Regulatory Risk in the Falkland Islands: Law that Can Disqualify and Seize Assets from Companies Operating Without Argentine Authorization

President Javier Milei's announcement to strengthen by decree the sanctioning mechanisms against companies linked to hydrocarbon exploitation in the Falkland Islands has put back on the energy sector's radar a legal framework that has been in force for 15 years: Law 26.659, known as the "Pino Solanas Law," which since 2011 regulates who can operate—and under what conditions—on the Argentine continental shelf.

For energy sector companies with interests in the region, the relevant fact is not only the political announcement, but the Government's confirmation that it will strengthen detection procedures, information exchange, and enforcement of sanctions under a regime that already contemplates prison sentences, million-dollar fines, and disqualifications of up to 20 years.

What the regulation requires from companies

The law establishes, in Article 1°, that any hydrocarbon exploration and exploitation activity on the Argentine Continental Shelf must have prior authorization from the State, under the conditions set forth in current regulations.

Article 2° is what concentrates the greatest operational risk for companies: it prohibits not only extractive activity without authorization, but also the provision of associated services—commercial, financial, logistics, technical, or consulting—to unauthorized projects. This broadens the scope of the regulation beyond the primary operator, reaching also suppliers, contractors, and those with direct or indirect participation in the companies involved.

Risk to assets and licenses

Article 3° provides that companies that fail to comply with these provisions shall be disqualified for a period of between five and 20 years, with the possibility that their hydrocarbon concessions revert to the national or provincial State. Article 4° adds another relevant risk to a project's cost structure: the loss of tax or social security exemptions and facilities previously granted.

To this is added a key contractual restriction for any company seeking to diversify markets: Article 5° prohibits the Nation, provinces, and Argentine municipalities from contracting with companies that conduct hydrocarbon activities without authorization in those areas—which in practice can affect a company's operations in the rest of the country, beyond its project in the disputed zone.

The criminal toughening of 2013

In 2013, during Cristina Fernández de Kirchner's second term, Congress enacted Law 26.915, which amended the original regime and incorporated criminal sanctions. Since then, Article 7° establishes penalties of five to ten years in prison for anyone who conducts or orders exploration activities without authorization in the territorial sea or continental shelf, and ten to 15 years for anyone who extracts hydrocarbons or participates in their transport or storage.

The regime also provides for fines calculated based on the market value of a certain quantity of barrels of oil, disqualification from conducting business activities, and the possibility of seizure of equipment, materials, and extracted hydrocarbons, together with the extinction of permits and concessions.

What changes with Milei's announcement

The package of measures presented this week does not create a new regime, but rather strengthens the enforcement of the existing one: the Government announced a decree to improve detection mechanisms and information exchange on non-compliant companies, and a Draft Law for the Defense of National Sovereignty that would seek to expand restrictions on suppliers and other value chain actors, in addition to enabling the trial in absentia procedure for applicable cases.

For the sector, the signal is clear: any company with current or potential interests in projects such as Sea Lion—operated by Navitas Petroleum and Rockhopper Exploration—operates under a regulatory framework that Argentina has been actively enforcing, with a history of discouragement letters sent to companies and more than 29 countries, and which now adds greater monitoring and enforcement capacity.