The Secretariat of Energy regulated "Oil Plus" and "Refining Plus" Programs

Oil Plus and Refining Plus Programs (the "Programs") were created by Decree No 2014/2008 of the Argentine Executive Branch with the aim to promote the exploration and exploitation of oil, the incorporation of reserves and the increase of fuels production through a regime of tax incentives. For more information about the Programs, please see article published in Marval News #78.

The Programs continue with the regulatory orientation already adopted by Programs Energy Plus (power generation) and Gas Plus (exploration and exploitation of natural gas). The common denominator of these programs is the preferential treatment given to the “new” energy supply (“Plus”) compared to the already existing energy supply and infrastructure.

The Resolution provides the conditions under which the Secretariat of Energy (the "SE") will evaluate and approve -subject to the further approval of the Argentine Ministry of Federal Planning, Public Investments and Services- the requests filed by oil producers and refineries in order to qualify for these tax benefits.

Upon approval of such requests, the SE will grant to the companies the corresponding tax benefits, as may be applicable in accordance with the type of project, by (i) the issuance of the tax credit certificates which may be applied to the payment of export duties of crude oil and certain oil products, liquefied petroleum gas and other gaseous hydrocarbons[2], or (ii) the classification of the project as "Critic Infrastructure Work"[3] in order to obtain the tax benefits related to the Value Added Tax and Income Tax in accordance with the provisions of Law No 26,360.

The Resolution specifies the documentation and information that oil companies and refineries shall submit to the SE, as applicable depending on each of the Programs.

1.    Oil Plus Program

There are two kinds of incentives within the framework of Oil Plus Program: (a) incentive for oil production, and (b) incentive for the incorporation of oil reserves.

1.a Incentive for oil production

This incentive is awarded to the increase of oil production. It is calculated and becomes effective on a three-month period basis through the granting of tax credit certificates, and will be applied to the company only if it complies with the following requirements:

(i)           the company’s effective production of the applicable three-month period shall be greater than its base production (this is, when the company registers additional production)[4]; and

(ii)          The company’s reserves replacement index[5] (índice de reposición de reservas) of the last year (a) shall be greater than 0,8, or (b) shall have been increased with respect to the average of the last three years.

In order to calculate the production of each company (both base production and effective production) all the concessions in which the company has an interest will be taken into account. To fix the amount of the export duties of each three-month period, the SE will consider the average of the international referenced oil price which is daily determined by the SE[6] of such period.

The Resolution provides the granting of additional incentives for those companies which, apart from complying with requirements detailed on points (i) and (ii) above, export crude oil complying with Resolution No 1679/2004 of SE. Moreover, there is an additional incentive for oil produced in an off-shore oilfield which has not registered production before the Resolution became effective (such incentive will be defined by the SE in the future).

1.b Incentive for the incorporation of reserves

The incentive for the incorporation of reserves will be applied annually pursuant to the calculation provided by the Resolution for these purposes. Such calculation is based on the international price of oil, the amount of export duties applicable to the crude oil barrel, and the annual volume of proved reserves that the company adds.

This incentive will only be granted to those companies which have "additional production" in the terms of point 1.a.(i) mentioned above, and it becomes effective by the annual granting of tax credit certificates.

2.    Refining Plus Program

The Refining Plus Program is aimed at promoting the production of diesel (gasoil) and gasoline (nafta)[7].

To obtain the benefits provided by the Refining Plus Program, companies must file a project aimed to construct a new refinery or to increase the refining capacity and/or convert an existing refinery, which shall be appropriate for the domestic market demand. When filing the request, the companies shall specify, among other details, the investments to be made, the work schedule and the crude availability or raw material required to develop the project. They shall also detail the additional production planned (producción adicional proyectada) -this is, the production added to the base production-.

The incentive granted under this program will be equivalent to 50% of the average value of the export duties of these fuels for the applicable three-month period multiplied by the additional production informed for the project. The Secretariat of Energy will issue tax credit certificates for the resulting amount, which may be applied to the payment of export duties, as follows (i) 50% of the incentive will be granted in accordance with the progress of the project, and (ii) the remaining 50% will be granted during the first year of production. The Resolution also provides a 25% additional incentive for those companies that have a refining capacity which is lower than 30,000 cubic meters per month.

3.    Categorization of a project as "Critic Infrastructure Work"

Finally, the Resolution provides the requirements that an oil exploitation project must comply with to be considered as "Critic Infrastructure Work", which will enable the company to obtain the tax benefits provided by Law No 26,360. It shall be oil produced in:

(i)           a new exploitation concession granted as a consequence of a discovery informed after the Resolution has come into force;

(ii)           an exploitation concession granted before the Resolution has come into force, if it is produced from oilfields defined as "non-conventional" which require high technologies that have not been used in Argentina as of the present time;

(iii)          an oilfield discovered as a consequence of investments in complimentary exploration within an exploitation concession granted before the Resolution became effective; or

(iv)          an off-shore oilfield which has not registered production before the Resolution became effective.