Can you describe the role of EY in the development of Argentina’s oil and gas industry?

Pistrelli, Henry Martin & Asociados-EY and its predecessors’ firms played a significant role in Argentina’s privatization process during the early 1990s. The Firm worked with the government to divide Gas del Estado, the state-owned natural gas company, into eight distribution companies and two transport companies. Furthermore, the Firm worked for seven of the new privatized companies. When YPF was privatized and became a corporation, EY helped YPF with the 1991 and 1992 audit to go public in Argentina and in the United States in 1993. From 1990 to 1995, EY helped YPF become a state-of-the-art company.

What opportunities exist for small exploration and production companies and service companies in Argentina?

Small companies have been successful in developing unconventional resources in the United States and can sometimes be more agile than bigger companies. The success of smaller companies in the US has attracted the attention of all companies looking to invest in unconventional activities in Argentina. Although most of the blocks in Neuquén have already been taken, the current players need more partners. For instance, YPF has a high debt-to-equity ratio that motivated the company to find partners in Chevron, Petronas, and Dow. The abundant resources waiting to be turned into reserves are the main attraction for new players, and service companies of all kinds, especially drilling, pulling, food, maintenance, logistics, and transport, stand to benefit.

How does Argentina’s tax regime compare to other countries in Latin America?

Argentina has three levels of taxes: federal, provincial, and municipal. The country’s tax regime is not as complicated as Brazil, which has all of its local and provincial regulations. The main difficulties in Argentina are not the regulations themselves, but rather the interpretation of regulations. Companies and governments sometimes interpret regulations differently, creating confusion. For example, tax laws have an inflation-adjustment clause, but this clause was suspended several years ago, and companies have been asking for the reinstatement of the clause. Although companies pay a 35% corporation tax, the effective tax rate is higher due to the inflation rate of 30% to 40%. The real solution to these types of problems is tackling inflation since it is unlikely that the inflation-adjustment clause will be reinstated.

How does a price floor at $77 per barrel of oil affect investments in Argentina?

Drilling a well in Argentina used to be three times as expensive as in the United States, but it has fallen to being two times more expensive. Labor costs are higher, and import duties make drilling equipment more expensive in Argentina. However, YPF is aiming to reduce that cost to $6.5 million in the short-term. Low oil prices exacerbate the challenge of high operating costs, further squeezing profit margins.

Do you have a final message?

Although overcoming challenges may take some time, we are highly optimistic that Argentina’s oil and gas industry will see a boom. The big question is when that boom will occur. Companies that wait too long to enter may miss their chance. EY is ready to help companies at every stage of their business in Argentina, be it with their taxes, deals, audit, and advisory needs or explaining Argentina’s idiosyncrasies. Before entering any country, we always advises companies to find an accountant and a lawyer.