Restrictions to oil exploration permits & concessions

By Yolanda Pereira, Berkemeyer Attorneys & Counselors

Abstract

Oil explorations in Paraguay have picked up again in recent years and have not slowed down despite current low oil prices, with the Government actively seeking to attract more players in the sector. As a result, a recent government decree has introduced restrictions to the number of oil exploration permits and concessions that can be held by a single person or company.

A government decree has recently introduced restrictions to the number of oil exploration permits and concessions that can be held by a single person or company.

While the Hydrocarbons Law sets the maximum prospecting area for each permit at 2,400,000 hectares the decree determines that a single person or company may hold up to two such permits.

As regards exploration concessions the law sets the maximum exploration area at 800,000 hectares for each such concession, and the new decree determines a maximum of four exploration concessions may be held by a single person or company.

Oil exploration in Paraguay has picked up again in recent years and has not slowed despite current low oil prices, with the Government actively seeking to attract more players in the sector.

The current Hydrocarbons Law allows significant tax advantages for oil and gas exploration. Oil production enjoys a low impact tax regime in comparison to other countries, as follows:

An initial fee of US$ 0.30 per hectare;
An annual operating fee per hectare:
1st to 5th year : US$ 0.20
6th to 10th year : US$ 0.60
11th to 15th year : US$ 1.60
16th to 20th year : US$ 2.00

Royalties are payable on the gross production of crude oil, as follows:

100-5000 barrels : 10%
5001-50000 barrels : 12%
50001 onwards : 14%

The current Hydrocarbons Law was amended in 1995 and the regulating decree came out only ten years later in 2005. We are likely to see more changes as the government seeks to update its regulations for the sector.