Natural Gas - Regimes of Promotion of Hydrocarbon Exploitation: Gas Plan and Gas Plan II

1. The Gas Plan and its recent amendments
At the beginning of 2013, the Commission of Strategic Planning of the Federal Hydrocarbon Investments Plan (the “Commission”) - the enforcement authority of Law No. 26,741-, by Resolution No. 1/2013 created the ‘Program to Promote the Surplus Injection of Natural Gas’ (the “Gas Plan”).
The purpose of the Gas Plan is to reduce the existing gap between production and consumption of natural gas by providing incentives to those companies who increase their production in the short-term, and, incentives for investment in gas exploration and exploitation in order to allow the recovery of reserves in the medium and long term.
The Gas Plan is a mechanism of monetary compensations to be paid by the Federal Government with resources from the Treasury to companies registered in the Federal Registry of Hydrocarbon Investments that commit to invest and increase their total natural gas injection above certain levels that take into account the natural decline of the oil fields (Adjusted Basis Injection).
The amount of this compensation is determined on a monthly basis as the difference between the price actually received by the producer for its domestic sales and a ceiling of US$ 7.5 SMBtu and is applied to the surplus of the injected gas volumes over the Adjusted Basis Injection.
In the event of failure to meet the committed injection levels for causes not attributable to the producer, the producer shall pay a determined penalty based on the weighted average price of Liquefied Natural Gas (LNG) imported to Argentina during the previous 6 months.
Recently, through Resolution No. 66/2013, the Commission amended the ‘Implementing Regulation of the Program to Promote the Surplus Injection of Natural Gas’. The amendments seek to speed up the payment of monetary compensations under the Gas Plan.
2. Gas Plan II
By means of Resolution No. 60/2013, the Commission created a complementary mechanism to encourage the production of natural gas for companies that, for reasons related to their production scales and/or geological features of their wells, had not been included in the Gas Plan.
The ‘Program to Promote the Injection of Natural Gas in Companies with Reduced Injection’ (“Gas Plan II”) is intended for those producers whose average daily injection for the last 6 months has been lower than 3,500,000 m3/day or that do not register any injection at all.
Gas producers with reduced injection or without injection may apply to the Commission for registration in Gas Plan II until March 31, 2014. For this purpose, producers shall submit to the Commission, among other things, investment projects and injection targets. The commitment of injection shall at least reach the daily average level of injection of the previous 6 months, adjusted according to the decline of their wells reflected in a decrease of injection of 15% annual and cumulative over the life of Gas Plan II.  This parameter is named Adjusted Basis Injection to differentiate it from the Base Injection that represents the daily average injection of the last 6 months, regardless of any decline.
Companies registered in the Gas Plan II shall receive compensations from the Federal Government according to the volumes of gas injected over the Adjusted Basis Injection.
The amount of this compensation is fixed in US dollars but shall be paid quarterly in Argentine pesos and determined on a monthly basis as the difference between (i) the average price actually received by the producer for the injected volumes and (ii) the following maximum values which shall vary according to the injection level reached in each month: US$ 7.5 (when the actual injection exceeds the unadjusted basis injection due to a decline of the wells) and between 6 and 4 US$/MBtu (when the actual injection is lower than the unadjusted Base Injection but higher than the Adjusted Basis Injection).
By contrast, when the effective injection is below the Adjusted Basis Injection, the producer shall have to pay to the Federal Government for the failing volumes the weighted average price of LNG imported to Argentina during the 6 previous months.
The Implementing Regulation of Gas Plan II was approved by the Commission through Resolution No. 83/2013. This resolution provides for the prohibition of purchasing and/or selling natural gas within gas producers with the aim of achieving the commitments assumed under Gas Plan II.