The Argentine government announced on Monday that it would allow oil companies that invest at least $1 billion over five years to explore the Vaca Muerta oil field and to export, tax free, up to 20 percent of the crude and natural gas they produce in the country.
The move is part of a growing effort by the Argentine government to attract foreign investment in Argentina’s shale formations in Patagonia, which, according to the U.S. Energy Information Administration, may hold more than 770 trillion cubic feet of recoverable shale gas.
The Vaca Muerta oil field, located in southern Patagonia, is of special importance as it holds 22.8 billion barrels of unconventional oil and gas, considered the second largest reservoir in the world by U.S. oil giant Chevron. However, Chevron has thus far been the only major international firm to pledge a significant amount ($1.5 billion) to develop the basin since it was discovered in 2011. The company is expected to sign an exploration deal with the government today.
Despite Argentina’s vast energy resources, foreign investment firms have been deterred by Argentina’s runaway inflation, stringent regulations and the threat of nationalization. In mid-2012, Argentine President Cristina Fernández de Kirchner forcibly nationalized YPF, the country’s largest oil producer, and left the prior owner, Spanish oil company Repsol, without compensation. Ever since, the government has been struggling to find companies that are willing to invest in the country.
The Argentine government also announced that companies that operate in Vaca Muerta will be allowed to renew their concessions for a 25-year period, with a possible 10-year renovation. Oil companies will also be exempt from foreign exchange and price controls, currently established in all other industries to prevent capital flight.
