Mendoza Redefines Its Oil Future and Begins to Compete in the New Energy Landscape
Argentina's fourth-largest crude-producing province is advancing a comprehensive reform of its hydrocarbon legislation that changes the logic of royalties, places investment at the center of future concessions, creates incentives to recover mature fields, and definitively incorporates unconventional development within provincial rules. Behind the technical changes lies a much deeper discussion about what role Mendoza intends to occupy in Argentina's new energy map.
Mendoza faces a discussion that far exceeds the modification of a single law, because what is really at stake is the architecture with which it will manage in the coming years one of the economic activities that marked much of its history and that, paradoxically, could also become a determining piece of its future.
The new Hydrocarbon Law project submitted to the Legislature stems from a reality that can no longer be overlooked. The oil-producing Mendoza of 2026 is substantially different from the one for which Law 7,526 was designed twenty years ago, when technologies were different, the economics of deposits responded to different parameters, national legislation did not yet contemplate the current dimension of unconventional development, and Vaca Muerta had not yet completely transformed the scale at which Argentina thinks about its energy resources.
Alfredo Cornejo announced the submission of the project to the Legislature this Friday.
Mendoza Seeks to Strengthen Its Hydrocarbon Profile
The starting point is significant. Mendoza is the country's fourth-largest oil producer and maintains an industrial network built over more than a century around the activity, with production in the Cuyana and Neuquina basins, operators, specialized workers, suppliers, infrastructure, and one of Argentina's main refining complexes in Luján de Cuyo. It is not trying to become an oil province because it already is one, which is why the challenge is far more complex.
It must find a way to sustain the productivity of mature areas that have been in production for decades while simultaneously creating conditions to develop a new hydrocarbon frontier in the southern part of the province.
This combination explains virtually the entire project, because Mendoza currently grapples with two very different petroleum realities. On one hand is the Cuyana Basin, with conventional mature fields, declining productivity, and a challenge that is often more economic than geological. Hydrocarbons still exist, but extracting the next barrel may require more technology, secondary or tertiary recovery, well reactivation, complementary exploration, and greater investments per unit produced.
The challenge of continuing to operate in mature fields and preventing investment diversion to shale plays.
On the other hand, the Neuquina Basin emerges, particularly MalargĂĽe, where the so-called Mendocino tongue of Vaca Muerta opens an entirely different possibility, with projects that are capital intensive, feature horizontal drilling and multiple fractures, long-term investment horizons, and very different risk levels.
Attempting to manage these two realities with exactly the same instruments would ignore how the industry functions today. Precisely here lies one of the greatest conceptual achievements of the project—it attempts to introduce flexibility so that each area can compete for capital according to its characteristics, expected productivity, degree of maturity, and the risk involved in investing in it.
A New Concept on Royalties
One of the most important changes appears in the way royalties are conceived, though reducing the entire discussion to this point would be examining only the surface.
The current system establishes, as a general rule, a 12% royalty on production and permits certain reduction mechanisms, while the project proposes that in future concession awards, the royalty becomes part of the competition among bidders through a 15% reference plus an additional variable that could even be negative.
A quick reading might suggest that Mendoza simply intends to move from collecting 12% to 15%, but the change is considerably more sophisticated because the goal is to evaluate royalties, committed investments, and projected production collectively, giving investment considerable weight in awarding concessions. The economic logic behind this modification is central to understanding the spirit of the project, because a producing province should not look only at how much it receives nominally per barrel but at how much economic value it generates over time with the resources it has underground.
Sustainable Activity
An area with a high royalty but without new drilling, declining production, and scarce investment may end up contributing less than another with a different economic structure but capable of mobilizing capital, reactivating wells, increasing production, and generating surrounding activity.
This does not mean that reducing royalties automatically produces investment nor that any incentive is advisable. Rather, the project incorporates tools so that Mendoza can evaluate the economics of each development based on its real capacity to generate additional production and not merely its nominal tax burden.
The issue becomes even clearer when examining tools designed for mature fields.
The project enables promotional regimes that can lower royalties even below 5% for specific situations such as reactivating inactive wells, tertiary recovery projects, complementary exploration, or heavy crude exploitation. It also introduces mechanisms to partially compensate fees when companies make new exploratory investments or to reduce certain costs linked to additional activity commitments.
Mendoza has hydrocarbon tradition and infrastructure. In the photo: YPF CEO Horacio MarĂn with Governor Cornejo and Minister Jimena Latorre.
The idea running through these provisions is quite concrete. In a mature field, the question often is not whether oil still exists but whether it is economically worthwhile to extract it. When costs increase, productivity falls, and each new barrel requires more technology or intervention—a relatively small difference in economic structure can determine whether a well returns to production, whether a recovery campaign is executed, or whether certain resources remain permanently underground.
Mendoza has already begun this path in recent years through reassignment of hydrocarbon areas and incorporating new operators and investment commitments on fields that had lost momentum. The challenge now is to transform this cyclical policy into a long-term strategy. At this point, the reform can acquire real significance because it allows moving from managing the decline of traditional deposits to building instruments to attempt to reverse it.
Making the Cuyana Basin Profitable, Beyond Vaca Muerta
For the Cuyana Basin, this could prove decisive. Infrastructure, accumulated knowledge, skilled personnel, and extensive operational experience exist there, so recovering production is not necessarily a minor opportunity compared to exploring new areas. Under certain conditions, it can even be one of the most efficient ways to sustain activity, fiscal income, and employment while the province attempts to open a new productive phase in other regions.
But looking only at conventional oil would mean reading only half the reform, because the other major chapter is in Vaca Muerta.
The current provincial law was enacted in 2006, when Argentine shale had not yet reached the industrial scale we know today. Since then, national legislation incorporated specific concessions for unconventional exploitation, new technologies emerged, project horizons changed, and Neuquén built an investment ecosystem that transformed Argentina's energy balance.
The Mendocino Vaca Muerta
The Mendoza project expressly incorporates this new reality and enables, among other things, the conversion toward unconventional exploitation concessions.
Legally, it may seem like an update, but economically it means much more, because it implies beginning to design a provincial framework conceived for investments requiring decades of predictability, enormous initial outlays, and clear rules on production, infrastructure, transport, storage, royalties, and environmental obligations.
Geology alone is not enough. This is probably one of the most important lessons from Vaca Muerta's development, because having the resource underground does not guarantee converting it into reserves, production, or economic development. Between a geological formation and a functioning industry lie capital, technology, infrastructure, knowledge, services, logistics, and legal certainty. Precisely for this reason, Mendoza must demonstrate it can compete against regions that have spent years accumulating unconventional experience.
Mendoza's goal is to grow unconventional development without abandoning its mature fields and infrastructure.
The reform seeks to provide the State with tools to compete for these investments and simultaneously offer operators a regulatory horizon more compatible with the industry as it exists today. This does not mean Mendoza will automatically replicate the Neuquén model or that its portion of Vaca Muerta is guaranteed the same scale, but it does mean the province is beginning to build rules to stop viewing this opportunity through legislation conceived before Argentine shale acquired strategic importance.
Moreover, there is an element that allows measuring where Mendoza is headed and proves particularly relevant to its new productive profile.
The project specifically regulates coexistence between hydrocarbons and mining when both activities overlap territorially, establishing coexistence and technical compatibility as the general principle before defining priorities.
This may seem a secondary matter, but it anticipates a scenario that will likely become increasingly frequent, especially in the southern province, where petroleum, gas, and mining potential begins to share territory.
If projects advance simultaneously, surfaces, access points, facilities, roads, and schedules will inevitably begin to intersect. Regulating this coexistence before large-scale conflicts arise signals planning that goes beyond the hydrocarbon sector and begins thinking toward a much more integrated productive matrix.
The opening to greater investment is also accompanied by strengthened environmental and operational control.
Greater Controls
The project incorporates a view based on the entire lifecycle of a deposit, so company responsibility does not end when it stops producing or when a concession expires or is returned. Well closure, facility abandonment, remediation, restoration, and subsequent monitoring become explicit parts of operator obligations, while the enforcement authority expands its inspection powers and the penalties system moves away from nominal peso fines toward references that prevent inflation from eroding the State's sanctioning capacity.
This balance also forms part of the reform's overall logic. Certain economic variables are flexibilized to improve project competitiveness, but simultaneously, tools for inspection, environmental control, and post-closure responsibility are strengthened. The discussion, then, is not about choosing between investment or regulation but about attempting to build a system where both can coexist.
Mendoza seeks to make its areas in Vaca Muerta and the Cuyana Basin competitive.
Another important debate will concern how much of this transformation translates into the Mendoza economy, because hydrocarbon expansion can improve production figures and royalties without necessarily generating all the local development it could produce. Current legislation establishes a mandatory percentage of local labor, while the new project changes this methodology and advances toward a scheme of prioritizing Mendoza workers and suppliers under equivalent conditions of capacity, quality, and price, accompanied by supplier development programs, training, and good practice commitments.
This will likely be one of the most sensitive points in future regulations, because the true impact of a new petroleum era should not be measured solely by the number of wells drilled or the volume of crude extracted.
It should also be reflected in local companies that scale up, metalworking shops that incorporate technology, transportation providers, professional services, engineers, geologists, technicians, software developers, and workers capable of integrating into an increasingly sophisticated supply chain.
This point is especially important for Mendoza because its potential does not reside solely in extracting resources. The deeper opportunity lies in building around energy a productive platform capable of integrating hydrocarbons, mining, services, technology, and infrastructure, generating an economy that captures a much larger portion of the value created each time a project is developed.
Neuquén demonstrated to what extent Vaca Muerta can transform not only an industry but entire cities, labor markets, infrastructure, and entire supplier chains.
Mendoza must still determine what the scale of its unconventional development will be, but it possesses an advantage that should not be underestimated, because it starts from a more diversified economic, industrial, technological, and educational structure with the capacity to integrate multiple activities.
For this reason, the legislative discussion beginning ahead should be read with a perspective far broader than a simple regulatory update. Mendoza is not merely changing how it collects royalties or modifying articles of a law that became outdated in the face of technological development. Rather, it is attempting to redefine the manner in which it converts its subsurface resources into investment, production, and economic activity.