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LEGAL NEWS

PROMOTING INVESTMENT EXPLORATION & EXPLOITATION OF HYDROCARBONS

C.R.&F. ROJAS ABOGADOS

JANUARY 2016

On December 11, 2015, Law No. 767 (“L767”) was enacted to Promote Investment for the Exploration and Exploitation of Hydrocarbons.

The principal purpose of L767 is to promote investments for exploration and exploitation of hydrocarbons, within the entire territory of the Plurinational State of Bolivia, which has been declared a national interest.

The scope of L767 is:

I. Oil Service Contracts executed or to be executed, when crude oil is the principal hydrocarbonproduced in the area or areas for exploitation set forth in the contract.

II. Oil Service Contracts executed or to be executed when natural gas is the principal hydrocarbonproduced in the area or areas of exploitation set forth in the contract.

III. The exploitation and exploration of hydrocarbons is carried out directly by Yacimientos Petroleros Fiscales Bolivianos (“YPFB”).

This purpose of L767 is to promote investment that allows for the increase of the reserves and production of hydrocarbons within the country, through economical incentives, that guarantee the country’s energetic sustainability, security and sovereignty.

L767 sets forth incentives that are applicable to the production of a barrel of crude oil.

a. Within the Traditional Zone, the incentive shall be determined in accordance with the international price of oil and subject to regulation and shall comprise of a minimum amount of 30 $US/Barrel and a maximum of 50 $US/ Barrel.

b. Within the Non-traditional Zone, the incentive shall be determined in accordance with the international price of oil and subject to regulation and shall have a minimum amount of 35 $US/Barrel and a maximum of 55 $US/ Barrel.

These incentives are subject to variation and to the international price of Crude Oil and production.

Further these incentives shall only apply when allocated to the domestic market and will be adjusted in case of changes in the conditions of the domestic market price for crude oil.

There are also incentives applicable to the production of condensed oil associated to natural gas that is discovered as of the enactment of L767.

a. Within the Traditional Zone, the incentive shall be determined in accordance with the international price of oil subject to regulation and shall comprise of a minimum amount of 30 $US/ Barrel and a maximum of 50 $US/ Barrel.

b. Within the Non-traditional Zone, the incentive shall be determined in accordance with the international price of oil subject to regulation and shall have a minimum amount of 35 $US/Barrel and a maximum of 55 $US/ Barrel.

These incentives are subject to variation and to the international price of crude oil and production.

Further these incentives shall only apply when allocated to the domestic market and will be adjusted in case of changes in the conditions of the domestic market price for the condensed oil.

The incentive in Traditional Zones shall last for up to 20 years from the commencement of regular commercial production.

The incentive in Non-traditional Zones shall last for up to 25 years from the commencement regular commercial production.

To be eligible for these incentives, Oil Service Contracts executed as of the effective date of publication of L767, must necessarily begin exploratory drilling activities prior to January 1, 2019.

To be eligible for these incentives, Oil Service Contracts in Traditional Zones, with an effective date post publication of L767, must necessarily begin exploratory drilling activities at most until the last day of the fourth year of the contract as of the effective date set forth.

To be eligible for these incentives, Oil Service Contracts in Non-traditional Zones, within the effective date of publication of L767, must necessarily begin exploratory drilling activities at most until the last day of the fifth year of the contract as of the effective date set forth.

It should be understood that the commencement of exploratory drilling activities, is the start date for undertaking the dismantling, removal and installation - DTM of the exploration equipment.

There is also an incentive applicable to the additional production of condensed oil associated to natural gas, originating from fields that are in operation as of the date of publication of L767.

The parameters for the implementation of the incentive shall be established according to a baseline that should be considered, at least, the current reserves and additional investments approved by YPFB.

The incentive will have a minimum amount of $US 0 / Barrel, and may reach a maximum amount of $US 30 / Barrel, and shall apply to Traditional Zones. The amount of the incentive will be variable and subject, at least, the international price of crude oil.

The incentive for additional production of condensed oil associated to natural gas shall apply only if the production is allocated to the domestic market and will be adjusted in case of changes in the conditions of the

domestic market price for the condensed oil.

Fields will benefit from this incentive for a period of 10 years as of the publication of L767, according to the updated development plan approved by YPFB.

The incentive for those areas classified as Gas Fields with Dry Gas Reservoirs, marginal and/or small, will consist of the priority allocation of export markets for natural gas according to parameters and procedures established under the regulation.

The process of negotiation, authorization and approval of Oil Service Contracts should be prioritized at anadministrative and legislative level.

The Ministry of Hydrocarbons and Energy shall set forth guidelines for the execution of these contracts and the selection of companies, through a Ministerial Resolution.

YPFB may enter into Oil Service Contracts under existing contractual modalities.