Transparency for Vaca Muerta

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A date has finally been set for YPF to make public the details of a deal it signed with Chevron to explore and develop the Vaca Muerta shale formation. A lower court judge, who had initially ruled in favor of YPF keeping the contract confidential on the grounds that it contained trade secrets, gave the state-owned oil company until February 22 to comply with a ruling by the Supreme Court of Argentina last November to turn over the information. Since it was signed in 2013, the deal between Chevron and YPF has been the subject of speculation and suspicion of secret clauses and excessive benefits for.

The details of the contract between the companies could have important repercussions. In the first place, it could decide the fate of Miguel Galuccio as president of YPF. Galuccio signed the deal during the government of Cristina Fernandez de Kirchner, whose mandate ended last December. His fate under the new government of Mauricio Macri has remained undecided, and a public scandal could hasten his departure from the company.

The details of the conditions offered Chevron could also affect new contracts, including the recently announced deal with American Energy Partners, LP (AELP).  YPF signed a preliminary deal with the U.S. shale veteran, Aubrey McClendon, on January 18 to explore and develop the Bajada de Añelo and Cerro Arena blocks in the province of Neuquén. The project is expected to entail an investment of US$500 million but the details are yet to be agreed upon.

What is publicly known about the contractual conditions offered to Chevron is contained in Decree 929/13 passed immediately prior to the deal with the purpose of broadening the policy to attract other investors to the domestic market. Perhaps the most debated clause was the one allowing private companies to export up to 20% of their production after 5 years, and to do so free of export taxes and foreign exchange restrictions. This was considered a sweetener at a time when the international price of oil was hovering around US$ 100 and domestic producers were being paid about US$ 70.

The significance of this clause has changed with the evolution of the international oil market. Currently the domestic market is far more lucrative, with the government paying US$ 67.50 per barrel of Medanito and US$ 55 per barrel of Escalante, the two types of crude produced in Argentina. Taxes on exports of crude were eliminated in 2014, and currency restrictions have at least been partly lifted. We will soon know what other sweeteners were included. But we can already conclude that the Chevron deal, like Decree 929/13, and the Hydrocarbon Law that followed in 2014, are at best partial policy pieces tailored to short-term needs. Hopefully this judicial order will encourage efforts to invest in long-term policy-making that offers attractive conditions to investors while securing the country’s energy needs.

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