Great expectations in oil business

By Yolanda Pereira, Berkemeyer Attorneys & Counselors

The economic, political and legal framework for investment in the hydrocarbon sector in Paraguay moment is outstanding. The government decided to give a strong boost to oil and gas exploration, which, added to the growth of the Gross Domestic Product (GDP) and the results of geological studies, predict excellent prospects for the activities of this nascent industry, with potential incalculable.

As for the chances of finding oil, the expectations based upon the work of the private companies within areas that belong to the same basins from which oil is extracted since several years ago on the Argentine side, are encouraging.

Paraguay shares five sedimentary basins with neighboring countries, in four of which there is production of hydrocarbons. Experts say that the prospects for finding hydrocarbons in Paraguay are high. However, it is recognized that at the country level exploration is still in its infancy because of 25 exploratory blocks in only two activities are carried out, so that there is a great task to develop yet.

The studies and oil exploration works made recently showed that serious work began in this area in Paraguay, so exploratory projects will come into its decisive phase in 2014 with the drilling of wells.

General Hydrocarbon Act 779 of 1995, provides a very convenient-low impact tax schema, compared to other countries:

a) An initial fee of USD 0.30 per hectare;
b) An annual operating fee per hectare:
a. From 1st to 5th year : USD 0.20
b. From 6th to 10th year : USD 0.60
c. From 11th to 15th year : USD 1.60
d. From 16th to 20th year : USD 2.00

For royalties, the grantee shall pay to the Paraguayan Government on the gross production of crude oil:

a) From one hundred (100) barrels until 5000 (five thousand) barrels, 10% (ten percent);
b) Since 5001 (five thousand one) barrels per day, up to 50000 (fifty thousand) barrels 12% (twelve percent) and,
c) Since 50001 (fifty thousand one) barrels onwards 14% (fourteen percent).