Energy Resources in Argentina:
Analysis of Income
Marina Recalde
Methodology ( ...continuation )

Besides this rent differential there is an absolute monopoly income, which is derived from the existence of monopolistic prices, so that:

pM > p = ppmg
PM = pM – ppmg (eq. 4)

The main problem with this analysis is the estimate required for equation 3. The production process for hydrocarbons is associated with three states: exploration, development and resource extraction. In9 keeping with the EIA-doe, these are defined as:9

  • Exploration Costs: includes depreciation and operational costs for equipment and installations, directly related to exploratory activities.10
  • Development Costs: costs incurred to gain access to proven reserves and provide the installations to extract, treat and store the resource. Costs for depreciation and operation of equipment and supporting installations are included, as well as costs of other development activities.
  • Lifting Costs: (Production Costs) are costs associated with the extraction of the mineral. Operational and maintenance costs for wells, equipment and installations, including depreciation, are counted here.

Many producer companies, and even the EIA, report Finding Costs instead of Exploration Costs. According to the US company Black Basin Petroleum, these are the capital costs associated with finding and developing natural gas and oil reserves, which under this definition would include not only exploratory costs, but also part of the development costs. Given the context of the previously proposed definitions, if it is estimated that eq. 3 is the sum of Finding, Development and Lifting Costs, a double-price would be incurred.

As such, eq. 3 is estimated to be the sum of Finding and Lifting costs. To begin with, the estimate of the cost of production for a marginal deposit was determined using information from EIA. For Argentina, during the time period 1992-1997, information from Repsols annual YPF reports was used. By including not only production costs for the resource, but rather also taking into account exploratory costs (within finding costs), an estimate of oil income can be made instead of quasi-income, which would be the result obtained if these last factors were excluded from analysis. The price of production (market price) is estimated by establishing a mark up above the costs of production. In keeping with Mansilla (2007: 103-114), a profitability of 20%12 is assumed.

To determine oil profits, international crude reference prices for Argentina were used. In other words, the WTI from the British Petroleum Statistical Report (2009),13 and levels of total production were taken from the nations Energy Secretary. For natural gas, the situation was more unique. First, major companies report finding and lifting costs for upstream all in one number, without breaking down which parts correspond to oil or gas wells. Scheimberg (2007: 20) argues that in order to estimate the income, the cost per barrel equivalent to oil must be determined, and there should be no distinguishing between the two, as they are both produced together by alternating the output mix obtained according to the areas geological characteristics. The same author highlights that in the industry, it is usually assumed that the costs of one are approximately half the costs of the other. However, to estimate gas income, in spite of the fact that the majority of oil companies are also gas companies, said costs for estimating the price of production have been taken into account, recognizing that this aspect could result in an underestimate of the combined income. On the other hand, the characteristics of natural gas referred to regional trade until very recently, which complicates the breakdown in the study of differential rent and absolute monopoly. As such, following Kozulj (2005: 42-45), the estimate of gas income is presented without a breakdown.

9 Information available at:

10 For example, costs for topographic, geological and geophysical studies, rights to access the properties to carry out said studies, salaries and payments to the persons who carry out the studies. Generally, these costs are called Geophysical and Geological Expenses (G&G expenses).

11 Information available at:

12 This rate of profit may be considered elevated given that according to Scheimberg (2007), the profitability rate of gas companies in the country in 2006 was 13.1%.

13 Information available at: