Law No. 26,197 (the "Federalization Law")1, has amended section 1 of Hydrocarbons Law2, which now sets forth that liquid and gaseous hydrocarbon fields belong either to the federal or provincial government, depending on the territory where they are located.

Fields located in the area lying between 12 nautical miles from the coast line and the outer boundary of the continental shelf belong to the federal government. The provinces and the City of Buenos Aires have the domain over all the fields lying on their territories and those located on the territorial sea adjacent to the coast up to a distance of 12 nautical miles3.

On January 3rd, 2007, the effective date of the Federalization Law, provincial governments received the full exercise of original ownership and management over the fields located in their territories, pursuant to the provisions mentioned above.

The Federalization Law also transfers -by operation of law- all hydrocarbons exploration permits and exploitation concessions to the provinces where the relevant areas are located, as well as other types of exploration and/or exploitation contracts executed with the Federal government, without affecting the rights or obligations of permit and concession holders.

Moreover, the Federalization Law sets forth that the hydrocarbon royalties due upon the effective date of said Law must be assessed according to the provisions of the respective permit or concession agreement and must be paid to the different provinces or jurisdictions where the field are located. It is worth mentioning that royalties are already paid directly to the provinces where the fields are located under Resolutions 15/1992 and 435/2004 of the Secretariat of Energy.

Likewise, the provinces (as well as the federal government in relation to the fields located on federal jurisdiction) shall have the powers set forth in the Hydrocarbons Law to grant permits and concessions over the fields located within their respective territories and to determine the enforcement authorities. However, the Federalization Law provides that the design of federal energy policies shall be exercised by the Federal Executive Power (the "PEN").

Within a term of one hundred and eighty days as of the enactment of the Federalization Law:

  1. The Federal Executive Power and the provinces must agree the transfer to the local jurisdictions of the transportation concessions associated to hydrocarbon exploitation concessions. The Federal Executive Power shall be the grantor of all hydrocarbon transportation facilities involving two or more provinces or intended for export purposes.

  2. The Federal government, the provinces and the city of Buenos Aires must take all necessary actions to reach an agreement on oil information transfer including (i) files, maps, statistical information and other documents of each area under transfer, (ii) technical, security and environmental documents of the transportation concessions, (iii) the procedures for the transfer of files in progress, (iv) each area’s state of account and credit settlement of royalty payments, (v) a list of the obligations due on permit or concession holders and (vi) each area’s environmental conditions.

As of the enactment of the Federalization Law on January 3rd, 2007, each enforcement authority shall exercise its function as the counterpart of the different permits and concessions granted, with all the powers set forth in the Hydrocarbons Law and its complementary rules.

Footnotes

1. Published in the Official Gazette on January 5 of 2007, promulgated on January 3 of 2007 and enacted on December 6 of 2006.

2. Law No. 17,319.

3. Pursuant to the restrictions set forth under Law No. 23,968, section 41 of the Rio de la Plata Treaty and the Agreement Letter signed between the province of Tierra del Fuego, Antarctica, and South Atlantic Islands and the province of Santa Cruz.

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