On 23 August, the federal government published the final version of its Régimen de Incentivo para Grandes Inversiones (RIGI), which was passed in early July to promote foreign direct investment (FDI) on large projects across several industries. The government of Javier Milei introduced these changes as part of his broader Ley Bases reforms, originally targeting any foreign currency investment above $200 million, but was forced to make concessions in the final version of this law. While some downstream oil and gas projects above $200 million are eligible for these unique tax and trade terms, which fix the fiscal regime for 30 years, pipeline and storage projects require a minimum investment of $300 million, while offshore exploration and production (E&P) and onshore gas E&P must exceed a $600 million threshold

Onshore oil production (even with associated gas) is excluded from these incentives as it generally requires less accommodation to justify new wells. Additionally, there is a 20% local content requirement for goods and services as long as local suppliers are available with similar quality and pricing. Finally, 40% of the minimum investment must be completed within the first two years. Tax benefits include a maximum tax rate of 25%, accelerated depreciation, and tax loss carryforward provisions.

Strict currency controls have been a feature of the Argentine economy for many years and are commonly acknowledged as limiting foreign investment. Foreign exchange controls were implemented in 2011 in an attempt to keep citizens from using US dollars, referred to as ‘Cepo Cambiario’ (exchange rate trap), heavily restricted currency exchange. These controls were lifted in 2015 by a new administration, only to be reimposed in a stricter form in 2019. For foreign oilfield service companies, this creates several challenges. Operators pay in Argentine Pesos meaning they can only pay their workers in Pesos, and any Argentinian profits to the parent company will be exchanged outside the country at a depressed exchange rate. If a new rig or frac fleet is required, buying power is diminished by the exchange rate, and heavy import tariffs must be paid in addition to mobilization costs. This is especially punishing to domestic service companies without outside capital. The new administration has been working toward a free-floating exchange rate with the US dollar in a series of steps which has so far progressively lowered inflation after peaking in December 2023. Cepo remains in place as the country works to restore fiscal order, avoiding a flight to the dollar, which happened when controls were removed in 2015, but this too may be lifted in the coming years as real inflation becomes more aligned with the planned rate of devaluation.

The immediate beneficiary of the RIGI fiscal regime will be YPF’s $2.5 billion, 440-kilometer Vaca Muerta Sur oil pipeline, which will transport 700,000 barrels per day (bpd) of oil from the Vaca Muerta to the remote port of Punta Colorada. Dry shale gas production projects will be eligible for RIGI. Imported rigs and frac fleets contracted by the sole purpose vehicle (SPV) tied to the RIGI project will be exempt from import duties as capital goods and spare parts. This provision creates a window to bring in additional units needed to boost production from the fully utilized rigs and frac spreads within the country, which sometimes struggle with maintenance-related downtime. With current import duties, foreign service companies are advantaged in importing equipment because they can leverage external capital, while domestic contractors have additional financial hurdles. As an example, Vista contracted Nabors in May for an additional high-spec drilling rig to work in the Vaca Muerta, bringing the total to three active rigs, followed by the deployment of a second SLB frac fleet in June. Rystad Energy estimates an additional 15-20 rigs would be required to meet projected production increases to 1.0 million bpd in 2032.

Even as non-shale rig activity in Argentina has declined over the last several months, driven by YPF’s conventional assets divesture, Vaca Muerta drilling has remained capped by the existing fleet – with a significant portion of the domestic land rig fleet rated at 1,000 horsepower or less. Drilling a Vaca Muerta well requires pad-capable rigs with walking or skidding systems as well as high-pressure (7,500 psi) mud pumps capable of removing cuttings in long laterals. It’s no exaggeration to say the growth of this play is directly constrained by the number of high-specification rigs in the country. With the current lull in US onshore rig activity and a real probability of further declines in drilling, this presents an opportunity for rig contractors to mobilize inactive rigs to Argentina and support this development.

While current RIGI project incentives exclude onshore oil production and associated gas, it does begin to level the playing field for foreign investment in gas fields and pipeline infrastructure required to support the growth of the Vaca Muerta shale. With the current fleet of high-specification drilling rigs stretched to meet current operator demand, there is an opportunity for international rig contractors to mobilize capable rigs from a depressed US market to Argentina. While limited to upstream gas projects, import allowances will create an opportunity for local and international rig contractors to bring additional rigs into the country. Time will tell whether this fiscal regime will meet its foreign investment targets and drive additional exports, but it appears to be a step in the right direction and one that will benefit both operators and oilfield service companies.

Authors: 

Matthew Hale

Senior Vice President, Supply Chain Research
matthew.hale@rystadenergy.com

Andres Villarroel

Analyst, Upstream Research
andres.villarroel@rystadenergy.com

(The data and/or forecasts in this column are Rystad Energy’s, and the opinions are of the authors.)