El Salvador: Amendments to Hydrocarbons Law

Published on Feb 27, 2024

By means of Legislative Decree No. 923, dated January 3, 2024, which was published in the Official Gazette No. 6, dated January 10, 2024, and which became effective 8 days after its publication, amendments to the Hydrocarbons Law were approved, which in turn was published in the Official Gazette No. 52 of March 17, 1981; as of these amendments, the Hydrocarbons Law was renamed "Law for the Exploration and Exploitation of Hydrocarbon Deposits" (hereinafter the "Law").

This Law was reformed with the purpose of encouraging investment, exploration and exploitation of the hydrocarbon sector, without the expenditure of State funds, through the innovation of awarding contracts to natural or legal persons interested in investing in said sector, as well as the discovery of oil and natural gas in the country or geological and geophysical data indispensable for the formulation of plans and policies that promote the hydrocarbon sector.

Relevant matters to highlight in the reform:

A. Investment contract: One of the innovative contracts added to the Law with the reform is the investment contract. Among the most important aspects, the following may be mentioned:

  • The investment contract is defined as the one by which a person, natural or legal, undertakes to carry out, at its own cost and risk, operations or scientific activities such as research related to exploratory hydrocarbon activities that allow obtaining information for the formulation of policies or plans in hydrocarbon matters.

  • A special type of investment contracts called "multi-client investment contracts" was established, which consists of a contract between Comisión Ejecutiva Hidroeléctrica del Río Lempa (CEL) and a natural or legal person, in which the contractor is granted an exclusive right to market data obtained during the research activity and collection of information from the hydrocarbon sector. Of the income generated by the commercialization of the information collected in the different research activities, a percentage previously established in the contract must be delivered to CEL, being these some of the most relevant characteristics of this type of contracting.

  • Data license: CEL will grant the investors that have been contracted through the investment contract multi-client modality, a data license, which will allow them to commercialize the data and information elaborated through the research conducted.

B. Regarding the process of awarding investment contracts, the Law created Section II, entitled "The process of contracting and awarding of investment contracts", in which the following awarding process is developed:

1. Bidding: CEL will create a database that can be physical or electronic, in which it will enter relevant information such as financial, geological figures, location maps, etc. In order to inform those interested in participating in the award process, following the process determined by law.

2. Direct contracting: the Law enabled CEL to carry out direct contracting, as long as a duly motivated resolution is issued.
This decree became effective 8 days after its publication, that is, on January 18, 2024.
Carolina Lazo Interiano - Partner in Arias El Salvador
Pamela Domínguez - Paralegal in Arias El Salvador

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