November 18, 2016 / 7:05 PM / a year ago

Argentina to remove subsidies for local oil production -sources

BUENOS AIRES, Nov 18 (Reuters) - Argentina’s government will eliminate subsidies to the country’s oil producers in the coming weeks, resulting in a 25 percent to 30 percent drop in the local value of crude, industry sources said on Friday.

The price of domestic crude averages $58 per barrel because of the subsidy, well above international benchmark Brent crude , which traded at around $46.56 on Friday afternoon.

The subsidy cuts are part of President Mauricio Macri’s efforts to close a wide budget deficit. Vaca Muerta, one of the world’s largest shale reserves at some 30,000 square km (7.4 million acres) in southern Argentina, has attracted investment from Chevron Corp and Exxon Mobil Corp but remains largely unexplored.

Madalena Energy Inc, a Canadian exploration and production company that holds nearly 1 million acres in Argentina, said in a statement on Thursday that the price it would receive for its crude in November and December would fall by about 30 percent.

“Other producers have confirmed to the company that they have been similarly advised,” Madalena wrote, noting that it had been informed of the price decrease by the refineries to which it delivers its oil.

During the third quarter, the company received an average price of $61.65 per barrel.

One government source said Macri’s administration was in negotiations with unions, companies and governments of oil-producing provinces over the elimination of the subsidies, but the talks have not yet concluded.

An industry source said it was unclear if local prices would fall completely in line with those internationally by the end of the year, but they would likely move in that direction. A source from a different company said the subsidy cuts could prompt companies to revise investment decisions.

Madalena said it had been working on selling assets, but the other buyer withdrew as a result of the oil price reduction. (Reporting by Juliana Castilla; Editing by Lisa Von Ahn)

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