El Salvador enacts reforms to jumpstart oil exploration

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By LatAm Reports Editor

The El Salvador government does not claim that it has oil or natural gas in the territory.

The Economics Committee endorsed a reform of the Hydrocarbons Act that would allow the country to hire studies to determine the existence of oil and natural gas in the Salvadoran territory. The changes provide for a new name for the regulations: Law on Exploration and Exploitation of Hydrocarbon Sites.

The government proposal was unanimously approved by the committee’s deputies. The reform, which has yet to be approved by the plenary of the Legislative Assembly, would allow the Executive Commission of Hidroelectric del Río Lempa (CEL) to hire specialized companies to carry out geophysical and geochemical studies.

“Let’s imagine that we have a large map of the underground of El Salvador, it is incomplete and outdated. Multi-customer Contracts allow you to invite experts with advanced tools to complete and improve that map. They are responsible for collecting information on where resources such as oil and natural gas could be,” the Directorate-General for Hydrocarbons and Mines (DGHM) explained in a statement.

The reform proposal promotes multi-clicante contracts, establishing the legal framework for operation. This represents, according to the Salvadoran state, million-dollar savings for it and the exclusivity of marketing and data ownership, as well as tax benefits for the investment.

The El Salvador government does not claim that it has oil or natural gas, but it does need tools to investigate whether these resources may exist in the country.

The studies carried out in the past are inconclusive, according to the president of the Executive Commission Hidroelectric del Río Lempa (CEL), Daniel Álvarez, to the deputies of the Committee on the Economy, so new more complete studies are needed to determine whether El Salvador has the potential to become an oil producer.

“In the past some studies that were done guided that what existed in our territorial sea was natural gas,” Álvarez said Monday.

“The modernization of the legal framework of the Hydrocarbon Subsector Development Plan seeks to increase knowledge of the subsoil. These reforms will make it possible to do this efficiently and at low cost to the state,” he added.

Companies that would come to do the study assume the total risk at a low cost to the state, allowing them to then market the data, not the resources, as determined by the commission president Rodrigo Ayala.

No surveillance

Contracts shall be exempt from the application of the Public Procurement Act. The Directorate-General for Budget will not intervene in these contracts either, as they are excluded by the ECL Act.

The reform of the Hydrocarbons Act prohibits any person, whether natural or legal, from carrying out oil exploration and operation operations in El Salvador if he or she does not hold a contract granted by the government or if he has not been hired by CEL.

This article has been translated from the original which first appeared in El Salvador