Province of Neuquen – Granting of rights to HIDENESA regarding exploration and production areas. Modification of the basis of calculation of royalties

Decree No 224/2006 grants rights to the governmental company “Hidrocarburos del Neuquen Sociedad Anónima” (HIDENESA) regarding the following areas: (i) 19 hydrocarbon areas detailed in Annex I; (ii) all the hydrocarbon areas that may be reverted in the future as a result of the expiration or termination of concessions granted by the National or Provincial Governments; and (iii) any other hydrocarbon area that may exist in the future. The Decree allows HIDENESA to explore, develop and produce in the above mentioned areas by its own or associated with third parties.

Decree No 225/2006 provides that as from March 1, 2006, the wellhead price that will be considered as the basis for the calculation of crude oil royalties will be WTI (West Texas Intermediate) price, to which the only deductions that may be applied are the ones related to quality and transportation costs.  The purpose of the Decree is to establish the use of the international price for the calculation of royalties notwithstanding the fact that the sales in the local market are being made at a lower price, that generally reflects a discount equivalent to the export rights (currently it represents a nominal rate of 45% of the international price).

Decree No 226/2006 provides that, as from March 1, 2006, the wellhead price used to calculate gas royalties shall be the average price for gas imports to Argentina. The only discounts allowed shall be those of compression, treatment and transport. As in the case of crude oil, the provincial government establishes a calculation basis that does not reflect the price paid in the local market.  As gas is currently imported from Bolivia, the price of the gas imports from Bolivia (US$ 2.08 for million BTU at the date in which the Decree was published) will constitute the basis for the calculation of gas royalties.  This price is materially higher than the price in which the gas is sold in the local market (US$ 1.08 for million BTU).