EXCLUSIVE Argentina weighs FX boost for oil & gas companies to spur production

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LONDON/BUENOS AIRES, March 31 (Reuters) - Argentina's government is developing a bill that would give the local oil and gas sector incentives to ramp up investment in domestic production, including easing access to foreign exchange markets, according to sources and a draft law seen by Reuters.

The goal is to help the country deal with a global energy crunch that has pushed up the cost of imports.

Government officials sent a version of a draft hydrocarbons law to companies and lawmakers this week. It laid out a plan to ease tight capital controls over access to foreign currency as long as local energy supply was met and investments were made.

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The draft law, which sources said was being circulated to test the water with industry and legislators, said qualifying firms could freely export 20% of their local oil and gas output with a zero percent export duty if domestic supply was assured.

Firms would be able to use 100% of the foreign currency from those exports for "payment of capital and services of financial debts, operating costs, investments, free distribution of profits and redemption of capital", said the draft text, which still may face amendments or fail to reach Congress.

In times when they could not export they would have access to the Free and Single Foreign Exchange Market to acquire foreign currency corresponding to 20% of their income from sales and services in the local Argentine market.

"This would potentially provide the sector with some flexibility to invest," said an industry source with direct knowledge of the plans, adding the ruling Peronist coalition appeared to be united on the need to spur new energy investment.

"Both parts of the ruling coalition seemed to be on the same page with this bill, as they understand the importance for this sector to have incentives to invest," the person said.

Argentina wants to ramp up domestic energy production, especially from its huge Vaca Muerta shale fields. The country remains a big gas importer, and spiking liquefied natural gas (LNG) costs are hammering its energy trade balance.

Global crude and gas prices have spiked over the last year, with supply tightened further by Russia's invasion of Ukraine in February. European countries are more worried about gas supply, and the White House has moved to release millions of barrels of oil from the U.S. Strategic Petroleum Reserve.

Argentina, which had an energy deficit of over $1.6 billion last year, faces obstacles ramping up domestic energy capacity quickly, though it is moving ahead with plans to build a major new gas pipeline that could come online in 2023/24.

A second industry source said the government was analyzing plans to ease foreign currency restrictions for the sector and was "testing it out", adding officials had put in calls to some firms to discuss the issue of currency controls.

A government source said there was a push to ease access to the foreign exchange market for oil and gas firms. The market has been tightly controlled since late 2019 to stem capital flight and shore up the country's dwindling supply of dollars.

"It seems they want to lift some restrictions to that sector. (Economy Minister Martin) Guzman is really trying to focus his effort on the energy side of things to get more investments," the source said.

Guzman said earlier in March that he hoped to be able to "adapt some regulations of the capital account in a way that suits the characteristics of the energy sector".

An Economy Ministry spokesperson declined to comment.

A spokesman for the central bank (BCRA), which sets currency controls, declined to comment on specific plans, but said the entity "regularly works with the private sector to improve regulations to favor the development of productive projects."

A third company source said the sector anticipated changes to the foreign exchange rules: "That is something that the industry is waiting for and that would be important."

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Reporting by Jorgelina do Rosario in London and Eliana Raszewski in Buenos Aires; Additional reporting by Jorge Otaola in Buenos Aires; Editing by Adam Jourdan and David Gregorio

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