Solvency requirements for “upstream” and transport companies

The Secretariat of Energy always required that all companies that aspired to be granted exploration permits, exploitation concessions and/or hydrocarbons transport concessions (“Permits or Concessions”) should comply with certain minimum net worth and solvency standards, among other requirements.

The Hydrocarbons Law No 17,319, Subsecretariat of Energy Resolution No 96/90, and related regulations provide that to perform any of these activities companies would be required to meet certain solvency standards.

The Secretariat of Energy passed Resolution No 193/2003 (the “Resolution”) establishing minimum net worth requirements and alternative financial guarantees that could be provided to comply with the solvency requirements. Until now, notwithstanding the solvency requirement provided in Subsecretariat of Energy Resolution No 96/90, no resolution had been passed establishing a specific amount that would be required to such effect nor regulating alternative mechanisms to comply with the same.

The Resolution provides that to acquire or be assigned Permits or Concessions companies or associations of companies jointly (e.g. companies participating through joint operating agreements or uniones transitorias de empresas) must have a minimum net worth of pesos 2,000,000 for terrestrial areas and pesos 20,000,000 for off-shore areas.

The minimum net worth should be maintained throughout the term of the Permit and Concession. Non compliance of this requirement could bring about sanctions, including fines or the removal from the Secretariat of Energy’s Registry of Hydrocarbon Companies.

To comply with these requirements other Argentine or foreign companies could provide a financial support or guarantee for up to 70% of the minimum net worth requirements.

In the event the financial support or a guarantee were provided by Argentine companies, among other requirements these would need to:

(i) have a minimum net worth equivalent to the one required to hold Permits or Concessions;

(ii) present the audited financial statements. If the guarantor company is a controlling or affiliate company of the guaranteed company there shall be presented the consolidated financial statements, and for purposes of the calculation mentioned in (i) the value of the shares the guarantor holds in the guaranteed company should be subtracted from the net worth;

(iii) the guarantees granted should be unconditional and irrevocable, waiving expressly the right of excussio; and

(iv) expressly submit to the jurisdiction of the Federal Courts of the City of Buenos Aires, file periodically audited financial statements, and provide information to competent authorities when requested.

In the event the financial support or guarantee were granted by a foreign company, additionally to the above mentioned requirements for Argentine companies, the foreign company would be required to:

(a) have minimum net worth five times superior to the financial support granted, calculated in accordance to (ii) above;

(b) hold significant capital assets in the guarantor company’s domicile; and

(c) have satisfactory business precedents.