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Argentina steps up to attract oil investment

Buenos Aires - Argentina has a new energy investment framework aimed at attracting foreign oil companies to the country's vast shale deposits after Congress gave final approval on Thursday to reform measures.

Geologists say Argentina has more natural gas trapped in shale rock than all of Europe, a 774-trillion-cubic-feet bounty that could transform the outlook for Western Hemisphere supply.

The package of new laws, passed by a 130 to 116 vote in the lower house, cuts the minimum investment needed for companies to be exempt from import controls to $250m from $1bn.

The same level of investment would also allow oil and gas producers to get around foreign exchange controls by holding on to the hard currency earned from 20% of their exports.

Argentina's main shale formation, called Vaca Muerta (Dead Cow), is in the southern Patagonia region.

International companies would love to get their hands on the formation, but many are scarred off by the troubled relationship that President Cristina Fernandez has had with investors.

Her government has nationalized private companies including Argentina's main energy firm YPF and imposed tough foreign exchange and trade controls that along with inflation clocked at about 40% have hammered business confidence.

On top of this, Argentina defaulted on its sovereign bonds in July.

So it was not evident that the regulatory changes will by themselves lead to the investments needed to close Argentina's energy deficit, estimated at $7bn this year.

The reform lengthens drilling contracts by a decade to 35 years for shale and 25 years for conventional energy. Companies can win 10-year extensions if they fulfill investment promises.

With each extension, provinces can now increase an initial 12% royalty cap to 15%, and then up to a limit of 18%. Before, provinces negotiated royalties with oil companies on a case-by-case basis with no caps mandated by law.

Opposition lawmakers accused the government of rushing the law through and handing strategic resources to foreign firms.

"They are ratifying the concept of hydrocarbons as a commodity and not as a strategic resource and a common good," said leftist opposition legislator Claudio Lozano. "The possibility of an export track is suicide for Argentina."

Developing Vaca Muerta and securing energy independence will cost up to $200bn in the next 10 years, YPF says.

Argentina has a scant $27bn in foreign reserves, leaving the government to rely on foreign oil firms to lead the investment drive.

Chevron Corp, Petronas, Royal Dutch Shell and Total have dipped their toes in but their initial investments fall short of putting Argentina on the path to energy independence.

So far Vaca Muerta represents only a small part of Argentina's total energy production: about 4% of oil and 1.3% of gas output, according to private estimates.

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