second period, AR$7,470 for the third period, and AR$87,150 for the extension period (Executive Order No. 2032/19).
As of 2021, DNU No. 771/20 set a maximum levy in AR$ equivalent to a certain volume of oil, valued at the average domestic market price and the Argentine National Bank (Banco de la Nación Argentina)’s FX rate. For exploitation concessions, it amounts to the equivalent of 8.28 barrels. In contrast, the following applies to exploration permits: 0.46 barrels in the basic term’s first period and 1.84 barrels in the second period, and 32.22 barrels during the extension period.
Royalties
Royalties, the only monthly income on production mechanism collectible by the granting authorities, are set at 12% of the proceeds from liquid hydrocarbons and natural gas extracted at the wellhead. An additional royalty of up to 3% is applied in case of extension, reaching a maximum of 18% for next extensions.
The PEN or the Provincial Executive Branch, as applicable, acting as granting authority, may reduce the applicable royalties by up to 25% for 10 years following the pilot project’s conclusion in favor of companies requesting a hydrocarbon unconventional exploitation concession within a period of 36 months as from Law No. 27,007’s effective date.
Extension and exploitation bonds
Law No. 27,007 empowers the enforcement authority to set the payment of an exploitation concession extension bond. The maximum amount is calculated by multiplying the remaining proven reserves at the end of the concession period by 2% of the average basin price.
Moreover, the enforcement authority may establish the payment of an exploitation bond, which is calculated similarly and is associated with hydrocarbon’s conventional exploitation.
Transportation concessions
Transportation concessions, granted for the same term as the originating exploitation concession, may be extended successively for up to 10 years. Thus, the transportation concessions’ basic term will be 25 years in a conventional exploitation and 35 years in an unconventional exploitation, each plus any granted extension term. After these terms expire, the facilities will be transferred to the Federal or Provincial Government, as applicable, without any charges or encumbrances.
Uniform legislation
Law No. 27,007 provides for non-binding commitments between the Federal Government and the provinces, including uniform environmental legislation that applies the best environmental management practices to hydrocarbon exploration, exploitation, and/or transportation activities. It also provides a uniform tax treatment encouraging hydrocarbon activities, in which the gross receipts tax rate will not exceed 3% of sales.
Regarding taxation, it also undertakes to freeze the current stamp tax rate and not charge any financial contracts executed to structure investment projects. Besides, the provinces and their municipalities’ commitment not to impose new taxes or increase the existing ones is established, except for service compensation rates and improvement contributions.
Unconventional hydrocarbons exploitation concession (CENCH) in the Province of Neuquén
Given an unconventional reservoir’s low permeability and productivity over the last few years, the Ministry of Energy and Natural Resources of the Province of Neuquén set certain parameters for granting a CENCH, instrumented through Res. No. 53/20 (July 2020) and No. 142/21 (November 2021), and later ratified by Provincial Executive Order No. 2183/21 (December 2021).
Companies may request the CENCH based on a development project – Pilot Plan for up to five years, demonstrating its technical and economic feasibility, additional operational parameters, actual productivity assessments, costs and investment. Once the CENCH request is filed, a block extension bond payment is incorporated. The value will be associated with the resources expected to be recovered in the block, considering the basin’s average price over the last two years.
While the CENCH is in effect, holders must submit annual development plans and investment commitments (those undertaken for the following year will be deemed firm).
